Often times you will hear people regurgitate things like the late J.P. Morgan's famous quote, "gold is money and everything else is credit." What does that mean? Why would gold be money and paper currency notes be credit.
I have spent many years thinking about this very topic and the conclusion I have come to is that it takes work and energy to create gold and little more than the stroke of a key to create currency substitutes. If you think about it, when gold is produced there is a tremendous amount of energy that goes into pulling it out of the ground, melting it, forming it and so on.
If you think of your daily work as the expenditure of precious energy it would make sense to get paid in something that compensates for the energy that you expelled. In other words, currency is different than gold because it took no real labor and energy to create. Gold, on the other hand, is a store of your current labor value because it took labor and energy to bring to market. In essence, every ounce of gold is a condensed nugget of labor and energy. For these reasons, when you save in condensed energy (gold) you are saving a labor equivalent. The energy and labor it takes to bring it to market will always have value.
The same principles apply to Bitcoin and many alt-currencies. It takes power and energy to mine the units which, just like gold, are becoming more energy intensive to procure with every passing minute. When you obtain a Bitcoin you are buying a unit that stores the energy that went into creating it, which has value. Gold requires combustible energy to obtain it from the ground and Bitcoin requires electrical energy to obtain, but both require energy and store energy for future use. As energy is harder and harder to produce at cheap prices, the concentrated stores of energy (gold and Bitcoin) retain their current values, adjusted for inflation, far better than paper.
As a final reminder, I will leave you with this. Gold, and now Bitcoin, are for saving. Paper is for spending. You must know the difference to build wealth.
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