Breaking Down the Case for Bitcoin as a Form of Digital Gold
Wild financial markets have once again thrust bitcoin into the news. Conversations about whether or not bitcoin a wise investment, if its price is going to the moon (…or to zero), and whether or not it’s a proper hedge against traditional fiat currency and markets are regular fodder these days. These conversations also spark some of the age old debates about bitcoin that a lot of us are still split on. For example, is bitcoin a form of digital gold?
What Is Gold Anyway?
It’s shiny, we can agree on that much. Gold used to be more like a form of money, but it’s better as a store of value. Gold, like many other assets, can act as a hedge against securities. Real estate is considered a store of value. So are things like fine art.
Not all of these stores of value work great as a safe haven asset or are even easy for the average person to tap into though. Recent volatility in the global financial markets has caused many to rush to safe haven asset classes like gold for its relatively stable pricing and accessibility. This means that people place value in gold; i.e. gold is a store of value.
There is some irony when it comes to the way we invest in gold today. You can purchase real gold — gold coins, bullion, jewelry, etc. But you can also purchase an exchange trade fund or other financial vehicle that represents gold. In this case, you don’t own any actual gold. Still, directly or indirectly, people do view gold as a store of value. Gold has a proven track record as a store of value.
Does Bitcoin Work as a Store of Value?
Many would say yes. Bitcoin’s track record is a lot shorter than gold’s but bitcoin is also operating in a much more fast-paced global financial environment than gold ever has. Bitcoin has done a lot in its short time here on earth. Innovation in finances and technology, combined with increased globalization in all aspects of our lives, means that the world can judge the viability of something much quicker. So far, bitcoin passes the test as a store of value.
Bitcoin Has Become a Speculative Asset in Recent Years
Early bitcoin pioneers championed the cryptocurrency as a medium of exchange. Its ability to verify transactions without the need for a central bank or third party was groundbreaking. It still is. Bitcoin has, however, become less of a form of money and more of a mixed asset class with many rushing to it as a form of digital gold.
Some look to bitcoin in times of financial turmoil because it can hold value better than a volatile national currency. Not all national currencies are created equal. Some trade bitcoin more like a security, treating it as something of a store of value that also has a higher investment upside than an asset like gold. Gold might be more stable in terms of pricing, but bitcoin could crush it in terms of return on investment. It might also be a lot riskier.
In Some Ways, Bitcoin Is a New Form of Digital Gold
The kicker though is that bitcoin is much more than just that. Bitcoin goes beyond the concepts associated with gold. The fact is that bitcoin can work well as a medium of exchange. It just isn’t being used that way right now. The current crypto environment and institutional money in the space are forcing bitcoin further away from being a medium of exchange.
The finite nature behind bitcoin makes it unique. There is a limited supply of bitcoin. There will only ever be 21 million bitcoin in existence. Bitcoin is also divisible in ways that gold is not, breaking itself down as far as one hundred millionth of a bitcoin. That’s called a satoshi. The cryptocurrency also brings with it the benefit of being digital. You can carry around your own bitcoin anywhere in the world much easier than you could gold, because it’s digital. Plus, bitcoin cannot be copied. You can’t counterfeit bitcoin and nobody can spend the bitcoin that you possess.
Bitcoin Has a Lot Going for It
Even if bitcoin doesn’t stick around forever, it has already taught the world what is possible when it comes to money and technology. So is bitcoin digital gold? The answer is kind of, with plenty of caveats. Bitcoin’s use case is evolving over time, adapting to the environment in which it exists. Bitcoin is capable of much more than gold but how bitcoin mainstreams will determine what it becomes.
Keep reading about bitcoin and find out how the world's largest cryptocurrency can be used to bank the unbanked and increase financial equity.