Gold & Silver: It’s History and Importance
A look into the history of precious metals and how they relate to crypto in important & significant ways.
Table of contents:
- Intro (where it all started)
- The modern banking system is established.
- Problem: gold is removed from the banking system.
- Solution: cryptocurrencies backed by gold arrive.
Intro — where it all started:
Gold has always played an important role in the international monetary system. Gold coins were first struck on the order of King Croesus of Lydia, around 550 BC. They circulated as currency in many countries before the introduction of paper money. Once paper money was introduced, currencies still maintained an explicit link to gold (the paper being exchangeable for gold on demand).
- “Gold is the most precious of all commodities; gold constitutes treasure, and he who possesses it has all he needs in this world.” — Christopher Columbus
The modern banking system is established:
The widespread store of citizens’ wealth in gold and silver led to the modern banking system being established in England, starting with citizens storing their wealth in the Royal Mint for safe keeping. However in 1640 King Charles emptied the royal reserve of it’s stores to pay his debts, effectively robbing his citizens of their wealth. While it was eventually re-paid, trust in the government was shattered, King Charles was executed and citizens turned to their local goldsmiths to hold their gold and silver for them. Unique paper notes were issued by each smith to prove ownership.
The government realised that to have a stable economic system, they needed to control the monetary supply, so the Bank of England was founded in 1694 and paper English Pounds were issued as the new legal tender that could be exchanged for a fixed value of gold and silver.
In 1792, 5 years after the birth of the USA, the US congress passed the mint and coinage act adopting a silver and gold standard for their currency that forced states to pay their debts in them.
In 1821 the gold standard was officially adopted in England, with gold being the ultimate store of value. And by the late 1870s, most of Europe, Russia, Japan, India all adopted the gold standard leading to international exchange rates to all but be established, allowing for global economic stability, paper currency to be accepted worldwide and trade to be simplified.
Governments remove gold and the problems begin:
However, the logistical horrors and interruption of trade during World War 1 caused issues for governments who needed money urgently, but were unable to inflate supply. Governments could see the benefit of having more private control over their currencies and eventually in 1934, the gold standard was weakened in the USA by president Roosevelt forbidding the possession of monetary gold and mandating the use of US Dollars.
In 1973, the fixed conversion of Dollars to gold was abolished in the USA, giving the government complete control over the supply and value of the Dollar by establishing theoretical fiat currency that could be indefinitely inflated and manipulated, without the limited supply of gold backing it. The rest of the world quickly followed suit.
A new economic era of debt crises and inflation was ushered in, where governments could print money as needed and create unlimited debt when it suited them, creating opportunities but also heavily diluting the wealth of their citizens. But despite this change, Gold and Silver remained unwavering stores of value in the minds of private citizens.
The same principles that first lead to gold and silver’s use as currency — rarity, lack of corrosion and humans innate emotional draw to them — and now with thousands of years of history, heavy demand for use jewellery and extensive use in industry and technology — still make gold and silver the ultimate stores of value in practice.
This has only increased with declining trust in un-backed, hyperinflationary fiat currencies and multiple economic crises decimating people’s wealth. Gold currently has the highest market cap of any commodity at US $11.65 Trillion, nearly 5x higher than the next nearest asset.
- ‘Gold is money, everything else is credit’ — JP Morgan to US congress in 1912.
Gold and Silver are now seen as the go to hedge against both inflation and economic downturn with investors trusting the timeless historical and cultural value of Gold and Silver will outlast the value of inflation prone fiat currencies, as demonstrated by prices of both gold and silver doubling their value against the dollar just a few years after the Global Financial Crisis of 2008.
Over the past 30 years Gold has outperformed the US Dollar by 417%, while silver has grown by 507%.
Where we are now: cryptocurrencies emerge and so does The Gold Standard DAO
In recent years we’ve seen the benefits cryptocurrencies have provided the monetary system. Bitcoin has often been called “digital gold”. However, bitcoin is not actually backed by gold. Thus, the Gold Standard DAO aims to offer cryptocurrencies backed by real gold.
Enabling our users easier access to buy gold, with the benefits of cryptocurrency, while being able to earn fairer interest for those assets.