When Satoshi Nakamoto created bitcoin, he envisioned a peer-to-peer digital currency that would allow people to send money without the need for financial institutions. However, bitcoin’s use as a store of value overshadowed its original goal, and people started referring to it as “digital gold.”
But is it?
Bitcoin as Digital Gold
As you think of bitcoin as digital gold, the first thing you notice is the golden colour circling its symbol. If you go back in history in the times before bitcoin, developers were keen to create a currency that would be the digital version of gold. For instance, the inefficiencies of conventional financial systems and the use of gold as currency inspired Nick Szabo to create Bit Gold.
So, that could have been the thinking of the time: marrying the pros of digital currencies with the benefits of precious metals. That could explain why a yellowish-orangey colour circles the bitcoin symbol. Also, bitcoin is often illustrated as a golden coin.
Nevertheless, the association between bitcoin and gold does not end with the logo.
Digital Gold vs. Physical Gold
Bitcoin and gold have several similarities.
They both have a limited supply, which boosts their value.
You can divide both assets into smaller units and they will not lose per unit value. The smallest unit of bitcoin is the satoshi. 100 million satoshis make one bitcoin.
Gold is stable, and so is bitcoin. Although the latter is volatile in terms of price, bitcoin’s underlying technology, the blockchain, gives it stability.
They are both easily recognisable.
Bitcoin is more superior to gold because you can move it to any place of the world in minutes, it is impossible to counterfeit, and it facilitates online payments.
Furthermore, bitcoin is more accessible and easy to hoard. Exchanges and peer-to-peer marketplaces like Paxful are making it easier for people across the globe to own cryptocurrencies. For instance, with a smartphone and an internet connection, anyone in the world can buy bitcoin.
Therefore, saying bitcoin is digital gold is an oversimplification. Bitcoin is superior than gold in terms of features and potential impact on economies. However, viewing bitcoin as digital gold is a strategy beginners can use to easily understand the cryptocurrency.
Bitcoin as a Store of Value
After Satoshi released bitcoin to the world, the response was probably better than the unknown creator could have hoped. The cryptocurrency attracted a loyal community that started using bitcoin as a store of value because of its scarcity, safe-haven characteristics, and the fact that it is impossible to counterfeit. As a result, many people are holding bitcoin as a long-term investment because they believe in its long-term value. Moreover, the population of bitcoin supporters is continuously growing.
The debate on whether bitcoin is a store of value or not has been raging for years. While bitcoin “Holders” believe that bitcoin will one day make them wealthy and shield them from a financial crisis, others believe that bitcoin, which is also partially money, cannot be a store of value as well.
That said, bitcoin has made several people into billionaires, proving that it is a practical store of value. Gold is a store of value as well, and it offers financial freedom and protection during economically tough times. However, governments could deny citizens from owning gold. On the other hand, governments would have a more difficult time blocking citizens from owning bitcoin.
Where Does Bitcoin Get Its Value?
The answer to this question is simple. The decentralised nature of bitcoin gives it a lot of value. As the first digital currency that is not under the control of any government or organization, bitcoin is extremely valuable. Therefore, anyone that is against conventional financial systems will find bitcoin very attractive.
Gold is also a decentralised asset. However, the fact that it is not easy to move or hoard, makes bitcoin arguably the more valuable asset.
The Money of the Internet
Although bitcoin as money was overshadowed for some time by its store of value feature, this is changing. The introduction of the lightning network and its continuous growth is facilitating bitcoin as the money of the internet.
Scalability issues aside, bitcoin has the potential to change the payments sector. Major companies like Microsoft, AT&T, and Namecheap are accepting bitcoin as payment. Additionally, platforms like Paxful are enabling businesses to accept payments from anyone in the world through bitcoin.
As such companies set the stage for bitcoin as the money of the internet, it will take time for the world to uniformly accept bitcoin as a payment method. That means that its money functionality will remain underutilised for the time being.
It is clear by now that bitcoin provides more benefits than gold. Therefore, referring to it as digital gold is an understatement. Bitcoin has a lot to offer, and with time, it could become a widely accepted payment method.