Bitcoin vs. Gold

Bitcoin and Gold as an Inflation Hedge

One of Bitcoin’s standout features is its absolute scarcity—there will only ever be 21 million Bitcoin. This finite supply, set in code, contrasts with assets like fiat currencies that can be inflated. Bitcoin’s role as an inflation hedge became evident during the Covid lockdowns of 2020-2021 when its price rose sharply as governments printed money to cover economic costs.

Gold, while relatively scarce, doesn’t offer the same absolute limit. New gold reserves are continuously discovered, and the supply could even expand with future space mining. Although gold can serve as an inflation hedge to a degree, it hasn’t matched the rise in the money supply. For instance, gold’s inflation-adjusted value has yet to surpass its 1980 peak, underscoring the impact of decades of monetary inflation on its perceived value.

Bitcoin and Gold as Investments

The difference between Bitcoin’s absolute scarcity and gold’s relative scarcity also affects their appeal as investments.

Bitcoin’s capped supply, digital nature, and easy divisibility make it attractive. Anyone can verify Bitcoin’s authenticity through a Bitcoin node, and when stored securely in self-custody, it can’t be confiscated. Gold, on the other hand, has an extensive track record and some industrial uses, but verifying its purity and auditing its supply are costly.

Both Bitcoin and gold come with storage challenges. Some investors use third-party custodians, which introduces counterparty risk, while self-custody has its own trade-offs.

Bitcoin and Gold as Mediums of Exchange

Bitcoin’s portability, divisibility, and verifiability make it a practical transaction method compared to fiat currencies. Its digital nature allows for seamless cross-border transactions, especially with the Lightning Network.

Gold, however, lacks the portability and divisibility needed to function as a medium of exchange. Transporting gold across borders in significant quantities is impractical, and its physical bulk makes it vulnerable to confiscation.

Risks of Centralization and Confiscation

Bitcoin’s decentralized network means no government, corporation, or individual can control its supply or prevent anyone from transacting. Attempts by countries like India, China, and Turkey to ban Bitcoin have mostly backfired, often leading to increased adoption within their borders.

Gold, however, is largely monopolized by a few large corporations, making its supply susceptible to disruptions from corporate disputes or international conflicts. Historically, governments have also confiscated privately held gold, such as the U.S. confiscation in 1933. Gold’s physical nature makes it visible and heavy, increasing its vulnerability to seizure. In contrast, Bitcoin is digital and can be easily hidden, making mass confiscation much more difficult.

Divisibility and Portability of Bitcoin vs. Gold

A single Bitcoin can be divided into 100 million satoshis, making it easy to transact in small amounts even as the price of one Bitcoin rises. Gold, on the other hand, is difficult to divide. Gold would need to be melted down to spend in smaller amounts.

Bitcoin’s portability is another key advantage. It can be stored on a flash drive or in a software wallet, allowing for quick, borderless transactions. The Lightning Network further enhances this by enabling instant, low-cost transfers. Gold’s weight and bulk make it challenging to transport and store, often requiring secure safes or bank deposit boxes, which add cost and counterparty risk.

Environmental Impact of Bitcoin vs. Gold

Bitcoin has faced criticism for its energy consumption, but much of this energy comes from stranded or otherwise wasted sources, and Bitcoin mining can actually incentivize the development of renewable energy in underutilized areas.

Gold mining, by contrast, has a well-documented negative impact on the environment, leading to pollution of land and water, with severe effects on surrounding ecosystems.

Source: https://davidgerard.co.uk/blockchain/2018/04/22/bitcoins-continuing-failure-to-substitute-for-gold/

Conclusion

Bitcoin and gold both offer benefits as stores of value, but Bitcoin has certain advantages that position it as an evolution of gold. With a finite supply of 21 million, Bitcoin offers absolute scarcity, compared to gold’s limited but still expanding supply. Bitcoin’s digital nature allows anyone to verify its supply and transactions easily, while auditing gold is costly and time-consuming.

Bitcoin’s resistance to confiscation and superior divisibility and portability make it an increasingly viable alternative to gold as an inflation hedge and medium of exchange. As adoption grows, Bitcoin’s advantages in ease of verification, security, and usability may continue to attract those seeking a modern store of value.

Final Thoughts

• Finite Supply: Bitcoin’s supply is capped at 21 million. Gold’s supply is scarce but still expanding.
• Verifiability: Bitcoin transactions and supply can be verified by anyone, while gold’s authenticity and supply are costly to audit.
• Divisibility: Bitcoin’s divisibility and digital portability make it easier to use and transport compared to gold.