Gold Good, Bitcoin Better

Over the last decade, bitcoin has grown from a small-scale experiment into the dominant leader of a new asset class. With a $100 billion market capitalization, bitcoin has the potential to revolutionize many aspects of our lives. Just as the computer and the internet radically transformed the way people store, process, and exchange information, bitcoin radically enhances the ways we can store, process, and exchange value.

While gold historically played a central role in economies driven by physical exchange, the world we live in today is digital. As our money and payment systems evolve, bitcoin has emerged as the ultimate store-of-value asset and an obvious replacement for gold.

That’s because Bitcoin possesses a superior composition of “good money” qualities made for a digital global economy:

Scarcity

Like gold, bitcoins are scarce assets. Just as new deposits of gold are discovered every day, new bitcoins enter circulation roughly every ten minutes. Unlike gold, however, the total supply of bitcoins that will ever enter circulation is limited to 21 million coins, which we’ll reach around the year 2140. Today, roughly 17.7 million bitcoins are in circulation, or 84% of the total amount.  

Verifiability

Bitcoins are unique cryptographic assets[1] that are directly verifiable on the Bitcoin blockchain, in real-time, from anywhere in the world. But watch out for gold on the open market. Outside of vetted holders of gold bullion, you just might be buying yourself fool’s gold!

Durability

Bitcoins reside on an immutable open-source ledger maintained by a global network of users. Because the network has no single point of failure, it is incredibly resistant to threats. As the exclusively native currency of a global financial network, bitcoins represent a resilient store-of-value with real utility.

Portability

As a digital asset, bitcoin is far more portable than gold. Connectivity to the internet is all that is needed to transact in bitcoin, whether via a computer or even the simplest of mobile devices. So, if you’ve got a phone – like 4.7 billion other people in the world – you can already carry, send, and receive bitcoins.[2]

Divisibility

All bitcoins are displayed to the eighth decimal place, creating 100 million units within each bitcoin. The smallest possible unit, a ‘satoshi,’ represents 0.00000001 of a single bitcoin. Imagine a world in which you can send a small fraction of a bitcoin instead of a “like” on Twitter to crowdfund charities or fund independent projects with the click of a button. Try doing that with a gold bar.

Fungibility

One bitcoin represents the same exact value as another bitcoin on the network. Can the same be said of gold? Would you trade a stranger’s gold ring for one of your own with the full confidence they were worth exactly the same amount?

Recognizability

Bitcoin is recognized by regulators around the world (in the U.S. specifically, bitcoin is classified as a commodity by the CFTC, as a non-security by the SEC and as property by the IRS) and more than 100,000 merchants worldwide now accept bitcoin including Shopify, Overstock.com, Dish, Expedia, PayPal and Microsoft.[3] That’s right – you can buy your next vacation with bitcoin.

Bitcoin: Digital Gold for a Digital Age

Bitcoin’s superior composition of “good money” qualities make it both a resilient store-of-value and an efficient medium of exchange. It is the new and improved “digital gold,” perfect for our digital society.

TL;DR  — it’s time to drop gold.

Grayscale’s Director of Investments & Research, Matthew Beck, explores this idea in more detail in the Grayscale Insights Report: Bitcoin & the Rise of Digital Gold available at https://grayscale.co/insights/.

To learn more about Bitcoin, continue reading Why Bitcoin?.

[1] In computer science, cryptography refers to secure information and communication techniques derived from mathematical concepts and a set of rule-based calculations called algorithms to transform messages in ways that are hard to decipher. These deterministic algorithms are used for cryptographic key generation and digital signing and verification to protect data privacy, web browsing on the internet and confidential communications such as credit card transactions and email. Source: TechTarget Search Security. https://searchsecurity.techtarget.com/definition/cryptography. March 19, 2019.
[2] Source: Statista. https://www.statista.com/statistics/274774/forecast-of-mobile-phone-users-worldwide/. March 19, 2019.
[3] Source: Due.com. Bitpay. March 19, 2019.

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