The phase “digital gold” has become a popular way to describe Bitcoin and in turn the crypto markets in general. It is a phase that conjures images of preserved value, decentralisation and a more modern alternative to traditional assets such as gold.
But is cryptocurrency really just a digital version of gold? Or is this way of described the crypto revolution too simplistic for such a massive, ever-evolving technology?
In todays blog we are going to look at the “digital gold” tag and try and get a better view of the thought process behind it.
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Why is Bitcoin referred to as “digital gold”?
Bitcoin is easily the first and the most well known of all the cryptocurrencies and is the asset most often referred to with the term “digital gold”. The comparisons between the two are quite similar;
– Rarity: The value of gold is partly tied to the supply that is available as there is only so much of it on our planet and mining it is very resource intensive. Bitcoin mirrors that characteristic, with its capped supply of 21 million coins. New Bitcoin’s are minted through mining, but the rate of creation halves every four years, reinforcing the rarity over time.
– Store of value: Over the years, gold has been used as a hedge against rising inflation and economic uncertainty. Bitcoin has been pitched similarly, especially in countries with an unstable currency or high inflation. The idea behind Bitcoin is that if offers a borderless, censorship resistant store of value in the harder financial times.
– Decentralisation: Much like gold, Bitcoin is not controlled by a central authority. While governments gold reserves and can influence the gold markets, gold itself is not issued or regulated by any single party. Bitcoin has been setup to operate on a decentralised network of computers, or miners which has made it resistant to direct government control or interference.
Okay, so what’s the difference?
While you might be wondering why these two powerhouses of investment are not the same after reading what we have said above, let me show you the other side of the argument;
– Volatility: One of the biggest and most obvious differences between Bitcoin and gold is the volatility in the price. Gold prices change, but rarely with the same intensity of Bitcoin which is able to swing 10%, or even more in a single day. This has made Bitcoin a risky investment for those looking for a stable investment.
– Use cases: Gold has many industrial uses, such as electronics, jewellery and within the aerospace industry, where as Bitcoin’s primary use case remains speculative investment and on a smaller scale, peer-to-peer payments. Other cryptocurrencies such as Ethereum have a much great selection of use cases, being smart contracts, decentralised applications and NFTs. This suggests that not all crypto assets fit into the “digital gold” idea.
– Technological disadvantages: Gold does not electricity of the power of the internet to exist, it is a physical asset that people can hold. Bitcoin and other cryptocurrencies on the other hand depends heavily on the internet, functioning networks and hardware. There are also the obvious risks involved with cryptocurrency such as hacking and cyber theft, where as gold has stood the test of time over centuries. Let’s not forget, cryptocurrency is barely a decade and a half old.
– Regulation: Gold is globally recognised and regulated and has been for a long time. Cryptocurrency still faces a lot of laws and in some jurisdictions outright bans. This makes cryptocurrency more politically vulnerable. While being decentralised offers protection from censorship, it is not immune to government crackdowns.
If Bitcoin is “digital gold” what is the rest of the crypto market?
Truth be told, all of the various altcoins in the crypto space right now have a number of glaring differences compared to Bitcoin. They don’t have Bitcoin’s hard cap, decentralisation or longevity. Ethereum is often described as “digital oil” because of the way it powers smart contracts and transactions on the Ethereum network. Other tokens may be better referred to as “digital stocks”, coupons or even experimental technologies.
The size of the crypto space, the rate is changes and the sheer volume of it make it too diverse to fit under one label. While Bitcoin may earn its place in the future as “digital gold” the rest of the crypto space is going to have to evolve into something else, something new.
Crypto Analyst‘s Final Thoughts.
While it is fair to say that Bitcoin shares some similarities with gold, particularly in the way it has been designed, the rarity of the coins and the decentralised nature, calling it such a name oversimplifies the complexity and the impressive eco-system that Bitcoin has to offer.
In reality, while this name may stick to Bitcoin for quite some time, cryptocurrency is general is much more than just “digital gold”. It is a completely new financial universe that is still under construction and we are only just seeing the tip of the iceberg of what it come one day become.