In recent years, following the rise of blockchain technology and cryptocurrencies, many people have compared gold and bitcoin, especially regarding their reputation and ability to “guard” value or heritage. Next, we will know some of the similarities between gold and bitcoin.
They are speculative assets
Both gold and bitcoin are speculative assets. An asset is called “speculative” when it has certain risks, and its benefits depend on fluctuations in market prices. Although gold has more stable prices than bitcoin, it is considered a “speculative” investment since investors or people who acquire gold do so, hoping to preserve their assets or obtain certain profits. On the other hand, in the case of Bitcoin, it is considered a highly “speculative and volatile” asset due to the constant fluctuations of its price in the market.
Limited supply
Both gold and bitcoin are in limited supply. In the case of bitcoin, there can only be 21 million units in circulation, which makes bitcoin a limited asset since by the year 2140, all units will be created (mined).
In the case of gold, the amount of gold existing on the planet is finite; for example, many experts affirm that its extraction will not be economically sustainable from the year 2050 because, from this date, its extraction will be through more complex excavations and, therefore higher operational cost.
As we can see, in both cases, the “finite” supply makes the asset have a higher value than other market options that do not have that restriction.
They are the most valuable in their ecosystem
This is one of the most outstanding similarities that these two assets present, since at present, bitcoin is the cryptocurrency with the highest demand and highest value globally, which can be seen in its market price. On the other hand, gold is considered the “most valuable” precious metal and the one in greatest demand globally, which is why it is used in many countries as an international reserve.
Universally accepted
There are several precious metals in the world; however, gold continues to be the most valued and in greatest demand due to its reputation built over several millennia; this has allowed said precious metal to be globally accepted as a “standard” of heritage protection, quality, and payment guarantee. On the other hand, despite the existence of several cryptocurrencies in the market, bitcoin is the crypto asset with the highest value, commercialization, and acceptance in the global market, especially thanks to the good reputation it has built in recent years. In both cases, the prices of gold and bitcoin are based on the value assigned to them by the users, especially based on the supply and demand of the global market.
At some point, they were highly criticized
Both Bitcoin and gold have many detractors and were once heavily criticized. For example, many people think that only Bitcoin has detractors or has suffered strong criticism; however, if we look at history, we can see some moments in which gold was also questioned or criticized, for example, during the great depression (the 1930s), some economists argued that the gold standard was an obstacle to economic recovery. On the other hand, some environmental groups oppose the use and extraction of gold due to the use of polluting substances in its mining or extraction process (elements such as cyanide, mercury, etc.) in addition to the damage it generates in nature and the system of exploitation of people that are used in informal mining.
Are independent of the government or financial system
Unlike FIAT money (controlled by governments and can be created unlimitedly), a prominent feature of gold and bitcoin is their independence and autonomy since they cannot be fully managed or controlled by governments, entities, or financial systems. Although both must comply with certain local laws and regulations, their operation and performance are independent of political decisions. For example, many interventionist or dictatorial governments fight against the gold standard or the use of Bitcoin since they consider them an obstacle in manipulating prices and wage rates. Every time these governments devalue their currency (printing more money), users generally turn to gold or bitcoin to protect their assets.
Another point that must be taken into account is that many governments, organizations, and entities have tried to create “copies” of gold and bitcoin; an example of this is some cryptocurrencies that try to imitate bitcoin (but are not backed and not based on blockchain technology), while in the case of gold, there is gold “paper certificates,” which are documents representing ownership of a specific amount of gold. Such certificates are often used to invest in gold without having to physically own the metal; however, these certificates are based on the fractional reserve system, a system in which banks hold only a fraction of your deposits as reserves in cash and use the rest for loans and other investments, which allows them to “create” money through loans.
They have specific forms of storage
Both gold and bitcoin have a specific way of being stored. Gold, a physical asset, is stored in security “safes” (domestic, private, or bank boxes). On the other hand, bitcoin, being a digital asset, is stored in a public record called blockchain, where all transactions are recorded and accessed using a digital wallet.
What do you think about this topic? Do you know other similarities between gold and Bitcoin?
Top image by Kanchanara via Unsplash.com under creative commons license.
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