Bitcoin vs Gold: The Investment Potential of Two Assets

Gianluca Lombardi

24.02.2023

bitcoin golden pile

Welcome to the ultimate showdown: Bitcoin vs Gold!

In one corner, we have the time-honored, traditional store of value, Gold; in the other, the digital disruptor and 21st-century wealth-builder, Bitcoin. As investors seek to preserve and grow their wealth, the battle between these two titans rages on.

In this thrilling comparison, we’ll delve into the strengths and weaknesses of each investment asset and reveal their true potential in the ever-evolving world of investing.

And if you’re eager to uncover even more investment strategies and insights in the realm of Bitcoin, be sure to visit our comprehensive Bitcoin Investing hub page, where a wealth of expert knowledge awaits!

Gold vs. bitcoin

Storage of the value of gold or bitcoin

Gold is a physical commodity that has been used as a store of value for centuries.

Bitcoin, on the other hand, is a digital asset that has only been around for a little over 15 years. Both assets have pros and cons when it comes to storing value.

Gold is abundant, but not infinite: there are about 190,000 tonnes of gold above ground in the world today, making it scarce and one of the reasons it has traditionally been considered a valuable resource.

However, because gold mining can be expensive and time-consuming, the price of gold can be volatile in the short term.

In addition, although gold can be stored safely in vaults or safe deposit boxes (at local banks), storage costs are expensive every year. Overall, gold is an effective store of value, but it has some disadvantages.

On the other hand, bitcoins are also scarce, as only 21 million are mined. They are impossible to counterfeit and every transaction must be verified by computers all over the world thanks to blockchain technology.

In light of all this, bitcoin actually functioning as a store of value has several advantages over gold.

Advantages and disadvantages of bitcoin versus gold as a store of value.

Here is how the two assets compare:

Advantages of storing value in gold:

– Gold is scarce and its supply cannot be increased (unlike fixed-currency). This makes it an ideal asset for storing wealth.

– Gold is durable and does not corrode over time.

– Gold requires no special care or storage conditions: simply store it in a safe place and forget about it.

Disadvantages of storing valuables in gold

– Gold can be confiscated by governments (as happened during the Great Depression in the US).

– Gold is not very transportable: it is difficult to transport large quantities without arousing suspicion.

– Gold is not very transportable Care must be taken when storing gold, because it can be stolen if it is not stored in a safe place.

– The price of gold can fluctuate greatly, making it a risky asset to invest in.

The advantages of Bitcoin when it comes to storing value:

– Bitcoin is decentralised, so no entity controls the price (unlike fiat currencies, which are subject to manipulation by central banks). This makes Bitcoin more resistant to inflation.

– Bitcoin is also scarce, with availability limited to 21 million coins. This makes it similar to gold in terms of value retention properties.

– Bitcoin is more separable than gold, so one can hold small amounts without worrying about losing its value.

Bitcoin also has some disadvantages in terms of storing value:

– Bitcoin is still a relatively new asset and its long-term stability has not yet been proven.

– Although bitcoins are digital and easy to transport, they are still vulnerable to hacking and theft, just like anything else that exists electronically.

Which asset is better for storing value?

It depends on circumstances and individual preferences. If you are looking for an established store of value that has stood the test of time, gold might be the best choice.

However, if you are looking for something with high growth potential (albeit with higher risk), bitcoin may be a good option.

Medium of exchange: gold vs. bitcoin

dollar bill with bitcoin

Gold is a more traditional choice, used for centuries as a form of currency.

However, bitcoin is the new star on the horizon with its digital capabilities that make transfers faster and easier.

Let us look at each in more detail:

Gold:

Advantages:

  • Gold is scarce, which makes it valuable.

There is a fixed amount of gold in the world, so it cannot be devalued by governments printing more money, as can happen with fiat currencies.

This means that if you invest in gold today, your investment should theoretically maintain its value or increase in value over time, as there will never be an influx of newly minted gold coins to drive prices down (as happens with fiat currencies).

In other words, investing in physical gold can act as a hedge against inflation.

Disadvantages:

  • Unlike bitcoins, which can be easily divided into smaller units such as satoshi (one hundred millionth of 1 BTC), physically separating large amounts of gold can be logistically challenging and expensive to do properly.

It can make small purchases impractical. For example, if someone wanted to buy a $3 coffee using 0.1g of gold, they would have to pay a $30 transaction fee just to cover the cost of the purchase!

  • There is an upper limit to the number of bitcoins in circulation – 21 million – while fiat currencies, such as the US dollar, can create additional coins from notes when the government needs them.
  • Physical resources are needed to mine newly discovered gold deposits (although this argument could also be used to mine bitcoins).

Mining equipment consumes energy and there are environmental issues surrounding this technology, especially when it is done irresponsibly or on a large scale, as in the days of the ‘wild west’ bitcoin mining operations were notorious for the damage they left behind in those places where lax regulations allowed them to grow like mushrooms without control.

Bitcoin:

Pros:

  • Bitcoin can be broken down into much smaller units than gold, making it more practical for everyday purchases.

For example, 1 BTC can be broken down into 100 million satoshi (one hundred millionth of 1 BTC). This makes small purchases with bitcoin much more feasible than with gold.

  • No physical resources are needed to mine new bitcoins, which are created through a process called ‘mining’. Miners confirm transactions and add them to the blockchain’s public ledger in order to obtain a bitcoin reward.

Since there is no central authority controlling the supply of bitcoins, mining helps ensure that the network remains decentralised and secure.

Disadvantages:

  • Although the digital form has its advantages, it also means that bitcoins are susceptible to hacking and theft.

Gold is a more traditional choice as a medium of exchange, but bitcoin is faster and easier to transfer.

Reserve asset: gold vs. bitcoin

Gold is a traditional reserve asset that has been used for centuries, while bitcoin is a newcomer with potential as a digital store of value.

Here are some key considerations when comparing the two:

  • Gold is scarce, but not infinite, while only 21 million bitcoins may be in circulation; this makes bitcoin more separable from gold and therefore potentially more suitable as a unit of account.
  • On the other hand, gold is physically tangible and can be stored easily without fear of being hacked or lost (unlike bitcoin), which arguably makes it more valuable from a security perspective.
  • Finally, central banks around the world currently hold large reserves of gold – over 30 per cent according to some estimates – further legitimising its investment choice.

Advantages and disadvantages of gold and bitcoin

In recent years, however, bitcoin has become a viable alternative and, according to some, may even supplant gold as the main store of value.

What are the advantages and disadvantages of each asset?

Let us take a closer look.

Advantages of gold:

  1. Gold is scarce – there is only a limited amount of it, which makes it valuable.
  2. Gold is durable – it does not corrode or tarnish over time.
  3. Gold is portable: large quantities can be easily transported without worrying about theft or loss.
  4. Gold is divisible: you can break it down into smaller parts (e.g. coins or bars) to make transactions more manageable.
  5. Gold is used in the real world for jewellery, electronics and so on; so there will always be a demand for it.

Disadvantages of gold:

  1. Gold is difficult to store: you need a safe place and in the right conditions (e.g. no humidity or excessive heat/cold).
  2. Gold is subject to price manipulation by central banks and other large institutions.
  3. Transporting gold can be risky because of the possibility of theft.

Advantages of bitcoin:

  1. Bitcoin is scarce – like gold, there is only a limited amount that can be mined (21 million BTC). This scarcity gives bitcoin the value of an asset.
  2. Bitcoin is decentralised – unlike fiat currency, which is regulated by central authorities, bitcoin is not subject to interference by governments or financial institutions.
  3. Bitcoin transactions are fast and cheap – compared to bank transfers or credit card payments, which can take days and carry high fees, BTC transactions are fast and cheap (often only a few cents per transaction).
  4. Bitcoin offers greater privacy than traditional payment methods, as addresses are not linked to personally identifiable information.
  5. Bitcoins can be easily broken down into smaller parts (satoshis), which makes them convenient for everyday use.

Disadvantages of bitcoin:

Although the list of advantages may make an investment in BTC seem unnecessary, there are some disadvantages to consider:

  1. Bitcoin is volatile – the price of BTC can fluctuate up or down by large amounts for short periods of time.
  2. Bitcoin is still new and not widely accepted: although its adoption is growing rapidly, there are still many companies and individuals who do not accept BTC as payment.
  3. Bitcoins are prone to security threats – because they exist in purely digital form, bitcoins are susceptible to fraud and hacking attempts.
  4. No customer protection if something goes wrong Unlike traditional financial institutions, there is no third party to turn to if bitcoins are lost or stolen.

Frequently asked questions about bitcoin and gold

Which is better bitcoin or gold?

Bitcoin and gold are both assets with their own advantages and disadvantages.

Gold is a traditional asset that has been used as a store of value for centuries, while Bitcoin is a relatively new asset that only emerged in 2009. Here are some key points to consider when comparing Bitcoin and gold:

Gold is scarce, but does not have a limited supply like bitcoin. Only 21 million bitcoins will be created, but there is no limit to the amount of gold that can be mined from the ground. This means that gold could potentially become more valuable over time if demand increases and supply remains static.

Unlike fiat currencies (such as the dollar or the euro), neither bitcoin nor gold is backed by governments or central banks. This makes both less vulnerable to inflationary pressures, but also means that they are not backed by any institution if something goes wrong. Gold has to be stored physically in a safe place, which costs money and effort, whereas bitcoins are stored digitally in a ‘wallet’ and can easily be transferred without the need for a physical transfer.

However, if one loses the digital wallet containing the bitcoins, they cannot be recovered, unlike real coins made of precious metals. Gold can be used in jewellery or other decorative objects, while bitcoins currently have no practical use other than as a digital and investment asset. The price of gold is largely determined by market supply and demand dynamics, while the price of bitcoin is also influenced by factors such as news events, innovation adoption rates and global economic conditions.

So which is better: bitcoin or gold?

It depends on circumstances and personal preference. If you are looking for an asset that will retain value over the long term, gold may be the best choice due to its centuries of experience.

However, if you are looking for a new innovative asset with high return potential, Bitcoin may be a more attractive option.

Will Bitcoin replace gold?

Bitcoin and cryptocurrencies are still a new technology and therefore it cannot be said with certainty that they will replace gold. However, there are several reasons to believe that Bitcoin could become more popular than gold.

First of all, Bitcoin is much easier to transport and store than gold: all you need is a digital wallet.

Gold also has the disadvantage of being vulnerable to theft: if someone breaks into your house and steals your gold bars, there is no way to recover them.

With bitcoin, on the other hand, you can store your coins in multiple wallets or on an exchange (such as Coinbase), making them much harder to steal.

Finally, many consider bitcoin a more ‘modern’ investment than gold; having been created in 2009, it feels like a 21st century asset, not something that has existed for thousands of years.

While there is no guarantee that bitcoin will ever surpass gold in popularity or value, it has the potential to do so in the future.

Why buy bitcoin instead of gold?

Bitcoin and cryptocurrencies are a new asset class with great potential. While gold has been around for thousands of years, Bitcoin is still in its infancy.

However, there are several reasons why buying Bitcoin instead of gold might be a good idea:

  1. Bitcoin is more expensive than gold.

Compared to the estimated 190 million ounces of gold that have already been mined, there are only 21 million bitcoins that will be mined. This makes bitcoin a more attractive investment for those who want to invest in scarce assets.

  1. Gold can be difficult to trade and store, while bitcoin can be easily traded on exchanges and stored in wallets.

For investors who want simplicity and ease of use, investing in bitcoin may prove preferable to investing in gold.

  1. Finally, many believe that cryptocurrencies such as bitcoin offer greater growth potential than traditional assets such as gold, meaning that more can potentially be gained by investing in bitcoin than in gold.

Will bitcoin ever be backed by gold?

No, bitcoin will never be backed by gold. Although some proponents of the digital currency claim that it could one day replace gold as a store of value, there are several reasons why this is unlikely to happen.

First, gold has been used as a form of money for thousands of years and has proven to be durable and reliable over time.

In addition, the supply of gold is limited, making it rare and valuable, two qualities essential to the success of a currency.

Finally, central banks around the world currently hold large reserves of gold, which they use to influence their economies.

Conclusion

In recent years, however, bitcoin has emerged as a viable alternative.

Bitcoin is more portable and easier to store than gold, making it an attractive option for investors looking for a safe haven asset. When it comes to the medium of exchange, both assets have advantages and disadvantages.

Gold is more popular, but bitcoin is faster and cheaper to use. Finally, when considering reserve assets, central banks generally hold large reserves of gold, but are beginning to experiment with holding digital currencies such as bitcoin.

Although each asset class has advantages and disadvantages, in the end it all comes down to investor preference.

Bitcoincomprare.co.uk is the place to learn about and invest in bitcoin and cryptocurrencies. We offer comprehensive reviews of trading platforms, crypto exchanges and guides to make informed decisions when it comes to investing in this new asset class.

More Investing Tips and Resources:

Author: Gianluca Lombardi

Gianluca is the editor-in-chief of this site. A finance graduate, he is an active trader who has tested all trading platforms and knows all their secrets. Technology is his passion; he spends much of his free time in the metaverse. Gianluca loves learning new things, researching, discussing and writing about technology, especially when it comes to cryptocurrency and blockchain technology.