Mar 22, 2024

Bitcoin vs Gold: The Superior Investment?

Bitcoin vs Gold: Which is superior? Discover the surprising answer in our analysis.

Bitcoin vs Gold: The Superior Investment?

For thousands of years, no currency has ever possessed all the qualities of money as well as gold. Even today, when no currency in the world is backed by gold, central banks continue to buy huge quantities of it for their reserves. But with the invention of Bitcoin, there is now a challenger to gold's historic dominance, sparking the Bitcoin vs Gold debate.

Why Was Gold Used As Money?

For thousands of years, the history of money reveals that different societies used different commodities as currency. From wheat and barley to cattle and glass, various items have served this purpose. 

However, once gold was introduced to the economy, it always replaced these commodities as the preferred currency.

This wasn’t a choice, it was nature. Money isn’t an invention, it’s as natural as gravity.

Money is essentially tokenized value. It allows us to store value and then cash it in whenever we want in exchange for something else of value, such as a house, shoes, or food.

For a physical token to fulfill this role, it must possess certain qualities:

  • Scarcity - It must be limited in supply, making it difficult to inflate.
  • Durability - It must not degrade, corrode, or tarnish over time, ensuring its value stays constant.
  • Divisibility - It must be possible to split it into smaller units, allowing it to represent values of different sizes.
  • Acceptability - It must be something that all people agree on as being valuable so that it can be exchanged for anything else.
  • Uniformity - It must be easily recognizable and verifiable, making it difficult to counterfeit.
  • Portability - It must be possible to transport it from place to place, allowing people to bring it with them when they travel or buy things far from where they live.

Gold As Money

Until the discovery of bitcoin, no asset in the world possessed these characteristics as well as gold.

Although its supply is growing, it has always grown at an average of 2% per year, keeping its value relatively stable over short periods.

Gold's Durability, Divisibility, and Uniformity

It doesn’t tarnish, meaning it can be passed from person to person for thousands of years without losing its value.

It can be divided into gold ingots or even coins, allowing it to represent different values.

Its shine and luster mean it has always been attractive to people, giving it an intrinsic value that has made it acceptable to people of different cultures across history.

Although gold can be counterfeited, it’s difficult to do and imperfect. Ultimately, real gold is verifiable and uniform, with two pieces of gold being identical in weight and color.

Although gold is heavy, it can be transported. In the modern world, this is difficult, and even in the ancient and medieval worlds, security was an issue.

Is Bitcoin A Superior Form Of Money?

Gold has always been the best form of money because it possessed the characteristics of money better than anything else.

However, Bitcoin actually fulfills these qualities even better than gold does:

  • Scarcity - Bitcoin has absolute scarcity—there will never be more than 21 million coins. However, the gold supply grows every year.
  • Durability - Since bitcoins are digital, they cannot be damaged in any way. Gold doesn’t degrade, tarnish, or corrode, but a gold coin or ingot can be chipped, shaved, or otherwise damaged.
  • Divisibility - One bitcoin can be split into 100 million satoshis; however, this is not necessarily final. In theory, it is infinitely divisible via soft forks in the protocol. Gold, being a physical asset, can only be divided so far before it hits the atomic level.
  • Acceptability - Bitcoin doesn’t currently have global acceptability, but this is growing every year. Gold will always be attractive as jewelry, but the day may come when bitcoin is seen as the superior monetary asset.
  • Uniformity - Bitcoin is impossible to counterfeit without hacking the Bitcoin network, which has never been done and is increasingly unlikely as the hashrate grows. Gold, however, is possible to counterfeit to a certain level of verifiability.

Also, being digital, each bitcoin is exactly equal to every other bitcoin, whereas gold coins and ingots are only identical down to a certain degree of accuracy.

  • Portability - Bitcoin, being digital, can be transported at the speed of light via the internet. Since bitcoin remains on the network, one could simply carry the private key from one place to another to access their bitcoin from anywhere.

Gold, however, is heavy and subject to confiscation and theft. Transporting even small quantities of gold is difficult, and, in some places, impossible.

Bitcoin vs Gold - In Conclusion

While gold as an investment still fulfills the qualities of money better than any other physical asset, Bitcoin does an even better job of providing the utility of money. 

While money can evolve as a natural phenomenon within a free market, rather than solely being a deliberate invention, the superior form of money will often end up replacing inferior ones. This dynamic aligns with concepts like Gresham's Law and Thiers' Law.

This is how gold eventually took over the world as the dominant store of value, remaining so to this day, despite no longer being used as a medium of exchange or unit of account. 

Bitcoin, as a money with superior properties, is likely to replace gold as the preferred store of value due to its absolute scarcity, potentially infinite divisibility, perfect durability and uniformity, considerably easier portability, and growing acceptability

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