In the age of bitcoin, it is easy to forget that gold commands a total market capitalisation in excess of $7.8trn – many, many times larger than the nascent cryptocurrency market. However, when the total cryptocurrency market was worth roughly $850bn in December, it represented more than 10% of the gold market – not something that can be ignored.
Gold is both difficult to mine and rare – these two factors are responsible for its value. Although critics of bitcoin point to its lack of intrinsic value, this is not necessarily correct. Bitcoin’s proof-of-work, as has been well-documented, consumes a significant amount of energy, meaning that there is a minimum cost to mining one bitcoin. Furthermore, there are only 21 million bitcoins in existence, which makes owning even one bitcoin in today’s world a tricky feat.
The question is whether people will place their faith in a metal that needs to be stored and passed through the hands of multiple third parties before one can buy it, or a decentralised peer-to-peer currency system that requires only an internet connection to transfer?
This post first appeared on The Market Mogul.
