Bitcoin and gold are two sides of the same coin. Although different in a physical sense, they hold similar characteristics which many find of value. Much like gold, no one entity governs bitcoin. This ensures distribution remain decentralized and supply finite and for this reason, many investors are attracted to bitcoin.
Often used to speculate against economic easing and other monetary policies, gold is a great tool to hedge against uncertainty. Gold is known as a “safe haven” in times of economic recession, but bitcoin was created in response to the great recession, which on its own speaks volumes. Gold has been used as a medium of exchange for thousands of years, bitcoin on the other hand, only a decade. Since both assets are closely related, yet have dissimilarities, I've decided to put head to head.
For this comparison, we will look at store of value, medium of exchange, and unit of account. This is what the Federal Reserve Bank of St Louis along with most economists consider the primary functions of money. The reason behind this comparison is simple; gold has often been referred to as true money. So by using the properties of currency to compare two assets, we can conclude which of the two is the superior.
Store of Value
Both Bitcoin and gold have been referred to as a store of value, but what exactly does this entail? Well, according to most resources, a good store of value preserves value without rapid depreciation. The most commonly used storing of value is through currencies, government bonds and precious metals.
So we ask, does bitcoin stack up against gold as a store of value?
Well, slightly and i’ll explain. For the average person who wants to buy and hold an asset as a store of value, bitcoin is too volatile. When bitcoins market cap increases, this factor is subject to change, but until then gold is an easier and less volatile method to preserve value.
As for the future, its highly likely bitcoin will reach the current market cap of gold and if this holds true, volatility will decrease and bitcoin will become the superior store of value.
Medium of Exchange
Probably the most obvious function of money, a proper medium of exchange is an accounting system used in buying, selling, and trading and must be universally accepted as payment. To be considered a practical medium of exchange the accounting system must be uniform, portable and readily accepted as payment.
So, between bitcoin and gold, which acts more efficiently as a medium of exchange? Let’s take a look.
Although gold fits the criteria of all three properties, bitcoin is much more uniform, more portable and widely accepted. Unlike gold, bitcoin doesn’t have fixed physical properties. This allows the carrier to decide the uniformity of his bitcoin and allows for easy and secure transportation. When holding physical currency, many denominations are needed to facilitate a diverse array of transactions. Although, if carrying bitcoin, the need for multiple denominations is non-existent, and every transaction is recorded digitally.
For gold, just about everyone will accept it when conducting person-to-person transactions but, bitcoin is more widely accepted as a form of payment in the digital realm which gives it a significant advantage over gold. Whether it’s person to person, online, or through the use of a 3rd party service, you can spend bitcoin almost anywhere.
Unit of Account
Last, but not least, the most important function of money; providing an efficient unit of account. This is a no-brainier for anyone who knows the slightest about bitcoin or blockchain technology, but just in case, ill go over the reasons bitcoin dominates this monetary property..
Within the foundation of accounting; ledgers provide an organized means of tracking economic transactions. This is accomplished by recording credits and debits to and from various accounts. Ledgers have been used by humans for thousands of years and yet, the concept remains unchanged. Throughout history, monetary record keeping has evolved from the clay tablets, once used thousands of years ago, to the spreadsheets we often see today. From clay and gold, to spreadsheets and dollars, a ledger and physical currency have always been two separate entities. That was until bitcoin came along.
What bitcoin will and always have over physical gold or cash is a distributed ledger. Using a blockchain allows for secure, fast, and tamper-proof transactions along with ridding of a trusted 3rd party. The combination of a ledger integrated into the asset itself is what makes bitcoin remarkable. Alone, bitcoin is a much better currency compared to gold and even the U.S. dollar
Comparing bitcoin to a renowned and widely accepted asset like gold truly puts things into perspective. Using the Federal reserves website as a reference, bitcoin dominated gold in almost every category given to describe a currency, yet big banks and the fed still throw shade. Bitcoin clearly fits the criteria of a currency and is much more efficient than allowing an institution to hold your funds, yet politicians and banks talk down on bitcoin and other cryptocurrencies. Their arguments usually revolve around crime, yet fiat dollars have been used for decades to launder money and fund criminal organizations. Makes you think; is it crime they’re worried about, or is it losing power? Regardless, bitcoin dominates and will continue doing so for years to come.