Bitcoin vs Gold: Examining Store of Value, Liquidity, Scarcity & Security

Bitcoin VS Gold: Which Is A Better Store Of Value?

For thousands of years, gold has been used as a store of value by many communities in the world over. In some communities, the use of gold as a currency has been scrapped off with ease of transferability, storage costs and divisibility the main problems facing the metal.

Bitcoin is a cryptographic digital asset that solves the problems facing gold as a store of value while offering increased advantages for the user. In this article we focus on which asset is better as a store of value, Gold or Bitcoin?

Finite Number Of BTC At 21 million

As much as the overall value of gold is affected by the scarcity of mining it, it is the demand and supply of it that affects the price of gold. Compared to Bitcoin that has a total supply of 21 million BTC available for mining, gold mining deposits in the earth are only approximated and the true value is unknown.

This presence of unknown gold deposits works against gold as a sudden discovery of larger deposits of gold in the earth’s crust will cause an increase in total supply which can cause a large drop in gold’s price. The finite amount of Bitcoin makes the commodity scares hence the price is set to increase in future.

Bitcoin Is Efficient, Easily Transferable And Divisible

One of the major reasons gold has never been actually considered as a daily usable currency is the transferability and divisibility issues it faces. Gold faces a difficulty in divisibility hence the introduction of ‘paper gold’ (discussed below) while Bitcoin can be divided up to 8 decimal places easing the payment for small goods.

Gold currently trades at $38.24 USD per gram, which translates to $38,240 USD per kilo of the shiny substance. For a corporation wanting to send a $100 million USD payment to another country, will see the company send approximately 2.6 tons of gold which would require security, safety, and a lot of duty taxes to get into a foreign country. This ends up being very expensive while counting the overall cost of transfer of gold from one point to another.

Bitcoin on the other hand is a cryptographically secure system that allows large transactions of money to be sent across the globe faster than traditional means of transactions. The same $100 million USD can be sent across the countries with the system secure from any type of hacking while the transaction fee is minimized to a few dollars for this huge sum.

Bitcoin Is Very Liquid Compared To Gold

A common narrative is told when gold is involved; “Not all people who own gold have the gold.” This can be proved true as the huge market of paper gold increases on COMEX, Commodity Exchange Inc. These gold investors own gold paper that gives them the ability to redeem the paper for solid gold at COMEX’s gold vaults in New York. However, reports from Business Insider shows that the vaults lack enough gold bars to redeem the paper gold with the percentage ranging close to 1% to 3% of gold.

As more paper gold is offered, the value of gold becomes diluted as the ‘printed gold’ does not fully reflect the real physical gold available on the market. The paper gold solves the question of liquidity as gold is very hard to sell in gold bars.

Bitcoin is very liquid in nature as you can directly convert it to fiat cash through exchanges such as Bittrex and Coinbase of peer to peer exchanges such as Localbitcoins.com that is available in over 240 countries worldwide. The liquidity of Bitcoin makes it a perfect match for fiat as a store of value compared to gold.

In conclusion, the continuous dependence of gold as a store of value may become crippled with the rise of a more secure, transferable, efficient and feeless system in Bitcoin. The two have long been compared as a store of value however, Bitcoin easily beats the precious metal in overall advantages of the system.

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