Many people often link Bitcoin to Gold. It is because many perceive both as being a safe investment. Despite being similar, due to Gold and Bitcoin are finite resources, they also differ in many ways. Such as physicality and volatility of the price.
Bitcoin and Gold alike, are sourced through mining; however, mining gold is very different from mining Bitcoin. Gold is located and excavated from the ground and then forged in flames. Bitcoin is created by computers solving complex equations. Many refer to this as ‘Bitcoin mining’. And although these processes comparatively differ, they share some common ground. Bitcoin is regarded as the decade’s best investment, whereas Gold is considered one of the safest investments.
As previously mentioned, Gold and Bitcoin are limited in supply; they are finite resources. The prime derivative of price and appeal to investors is mining them to increase circulation, thus influencing market value. Looking at the sustained growth and establishment of these markets, it is evident that both Gold and cryptocurrencies will continue to grow and amount value for the foreseeable future. Bitcoin connects people via the internet, anywhere in the world. The blockchain model and coding behind Bitcoin uses cryptography, computer science and mathematics to protect electronic communication and ensure coins cannot be copied or forged, the same way you cannot copy Gold.
Unlike Gold and physical cash, you can trade and receive Bitcoin instantaneously without restriction. Both Gold and Bitcoin share the trait of finiteness, meaning no individual can conjure anymore into existence. The Bitcoin market cap is over $154 billion (£120 billion). At this moment in time, Bitcoin’s price is currently around $40,696 (£30,000), which is an ATH (All-Time-High). The daily volume for Bitcoin is $8 billion (£6.2 billion) in tracked exchanges. Many believe that Bitcoins market cap will become hundreds of trillions in years to come. And this has resulted in an exponential increase in Bitcoin’s recent price, driven by increased purchasing. It has many people investing with the prospects of making a great return on investment within a couple of years. Comparatively, the gold market is at $7 trillion (£6 trillion), and the daily volume of exchanges is estimated to be around $109 billion (£85 billion) to $231 billion (£180 billion) a day.
The total amount of Bitcoin you can mine is caps at 21 million, the coding behind Bitcoin is programmed so that it gets harder to mine over time (there is a smaller reward per mathematical equation that is solved). But how much Bitcoin has been mined already? Around 18.5 million Bitcoin are in circulation now. It means that about 80% of all Bitcoin have gone through the mining process already. When a mathematical equation is solved, miners receive Bitcoin as a reward. The amount of Bitcoin issued upon solving an equation is ‘the reward per block’. The reward is cut down in half per block every four years (this occurs every 210,000 blocks, blocks go through mining on an average one every 10 minutes). The figure remains consistent because the coding behind these equations is a self-adjusting mechanism, which self regulates the rate it solves the equations at.
Due to the diminishing rate of Bitcoin mining, the last of it will be in 2140. Recent data states that approximately 165,000 tonnes of Gold have been mined and exists above ground today. And at least 4,500 tonnes get mined a year, but it is unknown how much of the mining remains.
Another key difference between Gold and Bitcoin is how it is stored. Gold is not convenient to store and can easily be stolen or lost. Bitcoin can be stored in a digital wallet, hosted by various online services capable of storing Bitcoin safely, meaning no one can steal it. However, if passwords are lost, you cannot recover the Bitcoin. Even though most gold investors store Gold in secure vaults, there will be an ever-present threat of theft.
A key aspect to consider is that Gold has been used as currency and for trading for over 2,000 years, whereas Bitcoin has only been in existence since January 2009. Within 11 years, Bitcoin has earned the title of being a nationally recognised safe-haven asset. Within a decade, Bitcoins introduction and impact has echoed throughout the trading industry and will continue to shape the future of economics as we know it.
The chart compares the price of Gold and Bitcoin before it hit its peak in December 2017. That is when Bitcoin reached its all-time high. The graph demonstrates that Gold’s value slowly and consistently increases throughout the year, around the same rate at which the value of money appreciates. Conclusively, it a safe asset to invest in. However, now consider the rate at which Bitcoin’s value has increased. The data illustrates a 20-fold increase within one financial year (from $1,000 in 2016 to over $20,000 in 2017). It is a clear indication that over this period, Bitcoin was a significantly more profitable investment.
Not everyone can invest in Gold because billions of people worldwide lack access to banking infrastructure. But to access and buy Bitcoin, all you need is a connection to the internet.
Bitcoin came in place to tackle these issues by sending value across the globe with near enough no fees. Both Bitcoin and Gold have very liquidated markets which many can trade with fiat money. Gold is more of a safe asset to invest in as Bitcoins price is highly volatile, as seen when Bitcoins price went from less than $1,286 (£1000) to over $19,302 (£15,000) in just one year. However, volatility works both ways because Bitcoins price dropped in 2018 to around $6,430(£5,000) and slowly started to rise.
People often view Bitcoin as gold 2.0 since they both share very similar properties, neither require an authoritative governing body to operate and have associated value, and both have limited supply. If you’re curious about the similarities and differences between Gold, fiat, and bitcoin, refer to the chart below.
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