Bitcoin prices of over $19,000 per coin during the last quarter of 2017 led to cryptocurrency investors terming Bitcoin as the new-age “digital gold”. Placing the two side by side, it’s easy to see why investors would see them at almost the same level. However, gold has had no competition when it comes to the capability of having purchasing power over a long-term period, in addition to its intrinsic value. Bitcoin, on the other hand, has only been around for 10 years now and has already seen a tremendous drop in price of over 50% within the first quarter of 2018. Despite the recent price wobbles, Bitcoin still retains a value worth 5 times the value of an ounce of gold. The price of one Bitcoin was standing at around $7,942.50 while an ounce of gold was worth around $1,338 at the writing of this article.
The extremely high volatile nature of Bitcoin has raised concern among a section of individuals who question investments made at the current prices. Its current downward trend has also revived the question of whether Bitcoin is just another bubble just waiting to go down in history alongside other bubbles such as Tulip Mania or the Dot-Com bubbles. Furthermore, most argue that it’s pretty early to tell whether Bitcoin can be used as a measure of value just like gold due to the fact that it has not been around long enough to be tested by tough economic times. However, most investors can agree that Bitcoin is not a steadfast instrument for value storage, but it is a good one for speculative purposes.
What You Need to Know about Bitcoin
Bitcoin, what most see as the first cryptocurrency, came into the public eye in 2009 through its creation by an individual or a group of individuals (or perhaps an AI) who go by the pseudonym Satoshi Nakamoto. Since that year, Bitcoin has faced myriads of challenges that would have brought it down, but it has managed to face every obstacle and has remained one of the most expensive cryptocurrencies even today. During the last quarter of 2017, the price of Bitcoin skyrocketed, creating a huge interest in it and all the other cryptocurrencies that existed at the time. With such high prices, it does bring to mind the question of how something that’s intangible and virtual can have such high value, since it has no intrinsic value, in the traditional sense.
It was on December 18th, 2017 that Bitcoin hit the highest amount of around $19,498.63 since its inception in 2009 (though some exchanges briefly had higher prices). One should note that the Bitcoin price in January the same year had just breached the $1,000 barrier to hit $1,020.47 for the first time in three years. However, with the first quarter of 2018 coming to an end, Bitcoin’s price has struggled to maintain its top position, with prices becoming highly volatile and constantly oscillating between $6,000 and $9,000. This volatility has caused some major financial experts to warn people not to invest in any form of cryptocurrency on the suspicion that it might be a bubble waiting to burst at any moment.
Currently, there remains a large uncertainty as to the future of Bitcoin. Tim Draper, one of the world’s richest cryptocurrency billionaires, expressed his speculation of cryptocurrency going mainstream. Nouriel Roubini, a professor of economics at New York University termed Bitcoin as “the biggest bubble in history” and that the price of Bitcoin is destined to fall to zero.
The Pros of Bitcoin
- Bitcoin is harder to be manipulated. Rather than being a currency that is controlled by a small group of individuals, Bitcoin is controlled by everyone who has a fair share in it.
- Bitcoin is transparent. Unlike the fiat currency market, everything about the Bitcoin market is readily available to anyone. Even the coin limit of how many Bitcoins will be produced is known.
- Being digital, Bitcoin is easy to store, access, transfer, and spend nearly anywhere in the world.
The Cons of Bitcoin
- The price of Bitcoin is very volatile compared to most other assets in the world. Prices keep changing dramatically and rapidly.
- Its decentralized nature allows for fraudsters and criminals altogether to use Bitcoins as means of payment for criminal activities.
- Being digital, Bitcoin can be easier to be stolen by hackers, or to lose access to via losing your private keys or accidently throwing away a digital device or paper wallet containing your keys.
Gold on the other Hand
As of March 2017, the price of one Bitcoin had successfully surpassed the price of an ounce of gold. This milestone had sparked off one of the longest debates as to whether Bitcoin can replace Gold in storage value terms. It is worth noting that unlike Bitcoin that went public in 2009, gold has been in constant use for the past several thousand years by different civilizations around the world. Both Bitcoin and gold have some surface level similarities, such as that they are both mined. However, Bitcoin is mined digitally, rather than physically. Also, both are scarce and have a real store of value. The main differences are that Bitcoin is extremely volatile and has an estimated coin limit of 21 million, while gold maintains an extremely steady market price and its real estimate is not really known, the fact that one is digital and one is physical (with pros and cons factoring in there as well), and also the fact that gold has intrinsic value in its physical properties and uses, while Bitcoin does not.
The Pros of Gold
- There is a lot of value attached to this precious metal due to the fact that it is rare, and also because it can be used for various things such as jewelry, electronics, health, radiation shielding, and more. It is also non-corrosive, accept with particular chemical compounds.
- Gold cannot be created by man. The only way that new gold can be acquired is through mining.
- Gold has an inverse relationship with the US Petro Dollar (USD), so it tends to gain in value in uncertain or troubled economic times.
The Cons of Gold
- The extra costs of shipping, storing, and protecting gold can be high, and there’s still the possibility of gold getting stolen.
- Gold is usually not easily spendable at most stores, and wouldn’t work for most online purchases either.
- It’s also difficult to carry large quantities, especially across borders, and doing so could make you a target for criminals or inquisitive security officials.
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We hope you’ll learn more about these and our Gold Smart Contracts (which are pegged to specific gold bullion pieces). We hope tokenized assets like ours will continue to grow in the future and revolutionize the way people do personal finance.