Bitcoin is not “more valuable than gold.” The market cap for Bitcoin is only $1.67 billion vs. gold’s estimated $9 trillion.
So you are really asking two questions here: 1. Why does gold have value and 2. Why does Bitcoin have value?
In answer to #1, gold jewelry is a collectible. It has value for the same reason that fine art, comic books, and trading cards do.
People think gold jewelry is beautiful. It has lots of different designs, and people enjoy accumulating different pieces. They may wear one piece one day, and another a different day. Some pieces they may not wear at all. They may just take the pieces out and look at them from time to time.
Gold bullion is needed to make gold jewelry. So it has value for that reason.
Today, most gold mining output gets stored as bullion instead of being made into jewelry. But this is because we live in a strange world where central banks are constantly suppressing interest-rates.
Because interest-rates are so low, investors buy gold instead of investing in companies or lending their cash out to earn interest.
But this will not last. Eventually, this system will be replaced by one that makes more sense. And at that point, most gold mining output will be used for jewelry fabrication as it has in previous eras.
In answer to #2, Bitcoin originally had value because people thought it would be used for decentralized applications such as colored coins:
Today, it has been surpassed by systems such as Ethereum, EOS, and Hive. So it’s very unlikely that there will ever be popular Dapps on Bitcoin.
But still, Bitcoin has value at this point because it’s so costly to produce. A Bitcoin block currently costs around $81,000 worth of electricity to mine. By contrast, an Ethereum block only costs around $600 worth to mine.
This is because the difficulty of the Bitcoin hash problem is much greater than the difficulty of the Ethereum one. This, in turn, is caused by the greater hash power on the Bitcoin network.
In other words, there are many more computers being employed to mine Bitcoin than there are on other blockchain networks. And the way a Proof of Work consensus protocol operates is that the cost of mining a block increases as more computers try to mine it. So more miners means higher cost…which means a higher price in the marketplace.
The reason why there are so many miners on Bitcoin compared to other crypto networks is because Bitcoin has been around longer than these other networks. Because of this, it gets talked about more in the media.
This increased media presence attracts speculators. And the money this brings in is used to fund greater mining capacity - which leads to more hash power and greater difficulty.
This greater hash power and difficulty leads to greater cost. So speculators who get in early are able to buy Bitcoin from miners at a lower cost than speculators who come in later.
So for speculators, Bitcoin is great…at least in the short run. A person can buy it now and be pretty sure that it’s cost of production will rise in the future, allowing him to sell his Bitcoin for a higher price at that point in time.
But for users, it isn’t so great. There are hardly any Dapps on Bitcoin at all. Aside from the original Tether token that is now falling out of favor, it has no stable coins. And it has no video games or DeFi apps.
So pretty much the only thing a user can do with bitcoins is to open his wallet and look at them.
But as long as Bitcoin gets more attention on financial news channels like CNBC and Bloomberg, and as long as it gets touted by hedge fund managers and investing gurus more than other cryptos, this doesn’t matter. I will still continue to go up in price.
I personally think that this isn’t going to last more than five years. By 2025, I expect Bitcoin to be worth less than a penny per coin.
I think Bitcoin will stop getting attention once there are millions of people using cryptos. And I expect this mass adoption of cryptos to happen very soon.
But maybe I’m wrong. We’ll see.
Regardless, Bitcoin and gold are two very different things. Gold is a collectible. You can make beautiful jewelry out of it. Bitcoin is a token that is used on a decentralized network - it’s a means of payment for processing data on a network not owned by any person or organization.
Bitcoin could theoretically have utility…although it does not currently have much utility because no one has created useful apps that run on its network. Gold has very little utility. It is just a collectible that looks pretty and is fun to collect.
In short, Bitcoin and cryptos in general are not more valuable nor less valuable than gold. They are different entities entirely which serve a very different purpose than gold does.
Such an interesting article to read