An Introduction to Bitcoin's Comparison with Gold
Bitcoin is often compared to gold due to its limited supply, which makes it an attractive long-term store of value. Some even suggest that Bitcoin could be the digital equivalent of gold in the 21st century. However, this comparison may not hold true when considering the factors that contributed to the adoption and success of gold currencies, such as the British Empire's sovereign and half-sovereign. Unlike gold, Bitcoin does not have a nation-state promoting its adoption, making the comparison weak. Instead, a more fitting comparison can be drawn between Bitcoin and the Spanish silver dollar, also known as the reale.
The Spanish Silver Dollar's Success as a Trade Currency
The Spanish silver dollar thrived as a trade currency despite the decline of its nation of origin, Spain. What made it unique was its adoption in countries that were never Spanish colonies, challenging the notion that a currency can only succeed with the support of a strong home country. The success of the reale can be attributed to three main factors: availability, quality, and verifiability.
The Creation and Division of the Spanish Silver Dollar
The Spanish silver dollar, or reale, was introduced in 1497 as part of Spain's monetary system reform. It was divided into eight parts, hence the term "pieces of eight." It should be noted that the reale should not be confused with "doubloons," which were made of gold.
The Discovery of the Cerro de Potosi and Increased Demand
In 1545, the Spanish discovered the Cerro de Potosi in present-day Bolivia, the richest source of silver in history. The shortage of coins led to the Spanish crown authorizing the minting of reales in New Spain. Around the same time, Portuguese explorers found new trade routes to the Indies and China, bypassing the traditional Silk Route. They also discovered that merchants in East Asia preferred silver over gold. The Chinese demand for silver, driven by a shortage of bronze for their own coins, created a thriving market for reales from the Spanish colonies in New Spain to the Philippines, another Spanish colony.
Adoption of the Spanish Silver Dollar in the Americas and Asia
The adoption of the reale spread throughout the Americas, making it the de facto currency of the newly independent United States by 1792. When the U.S. dollar was first issued, it was pegged to the reale. China also pegged its new yuan to the reale or the Mexican peso in 1879. The growth of the Spanish Empire enabled the distribution and availability of the reale across both America and Asia, contributing to its success.
Maintaining Consistent Quality and Value
One key factor in the reale's success was the Spanish government's efforts to maintain its quality and stability. Unlike many other currencies of the time, the reale was subject to limited debasement. However, while the reale remained strong, the domestic Spanish economy weakened. Inflation-fighting measures, including debasing the domestic vellon coinage, hindered exports and encouraged imports, further damaging the Spanish economy. These policies, coupled with continuous conflicts and excessive royal spending, led to a significant export of silver reales to other European nations. The Dutch and the British, in particular, sought the silver to trade for tea, silks, and spices from China and Asia.
The Verifiability of the Spanish Silver Dollar
Other countries attempted to replicate the reale, but even coins of similar quality and weight were rejected by Chinese and Asian traders. The Spanish reales were trusted due to their consistency and verifiability. The United States also tried to compete by introducing the "Trade dollar" in 1873, but it was not as widely accepted as the reale. The reale's reputation and recognition made it easier for traders to identify and trust, whereas the U.S. Trade dollar faced challenges due to fluctuations in the value of silver.
Bitcoin's Potential as a Trade Currency
The question arises as to whether Bitcoin, without a home nation, could ever be treated as a trade currency like the Spanish silver dollar. Like the reale, Bitcoin is abundantly available on the open internet. Bitcoin's design and structure are consistent worldwide, and its underlying mathematics remain the same. Additionally, Bitcoin's transparency on a public ledger with an immutable structure makes it easily verifiable. While there may be debates about Bitcoin's suitability as a means of exchange, it shares several features that contributed to the success of the reale, including availability, quality, and verifiability.
Conclusion
The Spanish silver dollar's success as a trade currency while its home nation declined was remarkable. Bitcoin, with no home nation at all, has achieved a similar level of recognition and adoption. While the comparison between Bitcoin and gold may not hold strong, the comparison with the Spanish silver dollar offers valuable insights into Bitcoin's potential as a modern-day trade currency.
This is a guest post by Nick Philpott. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Frequently Asked Questions
How much gold should your portfolio contain?
The amount that you want to invest will dictate how much money it takes. Start small with $5k-10k. You could then rent out desks and office space as your business grows. Renting out desks and other equipment is a great way to save money on rent. You just pay per month.
You also need to consider what type of business you will run. My website design company charges clients $1000-2000 per month depending on the order. If you are doing this type of thing, it is important to think about how much you can expect from each client.
Because freelance work pays freelancers, you won’t likely get a monthly income if you do freelance work. Therefore, you might only get paid one time every six months.
So you need to decide what kind of income you want to generate before you know how much gold you will need.
I recommend starting with $1k to $2k of gold, and then growing from there.
Can I buy gold using my self-directed IRA
Your self-directed IRA can be used to purchase gold, but first you need to open an account with a brokerage firm such as TD Ameritrade. Transfer funds from an existing retirement account are also possible.
Individuals can contribute as much as $5,500 per year ($6,500 if married filing jointly) to a traditional IRA. Individuals are allowed to contribute $1,000 each ($2,000 if married or filing jointly) to a Roth IRA.
You should consider buying physical gold bullion if you decide to invest in it. Futures contracts can be described as financial instruments that are determined by the gold price. They allow you to speculate on future prices without owning the metal itself. But physical bullion refers to real gold and silver bars you can carry in your hand.
Is buying gold a good option for retirement planning?
While buying gold as an investment may seem unattractive at first glance it becomes worth the effort when you consider how much gold is consumed worldwide each year.
The most popular form of investing in gold is through physical bullion bars. There are other ways to invest gold. You should research all options thoroughly before making a decision on which option you prefer.
If you don’t have the funds to invest in safe places, such as a safe deposit box or mining equipment companies, buying shares of these companies might be a better investment. If you require cash flow, gold stocks can work well.
You also can put your money into exchange-traded funds (ETFs), which essentially give you exposure to the price of gold by holding gold-related securities instead of actual gold. These ETFs can include stocks of precious metals refiners and gold miners.
How much do gold IRA fees cost?
Six dollars per month is the fee for an Individual Retirement Account (IRA). This includes account maintenance fees and investment costs for your chosen investments.
If you want to diversify, you may be required to pay extra fees. The type of IRA you choose will determine the fees. For example, some companies offer free checking accounts but charge monthly fees for IRA accounts.
In addition, most providers charge annual management fees. These fees can range from 0% up to 1%. The average rate per year is.25%. These rates can be waived if the broker is TD Ameritrade.
How does gold perform as an investment?
Gold’s price fluctuates depending on the supply and demand. Interest rates also have an impact on the price of gold.
Due to the limited supply of gold, prices for gold are highly volatile. Physical gold is not always in stock.
Can I keep a Gold ETF in a Roth IRA
You may not have this option with a 401(k), however, you might want to consider other options, like an Individual retirement account (IRA).
A traditional IRA allows contributions from both employee and employer. A Employee Stock Ownership Plan, or ESOP, is another way to invest publicly traded companies.
An ESOP is a tax-saving tool because employees have a share of company stock as well as the profits that the business generates. The money in the ESOP can then be subject to lower tax rates than if the money were in the individual’s hands.
An Individual Retirement Annuity (IRA) is also available. With an IRA, you make regular payments to yourself throughout your lifetime and receive income during retirement. Contributions to IRAs will not be taxed
Statistics
- (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
- You can only purchase gold bars at least 99.5% purity. (forbes.com)
- Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
- The price of gold jumped 131 percent from late 2007 to September 2011, when it hit a high of $1,921 an ounce, according to the World Gold Council. (aarp.org)
- Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (lendedu.com)
External Links
law.cornell.edu
- 7 U.S. Code SS7 – Designation board of trade as contract marketplaces
- 26 U.S. Code SS 408 – Individual retirement accounts
cftc.gov
irs.gov
wsj.com
- Saddam Hussein’s InvasionHelped Uncage a Bear In 90 – WSJ
- Want to Keep Gold in Your IRA at Home? It’s not legal – WSJ
How To
Tips for Investing in Gold
Investing in Gold is one of the most popular investment strategies worldwide. This is because there are many benefits if you choose to invest in gold. There are many ways you can invest in gold. Some people choose to purchase gold coins physically, while some prefer to invest with gold ETFs.
Before buying any kind of gold, you need to consider these things.
- First, check to see if your country permits you to possess gold. If it is, you can move on. If not, you may want to consider purchasing gold from overseas.
- You should also know the type of gold coin that you desire. There are many options for gold coins: yellow, white, and rose.
- The third factor to consider is the price for gold. It is better to start small, and then work your way up. You should diversify your portfolio when buying gold. Diversifying your portfolio should be a priority, including stocks, bonds and real estate.
- Remember that gold prices are subject to change regularly. It is important to stay up-to-date with the latest trends.
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By: Nick Philpott
Title: Bitcoin as a Modern-Day Equivalent of the Spanish Silver Dollar
Sourced From: bitcoinmagazine.com/culture/bitcoin-as-a-21st-century-piece-of-eight
Published Date: Thu, 04 Jan 2024 15:00:00 GMT
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