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Bitcoin is often referred to as “digital gold” given the characteristics it shares with the precious metal, such as scarcity, durability, and its role as a store of value. But, while gold is an asset that has been trusted for centuries, Bitcoin is the new kid on the block, and still a highly volatile asset. Bitcoin offers unique advantages that gold cannot, such as divisibility, high utility and decentralization, making it perfectly suited to its original design as a means of exchange. But does that make it better? A debate has also arisen recently surrounding Bitcoin’s transparency and financial trust, sparking some analysts to claim that “BTC is better than Fort Knox gold”.
To decide whether Bitcoin is better than gold, it is important to first understand the differences between these two assets, their strengths and weaknesses, and their values for today’s investors and users.
Bitcoin’s main characteristics
Bitcoin (BTC) is a decentralized blockchain network and cryptocurrency introduced to the world in 2009. In short, its creation was a reaction to the 2008 Wall Street crash by the pseudonymous Satoshi Nakamoto, who envisioned the new technology as a peer-to-peer electronic cash system. In its early days, Bitcoin was only known and understood by a few tech-savvy circles. But over the last 15 years, it has evolved into a globally recognized asset, attracting attention from mainstream investors, institutions and even governments.
Today, Bitcoin is hailed as a store of value, a hedge against inflation and the foundation for the broader cryptocurrency ecosystem. Its main characteristics set it apart from most other financial assets. First of all, Bitcoin operates on a decentralized blockchain, meaning no single entity (including governments or central banks) have the power to control its issuance or transactions. Second, Bitcoin has a fixed supply of 21 million coins, making it resilient to inflationary pressures that do, on the other hand, affect fiat currencies such as dollars, euros and yen.
Bitcoin is also highly portable and divisible, and allows users to send funds across borders without the need for intermediaries, offering financial autonomy, flexibility and freedom of movement. Bitcoin transactions are also executed within the blockchain ecosystem by miners who validate and record transactions on the immutable ledger (the blockchain) using a Proof-of-Work (PoW) consensus mechanism.
The differences between Bitcoin and gold
To decide whether Bitcoin is better than gold, we need to first understand the differences between these two assets. As mentioned above, Bitcoin operates on a decentralized network, the blockchain, along with all other digital assets such as cryptocurrencies and stablecoins. Gold, however, requires centralized authorities to manage its storage, trading and verification, which often involves banks, governments and specialist traders. Regarding portability and accessibility, unlike Bitcoin, which is a freely moving, digital asset, gold is a physical asset, making it difficult to move large amounts, which would also require significant logistical planning and security measures.
But there are some similarities between Bitcoin and gold. For example, supply and scarcity. As mentioned above, Bitcoin has a scarce supply of 21 million coins. In the year 2140, all Bitcoin will have been mined, and either be in circulation or held in users’ wallets. Regarding gold, whilst its quantity is unknown and more can still be mined, it is also a scarce resource, a factor that helps it retain a stable value over time. Similarly, whilst it is more difficult to divide gold than it is to divide Bitcoin into smaller units (satoshis), it is nonetheless possible. Gold can be melted down and reshaped into smaller pieces, albeit at an additional cost.
Bitcoin is better than Fort Knox gold
The recent debate over whether Bitcoin is better than Fort Knox gold comes as U.S. Senator Rand Paul called for an audit of the United States’ gold reserves, which apparently has not been conducted since 1974. Advocates highlight that Bitcoin’s blockchain allows for continuous, public verification of its reserves, which greatly contrasts with the lack of audits and potential counterfeiting issues associated with physical gold. Voices from the crypto industry have highlighted how Bitcoin cannot be manipulated like gold can, it cannot be “faked”, while it is also impossible to audit the global gold reserves, with much of the supply still stuck at the bottom of the ocean. This makes Bitcoin much more transparent and trustworthy, compared to an asset that has faced numerous counterfeit challenges.
Is Bitcoin better than gold?
This question is highly subjective, and depends on what defines “better”. If the preference is transparency, transferability, verifiability, and autonomy, Bitcoin undoubtedly has the upper hand. Its decentralized nature, fixed supply and publicly accessible and auditable blockchain make it a modern, digital alternative to its physical, precious-metal cousin. But Bitcoin remains a volatile asset, subject to dramatic price swings and regulatory uncertainty in some parts of the world, making it, for some, the weaker of the two.
Gold on the other hand is tangible, historic, and has been established as a hedge against economic uncertainty, which grants it an enduring appeal compared to Bitcoin. Gold also has a proven track record as a store of value, and whilst some uncertainty surrounds its true worth at a Federal level, an individual with one pound of gold at home knows exactly how much of the asset they own, and how much it is worth. For investors, the most likely scenario is that Bitcoin and gold serve as highly complementary assets as part of the same portfolio, precisely for the arguments laid out above. Whilst some speculate that Bitcoin will one day replace gold as the most reliable store of value, the debate is still very much ongoing.
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