You may have heard a lot of hype about crypto-currencies and about Bitcoin in particular. Essentially, a bitcoin is an encrypted number. A really, really big number. To us, it doesn’t mean anything, but when it is run through the bitcoin algorithm, it ‘fits’ and the algorithm knows that it belongs there and that it is worth 1 bitcoin.
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Is Bitcoin the New Gold?
Bitcoin is becoming the new gold of the future. The dawn of technology has further propelled Bitcoin’s dominance as an alternative currency. Today, it’s even recognized as a legal currency in several countries. But with the increasing volatility, will it endure the test of time and become the new gold of the future?
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The rise and fall of Bitcoin is now a common scenario. During its early emergence as digital currency, most people saw it as an alternative digital asset. The knowledgeable ones keyed into it, and right now, its value as an asset has skyrocketed.
The unpredictability of digital assets has raised global concerns. Comparing cryptocurrency investments with traditional gold has sparked diverse controversies. Some investors are optimistic about bitcoin as the new gold, while some are pessimistic with lots of facts to justify their attestation.
Gold is the standard asset that has birthed other currencies with time. But, according to Anthony Scaramucci of SkyBridge Capital, people have to embrace bitcoin’s trajectory and volatility as the popularity of this ‘new gold’ grows internationally.
Specifically, before we can generally accept bitcoin as the new future gold, let’s quickly run the statement through some fundamental ideologies that will standardize the asset stores.
The government’s regulation used gold to back the USD when the currency came into the limelight. That meant each dollar was worth a certain amount of gold, and you could take your dollar note to the mint and exchange it for its gold equivalent.
In the early 1970’s Nixon removed the need to have gold backing each dollar and simply passed a law that basically said ‘A dollar has value because we said so.’ This might surprise some people. How can something have value simply because someone says so? In short, they made a system that mimicked the gold backed system, but without the gold.
Implementation of these currencies is dependent on government laws and legislation. For example, flat money used to be the only means of exchange, but gold became a scarce commodity with the discovery of its potency.
How Bitcoin Compares to Gold
Now based on financial acceptance, let’s quickly run through convincing and widely accepted evidence of gold that made it standard and widely appreciated. Bitcoin, the most valuable cryptocurrency and the new gold in view by market capitalization, is sometimes compared to gold as a long-term store of value, according to CoinMarketCap. Bitcoin’s price, on the other hand, is currently exponentially more volatile than gold.
What Made Gold Valuable in the First Place?
Gold had developed a history of being valuable because it was an element that was:
- Permanent – it would not rust, rot or die,
- Scarce – demand for it always outweighed supply,
- Impossible to counterfeit – much to the chagrin of alchemists for thousands of years.
Because of these reasons it was ubiquitously used as a store of value for centuries. But its high value meant that it was also difficult to use in everyday purchasing. It was hard to mint a coin small enough to purchase a chicken, and hard to carry enough to purchase a house.
To help get around this problem, governments would issue currency that would make tracking and trading this store of value much easier.
In a free market system, every currency must still fit the 3 rules that made gold valuable. And the US dollar follows these rules, likewise bitcoin.
In a few points, we will confirm if Bitcoin is becoming the new gold of the future.
1. The legality of bitcoin as a future gold
The set gold trade market, weighing, and tracking system are flawless. As a result, it’s pretty difficult to steal it, pass it off as fake gold, or otherwise taint it. Bitcoin as the new gold is also difficult to tamper with because of its encrypted, decentralized system and complex algorithms, but the infrastructure necessary to assure its security is still lacking.
When you take a dollar as payment from someone, you do it based on the government’s “guarantee” that it will be received by someone else if they keep their obligations to obey the laws.
Bitcoins fit into this pattern as well, but they don’t require any guarantees. Instead, the initial algorithm ensures that everyone involved is truthful. Then, the computer-based acceptance makes them operate as a store of value.
2. Scarcity of bitcoin
Gold, like bitcoin, is a scarce commodity. While we know, there are only 21 million bitcoins in existence. We have no idea if it’s possible to mine all the gold in the world. Because this is digital money that can only be operated based on cloud storage and accessibility, its availability is restricted and scarce. So, using bitcoin for business globally is still under review for general acceptance.
3. Volatility of bitcoin
Looking at how volatile bitcoin has always been based on record for the past decade, embracing it as a future new gold will be too risky. So can we make a case for Bitcoin as digital gold if it isn’t the future of money? Bitcoin supporters say that because the new gold’s quantity is limited to a maximum of 21 million units, it can serve as a reliable store of value. However, Bitcoin is not a viable alternative to traditional gold due to its short history and abstract character.
Aside from volatility, bitcoin has shown itself to be vulnerable to market fluctuations and events in the past. On the other hand, gold does not fluctuate as bitcoin does, making it a potentially safer asset. Even with the volatility, is bitcoin the new gold?
Gold has a long history as a means of exchange, and its physical qualities have prompted humanity to place a high value on it for thousands of years. It is still widely used for jewelry and ceremonial purposes in many countries today.
Is Bitcoin as Permanent as Gold?
The new future gold is essentially a lengthy number that the system recognizes as fitting into a formula about the future new gold and the ancient gold. So people will know you as long as you have this number in your wallet.
It doesn’t get old, decay, or disappear unless you lose access to your wallet, which is equivalent to tossing a gold coin overboard and losing it forever. Accessibility of bitcoin guarantees that it will last like gold has for centuries. Would you like to embrace bitcoin as the new gold to increase your investment opportunities?
Bitcoin’s value is still pretty thinly traded and highly volatile at the moment. However, the new golds are gaining validity and volume as they work their way into mainstream society. With time, we will justify if bitcoin is the new gold of the future or a brief success…
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February 26, 2016