USD, Gold, or Bitcoin? Which is best?
Jan 12, 2018, 2:00:07 PM Published By Wirex Team
Hundreds of years ago, money took the form of precious metals, like Gold or Silver. Today, we think of money, as the paper that comes from the bank, like the United States dollar (USD) or the Great British Pound (GBP). But with what's happening in Venezuela and Zimbabwe, could this be just the start of a currency crisis? Could the money of the future be nothing more than a cryptographic series of numbers on a computer? Let's break down the differences between Bitcoin, Gold, and USD, and look at how the three compare as a store of value, and a medium of exchange.
The United States DollarThe USD is globally recognised as the most popular means for exchange. For as long as we can all remember, it has been used as an exchange of goods not just in America but all over the world. In fact, the US dollar is currently the only means to trade for oil. One important factor to understand about US dollar is 'fractional-reserve banking'. Wikipedia's definition of this is as follows:
"Fractional-reserve banking is the practice whereby a bank accepts deposits, makes loans or investments, but is required to hold reserves equal to only a fraction of its deposit liabilities. Reserves are held as currency in the bank, or as balances in the bank's accounts at the central bank.
Fractional-reserve banking allows banks to act as financial intermediaries between borrowers and savers...
...Because banks hold reserves in amounts that are less than the amounts of their deposit liabilities, and because the deposit liabilities are considered money in their own right, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank.In laymen terms, firstly, there is no cap on supply. Governments can decide to print as much money as they need. Secondly, only a small fraction of all bank deposits are backed by actual cash. The public is starting to question how such factors may affect their own economy and look at other ways to better leverage their assets and spend their money.