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Gold has dominated the investment markets for centuries. But over the past decade, the growing popularity of Bitcoin has shown how a blockchain-based distributed network can be valuable while enabling secure, borderless transactions.
The world’s first cryptocurrency quickly established itself as “digital gold” and although it is being tested in today’s bear market, investors have adopted Bitcoin as a hedge against inflation, recession and socio-economic disasters.
But what exactly makes Bitcoin digital gold, and how does this leading digital currency compare to real, tangible gold that glitters and glitters?
This article examines the similarities and differences between Bitcoin and gold using criteria such as regulation, utility, liquidity, and volatility.
However, before going into the details, it is necessary to understand how each of these commodities works as a financial instrument.
Introduced in 2009, Bitcoin is a digital asset native to cryptography and is the largest asset by market capitalization. In less than a decade, Bitcoin has established itself as an excellent store of value and unit of exchange.
The network is immutable, meaning that whenever a transaction is made on the blockchain, this new information is merged with the previous block’s information to form a stable chain. The network has a set of participants called miners who validate these transactions. Whenever a transaction is successfully verified by a miner, a bitcoin is created and that miner is rewarded. The miner is then free to sell, trade or simply hold their coin.
No person, company, organization or country can control the Bitcoin network and anyone can become a part of it. This means that Bitcoin, as a product of this network, cannot be controlled by central banks or other government authorities.
Therefore, the intrinsic value of Bitcoin is a function of this scarcity, along with other things like desirability and acceptability.
With a rich history dating back to the dawn of civilization, gold is one of the most precious metals and is used all over the world for various purposes.
In the modern economy, gold has long been recognized as one of the most reliable investment vehicles.
The main difference between Bitcoin and gold lies in the regulatory infrastructure surrounding them. Gold is a widely accepted and regulated medium of investment, storage and exchange of value worldwide. There are government certified brokers for buying and selling gold. This significantly reduces the chances of fraud or fraud and makes it almost impossible to create undetectable counterfeit gold.
However, Bitcoin is not recognized and regulated in most countries due to its inherent decentralized nature. Owning, buying, selling, mining, and trading Bitcoin is legal in most countries, and investors typically face little regulatory friction.
As the popularity of digital currencies increases every day, countries are slowly taking steps to recognize and regulate them.
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Another area where bitcoin and gold differ is usage. These assets have very different uses in the real world.
Historically, gold has been used both as currency and as a raw material for the production of jewelry. It is also used in luxury items, electronics and dentistry.
On the other hand, Bitcoin has little use in the real world, but it is more useful in financial affairs. Like gold, it is used for investment purposes, but unlike gold, it is also used as a digital currency to make easy payments around the world.
Bitcoin is also used in decentralized finance, an alternative financial system built solely on digital assets. Within DeFi, Bitcoin can be used for decentralized lending, borrowing, equity and profit farming.
Liquidity
An asset’s liquidity is a measure of how often it can be exchanged for fiat currency. In this sense, both Bitcoin and gold are highly liquid.
Investors can easily convert their bitcoins into money on the platform. But some exchanges have high limits. So it may be difficult for users to cash out all their bitcoins at once.
On the other hand, gold can be liquidated without limit. This is an asset that users can seamlessly log in and out of. That physical gold is sold all over the world. And it can be used as a collateral to get a loan, it also makes it better in terms of liquidity.
Gold and Bitcoin are both volatile assets. However, Bitcoin can fluctuate much more in a single day than gold. This was the result of market trends and the influence of the media, where the news encourages users to panic buy or sell, creating a wave of volatility.
On the other hand, the price of gold fluctuates – a change of less than one percent. Historical data etc
You can follow the price of digital currencies on the digital currency site to find out about the changes in the price of Bitcoin.
Rarity is a key factor in choosing one financial instrument over another. Because rarer assets are usually more valuable to investors.
As mentioned earlier, the total supply of Bitcoin is limited to 21 million. 90% of which is currently in circulation. But in the case of gold, the range of production is not limited. Data from the World Gold Council show. Mining companies have extracted nearly 190,000 tons of gold so far. While 3300 tons of gold are mined annually. So every time the demand for gold increases, the market balances it with more production.
Gold mining can eventually become economically unsustainable. In practice, it will have an unlimited supply until the amount of mining exceeds the refill rate.
But not so with Bitcoin. Its supply is quite limited. In addition, the number of Bitcoins produced will be cut in half in about four years. So in that sense, Bitcoin is the rarer of the two assets.
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