Image source: Scottsdale Bullion & Coin
Bitcoin has been dubbed “digital gold”. However, there are many hardcore, old-school gold hardliners who vehemently counter this. So we must explore the conflict of Bitcoin vs Gold.
(Here is a refresher on What is Bitcoin if you need it).
** An important point I’d like to make initially is that it is possible for Bitcoin and Gold to both continue to exist, side by side and thrive. In my personal opinion, both are sound money. I do not think that we need to pit one against the other. **
Below the outline of Bitcoin vs. Gold are two videos, a debate and a discussion.
- History of Gold vs Bitcoin
- Bitcoin vs. Gold Application
- Peter Schiff Debates Bitcoin with Barry Silbert
- Dollar Collapse – Bitcoin vs Gold 2019?
- Markshire Crypto Conclusion – Bitcoin vs Gold
History of Gold vs Bitcoin
History of Gold
Gold is a rare Earth metal that is a chemical element on the periodic table, with an atomic number of 79 and atomic mass of 196. It occurs naturally in the Earth and is a bright yellow metal that is malleable, ductile and quite stable under standard environmental conditions.
As of 2019, the World Gold Council estimates that approximately 190,000 metric tons of gold has been mined, ever, with ~2,000-3,000 tons being mined annually. However, estimates vary considerably (up to 20%) from independent analyses.
The first instance of gold artefacts found with humans dates back about 6,000 years (~4,000 B.C.E.) The first known gold coins date back to 600 B.C.E. in Lydia (Asia Minor) and has grown in its use as money in various societies since then. To make the exchange of gold easier, banknotes were issued that represented a certain weight of gold stored in bank vaults, that could be redeemed for gold at the issuing bank at any time, or at the time of maturity of the note. After WW2 gold was replaced as the standard by a system of currencies, known as the Bretton Woods System, whereby the USD was pegged to gold and all other currencies would fluctuate in relation to the USD.
Then the “Nixon Shock” of 1971 completely separated all currencies from gold, creating the first truly fiat currency system. This is the system that exists today. Fiat money with no peg to gold, whose value is entirely based on the government that backs it, political monetary policy and the faith of the people using it.
Gold has worth with respect to holding/storing value. Many large entities such as central banks and wealthy individuals/families actually hoard large amounts of gold owing to the belief that it stores value over time. Since 1971 has held its value, growing in worth from ~$40-$42/ounce to ~$1,300/ounce today – this reflects gold’s worth as a store of value in sound money, as well as the respective inflationary devaluation of fiat currency.
Gold has many other applications in addition to its use as money, which include:
- Electronics (~10% of new gold production is used by electronics)
- Medicine (i.e. restorative dentistry; gold isotope [gold-198] is used in nuclear medicine to treat some cancers)
- Reflector of Electromagnetic Radiation (infrared, visible light, radio waves), used to coat things like satellites and in electronic warfare planes.
- In very thin, semi-transparent sheets it can be used to layer windows to de-ice by passing electricity through, which then heats up.
History of Bitcoin
I will be going over a very brief history of Bitcoin here, but for more details please visit “What is Bitcoin and how does it work?”
The Bitcoin White Paper, “Bitcoin: A Peer-to-Peer Electronic Cash System” was released in October 2008 (by Satoshi Nakamoto) and the very first Bitcoin block was mined January 3rd, 2009. The Bitcoin whitepaper was the first demonstration of digital scarcity, and thus the ability to have a truly borderless, electronic cash system.
Even though Bitcoin has only been around since 2009, it has a rich history of growth and rapid adoption.
- A Bitcoin marketplace was first established in October 2009, when the first Bitcoins sold for a price of $0.000994.
- The first use of Bitcoin as a medium of exchange occurred in May 2010 for two pizza pies for $25 USD. The cost? 10,000 BTC, at $0.0025 [that is a price appreciation of 251% over 7 months].
- Since then Bitcoin has experienced explosive growth in its reach, price/value, and infrastructure built around it.
- Mt Gox exchange existed from 2010 to 2014. It handled over 70% of BTC volume but then collapsed due to poor management.
- Numerous other exchanges have come and gone, most experiencing hacks, or being complete fraud and taking user’s cryptocurrency.
- Silk Road existed from ~2011/2012 until it was shut down in 2013/2014. The Silk Road was an infamous anonymous black market on the darknet where users would buy/sell illegal goods/services, and they used BTC since they did not need any payment processor and BTC was worth real money. Silk road is mentioned here because it gave BTC a bad reputation. However, since all transactions are recorded on the public blockchain ledger, the FBI was actually able to track and arrest many implicated users based on the BTC transactions.
- Since 2011 there has been an explosion of alternative cryptocurrencies (“Alt-Coins”), modified off of the open source Bitcoin protocol.
- The peak market cap of the entire cryptocurrency market reached ~$850,000,000,000 USD in December 2017, with Bitcoin reaching ~$19,000/BTC
- “Hyperbitcoinization” – In recent years (since roughly 2014) Bitcoin has increasingly been considered a viable alternative to the citizens of nations with distressed fiat. The widespread introduction of Bitcoin is possible in developing countries with high inflation, and political crises.
- Greece – during the Greek Financial Crisis in 2014/2015 there was a spike in Bitcoin purchases in Greece.
- Argentina – in 2018 the Argentine Peso collapsed 50% against the USD. During this financial crisis, the government banned citizens from buying USD, and so there was a reactive spike (more than doubling) in Bitcoin activity in the Argentian region.
- Venezuela – During the political unrest in recent years, Venezuelan citizens have gravitated towards Bitcoin, with Venezuela taking second place in trading volume on LocalBitcoins.com (second only to Russia) within 3 months of 2018.
- Peru and Columbia – there have been spikes in Bitcoin usage in these two Latin American Countries, however, they are not currently experiencing hyperinflation. It ie believed that the hyperbitcoinization of these countries is owed to their political climate highly suspicious of corruption as well as the drug trafficking out of Columbia.
- Zimbabwe – the Zimbabwean central bank famously printed Z$100 trillion dollar bills recently, with some of the worst inflation in the world. It is illegal to buy USD. There are two Bitcoin exchanges in the country, and Zimbabweans easily understand the value of Bitcoin and its fixed cap coin supply.
- China – the communist government limits fiat leaving the nation. Rich individuals/families seeking to export their wealth have been known to buy Bitcoin and very easily send it anywhere in the world.
- Hard forks – the Bitcoin protocol has been a contentious issue for crypto-anarchist/freedom-activists, and so each subgroup has its own idea of what Bitcoin should be and do. Over the last decade, there have been several hard forks of the Bitcoin blockchain, all of which have been less successful than the true, original BTC/Bitcoin Core. These include Litecoin, Bitcoin Cash, Bitcoin Cash Satoshi’s Vision as well as many more minor ones (i.e. Bitcoin Gold, Bitcoin Diamond, etc).
- As Bitcoin and alt-coins gain more value there has been an increasing amount of hacks/thefts of cryptocurrency. Over $1.3 Billion dollars worth of Bitcoin stolen from exchanges and phishing attacks as of early 2019, with the vast majority (~60%) occurring since 2018.
- In 2019 we know that Bitcoin adoption is growing at an ever-increasing rate.
- Fidelity, Bakkt, TD Ameritrade, ErisX – all opening institutional grade crypto-exchanges
- Afghanistan, Tunisian and Uzbekistan Central banks looking to issue bonds on the Bitcoin blockchain
- Microsoft is developing cryptographic personal IDs on top of the Bitcoin blockchain
- … and too many other projects to count.
Bitcoin has stumped governments who can’t stop it, as their citizens flee their national fiat currencies into Bitcoin. Bitcoin is unstoppable code, unstoppable value.
In our Digital Era, our Time-of-the-Internet, it makes sense that the Internet would have an open, frictionless, borderless, censorship resistant form of money/value.
Bitcoin vs Gold Application
|* Store of Value|
* Medium of Exchange
* Digitally scarce tokens (value)
– IDs, Driver’s license
– Professional Medical/Dental licenses
– College/University Degrees
– Property deeds,
* Highly divisible (to 100 millionth of a BTC) and easily transportable
* Its own payment network
|* Store of Value|
* Medium of Exchange
* Use in electronics
* Divisible and portable but requires physical transport
Peter Schiff Debates Bitcoin with Barry Silbert at 2019 SALT Conference
Summary of Bitcoin vs. Gold Debate Between Peter Schiff and Barry Silbert 2019
Peter Schiff (older, sitting on left with pink tie) – Gold bug. Founder of Euro Capital. Believes that everyone in Bitcoin will lose their money.
Barry Silbert (younger, sitting on right with no tie) – Bitcoin supporter and Founder of Digital Currency Group.
To be honest, this debate appears somewhat childish as the two speakers appear to argue and make redundant points rather than providing substance and acknowledging the other’s perspective.
Despite that, both Barry Silbert and Peter Schiff are relatively influential people in this industry and hearing their opinions on Bitcoin vs Gold is valuable.
Dollar Collapse – Bitcoin vs Gold 2019?
I think the most salient point is right in the first two minutes of this video. Filip (blue shirt on the left) states that there should be no argument of Bitcoin vs Gold as they are both highly valuable assets that are good for different things. That is, they have overlapping but different use cases.
Similarities Between Bitcoin and Gold:
- Limited supply
- Mining (Physical vs. Proof of Work)
- Both are assets
Differences Between Bitcoin and Gold:
- Bitcoin is also a payment network (gold and bitcoin are assets, but gold is not a payment network).
- Gold is a physical asset that also has alternative use cases in electronics, jewellery and other miscellaneous uses.
One of the biggest differences between gold/fiat and Bitcoin is the fact that Bitcoin is its own payment network. This is a feature of Bitcoin that is often overlooked. Gold is gold. Fiat is fiat. You can have either one, or both. But to transact with them they must be some sort of network built. With Bitcoin, that network is part of the Bitcoin ecosystem.
The aggregate value of fiat payment companies in the US are worth hundreds of billions (perhaps even trillions) of dollars. Bitcoin incorporates payment into it. Based on that fact alone, Filip states that he thinks Bitcoin is undervalued.
Ivan makes an interesting statement as well. He notes that recently (the past few years) the price of gold has been dropping, which does not make sense as fiat is continually inflated. Implying that gold is also undervalued right now and should go up in value in the future.
Closing the conversation, Ivan summarizes that in the case of Bitcoin vs Gold they like both. He acknowledges that they are different, with overlapping use cases, but also separate functions. Gold is only an asset, whereas Bitcoin is an asset and a payments network.
Markshire Crypto Conclusion – Bitcoin vs. Gold
As I stated earlier, I do not think that we need to pit Bitcoin against Gold. They are quite unique and separate entities. We live in a world where gold has value, as do stocks, bonds, silver, oil and fiat. While I believe that cryptocurrencies are a threat to fiat, and eventually stocks/bonds will be built on top of cryptocurrencies, I do not think that cryptocurrencies will replace gold.
Remember that certain properties certainly make something serve better as a store of value/money. However, any value system/money supply is only valuable because the end users think so and agree that it has value.
Gold is physical. It has utility, it has history, it has stood the test of time. Fiat has not. Stocks have only existed for a few hundred years, and true fiat has only really existed for around 100 years or less (depending when you consider true fiat came into existence). The average fiat currency survives for approximately 27 years, with the USD, CAD, GBP beating those odds. With that in mind, I think that cryptocurrencies will gobble up the fiat system and become the base layer for stocks/bonds and other valuable tokens.
There are three kinds of money. There’s God’s money, which is gold and silver… then there’s government money called fiat money, or currency, which is the dollar, the euro, the yen, the peso. And the third type of money now is cyber money, which is Bitcoin and Ethereum, those are the most famous.Robert Kiyosaki, Kitco News YouTube Interview.
In the interview from the quote above Robert Kiyosaki goes on to suggest that he believes Bitcoin/Ethereum and gold will survive the coming decades, but that fiat will not. He also states that he believes both Bitcoin and gold will be successful.
That being said, I agree with Robert Kiyosaki as well as Ivan on Tech and Filip. I think pitting one sound money vs another sound money doesn’t make much sense. Gold has its utility and history, and Bitcoin has its (brief) history as well as many great future applications.
I would like to add one more point to the discussion. Bitcoin the protocol has the ability for layered technology on top of it, such as tokenized assets. Both fungible and non-fungible. While Ethereum, Cardano, EOS and XRP are also all working on higher level applications with smart contracts, Bitcoin is also capable of layered solutions, making the Bitcoin network even more valuable as different asset classes are built on top of it (i.e. stocks, bonds, real estate, educational degrees, identities, etc).
This function adds a lot more value to the Bitcoin network, where as gold does not have the ability to perform this function.
Please feel free to drop a comment, question, or note for me. I love hearing from my readers