Bitcoin vs Gold

Is Bitcoin the new gold? That's the question many people ask themselves today.

Since you have found this site, you're probably aware of the problems with today's monetary system. (If not, you should educate yourself on how this system works and the problems with it.) Gold has always been the prefered hedge against inflation and a collapse of the existing system. But is that about to change?

First we need to understand why gold has been the prefered money for 5,000 years. For something to be used as money it needs to be:

  • A medium of exchange

  • A unit of account

  • Portable

  • Durable

  • Divisible

  • Fungible (One unit is valued the same as an other)

  • A store of value (Limited supply)


Gold has historically been the best thing combining all of these characteristics. But let us compare Bitcoin with gold. (Note: Bitcoin, capitalized, refer to the technology and the payment system while bitcoin, lowercase, refer to the unit of account.)


Medium of exchange

Gold isn't easy to use in commerce since it's hard to pay the correct amount with gold. A solution could be to store the gold in a vault and transfer the ownership of gold pieces from the payer to the payee, but then you have to trust a third party holding the gold. An other problem with gold is counterfeits with tungsten. A bitcoin is divisible up to 8 decimal places so it's never a problem paying the correct amount. You don't have to trust a third party when using bitcoins and bitcoins can't be counterfeited.

Winner: Bitcoin


Unit of account

Gold has been a unit of account for thousands of years, but isn't used as that today. Gold is priced in USD and we don't price anything in gold. Nor is bitcoin widely used as a unit of account, but its use is increasing. Multiple webshops are pricing their items in bitcoins instead of USD and other currencies. Bitcoin with its 8 decimal places is a good unit of account.

Winner: Bitcoin


Portable

Gold is heavy and not easy to transfer over large distances without a significant cost. You need to secure the gold when moving it, and it's not trival to move gold from one country to an other. Bitcoin is very easy to move around. It can be sent all over the world through Internet within seconds, and the cost to do so is very low. Bitcoin doesn't care about borders. You can even store (the keys to) your bitcoins in your brain when travelling through countries. (How cool isn't that?)

Winner: Bitcoin


Durable

Gold is one of the most durable substances on earth, it doesn’t degrade and will never go away. Bitcoin exists in a public ledger on thousands of hard drives and other media around the world, and the Bitcoin network can't be shut down by any government. While in theory Bitcoin can go away, it won't happen as long as people are still using the Bitcoin network.


Winner: Gold


Divisible

Gold is divisible, but it's not easy and it's a cost to do divide gold into smaller pices. A bitcoin is easy divisible up to 8 decimal places.

Winner: Bitcoin


Fungible (One unit is valued the same as an other)

Gold has different value depending on how big the piece is. Smaller pieces is more expensive because of the production cost. There are also price differences depending on the country or mint that issued the coin. The value of one bitcoin is the same regardless if it's divided or not. The value from one bitcoin divided into pieces has the same value as a whole coin.

Winner: Bitcoin


Store of value (Limited supply)

Gold is rare, but gold doesn't have a finite supply. New gold is created in the universe, and in the future it may be possible to harvest asteroids for gold. Bitcoin has a hard limit of 21 million. (Although dividing something doesn't increase the supply, bitcoin with its 8 decimal places has a hard limit of 2.1 quadrilion base units.)

Winner: Bitcoin


So Bitcoin is better than gold in six of the seven categories. And in the seventh category, gold is only slightly better than Bitcoin. So why hasn't Bitcoin taken over golds status as the preffered money? There's two reasons. First, people need to be educated about Bitcoin. That takes time. And secondly, the network effect is big when it comes to money. For something to take over, it needs to be significant better than the old alternative. (The network effect is also what's protecting Bitcoin from other digital alternatives. Bitcoin is the first decentralized digital money with a hard limit of supply and its adoption is far, far bigger than any other alternative. New users and merchants are joining the Bitcoin network every day. It's hard to imagine some other digital money taking Bitcoins place as the dominant one.)

Is Bitcoin so much better than gold that it will begin to "steal" value from gold in the coming years? Probably. More and more "gold bugs" embrace Bitcoin. Here's a panel discussion by Trace Mayer (runtogold.com) and James Turk (goldmoney.com) from the European Gold Forum 2014.





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