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Digital Gold may not be a safe investment



Scams and fraud are not uncommon in any part of the human history. As humans evolved, so did the techniques of theft. Back in the old days, thieves wore a black dress, black mask and had a black bag; like a uniform. They did their robberies at night. Some thieves even had the ethics of not stealing everything. They only stole what was necessary to satisfy their need and not for their greed. Now their images are only used in cartoons and comics for representational purposes. Today's thieves have evolved and blended into the public and have now begun to control the society we live in. They may be seen in a well-made suit with shiny shoes and a necktie. Most of them are employed in banks, while others employ themselves in multinational corporations. And they want everything. No, not the regular employees that you and I see, but rather top-level executives in their private villas and yachts; where they plan their next heist. Only unnoticeable difference is that these robberies work with the help of the government/government-officials or bankers and in daylight. As always, they prey upon the weak minded and uneducated.


With the new crypto-craze in the markets, people are looking for investing opportunities to make a quick profit with no effort and in less time; especially the new generation. People are beginning to explore opportunities to make as much money as possible during their best years to retire early; while others are doing it to satisfy their unquenchable greed. Seeing the opportunity, the previously mentioned thieves and fraudsters have taken notice of such trends and have come up with a "solution". In this article, we explore the feasibility of digital gold as an asset.



Why people are considering gold as a necessity?


Since ancient times, it is a common practice in Asian countries to accumulate the wealth of the family in gold for later use; mainly for marriage function or for emergency funds. Many South Indian Hindu Temples have a large reserve of Gold deposits meant for emergency use of the nation; stored during ancient times. Moreover, Indian households (Indian Women) have 11% of the world's gold; which, according to some estimates, are 25,000 tonnes (mostly in jewelery). Therefore, we can say that gold is a part of some traditions in some areas and considered as a store of value for later use in other areas.


Since the Blockchain revolution with Bitcoin, people are seeing the rise in digital assets only to make quick profits and not in terms of its usability; till now. Nowadays, people are experimenting payments with Bitcoin and other online assets. Expecting the increase in usage, people are looking to turn other physical assets into digital (like gold, water, images, etc) to increase the selection of assets and to attract investors for more business opportunities for its creators. NFTs, digital gold, digital real-estate, digital currency are all a part of this.



Real Gold

This chart shows the extraction and production of gold.

Considering that the gold has an intrinsic value of its own and also has an industrial purpose, the value of gold today is much higher that it ever was. As the demand for computers are increasing due to the digitalization, gold is essential in the processors for these computers.

Apart from its industrial and jewelry purpose, nations are buying gold as a defense to the uncertain financial times ahead; mainly due to the war and the changing world-order. Although unintentional, this creating an artificial & unsustainable demand for the yellow metal. Similar to how the moths are attracted to the light at night, this demand in gold is attracting speculators; like those types of investors that I mentioned in the previous section.


High demand for Gold + Young, rich, careless, naive people = a perfect treat for a fraudster.



What is Digital Gold?


Digital gold is a new type of digital-asset based on a blockchain that promises scarcity, value, easy transaction and ease of storage. They are either mined using the same principles of Bitcoin or are digital assets that have a 1:1 ratio of physical gold stored in a secure location.


The main intention in use of such an asset is to counter the government based fiat monetary system. The current monetary system is ever expanding without any restrictions and devalues the existing money; by over-printing and debt. It expected to serve as an alternative to Bitcoin, according to some of its users.


Fool's Gold is dangerous and how it will ruin your savings

"All that glitters is not gold"- this is an old, outdated proverb. It is outdated because today no one is interested in making a scam using gold coated "gold" bars. It was an old technique and has died out. Nowadays, the best heist is based on the best promises that can be made within the legal framework.


Right now, as of December 6th, digital gold is a dangerous concept due to its unregulated nature. Currently, there are no regulatory frameworks that can monitor and prevent the misuse of such an asset in most countries. Therefore, the trust is completely based on unverified claims of a secure storage of gold in an undisclosed location that is promised by third-party certification companies; all of which is only supported by paperwork and no governmental oversight.


When using these digital financial instruments, all of us must completely read the terms and conditions that come along with the paperwork. And even if the paperwork is good, there will be hidden loopholes that can trap the investors in it. For example, the buy rate and sell rate of the digital gold is not the same always; or, some transaction can only take place when both the users are using the same platform/application. Also, as mentioned above, since these financial instruments are unregulated- if the company that provides these digital gold goes bankrupt, then the investments of the customers will be considered as the company's assets and not yours, in many countries. This situation is called "Bail-in".



Moreover, there are unverified reports that the actual value of the digital gold market exceeds the actual value of the real gold. This can be attributed to the use of cryptographic blockchain based programmed digital gold that mimics the scarcity of gold, artificially, using programming. These types of assets do not need real gold in a vault. These types of assets are usually classified as hollow assets.


There are other types of digital gold like the Government issued gold bond. These depend on each country's economy and the trust the people have on the government's ability to pay. This category is not mentioned in this article, as this is an international website and not limited to any single nation.


As mentioned in the beginning of the article, this is not an investment advice nor does it intend to dissuade the investors. The main purpose of this article is to find similar rhythms between what is happening today and what happened throughout human monetary history. History may not repeat, but it sure rhymes. Since we humans never learn from history, it is therefore wise to look into the history of money. It in the pages of history lies the clues of how to create a long lasting multigenerational wealth and also how to waste it.


Tulip Mania


Tulip Mania is a term that was coined to describe the period in the 17th century when tulip prices skyrocketed.


Growth and prosperity were the hallmarks of the Dutch Golden age. The Dutch were trading with all over Europe and Asia, and they had a booming economy. The Dutch East India Company was founded in 1602, which helped to increase trade with Asia. This led to an influx of money into the country, which caused people to invest in tulips as a way to make quick money.


Tulips were introduced into Holland from Turkey in the early 1600s by botanist Carolus Clusius. They became popular because they were beautiful flowers that could be grown year-round indoors or outdoors, unlike other flowers that only bloomed for short periods of time during certain seasons. Tulips became so popular that they were traded like currency on the stock market and people would buy them as investments for their future value rather than for their beauty or rarity. There were accounted reports of selling estates and palaces for a single tulip flower.



This was the first accounted market crash in modern monetary history. Here, the speculators were bidding for an overvalued asset (perishable asset) with higher bids. This phenomenon was called as "greater fool theory". It was a race to be a greater fool than all the existing fools.



Considering today's situation, the young generation (Millennial and Gen Z) have tremendous financial opportunities online; something that had never happened since the Internet began. With lack of knowledge and careless nature, it is easy for these people to be victims of such financial bubbles. Buying anything and everything based on its external beauty and false promises can be disastrous in terms of personal finance.


There are reports of how the younger generation is in a buying spree of luxury items and other fancy assets. At the same time, existing rich families are still conservative in buying luxury items. While today's young generation are busy buying luxury cars and fancy toys, the established rich families are investing in physical gold/silver, nuclear bunkers, alternate passports via investments and other preparedness; as a preparation for the coming recession/war in the next few years.


 

For most humans, the time to make generational wealth happens only once in their lifetime. The family's future depends on how that time and wealth are used. Witnessing the ability of mankind to come up with faster and sophisticated method of hunting the prey during the day than any creature in the wild, we may have an answer to why roosters start their day by screaming.


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NOTE: This article does not intend to malign or disrespect any person on gender, orientation, color, profession, or nationality. This article does not intend to cause fear or anxiety to its readers. Any personal resemblances are purely coincidental. All the information presented are supported by sources that you can find and verify. All pictures and GIFs shown are for illustration purpose only. This article does not intend to dissuade or advice any investors.


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