There has been an ongoing debate on how Bitcoin can be compared to physical gold concerning long-term asset value. Several reports have asked readers to imagine scenarios in which they could only invest in one of two commodities. On a surface level, gold may seem like the more obvious choice due to an age bias and the general belief that it shows deflationary properties. But upon further analysis, one can see that gold is inflationary, even if to a small degree.
Compared to Bitcoin which is purely disinflationary with a fixed set of units, the latter begins to seem like the more superior option. That said, gold is an excellent commodity in its own right and was used as the primary means of exchange for thousands of years by civilizations across the world.
However, the world is giving way to new technology that is redefining how money has been perceived and used in the past. Through blockchain technology, a decentralized immutable public ledger, Bitcoin is showing that monetary transactions can occur quickly, affordably and safely, independent of a central authority. Despite the long-standing debate between supporters of either commodity, both groups are against centralized banking practices.
Both commodities also have some properties in common; since Bitcoin, the first cryptocurrency was modeled after some of the qualities of gold.
Benefits and Disadvantages of Bitcoin Assets
Bitcoin has certain advantages as a store of value that makes it comparable to gold in this regard, including:
- It is highly innovative in the area of transaction speed since it typically takes about 10 minutes to confirm a transaction on its network. This is due to the time usually taken by miners to append new transactions to the blockchain and validate them.
- The reason behind the creation of Bitcoin was to make a way for individuals to take back control over their money from the government. Unique decentralized protocols allow it to function as a self-serving ecosystem with user nodes contributing to its sustenance.
- The digital nature of Bitcoin ensures that it can be carried anywhere, whether in a hardware wallet hidden in a bag, or a mobile wallet carefully held in a smartphone. This is especially great because users do not have to be present in a particular location to gain access to their funds.
- Bitcoin offers a level of anonymity that traditional banking systems do not. People do would rather stay anonymous for several reasons, including protecting their identities and assets from cybercriminals.
Unfortunately, Bitcoin has its pitfalls, just like any other asset and they simply cannot be overlooked.
- Just as it is an excellent store of value in some areas, it is also a poor store of value in some. One such area is its volatility. Bitcoin, like any other cryptocurrency, can crash at any time, so funds are just not safe. Within 24 hours BTC can see a decline of up to 50%. This decline also occurs quickly, causing considerable losses in brief moments of inaction by the user
- It is vastly unregulated, and this has led to the theft of cryptocurrency from exchanges, as well as various scams such as Bitconnect
- The coin itself has no intrinsic value and is driven purely by speculation, which can lead to losses depending on events within the industry
- It has to be exchanged for another commodity such as the US dollar for it to become useful in most cases. More shops are willing to accept fiat currencies than they are to take digital currencies
- In some cases, mining BTC can be likened to printing money, and this may lead to short term inflation
- There is a looming possibility that with Bitcoin, a user's funds can be wiped out one day. The government of a country can shut down its internet, citing national security reasons and Bitcoin users will suffer
- Bitcoin is still the product of emerging technology and has ongoing issues with its operations that users will have to overcome with time
Benefits and Disadvantages of Gold Assets
While Bitcoin is still struggling to make headway among the global population, in the midst of regulatory tension, gold is instantly recognizable as a valuable real-world asset. Also, due to its molecular properties, gold has some industrial and medical uses. Unlike Bitcoin mining, gold mining takes physical strength with little return and a strict supply that grows at a minuscule rate. Some benefits of gold include:
- It is difficult to counterfeit since the properties of gold such as its lack of corrosion, resilience and other vital elements are not easy to mimic.
- Gold is relatively easy to coin, and it stays in that form permanently. This way, it can be carried around easily and exchanged for goods and services in various places.
- For a long time, this particular coin has existed as a store of value across civilizations and can be exchanged for any item.
- Since it is a physical item, it cannot just be wiped off one day by cybercriminals.
- It is only slightly impacted by a change.
Like Bitcoin, gold has its string of disadvantages as well, including;
- It can be physically stolen or misplaced.
- It is not portable in its raw form and can be difficult to transport in large quantities, especially across borders. This makes logistics difficult and expensive, especially considering the amount of security needed to accompany it.
- Converting gold into fiat currency is not cheap regarding money and time spent.
- Gold does not offer anonymity, and its transactions can be tracked by the government and by cybercriminals.
Where Does it Fit into Assets Portfolio?
Gold is an excellent store of value because it can always be traded for other goods and is still used to monitor and track the value of other assets till date. It has also proven to be valuable even when outlawed or replaced with other assets. For example, in 1933, President Franklin D Roosevelt implemented measures to criminalize the possession of gold in the US. It did not lose its long term value.
It is also a reasonably profitable investment vehicle, but Bitcoin offers more opportunities for long and short-term profit. The volatility which poses a threat to its users is also a critical factor in how much profit they make.
Both assets have their strengths and different roles, and as it stands, one cannot be replaced by the other, at least not in these early stages of Bitcoin development.
Gold is a typical store of value, but it is quickly being overshadowed by Bitcoin technology and its offer of fast, reliable, and decentralized financial transactions. While many may think that gold will fare better than Bitcoin in the long term, the growth of BTC must be taken into account. Its value has increased steadily since its emergence, and it is on the right track to grow even more, according to predictions.
It is difficult to say how well Bitcoin will do in some years honestly. With gold, nobody has to wonder. However, it is safe to say that gold is not going anywhere, but the same cannot be said for Bitcoin, which is plagued by issues concerning stability, storage, security, and future development.