For protecting one’s wealth against fluctuations in the value of paper currencies — known as “fiat” currencies, given that they are unbacked by commodities such as gold and silver — many investors are investing in bitcoin rather than gold, believing it to offer potentially greater returns due to mass adoption and as an emerging technology. While bitcoin offers some advantages relative to gold and may be a good investment, gold has qualities that arguably make it safer than bitcoin as a hedge to swings in the currency markets.
Gold Has a Longer History Than Bitcoin
Unlike bitcoin, gold has been a form of money for at least 5,000 years. It was prized by Egyptian pharaohs and used for jewelry and decoration, and was even used on pyramid capstones to reflect the rays of the sun. Gold was used as money in ancient times because of its rarity, durability, divisibility, as well as because it could be shaped or molded. In ancient Egypt around 3,100 B.C., gold was worth 2 1/2 times more than silver by weight. Gold was then used as money by the Greeks and Romans, as well as ancient Indians and Chinese. Since then, gold has been recognized as a precious metal all over the world.
By contrast, bitcoin was developed by a person nicknamed “Satoshi Nakamoto” in 2008 as open-source software, meaning the code is available and can be copied and improved upon by other software developers. Since bitcoin’s creation, the volatility in the price of bitcoin has made some merchants reluctant to accept the cryptocurrency as a form of payment. Historically, the gold price has been relatively stable, given the modest increase in the supply each year due to mining.
Gold Is Physical
Since bitcoin’s launch, there have been numerous significant hacking attacks against major exchanges, causing millions of dollars worth of bitcoins to be lost. Because gold is a tangible form of money that can be safely stored, it cannot be stolen by ingenious hackers. Also, because bitcoin is a digital asset, it lacks intrinsic value. Given that bitcoin is a digital asset made of software that can be viewed and copied by anyone, it continually faces the risk of losing its status as the most popular digital currency due to newer digital currencies made with superior technology or features. The software for using bitcoin requires sophistication, whereas gold can be held in one’s hand and immediately traded.
Besides use as a monetary metal, gold has use in industry due to its conductivity. Gold is used to make the components in computers and servers that make bitcoin mining and transactions possible. Gold also remains very popular for jewelry despite the rise in its price during the bull market.
Bitcoin Has Some Advantages
Though gold clearly has advantages over bitcoin as noted above, bitcoin does offer some advantages over gold. Unlike gold, bitcoin does not require space to store. Also, though there is arguably more risk with bitcoin versus gold, the value of bitcoin may rise substantially in the future if it is to become widely adopted by the public. While the supply of gold tends to increase by one to two percent annually, the theoretical cap for the number of bitcoins in existence is 21 million — currently there are 16 million. The limit to the number of bitcoins that can be created means the price can move up substantially if there is mass adoption of the cryptocurrency. Similar to gold, bitcoin is traded globally as a decentralized digital currency, and can be converted to national currencies on numerous exchanges. Because bitcoin is a very promising technology, gold and bitcoin need not be seen as mutually exclusive investments. Rather, they can be viewed as two different ways, even compatible, to hedge against fluctuations in the value of fiat currencies.
Gold Is the Best Safe Haven Asset
Gold will remain a precious metal valued globally due to its intrinsic value. Having been used as money for thousands of years, investors in gold can rest assured that the yellow metal will remain valuable in the future. On the other hand, though bitcoin appears promising as a relatively new technology, it faces the risk of being displaced by newer technologies with greater capabilities or that become more fashionable over time. Investors should therefore research both types of assets to determine which is more suitable as a safe haven to protect wealth during market uncertainty or chaos. With thorough research, investors may decide that both are worthy investments.