From an investment perspective, gold shares a number of attractive attributes with bitcoin and other hard cryptoassets (Table 5). Indeed, these similarities have led to many referring to bitcoin as “digital gold”, and recently a number of prominent crypto fund managers and investors have mentioned significant gold holdings alongside their bitcoin, including Ari Paul and Arthur Hayes.
Table 5: Similarities between Gold and Bitcoin
Like bitcoin, gold can be owned entirely outside of banks and the traditional financial system. While financial products such as gold ETFs have grown in popularity in recent years, there is also a large market and range of institutions, including government run mints, that supports physical gold ownership. Physical gold ownership can in some ways be likened to holding cryptoassets in non-custodial wallets. Both gold and bitcoin can be owned outside of any intermediary or third party, residing in the sole possession and control of the actual owner.
The physical and virtual nature of gold and bitcoin, respectively, makes them more complimentary
than competitive
The most fundamental difference between bitcoin and gold is their virtual and physical nature, respectively.
Bitcoin is entirely digital. It is created using computer code and only exists “on computers and the internet”, so to speak. In contrast, gold is one of the just over one hundred fundamental chemical elements that form the primary constituents of matter and cannot be broken down into simpler substances. From this fundamental physical-digital difference springs a number important distinctions, potential advantages and trade-offs, between gold and bitcoin (Table 6).
Table 6: Gold vs Bitcoin — Advantages/trade-offs arising from Physical vs. Virtual nature
While the above table attempts to highlight advantageous characteristics for bitcoin and gold, particularly from a use and store of value perspective, it is important to note a number of limitations with this exercise.
First, any generalization of advantages across different people and institutions is inherently problematic given differences in circumstances and preferences. For example, crime and risk of theft varies across geographies and personal circumstances, making any physical security generalization problematic. We have therefore chosen not to indicate an advantage for either bitcoin or gold for physical security.
If an investor owns pure digital assets such as bitcoin (BTC) as a hard asset they should also carefully consider gold
Second, this table does not weigh the relative importance of different advantages, and the importance of some advantages may vary over different geographies and periods of time. For example, some countries have shown a willingness to shut-off internet access, an act which effectively renders cryptocurrency impossible to use and thereby negates bitcoin’s transferability advantage.
Looking at total supply, at first glance this characteristic might appear to favor bitcoin given its finite and knowable supply. However, because bitcoin has only been in existence for just over 11-years some would argue that the social consensus and technology that secure bitcoin’s finite supply have not received a sufficient test of time compared to something like gold, which has proven immune to efforts by alchemists, etc. to inflate its natural supply.¹⁰
Finally, a number of gold vs bitcoin dimensions are not included in this comparison, such as environmental impact, a heavily debated topic. Concerns over both have been raised, but we are not aware of any authoritative analysis comparing the respective environmental impact of gold and bitcoin.
Source: https://medium.com/blockchain/going-for-gold-e141356f3d6f?source=rss—-8ac49aa8fe03—4
