If you follow the world of business news, you will know that Charlie Munger recently called Bitcoin “worthless artificial gold.”
That is not technically wrong, as Bitcoin has no inherent value, nor does it produce anything physical, and, much like the internet, it’s “in the cloud” and people don’t really understand Bitcoin. I do like how Munger compared it to gold though.
Then again, what makes our paper currency worth anything?
What is the different between a $20 bill, and a $100 bill, other than the fact that one has a three digit number in the corner, and one has a two digit number? Or the fact that the face on the $20 Canadian bill is of Queen Elizabeth II, and the $100 Canadian bill is of the 8th Prime Minister of Canada, Robert Borden? I mean, our $1 coin has a goose on it, and our 25 cent coin has a moose! Are moose just less valuable than geese? Is the plural for “moose”, “meese?” These are all questions that need to be answered!
We want that $100 bill because as a society, we attributed value to our currency for what it can buy us, not because the $100 bill is worth anything by itself. It’s the same reason why $1 in USD is not “worth” the same as $1 CAD, because we want the USD more than the CAD due to its perceived value.
So, before we discuss the potential of Bitcoin and cryptocurrency and how they all fit into this spectrum as an asset class, let’s road map how we got here.