Uncovering Bitcoin And Gold’s Not-So-Secret Relationship
Bitcoin is often referred to as “digital gold”. This description of the digital asset is likening its characteristics to that of the precious metal.
Bitcoin came into existence just over 10 years ago. How it resembles a commodity that has been around for almost as long as money, is indeed a subject of interest. It is obvious that the underlying factor that holds these two assets apart is their function as money and a value exchange system. Let’s break this down.
Is Bitcoin a Form of Money Like Gold?
First of all, we need to understand what money is, and how it relates to both Bitcoin and gold. Money is simply a medium of exchange or a store of value. It can be in the form of currency, having a certain level of liquidity and used for transaction or remain in the form of an asset in storage and used to measure wealth.
Today, it is easy to assume money to be just cash, either in its physical or electronic form. The reason for this is simple — it is the most popular means of transaction and the easiest to access. But how did cash even come about?
Cash, or more appropriately put, fiat is only a type of money that was introduced for reasons of easy handling and convenience. For these, communities in the olden days that previously exchanged value by transferring commodities among themselves, introduced pieces of metals in the form of coins to represent value instead. The “governments” at that time determined the value allocated to specific coins. This is not different from how governments of today allocate value to their national currencies.
As time passed, money evolved and more formal systems of government continued to review the monetary systems. Throughout these years, one particular metal has remained most relevant as far as world money is concerned, Gold.
How Did Fiat End The Gold Standard Era?
Fiat currency was categorically backed by gold in a system called the gold standard until Britain and the United States backed out of the arrangement in 1931 and 1933 respectively. Whatever remained of the gold standard became extinct in 1971 with the full establishment of fiat across independent nations. For instance, while the U.S. Dollar is fiat money for the United States, for the United Kingdom it was the British Pound.
The era of gold being the standard has passed, however the place of the precious metals in the money world is still relevant. It is the most prominent commodity and also a standard measure of value in the asset world.
Continuing with the theory of the evolution of money, we have arrived at the era of digital currencies, heralded by Bitcoin. Whether as a currency or commodity, Bitcoin has found relevance in the money world even though it is yet to go fully mainstream.
How Does Bitcoin Resemble Gold?
In just 10 years of existence, the pioneer digital currency is finding strong comparisons with the most lasting system of money, gold. This development in itself is considered as a major achievement by Bitcoin within its circle of supporters. Let us take a look at the relationship between these two entities and why many people are drawing similarities between the two.
Bitcoin resembles gold in a number of ways, one of which is in how they are created. While gold is mined physically, new Bitcoins are created through and electronic process that is also referred to as mining. The mining of Bitcoin involves computational processes that verify transactions within the network. The computers involved in these processes are rewarded with new tokens, and that is how new Bitcoins enter the system.
Gold has been used as a form of currency for over 2,000 years. Over time, investors have purchased gold as an asset and a store of value in anticipation of profit in the future. These same circumstances are applicable to Bitcoin, a digital asset that serves both as a currency, and as a store of value for investors.
Both Bitcoin and gold are currently serving as alternative investment avenues for investors. Gold has maintained this status for a very long time, however, with Bitcoin it is the characteristics and state of development that most investors consider. There is a limit to the total number of Bitcoin produced, and the user base of the cryptocurrency is bound to rise. This will create a higher demand, and eventual appreciation in price.
Despite their similarities, both entities differ in age, nature and extent of availability. Gold has been around for thousands of years, and is a tangible element. No one knows the amount of gold that remains underneath the Earth. Unlike Bitcoin that is just 10 years old, a digital asset, and has a limited supply of 21 million coins after the last Bitcoins have been mined.
Many users believe that Bitcoin will turn out to be a sustainable digital asset like gold. For millennials, who are growing in the era of digitalization, tangible commodities are beginning to look unattractive. Many investors today are acquiring Bitcoins and other cryptocurrency tokens through platforms like Vertex.Market.
The platform provides entry for digital asset enthusiasts to purchase these tokens either to be used as currency, or an alternative investment vehicle. By making it possible for customers to buy Bitcoin and cryptocurrencies using bank transfer, Vertex has simplified the entry process and opened the way for greater adoption of what many refer to as “digital gold”.