The Bitcoin vs. Gold debate has raged on in investment circles since bitcoin has entered mainstream discussion among increasingly interested investors. Gold has been used as a form of currency and trade for thousands of years and absolutely has a track record for reliability and preservation of wealth. However, as the rookie onto the scene, Bitcoin may be the kind of financial and technological breakthrough to dispute gold as the monetary kingpin.
Early on in its life cycle, experienced investors began challenging the legitimacy of bitcoin value and arguing how such a commodity could hold intrinsic value. What differentiates bitcoin from a mere collectible and what makes it related to precious metal assets such as gold or silver? Among many circles, particularly gold bugs and older-generation investors, bitcoin was not viewed a solid investment up until very recently. Which factors of bitcoin inspire this validity of investment?
In order to accurately investigate the value of Bitcoin vs. Gold, we must determine which characteristics of gold are valuable and prop them up versus the promise of bitcoin. When we weigh the implications of today’s financial environment, it is clear to see why bitcoin is being recognized the ‘gold of the 21st century’, or as some thinkers have vindicated, a ‘digital gold’.
Bitcoin vs Gold Battle For Supremacy
Gold has perceived value because it is scarce, quasi-indestructible moreover serves a manufacturing purpose. Bitcoin acquires all of these qualities also adds the features of portability and excellent divisibility. Both are also remarkably durable and cannot be counterfeit. The main lead for Bitcoin over Gold as a commodity is that Bitcoin has perfect portability, while gold must be insured, physical stored and safeguarded, and proved that the integrity of the substance has resided intact and not mixed with other filler elements such as tungsten. Whenever you are moving precious metals across borders, you must declare it. No border authorities or cash sniffing dogs can detect if you hold bitcoin, as ownership can be distilled to memorizing a private key which controls the linked wallet. If you are venturing to buy something with gold, it usually needs to be exchanged for the money first. Bitcoin payments require only a smartphone to transact.
One of the main purpose to add gold to an investor’s portfolio today is as a hedge against economics disaster, that of collapse or hyperinflation. Outside the gold-bug crowd, and among the current generation, gold as a valid form of transaction is a stretch of the imagination. If such an event were to occur, would people be trading in pieces of gold if internet connectivity were still available? At the blurring rate of current technological progress, would considering a shiny metal to be valuable seem like a rising trend?
Gold may have signified reliable in the 20th century, but among a generation of digital natives, who are united psychologically (and soon to be physical) to their mobile devices, Bitcoin will increasingly be the method of choice for commerce. This is the information age, and in it, information serves as the most valuable form of commodity. Bitcoin is financial information stored on a collective, distributed computing network.
In terms of commodity fungibility, having one unit exactly similar to all others is important. With Bitcoin, this is evidenced by cryptographic algorithms, yet every coin carries with it the entirety of its transaction history. With gold, this is not so simple. Metals can carry dilutions and value estimates can differ depending on the mint which issued the coin or bar. We also know that the benchmark used by investors and central bankers to discover the value of precious metals has been (and continues to be) massively manipulated. According to Bloomberg, governments around the world are already investigating the manipulation of benchmarks from interest rates to foreign exchange, and questioning the $20 trillion gold market for signs of wrongdoing.
With Bitcoin, network integrity can be cryptographically authenticated, representing a digital asset which has excelled physicality and operates within the cyber domain. It’s very possible to send millions of USD worth of Bitcoin within seconds and only the sender and receiver are aware of the identities involved. Physical actors cannot exercise control over the portability of this commodity, and, consequently, ‘digital gold’ represents Bitcoin accurately.
Gold is a store of value which relies on tradition to preserve its value base along with a few insignificant industrial purposes. When you take apart this perceived tradition of value you are left with a few production uses and nothing more. Tradition has built an idea in the consumers mind that gold and silver hold colossal intrinsic value. It could be argued that the costs behind precious metals is artificially high due to a market perception which has vastly undervalued the quantity of these metals.
Despite what a merchant may tell you, we have no clear idea on the supply of gold. We have barely begun to explore the depths of the ocean let alone mine deeper than a scratch in the Earth’s crust. Who is to say how much gold and precious minerals near-Earth asteroids hold? It’s probable that gold’s perceived rarity may prove to be elusive in 20-30 years when private enterprise is drilling rocks in space.
The fact that Bitcoin is instantly transferable across the globe with no need to identify the parties involved is why it holds a tremendous advantage over precious metals. Bitcoin and other developments in cryptocurrency will challenge precious metals as history’s de-facto store of wealth.