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12, Nov

Is Bitcoin Digital Gold?

Introduced in 2009, Bitcoin is a digital-native crypto asset and the largest by market capitalization. In less than a decade, Bitcoin established itself as an excellent store of value and a unit of exchange. 

Bitcoin was created by a person or a team of people under the pseudonym Satoshi Nakomoto, who described the new technology as an electronic peer-to-peer cash system. This gave rise to the crypto industry: a new era of finance and investing in which people could finally take control of their assets and break free from the dominance of central banks.

Unlike regular fiat currencies, Bitcoin is created, stored, and traded on a distributed ledger called the blockchain. At its core, a blockchain is a decentralized database spread across a network of nodes around the world. 

This network is immutable, meaning that whenever a transaction takes place on the blockchain, this new information along with the information in the previous block is merged to form a fixed chain. The network has a set of participants called miners who verify these transactions. Whenever a transaction is successfully verified by a miner, a Bitcoin is created and rewarded to that miner. The miner is then free to sell, trade, or simply hold their coin. 

No single person, company, organization, or country can control the Bitcoin network and anyone can become a part of it. This means that Bitcoin, as a product of this network, also cannot be controlled by central banks or other government authorities. 

Bitcoin has a maximum total supply of 21 million coins, out of which 19 million are currently in circulation. The production of new coins also halves approximately every four years, with total production estimated to finish in 2140. 

A graph showing Bitcoin’s production schedule.

Gold in brief

With a rich history that dates back to the dawn of civilization, gold is one of the most coveted precious metals and is used across the world for a wide variety of purposes. 

In the modern economy, gold has long been established as one of the most reliable investment vehicles. Investors buy gold as a portfolio hedge and to diversify risk, since overall gold has maintained a remarkably consistent market performance compared to other assets. This makes it one of the most sought after investments of all time.

The liquidity of an asset is a measure of how easily it can be exchanged for fiat currency. In this regard, both Bitcoin and Gold are both very liquid. 

Investors can easily convert their Bitcoin to fiat on platforms like MoonPay, but some exchanges have upper limits so users may find it difficult to liquidate all of their Bitcoin at once. 

Gold, on the other hand, can be liquidated without limits. It is an asset that users can seamlessly move in and out of. The fact that physical gold is sold around the world and can be used as collateral to obtain loans also makes it better in terms of liquidity.

Both Bitcoin and gold come with their fair share of benefits and risks. Bitcoin is a riskier asset because of its lack of regulatory infrastructure and higher volatility, but of course this also means that it can bring a higher return on investment.

The decision to invest in either of these assets comes down to the individual investor’s goals and appetite for risk. For those with a slightly higher risk tolerance, Bitcoin would make for a great addition to their portfolio. 

For risk-averse investors, however, gold is the better option. With less volatility and risk, gold is more suitable for people seeking a stable value appreciation. 

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