Bitcoin Compared to Gold and Traditional Currency
1. Bitcoin is presently a store of value as are gold and traditional currency.
2. Centralized or decentralized control:
- Bitcoin is de-centralized via individual computers processing algorithms located globally.
- Gold is de-centralized.
- Traditional Currency is centralized with decisions controlled by a Central Banks with decisions from unelected individuals.
3. Overall unit volume amount held differs depending on type:
- Bitcoin can be held directly by an individual with no differentiation on unit volume held or a third party.
- Gold can be held in coins or bars individually, however institutionally it must be physically held in a vault.
- Traditional Currency can be stored in paper form by an individual or with a third party. It is also held digitally by a third party not an individual.
4. Other uses for these mechanisms in addition to consideration for an exchange of value:
- Bitcoin is Blockchain with technology imbedded to mark events and transactions and is an infrastructure growing in value via Metcalf’s law so far.
- Gold has demand from jewelry and limited, critical industrial applications.
- Traditional Currency has no other demand mechanisms.
- Bitcoin on a peer to peer basis has never been compromised since inception. It benefits from the Lindy effect of over nine years operating. Built-in Authentication.
- Physical gold can be altered and has been stolen. Proper Authentication need an expensive assay. Paper markets for Gold usually do not have full inventory backing.
- Fiat Currency can be altered and has been stolen. Need to trust counterparty.
- Annual fee for larger amounts — 0.15% to 1% per year.
- Subsidized by Central Bank
- Free, can be stored in a cold wallet or on an exchange (recommended amount is value willing to lose) Need to understand care of handling and storage.
- Bitcoin supply is fixed by strict protocol and cannot exceed an ultimate cap level of 21 million units.
- Gold supply combines amount already in existence and is added to by mining ore and processing additional increasingly scarce amounts from the earth.
- Traditional Currency controlled by Central Banks with ability to increase supply on an arbitrary basis.
8. Counterparty Risk (Debt/No Debt):
- Bitcoin — None.
- Gold — On Physical Peer to Peer basis, None. On a paper instrument basis, need to confirm risk as to yes or no.
- Traditional Currency — Yes, has debt backing and magnitude depends on issuing Central Bank.
9. Peer to Peer transactions over IoT:
- Bitcoin — Yes.
- Gold — No.
- Traditional Currency — No.
Consider Bitcoin to be a Cryptoasset*. Bitcoin is likely to be a valid option as a store of value going forward due to the characteristics listed above. As IoT continues to expand and grow, it is a secure method as an exchange for services for transactions at a macro and micro level. Large transactions can be confirmed within the same day with a minimal fee compared to traditional currency settlements. On even a micro level, for example, a payment of 0.000000001 bitcoin can be made.
*Cryptoasset definition (from Cryptoassets: The Investor’s Guide to Bitcoin and Beyond by Chris Burniske and Jake Tater): Combines Cryptography (data security) — Crypto and Asset (financial) — Unit of Account