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November 2021

What is a Cryptocurrency?

A cryptocurrency is a digital system with tradable units and a decentralized structure. Possession and transfer of the units are backed cryptologically. The oldest and best known cryptocurrency is the Bitcoin, created 2009.

Although meanwhile there are thousands of cryptocurrencies, none of them might meet the criterias of a currency. Solely El Salvador has approved the Bitcoin beside the U.S. dollar as a legal tender. Prices, however, are likely to continue to be made in U.S. dollar.

Comparison of Cryptocurrencies with Gold

Currently the main argument of many cryptocurrency proponents is the denotation as "digital gold" or "gold of the 21st century". From few similarities with gold it's inflationary adjustment of a long period in the past is deduced for the future of cryptocurrencies.

One of the similarities is the limited number of units of many cryptocurrencies, just like the amount of gold recoverable on earth. Moreover both units of cryptocurrencies and of gold provide no return of their own accord.

Just as important is a crucial difference: gold has a benefit beyond speculation. About half of the gold demand arises from the industry and the jewelry industry. Concurrently gold has resisted to be replaced by optical similar materials of favorable prices for centuries. Cryptocurrencies, however, have a small benefit if at all.

Thus the assumption of an inflationary adjustment for the future of gold is uncertain. For the future of cryptocurrencies it is just a guess.

The Future of Cryptocurrencies

As long as there is a minor benefit in cryptocurrencies also their value will stay low. In contrast there is the current price development of cryptocurrencies based mainly on speculation.

It is hard to believe of permanent high prices for cryptocurrencies without value. Sometime the participants will recognize their expectations unfulfilled.

Increasing benefit and therfore also increasing value of cryptocurrencies, however, can justify too high prices of the past. A conceivable benefit would be the usage as money. From a present-day perspective it is unlike that current cryptocurrencies will be used as money in larger regions in the future. Additionally thereto one of the thousands of existing cryptocurrencies would be enough.

Thus a presumable scenario is a bursting speculative bubble of the prices of current cryptocurrencies.


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