Dec 2014

Bitcoin vs Gold

The bitcoin vs gold debate has raged on in investment circles since bitcoin has entered mainstream discussion among increasingly interested investors. Gold has been used as a form of currency and trade for thousands of years, and certainly has a track record for reliability and preservation of wealth. However, as the newcomer onto the scene, bitcoin may be the kind of financial and technological breakthrough to to challenge gold as the monetary kingpin.

Early on in its life cycle, seasoned investors began questioning the legitimacy of bitcoin value and debating how such a commodity could hold intrinsic value. What differentiates bitcoin from a mere collectible and what makes it similar to precious metal assets such as gold or silver? Among many circles, especially gold bugs and older-generation investors, bitcoin was not considered a valid investment up until very recently. Which factors of bitcoin instil this validity of investment?


USD per bitcoin, gold oz. 2011-2015

In order to properly analyse the value of bitcoin vs gold, we must clarify which attributes of gold are valuable and prop them up against the promise of bitcoin. When we measure the implications of today’s economic environment, it is clear to see why bitcoin is being considered the ‘gold of the 21st century’, or as some pundits have advocated, a ‘digital gold’.

Bitcoin vs Gold

Gold has perceived value because it is scarce, quasi-indestructible, and serves an industrial purpose. Bitcoin inherits all of these attributes and also adds the characteristics of portability and perfect divisibility. Both are also exceedingly durable and cannot be counterfeit. The main advantage for bitcoin over gold as a commodity is that bitcoin has perfect portability, while gold must be insured, physical stored and guarded, and verified that the integrity of the substance has remained intact and not mixed with other filler metals such as tungsten. If you are moving precious metals across borders, you must declare it. No amount of border authorities or cash sniffing dogs can detect if you hold bitcoin, as ownership can be distilled to memorizing a private key which controls the associated wallet. If you are attempting to buy something with gold, it usually needs to be exchanged for currency first. Bitcoin payments need only a smartphone to transact.

One of the main reasons to add gold to an investor’s portfolio today is as a hedge against economics disaster, that of collapse or hyperinflation. Outside the gold-bug crowd, and among the current generation, gold as a valid form of transaction is a stretch of the imagination. If such an event were to occur, would people be exchanging in pieces of gold if internet connectivity were still available? At the blurring rate of current technological advancements, would considering a shiny metal to be valuable seem like an increasing trend?

Gold may have been reliable in the 20th century, but among a generation of digital natives, who are connected psychologically (and soon to be physically) to their mobile devices, bitcoin will increasingly be the method of choice for commerce. This is the information age, and in it, information represents the most valuable form of commodity. Bitcoin is financial information stored on a collective, distributed computing network.

In terms of commodity fungibility, having one unit exactly similar to all others is important. With bitcoin, this is guaranteed by cryptographic algorithms, yet every coin carries with it the entirety of its transaction history. With gold, this is not so simple. Metals can carry dilutions and value estimates can differ depending on the mint which issued the coin or bar. We also know that the benchmark used by investors and central bankers to determine the value of precious metals has been (and continues to be) heavily manipulated. According to Bloomberg, authorities around the world are already investigating the manipulation of benchmarks from interest rates to foreign exchange, and examining the $20 trillion gold market for signs of wrongdoing.

With bitcoin, network integrity can be cryptographically proven, representing a digital asset which has transcended physicality and operates within the cyber domain. It’s very possible to send millions of USD worth of bitcoin within seconds and only the sender and receiver are aware of the identities involved. Physical actors cannot exert control over the portability of this commodity, and therefore, ‘digital gold’ represents bitcoin accurately.

Gold is a store of value which relies on tradition to support its value base along with a few minor industrial purposes. When you take away this perceived tradition of value you are left with a few manufacturing uses and nothing more. Tradition has built an idea in the consumers mind that gold and silver hold tremendous intrinsic value. It could be argued that the valuations behind precious metals is artificially high due to a market perception which has vastly underestimated the quantity of these metals.

Despite what a merchant may tell you, we have no clear idea on the supply of gold. We have barely begun to explore the depths of the ocean let alone mine deeper than a scratch in the Earth’s crust. Who is to say how much gold and precious minerals near-Earth asteroids contain? It’s possible that gold’s perceived scarcity may prove to be illusory in 20-30 years when private enterprise is mining rocks in space.

The Verdict

The fact that bitcoin is instantly transferable across the globe with no need to identify the parties involved, is why it holds a tremendous advantage over precious metals. Bitcoin, and other developments in cryptocurrency, will challenge precious metals as history’s de-facto store of wealth.


Travis Patron

Travis Patron is the author of The Bitcoin Revolution: An Internet of Money, a seminal publication in the digital money space which outlines the basics of the bitcoin payment system. As a public speaking authority, he regularly speaks to audiences on the economics & industry trends of bitcoin.

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  • Reply

    Robert Miller

    27 12 2014

    Gold and bitcoin are perfectly complementary, especially if you want to get out of the banking system

  • Reply

    Luke Parker

    27 12 2014

    I used to own gold, but after a lot of study on the subject, I couldn’t find one single trait, not even one, that gold had an advantage over bitcoin on.

    Fiat at least is more liquid and can be better secured than bitcoin can for the time being; but of all the other criteria that makes money good, bitcoin was specifically designed to be the best at them all. Here’s a full run-down of them all:


  • Reply

    J Bradley Hall

    28 12 2014

    The entire BTC ecosystem is circa US$5 billion. Gold trades US$240 billion per day and is the deepest and most liquid asset class on the planet. Gold has been the most trusted store of value for 6000 years. BTC has been in existence for 6 years and in the last year alone, the price is down 70%. It is by default not viable as a store of value. In terms of destructability, the evidence of BTC’s existence can be erased in a nano-second. A solar flare will not destroy gold. Central banks hold reserves in gold for a reason, it underpins the entire financial system. It is the only asset that is no one else’s liability. To suggest that BTC has intrinsic value is simply naive or misleading. 99.9999% of the planets commerce excludes BTC. BTC is a claim check with nothing to claim. Gold is money.

    • Reply

      Travis Patron

      29 12 2014

      An interesting comment and welcomed counter-perspective Bradley. Gold has certainly held its own over the last few thousand years. It is widely seen as a viable store of value, that I cannot deny. Is bitcoin as valid a store of value? Currently, the comparison is not even close as the price is too volatile, yet as bitcoin stabilizes it increasingly becomes useful as a tool of commerce and store of value.

      You are correct bitcoin lost 70% of its value this year. As it did in 2013, again in 2011, and will likely do at least one more time. That’s the kind of situation you deal with in an entirely unregulated and experimental market, unlike gold.

      An interesting perspective to consider: Gold is money as a thing. Bitcoin is money as a system. The technological functions of that system allow us to do things with money we never previous have been able to do so. Therein lies the intrinsic value. Can bitcoin and gold coexist? Is it a zero-sum game? Bitcoin representing money as a system rather than a thing, coupled with the fact it is digital by nature, lead me to believe bitcoin will eventually replace gold.

    • Reply

      Joep Meloen

      11 02 2015

      Nice cherry picking numbers!
      My 2012 analog gold is WAY down while my 2013 digital gold is WAY up.

      The only thing which keep analog gold from crashing faster is a few billion analog people in the east which still value gold above bitcoin.
      A Solar flare will also fry everything else besides bitcoin. If it happens tomorrow, you’d much better have FIAT cash instead of gold. There is no place to buy bread and water with gold currently but there are millions of sheep where you can dump your FIAT cash in exchange for goods.

      Gold is a store of value for relatively foreseeable pandemic events. For every other problem bitcoin has a solution.
      Sometimes I almost think that traditional gold bugs want the world to collapse with death and destruction so that their gold coins will be worth millions and trillions.
      No, I rather motivate free global trade with bitcoin and help the world to become a better place instead…

      • Reply

        Travis Patron

        11 02 2015

        I never thought to put the existential threat of a solar flare into the analysis. If that were to happen, I couldn’t help but feel 99% of the population would be wiped out. If a solar flare were to permanently damage the electrical grid, good luck to you and yours!

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