Satoshi Nakamoto launched Bitcoin in 2009 as a response to the failing traditional financial system. We are now more than 14 years later and Bitcoin has managed to work its way up to the financial world stage. What makes Bitcoin special for investors is the absolute scarcity of 21 million units, which is why the digital currency is also referred to as digital gold by many.
But what are the differences between the two and where is the best place to invest your money at the moment?
The advantages of Bitcoin
There are plenty of advantages that Bitcoin has over gold. First and foremost, of course, we have the absolute scarcity of 21 million units. At the time of writing, Bitcoin has an inflation rate of 1.76 percent on an annual basis, but eventually that drops to zero.
Gold, on the other hand, has an annual inflation rate of about 1 to 2 percent. In that sense, gold is a less efficient means of storing your value. In eternity – as long as we can find gold – you will continue to lose a small percentage of its value every year.
Furthermore, Bitcoin is also more efficient when you look at the transport costs. Within 10 minutes your Bitcoin can be on the other side of the world and you often only pay 1 dollar or less for that. Try to do that with gold.
The storage costs of Bitcoin are also a lot lower than those of gold. You may spend 100 to 200 euros for storing your Bitcoin, if you want to arrange it properly. Gold, on the other hand, is much more expensive. After all, you have to arrange much more for that, because it actually exists in the physical world.
Finally, checking the authenticity of Bitcoin is also a lot cheaper than with gold. You just need to run the Bitcoin blockchain for that. With gold, this sometimes goes wrong even at the highest level, which can make this an expensive joke.
The Disadvantages of Bitcoin
However, there are also disadvantages to Bitcoin compared to gold. First, of course, Bitcoin doesn’t exist in the physical world and you can’t do anything with it. Gold, on the other hand, has some industrial applications and can be processed in jewellery. In that sense, gold always has a kind of bottom price, which is not guaranteed for Bitcoin.
Finally, gold also has a very long history in which it has proven itself as a reliable means of storing your value. Bitcoin does not have a long history, so gold has made its place in the financial system much more. Central banks around the world still hold and buy gold to back their currencies.
All in all, we can say that Bitcoin is more efficient on many fronts store of value is gold, but that it also has some downsides. Ultimately, it is of course up to you as an investor to determine what you find more important. You can of course also choose to keep both in your portfolio, I personally do that too.