• Mon. Mar 4th, 2024

Bitcoin Vs. Gold: Key Differences You Need To Know

Apr 26, 2023

Since the dawn of investment, people have been extremely cautious of where they put their money and how it behaves under a critical or hard environment, such as in times of inflation.

The very purpose of investment is to make sure that once finance or money is not depreciating in value but sustaining its present significance in the open market and past the hard times of inflation.

This is what investment has been all about since the earlier times, and today, when inflation is at its highest possible level, one could not help but notice if they are doing right by their wealth by investing it into stocks, bonds, real estate, or other such investment tools.

Importance of Cryptocurrency

As stated earlier, the original purpose of investment is to make sure that once finances are not depreciating in value, but consequently adding to its overall financial aptitude, which is the very basics of how an investment works.

Stocks, forex, bonds, real estate, and all other such marketplaces have helped the investors of the past and the present consistently to not only save their money from depreciating but also add considerable value to their finance, especially in times of extreme inflation.

But would these investment vehicles help the investor of the future to do the same? This is what financial analysts are pondering upon at present.

Satoshi Nakamoto 2009 laid the foundation of the world’s first cryptocurrency and the first decentralized blockchain-based engine in the form of Bitcoin.

During its initial launch and sometime after that, the concept was ridiculed intensely by the financial bodies as well as analysis of that time because it was a decentralized model, and no government agency or any other accredited body had any control over how the tokens were minted, circulated and how its value changed over time.

This was the main reason for the consistent backlash that Bitcoin received back in the day, but fast forward ten years, the cryptocurrency has not only flourished in terms of an increased financial aptitude but has helped millions of investors around the world to not only double but in some instances quadruple their investment and so on.

Cryptocurrencies are completely new financial instruments that were introduced only ten years before, and some of these are fairly new. The very reason is that there is a consistently high demand among people for these cryptocurrencies, and one token can’t fulfill that requirement; hence multiple other tokens fairly thousands of crypto tokens are now available on the open market for investors to invest in or try out and don’t have to deal with Bitcoin only or some other major cryptocurrencies out there.

The opportunities are limitless, and the chance to diversify one’s investment portfolio is also pretty significant.

What is a Store of Value?

When tackling different types of finance and the investment bodies that are made available to you, it is important to consider which of these is a better store of value. The very definition of a store of value corresponds to the fact that any financial body that can be deposited and then retrieved later on without having its financial credibility lost or depreciated over time is known as a store of value.

Over the years, gold has been used as a potential store of value, and investors have not only been confident putting down their money in the form of gold and fighting the tough periods of inflation, and then retrieving all of it back into the potential Fiat currency of their particular eras but now the game has been changed with the introduction of cryptocurrencies such as Bitcoin.

Inflation is a practical measure of how strong the economy of a particular country is. Governments have been toying with the idea of inflation since the very beginning of democracy for the sake of controlling how and in what instance they print their money and circulate it to the masses.

Sometimes the value of a Fiat currency is depreciated by the government bodies for the sake of increasing spending money by the people and getting them to invest in particular financial systems. All of this is done in good faith to increase the likelihood of jobs and employment opportunities, but at the end of the day, it does more harm than good.

Each and everything that you will come across in the world of finance may be stocks, bonds, real estate, or even complex market instruments, are pegged to the value of gold. It literally means that if the price of gold were to take a swing in the negative direction, so would the price and value of all these corresponding assets because they have their value pegged into gold.

You can’t bust this cycle; if you have invested in either of these systems and gold were to take a negative hit by the market, then you can kiss your investment in all these different regimes goodbye.

On the other hand, digital currencies such as Bitcoin, Ether, XRP, and many other cryptocurrencies do not have their value pegged into gold or any other such market variables, and they are safe to invest in and do not respond to inflation the same as gold, stocks, bonds, and any other such instruments do.

This is nothing short of remarkable; think of investing your money into cryptocurrencies and seeing the alternative markets of the centralized world burning down, and your money it’s not only growing or appreciating in value, but you are receiving a solid return on your investment as well.

This is why investors and financial analysts have been favoring cryptocurrencies more often as a potential store of value in correspondence to gold and its monopoly over these centralized financial systems of the world.

Bitcoin vs. Gold: Major Differences

To be able to truthfully compliment the staking as well as a store of value capabilities for Bitcoin and gold, it is important to strike a comparison between the both and to see for yourself where each of these shine.

Almost all of these factors are going to present you with the pros and cons of both gold and Bitcoin or digital currencies so that you can make a more informed decision in this regard. So, without any further ado, let’s get right into it;

Scarcity

Scarcity taps into the fundamental ability of a financial asset to either be valuable or significantly depreciating in a given time period. If a financial asset is present abundantly and is extremely easy to obtain then, it doesn’t prove to be a very good store of value.

If you have something and everybody else that you know of have the same exact thing, then is that particular thing a financial asset or not valuable?

The only answer is no; it is not valuable because it is easily available everywhere else. If the demand is more stable and the supply is limited or cutting, then the price of the asset is going to skyrocket, which makes it an extremely desirable store of value.

Luckily for gold, scarcity is one of its key properties which provides gold with a favorable edge against other metals and financial tools out there when it comes to being a store of value; not only is it expensive and rare to find but it also involves an extremely labor-intensive process to properly mine and be available in the open market.

Bitcoin, on the other hand, is as shocked as you would be to learn this is scarcer than gold itself.

It has a total supply of 21 million tokens, and there can’t be more Bitcoin tokens circling around when that number has been hit on its blockchain.

When the last token has been minted, there won’t be any more or new Bitcoin tokens, and this taps into the ultimate scarcity of Bitcoin as a store of value compared to gold. You can always find more goal, mine them or dig it up, but you won’t be able to mint another Bitcoin token once the capacity that has been coded into the official blockchain is reached.

Fungibility

For any financial instrument to be recorded as a good store of value, it must have a good fungible property. By definition, fungibility refers to the quality of a financial instrument being uniform in its existence and being interchangeable with other means of wealth.

Fungibility between different financial instruments means that all of these have an equal value when it comes to their tangible existence, and these can be exchanged into one another regardless of the markets or locations these transactions take place.

Gold is an extremely fungible element which means that if you have one carat of gold in your hands, then it has the same value in America as well as in the United Kingdom or anywhere else on the planet.

But once again, Bitcoin sweeps in here to score a clean knockout because not only is Bitcoin fungible and has the same value as another Bitcoin token regardless of its location or the market the transaction is taking place in, but on top of everything else, it cannot be counterfeited like gold or even paper currency can be which makes Bitcoin even more fungible than gold could ever be.

The Divisibility Factor

Another characteristic that helps a spectating body to determine if a financial element is a good store of value is its divisibility factor. A good store of value should be extremely divisible; it should be able to split up into its smallest entity so that it can be distributed across masses in a uniform fashion.

Gold being a metal proposes a challenge to the divisibility factor because even if you have a very small amount of gold on you, it is still very valuable and does not fulfill the divisibility requirement of being a good store of value.

That is one of the reasons why governments did choose to go with paper money instead of gold because no matter how smaller you divided the metal, it could never be the same no matter on which particular scale it was weighed.

That is why they stashed all the gold in the reserve banks, and determining the original value of that stashed gold, they printed paper money and distributed or circulated that across the masses.

Bitcoin, on the contrary, does not have any such problems because you can divide it indefinitely. You can divide a single Bitcoin token into a millionth piece, and it would still have a uniform value as compared to Gold because, at present, no such instrument is available to divide gold uniformly the way Bitcoin could.

Portability

Portability also does play an extremely vital role in determining the potential value for a dedicated store of value. Gold happens to be a very dense metal, and it is heavy to actually carry around, which makes it a negative entailment on the portability front.

Transporting such a huge amount of gold is not only expensive but also does pose the risk of the material being transported tainted or damaged during the transport. Bitcoin, on the other hand, has no such problems, given the fact that cryptocurrency lives entirely on the Internet in a digital fashion.

Also, it can be transferred from one place to another, from one account to another, in a matter of seconds without the need for arranging heavy transport, which would have to be the case for gold as well as Fiat currencies that are being shipped from the printing site to a bank or from one physical location to another one.

You can transfer Bitcoin easily because it is faster and inexpensive, which is why it is far more important as compared to gold in many ways.

Adoption

For an asset to be classified as a potential store of value, it should be accepted wildly within society. This is an extremely important factor because people usually value things that are considered valuable among their peers and the society in which they live.

Gold has transcended many civilizations and times because of how valuable it was considered from ancient times into modern human civilization. Because of this very reason, gold enjoys a wild demand and has a great appeal being a store of value as compared to Bitcoin or any other potential financial instrument.

If we bring into account the adoption rate or status of one store of value to another, then gold clearly brings it home because not only is it more adoptable among society and in the financial regime, but it has a wider and more static appeal as compared to Bitcoin.

For any government to be able to print cash or paper money, they need to have a standard amount of gold already placed in its reserve bank, or otherwise, it won’t be able to do so. From an economic point of view and sustainability, the goal is far superior as compared to Bitcoin or any other cryptocurrency for that matter.

Not only would it be foolish to compare the adoption of gold to Bitcoin, but it would also be worthless because still, to this very day, the regulations and laws that are being drafted to drive the economic world either on a global scale or at this specific country level are being documented and inspired through gold and gold alone.

Bitcoin has a lot of ground to cover if it is to reach the present appeal of gold, and it is not there yet, not for many years anyway.

Government Regulations

Bitcoin is a decentralized entity, and much has already been emphasized from the very beginning of this article. A financial entity actually being decentralized doesn’t sit well with banks, central financial authorities as well as governments because that way, they do not have any kind of oversight on that particular entity.

They can’t control it, they can’t do anything with it as it just continues to be present in a differentiated medium of its own, and that poses a serious problem when it comes to regulating that financial asset or imposing other such empirical policies over it.

Because of the fact that Bitcoin is a decentralized entity, it has been subjected to ridicule and extremely harsh backlash in developed countries. In many countries and places worldwide, Bitcoin is not only banned, but anyone who is taking charge to either mine Bitcoin or use it in any potential way is subject to legal action by the proper regulating authorities.

As for gold, there is no such risk or threat that hovers over it, and it comes victorious in that regard as compared to Bitcoin because gold has been and is much more stable than any other financial instrument out there.

This makes gold a more subtle choice when it comes to choosing a dedicated store of value based entirely on present regulatory infrastructure, but Bitcoin is an all-rounder choice.

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