Bitcoin vs. Gold

In the long run, Bitcoin becomes an even better value preserver than gold! Why do we call Bitcoin digital gold? Why can it be better than physical gold?

💠What gives the value of gold?

(Photo credit: Pixabay)

In the early stages of the formation of money, it was important to have means of payment that were valuable. Shells were easily broken, other metals corroded, so they were unsuitable as a replacement tool in the long run. Gold, on the other hand, is highly resistant to chemical effects because its atomic structure is very stable and difficult to mix with other substances. That is, precious metal. In addition, it can even be re-melted, keeping the amount extracted in circulation for centuries. Whether a metal is chemically stable may not yet be value stable. However, this stability contributes to a high stock / yield ratio. On the other hand, if we approach it from the production side, mining companies invest in machines that can extract expensive gold.
Rising gold prices are triggering a drastic increase in extraction. If too much gold is extracted in a short term, its value falls down. Interesting fact: the current gold in stock (all gold bars, gold jewelry, etc.) are equal to the volume of two 10-storey houses-blocks. This amount is huge compared to the annual yield! It would take 50 years of extraction to double the current volume. Inflation is stable at 1.5-2% by nature.

💠Bitcoin as digital gold

(Photo credit: Pixabay)

Anyone familiar with the basics of Bitcoin has probably discovered quite a few similarities between the two. Because Bitcoin exists digitally, survival in time is not in question with it, as is the case with, say, a precious metal. Of course, even the initial Bitcoins mined in the genesis block are fully equivalent to those currently mined. Bitcoin stocks, like gold, are also limited. For digital gold, this is provided by the Bitcoin code itself, while for physical gold it is provided by natural endowments. However, the fact that your inventory is limited does not in itself make anything worthwhile. In practice, the critical condition is the stock / annual yield ratio. How and how much Bitcoin enters the cycle is also recorded by the Bitcoin code, so as to provide a fixed but steadily declining yield. In the early years, 50 and then 25 per block, and currently only 6.25 Bitcoin, are paid to a cryptocurrency miner after the closure of the block. This ensures that Bitcoin is becoming rarer and more difficult to access. With this, Bitcoin inflation is also fixed, currently 1.8% per year. This happens to be exactly between 1.5-2% of the gold produced in recent decades. However, digital gold inflation will be only 0.9% after the next block halving (from 2024)

Bitcoin, like gold, has a fixed maximum stock and a fixed extraction rate. Like gold, Bitcoin has a huge inventory / annual extraction rate, with annual inflation currently at the same rate as gold. In the future, however, it will inflation even less than gold.

**Tyler Winklevoss*, one of the founders of the Gemini cryptocurrency exchange, says Bitcoin will push down even physical gold over time. Bitcoin brings the excellent properties of safekeepers better than physical gold itself. Not a little, but many times better.

The role of money is nothing more than
💠to effectively convert one type of work we do into any other product or service.
💠With its help, it is enough for us to do a single job well,
💠with our money we can buy the fruits of any other job.

However, there are plenty of conditions that make something a good currency and others a bad currency or a value preserver.
💠How can you scale,
💠how time-resistant,
💠how difficult it is to get from point A to point B,
💠how much your annual inflation is,
💠whether there is any need to use it at all, and so on. Tyler Winklevoss compared digital gold (Bitcoin) to real physical gold roughly based on these requirements.

💠Gold vs digital gold

Rarity, durability, portability, divisibility, storage, not counterfeit, adoption. Roughly these requirements should be met by a good-preserving currency. And right now, Bitcoin has only one feature that lags far behind gold. And this is nothing but the value of the cycle. The capital value of gold is currently about 45 times greater than the capital value of digital gold. The degree of volatility known to many is precisely due to the fact that Bitcoin still has relatively few values. And with that, buying or selling a few million dollars can greatly affect the price of Bitcoin. However, as the amount of value circulating in Bitcoin increases, its volatility decreases and the system itself becomes more stable, taking the last point away from gold. And if only a few percent of the vast value of gold flows into the Bitcoin system, it rises drastically in the price of Bitcoin.

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