Bitcoin versus gold. At a quick glance, you may think that the comparison is crazy and that Bitcoin will never compete or be able to be compared with gold. But what if I told you that Bitcoin actually solves many issues that holds gold back from more adoption and that gold isn’t the “enemy.”
Gold is physical, Bitcoin is digital. Gold has been around long before humans were, Bitcoin is only 10 years old. Gold is money, Bitcoin is…money too?
That can’t be true, you must be thinking. To prove that it is money lets go over the six characteristics of money. The six characteristics of money are durability, portability, divisibility, uniformity, limited supply, and acceptability.
One of the main reasons why gold is such a great money is because it doesn’t rust, rot, or tarnish like other metals and is very malleable. Also, gold has been around for thousands of years before humans existed and will be around long after humans are gone.
Bitcoin, on the other hand, is purely digital. The decentralized nature of Bitcoin makes it very durable because there is no ‘single point of failure.’ If one part of the network goes down, nothing is lost (unlike centralized systems like banks).
This is one of the major issues that gold has. If someone owns a lot of gold, it is hard to store it and/or carry it around. One of the main reasons why cash, checks, and plastic cards work so well is because users can carry around thousands of dollars (or more) worth in a very small/light package. This is something gold simply can’t do.
Bitcoin, on the other hand, can fit not only in something as small as a flash drive (Ledger/Trezor) but in a software app which literally takes no space. Someone could travel all over the world and take their entire wealth with them (and have full control over it) if they wanted to. This can’t be done with any other asset.
This is another problem with gold. While it can be divided down to gold flakes, how can someone accept that as payment and be able to realistically believe that it hasn’t been falsified. Coins work great but as the value of gold rises, it isn’t realistic to be able to pay for things like coffee, sandwiches, or candy with gold coins.
In contrast to gold, Bitcoin can be split up down to eight digits past 0. The smallest unit of account is called a Satoshi and 100 million Satoshis make 1 BTC. The brilliance of this is that unlike gold, Bitcoin holds the same value of trust if it is 1 Satoshi (.00000001 BTC) or 1 BTC.
Before gold coins, people had to weigh their gold to determine the value and trust that the other party’s gold was pure gold and not falsified. Coinage allowed for a greater factor of trust because it was branded by governments. If there was any question about whether the coin was pure gold or not, someone could weight it, bite it, or cut it in half to determine if it was truly pure gold and if it turns out it was fake, there are legal ramifications. The invention of coinage allowed for trading to be much simpler and safer.
One Bitcoin consists of exactly the same number of Satoshis as every other Bitcoin. This is the definition of uniformity. The only downside is that not all Bitcoin are equal. Will get into this later.
There is only so much gold in this world, the problem is finding it and figuring out how much more there is. It is estimated that there are about 165,000 tonnes worth of gold above ground and about 4,500 tonnes are mined each year. Gold has a limited supply because only so much exists and miners have to take it out of the ground in order to use it. But being unable to determine how much more gold there is left is a big problem (or how much already exists).
Who knows, we could be a few decades from mining the last gold from the earth or we could discover a large reserve of it that will allow us to mine it for many more decades at current rates.
Bitcoin, on the other hand, will only have 21 million Bitcoin, period. No discoveries or shortages. Every 10 minutes the same amount of BTC is mined, until the halving every four years which cuts the amount of Bitcoin mined every 10 minutes in half. In addition, anyone can see how many Bitcoin are in current circulation (including those lost).
Gold has been universally accepted as money for a very long time. In fact, it was the first real money used due to many of the properties it holds. Up until the past few hundred years, gold and money was essentially the same thing, the same way most of us think of government-issued bills when we hear the word money. So while gold is a great store of value, it will never be able to be used in everyday life.
This is the weakest part for Bitcoin, it is too volatile to realistically be used as an everyday payment source and because of that, doesn’t have the acceptance factor…yet. This will take a while to get adoption and allow for people, around the world, to get comfortable using it. Once users start to see the benefits Bitcoin has compared to other forms of currency and money, it will become adopted. In addition, once more people start to use Bitcoin, the volatility will start to go away and over time it could become an everyday payment method.
While not fully accepted, there are already ways to spend your Bitcoin and have the end party receive fiat. So in this sense, Bitcoin is “accepted” and this is much more usable than gold has been at any point in the past hundred years.
Besides those six characteristics, there are a few other traits of money that people look. They are non-consumable, fungibility, and easily transactable.
This one is pretty self-explanatory, both Bitcoin and gold can’t be consumed for food. It’s important to not eat your money.
I talked a little about this in the uniformity section, but while all gold is equal, all Bitcoin isn’t. This is due to not being fungible. What I mean by this, is that Bitcoin can be traced all the way back to when it was originally mined. Because we can do this, users can see if their Bitcoin (or others Bitcoin) has ever been used for illicit purposes that come up in court cases. We have no way of knowing if governments will start to blacklist certain Bitcoin addresses because of this reason. If that starts to happen, there is a possibility that some Bitcoin might lose value compared to Bitcoin that don’t have any blacklisted transactions in their history. This makes me believe that at some point, Bitcoin will have some privacy features implemented to protect users from this occurrence from happening.
Gold, on the other hand, is extremely fungible because once melted, it can take the appearance of anything and the next user will never know where it came from.
This again is where gold really struggles. A few hundred years ago when there wasn’t the globalization there is, gold was the best money to use but in today’s digital age, it is almost impossible to use anymore. It isn’t realistic to buy something from Amazon or Alibaba and send them gold coins to pay for the goods.
It also isn’t a good idea to have a centralized entity hold gold and issue ‘gold backed tokens/currency’ because they always have the option of walking away with that gold, lying about how much gold they really have, and it would just be the exact same system we used for about half of the 1900s. That system ended up with too much currency being created and forcing countries to come off of the gold standard or risking a huge economic collapse (once people realized the gold wasn’t there).
Bitcoin shines here. Because it is digital, it can be used as a payment method just like any digital fiat currency can. In the digital age we are in, Bitcoin has a huge advantage over any other asset because it can be moved easily. Doesn’t matter if it is moving across borders, oceans, or just a few feet, it can be sent in the exact same timeframe and for the exact same cost.
Struggles most with portability, divisibility, acceptability, and easily transactable.
Its biggest strengths are durability and uniformity.
Struggles with uniformity (fungibility) and acceptability (mostly volatility).
Its biggest strengths are durability, portability, divisibility, limited supply, and easily transactable.
Having gone through the entire comparison, I don’t want anyone to think that gold is a bad asset because that’s not true at all. It is a wonderful asset that has solved many problems throughout history and still solves some today.
Unfortunately, many people try to pit Bitcoin against gold while in reality, they are on the same side of the war against fiat currencies. In doing so, the Bitcoiners are battling with gold bugs trying to make the other side see why their side is wrong but in doing so both sides are losing a valuable ally. Both communities need to recognize that we are on the same side and start to work together to educate people about the shortcomings and problems with government-issued currency.
Recently, Grayscale issued a campaign called, ‘Drop gold, Buy Bitcoin.’ While I understand they are trying to get new investors to understand that Bitcoin is digital gold and not some phony internet money, there is a part of me that wishes they would have gone in a different direction with that. For example, explain that while Bitcoin does compete with gold, it can also compete with fiat currencies too. Having this comparison shows Bitcoin as a sort of ‘hybrid’ and would allow users to see more use cases for it than just a store of value.
In the long run, if I had to make an educated guess, I think that Bitcoin will be much more useful than gold for storing value/using as a payment method. Most of my thought process is that we are in a digital world and in that environment, the digital money has a huge advantage over physical money. While both serve their purposes in different ways, both have their positives/negatives and at the end of the day, it is probably a good idea to hold both assets as they compliment each other very well (together they have all of the strengths of sound money). Just be aware of the positives/negatives with both before purchasing anything.
Because of those reasons, I believe that Bitcoin can be better than gold, especially in the long term. The best way to think about it is, gold is definitely not Bitcoin, but Bitcoin is definitely digital gold.