The Crypto-Currency, Gold Connection

Despite the graphic, bitcoin has no physical properties.

Even with all the crypto-currency hype, nearly everyone was shocked at the 1,270.5% gains of crypto-currency flagship Bitcoin in the last year.  Even more shocking, the distributive ledger technology that allows it to work is already outdated!

If Moore’s law, an observation coined in 1965, that estimates the exponential advancement of technology as “the number of transistors in a dense integrated circuit doubles about every two years”[1], it shouldn’t be too surprising that blockchain technology has already been outdated, and in grand fashion.  Demetri Kofinas, host of a Hidden Forces podcast called the introduction of hashgraph distributive ledger technology “the biggest revolution since the web.”[2]

The problems faced by blockchain technology, the engine behind Bitcoin, is that it is slow, power hungry, and therefore not well suited to being scaled up to communication of massive amounts of data at speed.  By comparison, Visa touts its transaction throughput speeds of 24,000 transactions per second[3].   Bitcoin, the most notable application and platform using blockchain technology, is limited to 3 to 7 events per second[4] and is reconciled every ten minutes.  What most people don’t know, is that the reconciliation of the blockchain ledger is never 100% reliable![5]

The innovation of hashgraph’s creator, Leeman Baird, allows hashgraph to achieve a 300,000 event consensus per second throughput with 100% byzantine reliability.  The impact of that level of effectiveness independent of a central aggregating system could revolutionize everything!  All things powered by computational technology that requires consensus between two or more operators could be changed forever!

The current buzz about Bitcoin is that it is a currency that operates independent of the banking system and governmental control, at least thus far.  For as long as the banking industry, central banks in particular, have been issuing “receipts” for use as legal tender, they have been issuing more receipts than they had “money” to back up the currency.  That’s why money and currency are in fact different things.

“For over 5,000 years, an ounce of gold has been exactly the same: an ounce of gold. There are no variations or imitations… There is no society on earth which does not regard gold as valuably precious. Gold is virtually indestructible. Only a few very powerful acids can destroy it, and gold does not even melt below 1,943 degrees Fahrenheit. Gold never tarnishes. Gold is immutable.”[6](Trey Reik, sprott.com)

“This certifies that there has been deposited in the treasury of The United States of America One Silver Dollar payable to the bearer on demand.”

Back in the days of silver and gold certificates, you could walk into any US bank and demand the gold or silver that your certificate entitled you to by law.  It didn’t take banks long to figure out that they could issue more receipts than they had precious metals and fractional reserve banking was born and became mainstream practice.  If all the people holding certificates showed up at the bank at once demanding to exchange receipts for real money (originally standard weights of gold and silver) there would be much more demand than supply!  This is the real story behind ever higher rates of inflation that never seem to recede and why your dollars no longer buy what they used to!  You can learn the details of this story at Hidden Secrets of Money[7], published by GoldSilver.com and hosted by Mike Maloney.

So how does the crypto-currency hype impact the historical value-protection aspect of gold and silver?  Fiat currency is recognized or sanctioned for use in trade by fiat, or governmental decree.  In an age where fiat currencies are backed by nothing of value, the banking system continues to expand the fiat currency system at exponential rates and the population is becoming more and more aware of the problem.  A return to value-backed currency system is looking more and more immanent.

“…resentment is mounting over the financially repressive policies of global central banks. Specifically, the imposition of negative interest rates and related official backing of increasingly cashless economies have catalyzed interest in investment vehicles outside the traditional financial system, such as precious metals and cryptocurrencies.”[8](Trey Reik, sprott.com)

What fueled the intense interest in cryptocurrencies is that a distributive ledger system called block-chain technology (the tech behind bitcoin) could reconcile trade apart from any central authority placing it’s stamp of approval on the transaction.  That agreement among the parties as to what is happening in the transaction or series of events is called “consensus” and means that everyone agrees on the terms, the time, the players, and the fairness of what has transpired in the event.  No central banking system is needed.  It is that consensus system that currently allows the banking industry through processing credit and debit transactions to usurp billions upon billions of transaction fees each year from the commerce that everyone everywhere conducts with businesses far and wide.

When you look at both of these threats to the banking industry joined together, gold and hashgraph distributive technology, the combination lays a considerable gauntlet before the powers of our world that currently affect and largely control everything tied to money.  And, well, that is pretty much everything!

Gold and silver offers real physical property which has been functioning as money for the past 5000 years and is still valued by every culture on the planet despite its non-monetary function.  The ability of the hashgraph technology, a decentralized processing system, could instantly reconcile a number of grams of gold and silver from account to account among individuals with 100% byzantine consensus reliability at a 300,000 event per second throughput.  This could not only skirt the banking systems control over and controlling interest in commerce, but completely removes the necessity for their current role of achieving consensus among the transaction parties!

The idea to back an account with physical gold is not new.  Goldmoney.com[9] has offered a credit account backed with allocated physical gold and other precious metals for several years.  The account converts currency deposits into grams of deliverable gold at current spot prices with associated premiums and storage fees.  If such a system were backed with a distributive ledger technology, trading even fractional amounts of real money (gold) with an inherent value between accounts with no need to be physically present would eliminate many of the problems that exist today within the fiat money system.

This is what I believe John Ciampaglia was getting at when he stated in a recent article, “Gold will likely become a form of digital money one day…”[10]  Your associated ledger would be reconciled automatically and you could retrieve your balance at any time just by logging into your own computer or smart phone.

“This trust element is absolutely the key in enabling decentralized commerce, eliminating legacy needs for traditional trust-providers such as banks and credit card companies (which charge high fees and are increasingly hacked).”[11](Trey Reik, sprott.com)

The only issue I see in this system is security of the entity that would actually hold the physical metals and reconcile ownership among the storage agents.  That necessarily introduces third-party-risk into the system.  However, since you actually own what you earned, physical grams instead of dollars, you could demand delivery and wouldn’t have to hold everything that you owned in a central depository.  The security of local physical storage may also come into play.  Since banks and governmental powers are cooperating in control over financial operations, holding your property in a bank’s safe deposit box just introduces the same old problems.  We are likely to see new business entities or precious metals storage and reconciliation services offered by companies like Visa, American Express, or the one that you’re going to start!

“May you live in interesting times…”

My best wishes for your success,

 

 

 

 

 

[1] https://en.wikipedia.org/wiki/Moore%27s_law

[2] Hidden Secrets of Money, ep8 – Mike Maloney: https://youtu.be/SF362xxcfdk?t=38m30s

[3] https://usa.visa.com/run-your-business/small-business-tools/retail.html

[4] https://en.wikipedia.org/wiki/Bitcoin_scalability_problem

[5] https://youtu.be/SF362xxcfdk?t=38m30s

[6] http://www.sprott.com/insights/sprott-gold-report-why-cryptocurrencies-bitcoin-are-unlikely-to-usurp-the-role-of-gold/

[7] https://goldsilver.com/hidden-secrets/

[8] https://www.sprottmoney.com/Blog/sprott-gold-report-cryptocurrencies-solid-gold-or-just-a-flash-in-the-pan-john-ciampaglia-16-042018.html

[9] https://www.goldmoney.com/

[10] https://www.sprottmoney.com/Blog/sprott-gold-report-cryptocurrencies-solid-gold-or-just-a-flash-in-the-pan-john-ciampaglia-16-042018.html

[11] http://www.sprott.com/insights/sprott-gold-report-why-cryptocurrencies-bitcoin-are-unlikely-to-usurp-the-role-of-gold/

7 thoughts on “The Crypto-Currency, Gold Connection

  1. And then there’s the eventual fallout where many crypto currencies revert, as currency rather than money usually always does, to its inherent value of zero. There is nothing behind most of these currencies despite the interesting and liberating use of the technology to make them valuable; hence the reason I wrote the article in the first place touting trading of precious metals with 100% trustworthy consensus. That application could have a future and solve many current issues.

    https://schiffgold.com/key-gold-news/the-cryptocurrency-graveyard/

  2. Gee, what a popular topic these days. I keep finding articles with opinions expressed that mirror and reflect my own views and concerns about this currency and technology.

    QUOTE: “…those who are envisioning a future in which Bitcoin becomes a widely circulating medium of exchange may be envisioning something that is at odds with the laws of economics.”

    https://www.silverdoctors.com/headlines/world-news/good-money-drives-out-bad-greshams-law-and-bitcoin/

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