There is a very emotional debate among the two communities of investors both seeking the same goal. On one hand there is the new age crypto currency investors and the other a well entrenched group of precious metals enthusiasts. Ultimately both seek to avoid the complete loss of savings or the very least depreciation of their purchasing power through the dilution of the holdings by an uncontrollable 3rd parties.
Starting the observation of the benefits and disadvantages with crypto currencies is a very daunting task given there are hundreds in circulation currently. The most popular being ethereum and bitcoin.
Crypto currencies use encryption along with blockchain technology. What are these? The simpliest answer for encryption is being made unreadable while blockchain is a newer method of connecting various computers together to create a combined network used for transferring information such as document or financial transactions.
Cryptos can be created through various avenues with the most common being mined.
The most immediate question people ask is how is it mine? Mining is done by dedicating some or all of your computer's processing power towards both the blockchains network along with any addition functions the various programmers may be doing which earns the users Tokens known as crypto currencies. The more processing power that is dedicated the more tokens are rewarded. But keep in mind the internet bill along with the electrical bill is all yours.
Crypto currencies have been soaring hundreds of percent since mid 2016 to mid 2017 with very little sign of weakening. However with these outsized moves come large gyrations due to the lack of liquidity in both the surge of buying and the spike of selling.
Crypto currencies cannot be shorted or bought without both counter parties exchanging tokens thereby eliminating manipulations which can occur in most other markets through rehypothecation or fractional reserves systems.
As a final note about cryptos, transactions to trade or commerce require the internet however your tokens can be saved offline. The acceptance of crypto currencies for real goods are very limited however are expanding.
Now lets look at the precious metals benefits and disadvantages.
To start precious metals have existed as money for all written history of man (over 5000 years). Even today central banks around the world hold precious metals. Though banks hold gold and silver it gets talked down by these banks as a barbaric relic or just a commodity. Also these banks force troubled nations into selling the PMs to get Dollars from large economic unions ( EU and USA) to balance trade. The country with the largest physical gold holdings has changed over the Millennium resulting in various different country's currencies being held as pristine over others in different points in time.
Precious metals like Cryptos are also mined. This mining process requires fuel, heavy machinery, lots of water, along with human labour in various forms. Mining PMs takes 5-10 years just to find and map out a resource field. Many of these never enter production due to uneconomical conditions. These conditions control the influx of addition coins and bars available to the market. Some precious metals are used for industrial manufacturing such as silver and pladium. Platinum and gold however are mostly vaulted away. The result of the econimically restrictive mining of precious metals has required institutions to develop rehypothecation schemes along with paper contracts with no physical backing. This helps to create an illusion of full filled demand.
Precious metals can be bought and sold through various venues and is recognized as money across the developed and undeveloped world as having value. Places you can buy and sell PMs include your local coin dealer, online dealers, jewery stores, pawn shops, along with banks who can provide both paper FRACTIONAL RESERVE precious metals or real metals with a hefty premium on spot price.
Unlike cryptos, precious metal prices have been admitted to fraudulent manipulation by large banks resulting in a relatively small fine and no charges.
When choosing an asset to invest in there are many factors to consider such as how do you define money?
Money afterall is supposed to represent your time, labor and expertise used for someone else and thus should also be a store of value since you can never get back time.
So what are the characteristics of money:
Money should be tradable.
Crypto - some people/businesses accept it.
Precious metals-not used for daily purchases but can be easily liquidated at various venues.
Money should hold value.
Cryptos- appreciating rapidly. Liquidity issues causing high volitity
PMs- appreciates over time usually in bursts. 20$per ounce in early1900's to 1900$per ounce in 2011.
Money should be recognized.
Cryptos- most dont own or want to in my experience talking with people.
PMs-most people own as jewery and it is recognized globally as money and wealth
Money must be transportable
Both PMs and cryptos are transportable but you wont be questioned at the border carrying your crypto.
Money cant be created for free.
Both cryptos and PMs require energy to produce however there are hundreds of cryptos in circulation and there is no reason for new programmer not to make their own brand of ice cream.
In my opinion when it comes down to choosing a saving tool variety is the best solution giving people shelter and potential gains worth being exposed to. Keeping your eggs in one basket can be dangerous.