It is 2020. A time of humanity never been before. More prosperity, globalization, and technological advancements responsible for both; more prosperity and globalization. A time of worldwide connectivity, global travel, global trade, and global capital flow which digital currencies have proven valuable for.
Imagine in 2020 and probably years from now, you have $200,000 to invest in. There is only one condition. You only invest it in bitcoin or gold. Which one would you go for and invest in? Which should you bet on?
Bitcoin and its uses.
Bitcoin is a digital or virtual currency. Probably chipping in that it is the equivalent of fiat money (paper money, e.g. dollar note) or maybe something similar to it would be more comprehensible. Created in 2009, it is a global form of currency that can be used to make and receive payments online without credit and/debit companies and banks getting involved. In other words, it is a form of currency people can make and receive payments in without banks and credit/debit companies. However these payments are restricted to people and businesses accepting bitcoin as a form of payment (of which fiat money is dominant).
Gold and its uses.
The existence of gold is as old as a few millennia, dating back to 2000-5000 years. Its use is beyond being a currency, although the use of gold as currency is very old as well. The earliest documented use of gold as currency is dated 600 B.C. This was done by the Turks. Its use as currency continued for centuries until the 1800s, when countries adopted a system called the “Gold Standard”, moving away from using actual gold currencies. Under the Gold Standard, countries used fiat money pegged to gold’s value, i.e. fiat money to depict gold’s value. The end of the Gold Standard in the 20th century (1900s) put a stop to the use of gold as currency, either as a form or as a basis for currency.
Gold can be used as or to make jewellery, decorative adornments, in some cases medicinal equipment, household equipment, crowns, etc. Its major use today though, is being an investment asset where investors can make profits through its market value fluctuations.
Bitcoin versus Gold.
- Let me go through the similarities between the two first, before jumping into their differences.
- Both bitcoin and gold are limited in supply. Gold is estimated to be in 171 thousand metric tons worldwide. For bitcoin, under the current technological advances available, a maximum number of 21 million bitcoins can be generated and supported.
- Both bitcoin and gold are mined. Gold through physical mining, while bitcoin is mined electronically through the decoding of special computer encryptions.
And now, their differences.
- Bitcoin is a new invention. It is a new currency and asset class. Gold on the other hand, is old. It has stood the test of time and has been a store of value for millenniums for human civilizations. Because of this, gold is more trustworthy and reliable, and people are more willing to store value in gold as an asset. Bitcoin can easily be affected by a new disruption in technology, unlike gold. Government crackdown can easily affect bitcoin’s value, unlike gold’s (even when governments try to). Customers might change their preference tomorrow, and it can affect bitcoin, unlike gold that has been a main stay for thousands of years.
- The supply level of bitcoin is fixed and transparent. There is no fear of overproduction that can diminish its value. This means bitcoin is to a high degree, prone to inflation, even more so than gold. In Chris Burniske’s words, “gold is a sneakily inflationary asset whose global supply has secretly increased by 1-2% over the last century”. Chris Burniske was blockchain products lead with ARK Investment Management.
- Bitcoin is dependent on the operation of the internet. Gold is not. Hence bitcoin is more prone to internet related problems like fraud for instance, and shutting down of the internet (can and have been done by governments).
So which would you bet on? That is entirely up to you. This is meant to be an educational post to inform you on the bitcoin and gold asset classes. However, the information in this article is not sufficient for you to make an investment decision, and should not be relied on as such.
If and when you decide to invest in bitcoin, we at Smart Asset Network are committed to managing your investment capital with our 7 years in experience in the cryptocurrency and blockchain industry. We aim at setting you financially free.