Better store of value - Gold or Bitcoin?

Have you ever thought about how strange the concept of money is? Small pieces of coins or metal passed from person to person traded for food, clothes, and services.

Thousands of years ago, before money existed, humans relied on a system of barter. If you are a farmer, leftover crops can be traded with clothes. This system, of course, could not be scaled. So humans came up with a smarter way - instead of carrying hundreds of items for them to trade, how about small tokens representing those items that they wanted to trade. These tokens were abstract circles or coins which could be standardized and used more often. Fun fact: early Roman soldiers were paid in salt, which is where the word salary came from.

Gold became the de facto accepted natural choice of money. In fact, Gold was fitting the bill so well that it was used as the primary store of value across the globe for centuries. Gold was Scarce, Fungible, Durable, and had all the properties that money should have, and more importantly, the network effects -- as many people, clans, civilizations continued using gold over decades and centuries. Our parents, grandparents started storing gold to store their wealth, and the price increased due to an increase in demand and limited issuance of gold (as mining gold was an extensive process that required a lot of time and resources).

Over the last 4,000 years, Gold has reigned as the world's most recognized store of value. But can there be a better system that is superior to any of its predecessors? Can Bitcoin be a better store of value than Gold? 

Interestingly while there are some very stark similarities between the traditional commodity and its new digital counterpart, several attributes also evidently showcase the disparities between the two assets, recapitulating the argument of Bitcoin being the new digital gold. Let's compare a few of the money's basic traits and properties.

Scarcity: How much of the supply exists, and how much will there be in the future?

With the obvious exception of tangibility, the comparison checks off the first major attribute being scarcity as both are scarce resources and have a limited supply. The halving of Bitcoin's mining reward ensures that all 21 million Bitcoin will be out of circulation by the year 2140.

But the catch here is that while we know that there is only 21 million Bitcoin that exist, it is unknown when all the world's gold will be mined from the earth and how much exactly is the supply of Gold in real-time. There are studies regarding tentative estimates of gold circulation, but it is not completely verifiable to every ounce. Whereas in Bitcoin, you can verify every Bitcoin that has ever been mined. 

Verifiability: Can you trust that it’s real?

Gold is verifiable but it's not easy to validate gold to a trustworthy degree. There are various tests you can do to make sure the Gold you have is real and may take hours or days depending upon the test you choose - https://bullionexchanges.com/learn/test-gold-real . 

But to a common person, it is not easy to verify gold. In contrast, Bitcoin is easier to verify due to the open and public nature of its blockchain network. In Bitcoin, every transaction ever made, and new transactions, are easily verifiable using a home computer in a few minutes. All you need to do is refer to the public bitcoin blockchain.

Divisibility & Portability: How small can you make it?

Every Bitcoin can be divided to the eighth decimal place, creating 100 million units within each Bitcoin, which means the smallest possible unit, a ‘satoshi,’ represents 0.00000001 of a single Bitcoin. It is easily verifiable with a home computer and costs just a few dollars even to move a billion dollars in value.

Whereas Gold can be broken down into smaller pieces and it also has to be cut down previously, before the trade. It is also extremely heavy which is hard to physically move and costs more, for bigger transactions. Because it isn’t digital, you can’t transact with it with someone on the internet. Bottom line is, sending Bitcoin is as easy as sending an email, and sending gold from one place to another is an extremely cumbersome and tedious process. 

Fungibility: Is every unit similar to another? 

In the case of gold, purity varies depending on the percentage of gold and is denoted by the unit - Karat. The higher the Karat unit, the higher will be the value (ex: 24 karat - pure the gold is). Thus different purity of gold has a different market value (22 karat gold will have a different value than 24 karat gold). 

While on the other hand, one Bitcoin represents the exact same value as another Bitcoin on the network. Bitcoin thus offers an efficient means of transferring money, and there will be always a great deal of trust that the unit will be the same everywhere.

Censorship Resistant: Is it possible to stop it? 

Censorship resistance covers how difficult it is for a single authority, or institutions or nations to prevent the owner from keeping and using the good or an asset. 

Bitcoin is a supremely censorship-resistant asset. It is designed as an inflation-proof asset where citizens of countries with huge inflation issues of their government-backed currencies, will use it to hedge and protect their wealth. Gold however is easier to confiscate and seize and is thus less censorship resistant compared to Bitcoin. 

Bitcoin can be privately held by anyone in the private wallet and its passphrase can be stored on a piece of paper. The passphrase represents the ownership. Whereas in gold, the ownership lies in the physical storage of the gold. It is easier to seize a bar of physical gold than a piece of paper. 

Counterfeitability: How easy is it to forge? 

Owing to the complicated, decentralized blockchain ledger system, Bitcoin is incredibly difficult to counterfeit. Creating a counterfeit Bitcoin would mean executing what is known as a double-spend -- a situation in which a user "spends" or transfers the same Bitcoin in two or more separate settings, effectively creating a duplicate record, the possibility of which is extremely unlikely, due to distributed, verifiable, and immutable Bitcoin network. It is not easy to say the same about Gold, as it is easier to counterfeit.

Here all the major money properties on Bitcoin vs Gold ( also included Fiat currencies for better classification) 

(Image source - Reference from multiple Bitcoin articles)

Now, comparing Bitcoin and Gold, Bitcoin is the clear winner! Today, technologically, we don’t need anything physical at all to achieve the best form of the store of value. Satoshi carefully architected Bitcoin’s DNA to be the best money ever created. 

What’s more compelling is that the adoption of Bitcoin is very less compared to gold. Currently, just less than 1 % (Roughly 7.5 million) of the total Indian population is investing in crypto assets like Bitcoin. Therefore even if the adoption grows to 5 or 10 percent, Bitcoin has a huge upside in price vis-à-vis gold on account of its trivial adoption and fixed supply. The gold market is capped at about USD 9 trillion while Bitcoin is at +USD 920 billion at the time of writing. 

Now if Bitcoin reaches the gold market cap in the current scenario, it will mean 1 Bitcoin will be worth USD 485850 representing a ~1000% increase in the current price. Thus it presents a strong case for Bitcoin to not just reach gold’s market cap but even surpass it as the two assets compete on the aforesaid traits of divisibility, scarcity, and fungibility among others.

Therefore undeniably, Bitcoin is indeed the landmark digital money and one of the most exciting financial technologies. While it has raised a global social movement, breeding umpteen possibilities and exhilarating ambitions it has also grown into a technology worth billions of dollars ( it also approached a trillion-dollar market cap, a couple of weeks ago). A terrific idea has come to pass since the creation of the internet.