- Personal Finance»
- Investing in Stocks, Bonds, Real Estate, More
The Bitcoin Alternative Backed By Gold
Digital Currency as an Investment
If you had invested in Bitcoin last year, simply buying and holding the coins in your wallet, you would have made a lot of money. If you had invested in them a few years ago you would be rich. Now trading at not far shy of $1000, the Btc digital currency caused quite a stir amongst its fans back in June 2010 when it rocketed up by 1000% in just five days - reaching the dizzy heights of $0.08; Its done ok since then too.
Of course this kind of staggering growth in value can't go on forever. At its current price, and with the inherent volatility involved when you are dealing with something so new and so different, there is no denying that Bitcoin is a risky investment today, and the true heydays are over. Its not necessarily a bad investment - as I already wrote in my recent article on How To Make Money from Bitcoin in 2014 there is plenty of room for growth, especially on the back of announcements from big retailers that they will accept the coin as payment from their customers. But it is definitely a risky investment, and the most dramatic growth phase is certainly over.
But all of this does go to show the massive potential for profit that there is in the emerging market for digital currencies. Part of the reason why people see them as such an attractive investment is the scarcity principle. This is based on the fact that only a certain number of coins will ever be created. Alongside this limited supply, demand is constantly bolstered by new users buying in and old users losing or forgetting about coins. This provides a strong upward pressure on prices which makes digital currency a good investment. There has even been talk of Bitcoin causing a problem with deflation in the broader economy if it become too popular, as people would have too much of an incentive to save rather than spend!
Much of this long term growth potential is already being priced into the Bitcoin price already by investors and speculators. This is not true, however, for a range of new digital currencies, or 'alt coins', which aim to build on what Bitcoin has done and improve it.
Why The Smart Money is on Alt Coins
Alt coins operate under the same growth pressure due to the scarcity principle, and because they are so new they also have much greater potential (in percentage terms) for a huge growth in the number of users. With digital currency more users generally means a higher value per coin. Although it may seem unthinkable right now, as Bitcoin itself is only just starting to filter into the consciousness of the general public, but it is not only possible that it could one day face a serious challenge from another digital currency - it is very likely.
Whenever a totally new product comes out based on a technological innovation, other companies are able to see what works with it and what doesn't - and build an alternative from the ground up which improves on the original. The first mover is often weighed down by naïve problems which nobody could have foreseen when creating something so new. Because of this it usually doesn't become the dominant force. Google, for example, did not invent search engines. What they did was to look at the new search technology of the day, notice that search results were prone to being manipulated by spammers stuffing keywords into pages, and figure out how to address this problem with a new approach. In doing so it put the early innovators who invented search engines out of business.
There is a good chance that a similar thing will happen in the digital currency market, and that makes investing in alt coins a very promising proposition. But of course it is also very risky.
Which Are You Most Likely To Buy?
The Real Value of Digital Currencies
What is a digital currency actually worth? This is the question that any investor - or user - must ask themselves, and it worries many people. You are investing in something which is essentially backed by nothing, and could simply disappear overnight. Prices are highly volatile, fluctuating across a broad range in a short space of time.
Any digital currency is only worth something because people are willing to pay something for it. With no backstop, this value can literally disappear overnight.
Ripple and NoFiatCoin
The Gold Standard of Alt Coins?
The newest kid on the digital currency block is No Fiat Coin, and it has an innovative answer to the question - what is the real value of a digital currency? That answer is Gold - literally.
NoFiatCoin, which uses the ticker XNF, can be redeemed for real gold or silver that is held in the No Fiat vaults.
This 'backed by Gold' promise aims to reassure buyers of NoFiatCoins that they are buying something of real value, not just something which was created out of the internet aether with the wave of a mouse, and could just as easily return to nothingness.
It also provides an interesting incentive for people to trade in the coin. Getting money in and out of the digital currency world isn't as easy as it could be, and this often acts as a serious barrier to adoption. The fact that you can exchange NoFiatCoins for gold at any time, and can even buy it with gold if that's what you want to do, provides an extra gateway in and out of digital currency, as well as an opportunity for people who trade on the financial markets.
In addition to having a genuine innovation and 'unique selling point', one of the most important things that I look for in an alt coin is a definable niche in the market that it can appeal to. This is even more important for a digital currency than for other products, as early growth is often driven by a small but dedicated community of users who are engaged with the idea behind the project. NoFiatCoin seems to do this, by appealing to people who have an idealogical dislike of 'fiat currency', and the large, established community of so-called 'gold bugs'. In case you haven't heard that term before, it is used to describe a kind of enthusiastic gold buyer / investor, who often thinks that we should never have abandoned the gold standard. Many of these people have been railing against the dangers of fiat money for years (check out the video at the bottom for an example).
The combination of all these things with the fact that it is such early days for this new alt coin makes it my top pick for 2014.
You can learn more about buying XNF here: http://www.nofiatcoin.com/