Cryptocurrency vs precious metals. I will argue that long term investors of crypto currency are using currency as if it were money. I use the word investor here deliberately. If you think the price of any crypto will go up relative to other assets, congratulations you are a speculator. Any individual who acquires crypto in anticipation of price appreciation is implicitly relying on other aspects of a currency besides medium of exchange, crypto’s main advantage over every other historical currency. Blockchain fundamentally is a ledger. It should be deployed as a record of assets and property.

Counter party risk. Most assets rely on counter party risk to deliver value. Physical possession of precious metals is an exception. Cryptocurrency is solid here due to the decentralized ledger system. Every member represents a piece of the transaction log, therefore minimizing the potential for anyone one individual to deviate or default from the consensus. However, this is a double-edged sword as the possession is decoupled from ownership. All it takes is an internet, electrical outage or a hard fork [technical description] to bring the pain and make that lack of possession obvious. When an investor takes possession of an ounce of gold, in that moment he couples possession with ownership of an asset. There is no counter party that could default.

Store of value. Value is inherently tied to scarcity. Absent scarcity value is illogical. Bitcoin’s breakthrough was to develop digital scarcity. The blockchain utilized by bitcoin mandates that future issues of bitcoin be fewer than those in the past. Like precious metals which must be mined out of the earth and are in a finite supply. The fundamental difference, with respect to store of value, lies in the utility of each asset. While a precious metal has utility, a bitcoin is immaterial. Gold & silver are rare and useful while bitcoin and cryptocurrency can be made rare but are useless. Thus, a store of value cannot be bootstrapped by creating scarcity. Rather it is scarcity of something useful that creates value. Granted, like any currency, that value may derive from the uses of buying things. But notice where we are now. Despite the spectacular media coverage of crypto and the meteoric rise in price of its more well-known tokens, crypto should assume its natural position within the currency speculation and foreign exchange markets. And investors should heed their realization with a large grain of salt.

Blockchain. Undoubtedly the technology underpinning bitcoin is a huge potential boon for society. Like email, it should be ubiquitous in our daily lives. It’s relatively cheap computer code and should be cheap and plentiful. Bitcoin or Ethereum do not have a monopoly on blockchain. In fact miner fees for transactions is one of the biggest impediments to either crypto fulfilling it’s true potential as a medium of exchange. I welcome your thoughts and thank you for reading!