Gold has seen a pretty terrible decade. After a bullish run following the banking collapse and a flight to safety, it peaked in 2011 to $1,900.
Since then, however, it has only been down, falling to a current price of $1,300 as economic boom times return and with it too risk taking.
Russia, however, has been buying and buying, to the point they now hold more gold reserves than they ever have. According to a site that tracks these matters:
“Gold Reserves in Russia increased to 1857.70 Tonnes in the first quarter of 2018 from 1828.56 Tonnes in the fourth quarter of 2017.
Gold Reserves in Russia averaged 762.85 Tonnes from 2000 until 2018, reaching an all time high of 1857.70 Tonnes in the first quarter of 2018 and a record low of 343.41 Tonnes in the second quarter of 2000.”
But is gold a bit outdated? The asset is obviously not going anywhere anytime soon, but it is difficult to move around, and isn’t really very stable, so rising and falling depending on economic conditions.
However, its primary function is quite appealing. That being the most widely accepted money at any time and under any condition. A function it performs primarily because it is fairly limited in quantity and it is difficult to forge.
A function that is also performed by many cryptos, primarily the two big ones of ethereum and bitcoin. They are both very limited in quantity, that can not be changed unless everyone agrees, and they are pretty much impossible to forge.
So then should we expect Putin to suddenly announce some of Russia’s ~100 billion dollars worth of gold reserves are to be diversified into ethereum so as to have a “stake” in the network?
Well, maybe in the future. For now, their primary concern, and probably that of all other nation states, may be that these things could suddenly go poof and disappear.
That’s of course rationally impossible. After nearly a decade since their invention, it may be time to say cryptos are safe.
Safe is used here in a very narrow sense. Price of course might go up or down, that’s what prices do. Keys can be lost, keys can be stolen.
What we mean by safe is that it is rationally impossible for what we call one eth or one bitcoin to disappear. That’s of course because they are nothing more than just code, with rules of if and then.
The code could have a bug, like bitcoin did early on when a trillion was printed out, but then you just fix the code and go on running like nothing happened. Which is exactly what bitcoin did.
There may be extreme circumstances where it perhaps just vanishes, but then there may be extreme circumstances when gold vanishes too. In fact it is easier to see such circumstances for gold than for cryptos.
That’s because you can’t quite change gold. Gold is gold. While in extreme circumstances where everyone agrees, you can change cryptos to say fix a bug.
So if a way is invented to create gold out of nothing, perhaps some chemical element is discovered or perhaps astro mining becomes easy, then gold becomes worthless.
While in cryptos, if say quantum computers pose a vulnerability weakness, you just change the algorithm, with the network so moving on as if nothing happened.
It has taken quite some time to reach the stage when we can reasonably say cryptos are safe, at least the big proper ones.
Only last year some where saying they are still an experiment, but at this stage you can’t really call cryptos an experiment any longer.
That’s because the thing works, and it has proven itself to work. The fundamental design is set in stone, as Nakamoto himself, now with hindsight very rightly, said.
That design, which makes it work, is not really the cryptography it uses, or what proof of work algo, or any detail. That fundamental design is instead just how you combine them.
So every aspect really can be taken from a tool-box, can be changed as one pleases, but how they’re put together can’t really be changed.
And it can’t be changed because we don’t really know of any other way to make a piece of code be uncopyable.
Whether that design works was subject of much discussion early on, and even in 2014 it was taken for granted that this is all an experiment which might not work.
Now however, a decade on, it is difficult to see how this can be called an experiment as far as the technical aspect of making a piece of code uncopyable is concerned, which is really the whole point of public blockchains.
If that continues to prove itself, then one would think more individuals and entities would diversify into the asset, if for nothing else then just in case.
So if you take a country like Russia, which is very fond of blockchains, then of course the vast majority of reserves would be kept in gold, but taking a slight risk with 1% of that $100 billion, or with “just” one billion, to secure say 1% of eth, might be the stupidest move or the best move.
Now who is to say they haven’t already done so, or other national treasuries. At a personal level some of them most probably have. The only public data revealing parliamentarians’ crypto holdings, for example, show quite a few have some.
But at a national level it would be a different game you’d think, because one of them does it and does so publicly, then all others will probably follow.
At which point cryptos would level up again as new money ushers in a very new millennium indeed.