Wednesday, 6 July 2011

What Is Money? And Who Do You Trust?

OK, so maybe you didn't have time to sit through the whole 2 hours or so of "Money As Debt II," the documentary film I posted at the end of last week.

Well, in less than 3 minutes, below is a simple abridged history and projection of money, from gold through to bitcoin, as well as a brief comparison between what has been the trusted store of value for millions of years, gold, and the new digital currency that many are staking future store in, bitcoin.

Gold has always been a way for the mega rich to store their wealth (they can generally afford the vaults and security measures to keep it safe), but the current boom in gold is due mainly to fears over inflation surrounding fiat currency, and this is another good reason to buy bitcoin - it won't cost you too much to keep it secure (though you'll need to assure you have adequate security measures in place), and it won't cost you $1,500+ to buy an ounce of it, making it more accessible to everyone. And, what's more, as a deflationary currency, it will gain value in time, not lose it, while a fiat currency only travels in a downward direction. Today's US dollar is now worth about 96% of its original value - i.e $1 today is worth about $0.04c of the original US$. Yes, that's right, just 4 cents - not much further to go before it crashes out at zero!

So, while not everyone can afford gold and many are plumbing for silver instead (at about $35 an ounce), personally, my ideal inflation busting strategy would be to pay bills in fiat currency, save in gold and/or silver (even if it's just one silver ounce per paycheck) and, wherever possible, spend in bitcoin. That's just my view, however, and certainly not to be taken as professional financial advice.

At the end of the day, it's up to you to decide how to hold onto your purchasing power. If you feel that $20 today can still buy you the same as what it did a year ago, and that it will buy you more in the future, then fine. If not...

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