Blogs & Articles: Bitcoin Compared to Gold and Traditional Currency 🔗 6 years ago

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.

5. Safety:

• 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.

6. Storage:

• 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.

7. Supply/Scarcity:

• 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.

Conclusion

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