The origin of bitcoin dates back to a paper that was published in October of 2008. This paper outlined an online transaction system through which customers could make and receive payments without the involvement of any banks, credit or debit card companies. It revolved around a virtual currency that was also known as the bitcoin. This bitcoin provided customers with a type of universal currency that they could spend at any participating website without having to concern themselves with the present currency exchange rate. It was primarily geared towards businesses with an international clientele. During its first release in 2009, the bitcoin was met by a wide range of responses. For many businesses, the response was fairly positive as the bitcoin enabled them to expand their customer base by international proportions. Even local businesses for example pizza parlors, benefited from the bitcoin since it allowed their customers to pay online. Unfortunately, the bitcoin also encountered a huge amount of criticism. In July of 2011, hackers penetrated the bitcoin system consequently raising great concern over its security. Further contributing to this backlash were the many disreputable and illegal businesses that were using bitcoin to facilitate their transactions and some of the scandals that Bitcoin was entangled in were Silk Road and Mt. Gox. Today, the bitcoin continues to gain grounds as a legitimate form of currency by not only mainstream businesses, but also by the IRS, who has had to create specific tax guidelines for this method of payment. The success of bitcoin even reached a point that in 2013, just before the year wrapped up, its value surpassed gold. Such market activities have raised questions over whether the bitcoin will eventually become more valuable than gold.
The history of gold; one of earth’s most precious metal goes back to at least over 2,000 years. Gold is primarily thought of as a currency, but many ancient civilizations also used it to create precious jewelry, decorative ornaments and in some cases, even medicinal equipment. The first recorded use of gold as a currency was in 600B.C. and it was used by the Turks. This practice continued for quite a number of centuries till the mid-1800’s, when lots of countries began to shift away from the use of actual gold currency in favor of a system known as the Gold Standard. In this system, individuals would simply use paper money to represent the equivalent value of gold. The US used this system from 1861 until 1934. Unfortunately, the demise of the gold standard would abolish the use of gold as either a form of currency or as the basis for its currency. Today, gold primarily serves as an investment asset. It allows investors to make profits through the fluctuation of its market value.
Head to Head: Gold Vs Bitcoin
The Intrinsic vs. The Extrinsic Value
Like the US Dollar, Bitcoin has an intrinsic value of zero. The USD is not backed by gold and silver as was previously required by the US Congress. The USD has an arbitrarily assigned unit of value or extrinsic value. The US government says a dollar of currency will buy a dollar of goods and services, so you simply accept that truth and go about your business but of course, the USD fluctuates in value against other sovereign currencies, but that doesn’t affect your day-to-day transactions in USD.
Bitcoin, is not backed by any tangible commodity (gold or silver). You transact in Bitcoin for goods and services, fully aware that its value can instantly change. In December 2017 traders agreed it was worth $19,870, yet in December 2018, that point of agreement plunged to $3,215. Bitcoin prices are all extrinsic value. It is worth whatever a buyer and seller on an exchange can agree upon.
During the inflation of the 1970s, gold peaked from $35 per ounce to $875 per ounce even as consumer prices (termed inflation) doubled in the US (1970 to 1979). In fact, the $35 gold of 1972 is now worth more than $1,275 per ounce, having easily out witted consumer price inflation over the past 40 years.
Consumer prices have risen by 501 percent since 1972. Yet, gold is up by a factor of 39.84 times or 3,884 percent over the same time span. Therefore gold has outperformed the inflation rate by a ratio of 7.75 to 1 (3,884 divided by 501). Gold absolutely has proved to be a long-term store of value against the ever-rising cost of living.
Store of Value
However, gold has for centuries been recognized as a tangible store of value. In ancient times, gold was always regarded as real money, with intrinsic value. You can deliberately exchange gold for food, land, clothing, medicine, oil, collectibles, motor vehicles, houses, etc. It is also a tangible item you can put away in a bank vault or your home safe, or even bury in a coffee can in the backyard.
Bitcoin, on the other hand, is an electronic, intangible currency. Apart from the fact that it holds zero intrinsic value, it seems unlikely that it could be used to barter for goods and services in an offline setting.
Bitcoin, all other cryptos and stocks would be useless in the event of a blackout and can not be used as a form of real-world currency. Even your bank debit and credit cards would be lifeless plastic. Gold needs no electricity or communications network to back up its inherent worth. In such an apocalyptic scenario, having physical gold would seem to be preferable to owning Bitcoin. Even fiat currency would be preferable, barring a hyperinflationary economic backdrop.
Although Bitcoin will is said to become store of value in 2019. Maybe it will, maybe not. All that matters right here and right now is that you can trade Bitcoin. All day, all night, Long and short. You can buy and sell Bitcoin futures contracts. You can even buy some Bitcoin every month, anticipating yet another peak in value.
You can even run your Bitcoin trading and investing activities with clear risk control and profit-taking objectives. You might even net a better long-term return than those who hold gold as a hedge against inflation. Always remember that Bitcoin has zero intrinsic value and gold does possess that inherent value, and may always be regarded as an investor haven.