GOLD VS BITCOIN – In-depth Comparison & How They Derive Value

GOLD VS BITCOIN – In-depth Comparison & How They Derive Value


You may have heard of the term hard
money! Now hard money can be described as a physical form of currency where the
coins themselves have some value. Gold, silver, platinum have been historically
used as rare metal forms of currency and when we flip through the pages of
history we find that hard money has been used throughout millennia and has held
its value. The civilizations that have withstood the tests of time like the
Roman civilization, the Greek civilization & the Egyptian civilization
all used hard forms of money like gold and silver. And they even use these forms
of currencies to trade with one another. Now hard money can be contrasted with
soft money. Soft money is things like credit or fiat currencies that actually
don’t have any value at all. Value is given to fiat currencies or soft money
by the decree of a government or a strong institution that is behind this
currency; and it’s often the same institution that will be publishing,
printing or generating these forms of currencies and distributing it to either
the government directly or to the people or the economy. Now a lot of people will
tell you that gold as a hard money derives its value intrinsically. That
there’s something special inside of #Gold that gives it some value. But do be aware
this word “intrinsic” value means absolutely nothing at all. Nothing has
intrinsic value! The value of anything on this planet comes from societies, peoples,
nations or groups of countries coming together and saying that we’re going to
give this thing some value. It is this BELIEF (in value) that gives anything value at all
in modern economies. The properties of Gold that are believed to give it so
much value over such a long period of time are its scarcity, its fungibility,
its divisibility, its durability and its transferability. And on top of that, I
would also say that a lot of people believe that Gold is an uncorrelated
asset with the rest of the world’s economies. If you’re an individual, then
you can store a lot of money in gold in relatively low amounts of weight. If you
go to almost any country in the world they are most likely accept gold as
something valuable and you can exchange it for food.
A limited amount of gold is found every year by people around the world and a
limited quantity of it can be mined at any certain point in time so these are
the properties that give gold so much of its value. But let’s compare these
properties to the properties of Bitcoin and this is where things get interesting!
Now there will only be 21 million bitcoins ever created. This is written
down in the code or in the software of Bitcoin and until the software stays the
same it will not change. One more thing to add is that there are so many
bitcoins (it’s estimated that three to four million Bitcoin) that are already lost.
Currently we’re around the 18 million Bitcoin mark so about 85% of Bitcoin
has been mined already, and there are only 3 million bitcoins yet to be mined.
Now every 10 minutes only 12.5 bitcoins are generated and these 12.5 bitcoins
are known as the coinbase – these are the 12.5 bitcoins that go to the miners for
securing the network and for producing the hash rate that goes into making the
Bitcoin network more secure. So the more miners there are the more secure bitcoin is.
Fungibility just means that if you pick up a piece of Gold in Peru then it
should theoretically have the same value as a piece of Gold in China, let’s say.
All bitcoins have the same value. As we see capital restrictions in certain
countries there may be higher prices to bitcoins in certain countries but that’s
only because money cannot be transferred out or in of certain countries in the
world. India is one such example of a country where severe capital
restrictions apply. There are limits and there are checks – how much money each
person is sending out of the country of India. That’s why we have seen that
the price of Bitcoin in India has been higher slightly than the rest of the
world and there are similar restrictions in China and other countries around the
world. As arbitrage happens and as markets open up, eventually, the price of
Bitcoin should be exactly the same around the world. If we look at
divisibility, each Bitcoin can be divided into 100 million Satoshis just like
Gold can be divided into a limited number of atoms most likely you’re not
going to be using the term Satoshi for the coming few years but probably in the
next few decades when Bitcoin has much higher value than it has today
the Satoshi will probably be used more often
than it is today. This does not mean that one Bitcoin can never ever be
divided into further smaller particles. With layer two or possibly layer three
solutions in the future we will be able to divide one Bitcoin into as many
number of Satosh’s or whatever they will call it in the future as we want to.
Durability – as long as the internet lives Bitcoin will live. There are over 9000
nodes in the world. There are billions of dollars of mining equipment going into
making the network more secure and stronger. Transferability – now granted,
transferring a Bitcoin might take 10 to 20 minutes at some points. Perhaps even
longer; perhaps even up to an hour if you’re looking for five or six
confirmations but when was the last time you transferred a piece of gold around
the world in less than an hour? Actually when you look at the value of each
Bitcoin and the percentage that it takes to transfer that Bitcoin to any other
wallet it’s actually relatively low and although you might think it’s free to
transfer money from one bank to another actually there are fees associated with
it. Bitcoin has nothing to do with politics or the price of oil or all of
these things. Bitcoin is seen as an uncorrelated asset to other securities
and other assets of the world and this is one of the reasons why it’s been so
popular in recent times. Bitcoin can be stored in Hardware wallets or paper
wallets. It can be stored on codes – 12 words or 16 words, these codes can store all
of your wealth! There’s almost an infinitely lower amount of weight associated with
storing Bitcoin over storing gold. When it comes to universal acceptability
we’re seeing more and more countries legalize Bitcoin or authorise Bitcoin
trading, Bitcoin exchanges. More and more countries. It started with Japan who
first legalized transactions in Bitcoin and other countries are following
quickly. As more and more days pass, more and more countries are accepting
Bitcoin as a form of investment if not a form of currency. Now one more thing that
you should really be paying attention to is that in the last month the price of
Bitcoin has gone up significantly along with the price of gold. Now gold is often
seen as an asset that people buy in order to store wealth during times of
uncertainty and bitcoin is taking over this place as a more digital form of
gold. As something that’s better than gold, something that
is more modern and something that can be easily purchased instead of having to
buy a share of gold or to buy a piece of coin of Gold which is very difficult
to dispose of. It’s very difficult to take a piece of coin of gold and go and
get exactly the same money that you paid for it. You have to carry the gold and
there’s always a chance of it getting stolen. Bitcoin is much easier to get
through times of difficulty. As the value of gold increased logarithmically after
an ETF was launched with Gold, the price of Bitcoin will increase as well, and
once this happens Bitcoin will be seen as a store of value. Bitcoin will no
longer be seen as a volatile asset as it is today. Financial managers and wealth
planners tend to keep aside some cash for their clients or some gold for the clients
so that they can buy shares or stocks that have depreciated in value once a
recession hits the economy. If you keep this in mind, there is always a certain
percentage of wealth that’s allocated to cash or harder forms of currency and
that means that during the next recession (that might possibly be around
the corner, maybe not) but when the next recession hits the world, people will
flock once again like they have always done to stores of wealth. And this is why
you should be doing your homework regarding Bitcoin today when we’re not
going through a recession. And for all the people that think that storing
wealth in the form of Bitcoin is not safe and that it can be confiscated by the
government or stolen – just try walking through an airport with a gold bar in
your suitcase.

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