Thanks to social media and some influencers, more people have started to understand the importance of financial planning and investing. However, in the current age, there are many options for people to invest in. Two of the most popular options among investors are gold and Bitcoin.
On one end, gold is valued for its historical investment status, while on the other end, people refer to Bitcoin as digital gold. This article will help the reader to find out the ultimate question that every investor of the 21st century is facing Bitcoin and Gold; which is the better investment option?
What is Bitcoin?
Bitcoin is the first ever blockchain network that also issues a digital currency of the same name. Bitcoin has laid the foundation for cryptocurrency trading. Bitcoin was first introduced as an alternative to fiat currency.
The investors who were trading and accumulating wealth in a massive quantity were able to diversify their portfolios using decentralized cryptocurrency.
Origin of Bitcoin
Bitcoin was first introduced by a pseudonymous person or group called Satoshi Nakamoto. Bitcoin blockchain mined its first public block in 2009. Before the invention of Bitcoin, many other developers were working on different types of digital currencies.
However, Bitcoin gained traction among users as it was a peer-to-peer and decentralized network. Bitcoin was able to facilitate the exchange of value for everyone without needing any centralized approval. All the transactions on Bitcoin are verified by PoW mining.
Bitcoin users can make transactions on the network and generate a new encrypted entry. The encrypted key is solved by miners for a specified fee from the network users called transaction fees.
At the same time, miners also get a reward from the blockchain in the form of a Bitcoin release. To keep the supply of Bitcoin in check, the amount of Bitcoin reward from the blockchain for miners is halved every four years. Furthermore, the total number of Bitcoins is capped at 21 million, and they will never increase.
Advantages of Bitcoin
To understand the value of Bitcoin trading, it is important to learn about its advantages in detail as:
Liquidity is the quality of any investment asset for ready exchange. Bitcoin has gained global recognition and popularity in the world. Therefore, anyone hailing from anywhere can instantly sell or purchase new Bitcoins at their discretion.
Henceforth, the liquidity for Bitcoin is very potent. Therefore, new investors do not feel endangered purchasing Bitcoin and old investors have lesser risk in holding Bitcoin reserves.
Bitcoin is the first permissioned network in the world. It does not require any type of documentation or a hefty registration process. Anyone can join Bitcoin regardless of their age, gender, nationality, creed, etc.
It is many times easier to open a new Bitcoin digital wallet than a bank account. It does not require any type of approval, documentation process, or user verification wait. Therefore, Bitcoin has been deemed a highly accessible currency.
One of the most important qualities of Bitcoin is anonymity. It means that people do not need to use their legal names and identification for trading Bitcoins. The users can create a new digital currency account using any name they want and trade Bitcoin without the fear of getting traced.
However, it is important to note that the Bitcoin blockchain is highly transparent. It means that everyone present on the blockchain has access to all transaction history. Therefore, users who wish to keep their transactions anonymous should take additional steps to cover their real names.
The key reason for the success of Bitcoin is decentralization. Many people in the world are completely reliant on centralized banking networks. Therefore, the government controls the financial independence of citizens all around the world.
Furthermore, in case a citizen is in clashes with the centralized regime, they can be cut out of the financial networks. However, with Bitcoin, anyone can send any amount of money from one part of the world to another in seconds and outside of the centralized financial channels.
When Bitcoin was first introduced, it was valued at $0. At its peak in the bull market, Bitcoin prices managed to reach around $69K per unit last year in November. As per cryptocurrency aggregators, the total price of Bitcoin appreciated by 1,200 percent during 2020 and 2021 alone.
At present, Bitcoins prices are floating around $19K. However, Bitcoin proponents are hoping for another bull run that can see Bitcoin prices reaching higher than their last peak since Bitcoin is known for high returns.
Limitations of Bitcoin
It is impossible to conduct a critical analysis of Bitcoin without weighing its limitations. Some of the important Bitcoin back draws mentioned as under:
One of the most criticized limitations of Bitcoin is its massive price volatility. Bitcoin and other cryptocurrencies are intrinsically less volatile. The creators of Bitcoin capped the total number of Bitcoins at 21 million, and it will never increase from that number.
However, it also means that the total number of Bitcoin in comparison to all the possible users in the world is very limited. At the same time, the limited supply of Bitcoin also makes it highly volatile and therefore seen as a risk-added feature of the flagship cryptocurrency.
Lack of Regulations
Bitcoin is often celebrated for its decentralized nature. However, one obvious downside of decentralization is that Bitcoin users cannot turn to any law enforcement agencies in case of a contract breach. The lack of regulations is the biggest reason that most traditional and commercial financial giants have remained wary of Bitcoin networks for a long time.
At present, most Bitcoin proponents claim that Bitcoin and the cryptocurrency market should get added to the regulatory framework to the extent that it protects the legal rights of the users.
Irreversibility is also one of the features present in Bitcoin that many investors do not appreciate. Once a Bitcoin transaction is initiated or completed, it cannot be reversed. Such a transaction mechanism has been ingrained in the Bitcoin network to avoid the risk of hacks and blind spots.
However, users complain that in case of a wrong digital wallet transfer or a different amount, they are unable to recall their transactions and amend them. At the same time, many users also suffer from the fear of losing their private keys to Bitcoin wallets which can lock them out of their digital currency reserves for life.
Bitcoin has struggled to fit into a very real requirement that can justify its demand. A lack of viable utility or use cases can endanger the long-term demand for the firstborn cryptocurrency.
However, there are some companies, such as Microsoft and Subway, that have started to accept Bitcoin as payment for their products.
At the same time, more commercial entities are allowing users to make purchases using Bitcoin. However, despite all the enterprise adoption, Bitcoin does not have enough use cases, and its payment capacity is also very limited, unlike credit or debit cards.
What is Gold?
Gold is the 79th element in the periodic table, and it is considered one of the most highly valued and high-priced metals around the world. Gold is a shiny metal that has managed to gain massive price value among the masses since the beginning of human civilization.
Today, many people purchase gold for jewellery and other ornamental purposes. In addition to being the most conductive metal in the periodic table, Gold is also known as one of the best and most effective ways of investing.
Origin of Gold
Traces of gold are found in almost all ancient civilizations in the world. Traces of gold ornaments are discovered in the world as far back as 4000 BC in Eastern Europe.
On the other hand, Egyptian Pharos are said to use Gold coins called Shekel as far back as 1500 BC.
The chemists of Babylonians are credited for discovering a new method to measure the purity of gold products called fire assay, which is still used today.
On the other hand, many kingdoms in the Middle East used Gold as an international currency for trading for centuries.
During the 16th Century, Spanish Conquistador Heran Cortes brought gold to the western world from indigenous civilizations. Romans used gold coins named Aureus in 50 BC. William Normandy, the first Norman king of England, also established a new gold coin-based coin economic system in England in 1066 AD.
Gold has also allowed scholars and thinkers to make important contributions to science, such as Archimedes’s principle. Archimedes was a mathematician, astronomer, and physicist who came up with Archimedes’s principle to find out the purity of gold in the crown of King Hieron of Syracuse; that saved his life and is still a widely used scientific method all over the world.
Advantages of Gold Trading
Here are some of the most visible and important advantages of Gold Trading given as under:
Universal acceptance is one of the most important features of Gold. Regardless of nationality and background, people from anywhere in the world are aware of the inherent value of gold.
A person can hope to purchase and sell gold everywhere on the planet.
Therefore, gold has acceptability and awareness of high intrinsic value among all people in the current age. At the same time, the liquidity for gold is also very potent on account of its universal acceptance.
Gold is often seen as an inflation hedge which means that people purchase gold to prevent the loss of their savings on account of rising prices. Many economists claim that controlled inflation is an indicator of prosperous economic development.
However, it means that the savings of the people present in the form of legal tender can lose value over time. Therefore, most people prefer to purchase gold to retain the value of their savings in the future.
Gold is a very good way to get financial independence. In contrast to the fiat currencies present in the world, gold owners can earn profits based on the increasing value of the metal over time.
It means that the people who have gold today sell it later to earn more profit when the market environment is suitable.
The historical value of gold is one of the main reasons that it was used as national reserves in Central Banks to back fiat currencies until the 20th Century. Gold has a long history of developing the economic system and human civilization.
Therefore, the impression of the inherent value of the shiny metal among the masses is not going to go away any time soon. Unlike stocks or cryptocurrencies, gold value can never drop to zero on account of its historical associations with human civilization.
Limitations of Gold Trading
Here are some of the disadvantages of gold trading that every investor should consider before diving in:
Gold is a great way for wealth accumulation. However, it is impossible to take gold to a shop and make a direct purchase. Therefore, gold is useless for making any retail purchases anywhere in the world. Before making use of gold, the owners have to take it to a registered store and convert it into cash.
At the same time, the prices of the gold might not be ideal for the users when they are selling them. Furthermore, the commissions and premiums applied on gold sales and purchases can be very high.
Gold is shiny metal, and it is present in physical form. As long as a person has gold under their ownership, it means that they are in danger of getting robbed by thieves. There are very limited centralized facilities for people to store their gold reserves, like bank accounts.
Therefore, gold can pose an additional hassle for the users and present the constant requirement for gold security that can add to the maintenance cost for the owners.
In every country, gold is considered a symbol of wealth. Therefore, the people who own a certain amount of gold for more than a financial year are required by the government to pay their gold taxes.
At the same time, the gold owners also have to declare their assets to the government in full to prevent any legal repercussions.
Gold is a universally accepted shiny metal. However, in the current age, it is not possible to take more than a sanctioned amount of gold from one place to another. The governments of every country have put a limit on the amount of gold a person can take from one country to another when they are travelling.
Since gold is a purely physical commodity, it means that people can’t use their gold reserves in foreign places without converting it into gold or transferring it to other countries using centralized channels that can increase their expenses.
Gold is always under the threat of amalgamation and impurity. The value of a gold product is always determined based on its gold ratio measurement. Without the proper knowledge and instruments, the masses can’t measure the purity of gold.
Therefore, lots of people can get scammed by threat actors who sell them impure gold products for higher prices.
Key Differences Between Gold and Bitcoin
In addition to being the best conductor and the best inflation hedge, Gold is also one of the rarest metals in the world. Therefore, the supply of gold is always limited in comparison to other similar elements, such as copper.
On account of its rarity, Gold has managed to retain a high demand, and its per unit cost has also remained higher in comparison to most other elements.
On the other hand, the Bitcoin supply is capped at 21 million coins. Therefore, Bitcoin is also a rare cryptocurrency. At the same time, Bitcoin is also one of the most well-known cryptocurrencies in the world.
Therefore, Bitcoin is often referred to as digital gold. Just like gold, Bitcoin has managed to maintain a high per unit price in the cryptocurrency market, and its market dominance has always remained at 45% or higher.
An inflation hedge is a product that saves the loss of savings for the people on account of increasing consumer goods prices. Gold has been around for thousands of years, and people acknowledge its value regardless of their nationality and background. Therefore, gold is still a major commodity in the international market.
Therefore, people who are looking to purchase gold can make a profit by purchasing it for lower prices and selling it later for higher returns.
Bitcoin also works as an inflation hedge in the same manner. Depending on the current market circumstances, both Bitcoin and gold can be more favourable inflation hedges in juxtaposition.
Store of Value
A store of value is an investment that saves and prevents the loss of fiat currency savings on account of money devaluation. Gold and Bitcoin can work effectively as a store of value and allow the investors to convert their savings into either.
However, both Bitcoin and gold investing are long-term affairs. Investors who wish to truly generate wealth from Bitcoin or gold need to hold their reserves for a long duration before cashing out to make sizeable profits.
In terms of security, Bitcoin has a visible advantage over gold. Gold security can increase a lot of time and expense and expose the holder to considerable risk.
On the other hand, Bitcoin is many times safer. Furthermore, it is impossible to transfer Gold from one location to other digitally. On the other hand, the users do not need to get special permits from the government to move their Bitcoin reserves while travelling, and they can easily transfer them anywhere and anytime.
Many countries in the world have not recognized Bitcoin as an asset, and therefore investors do not have to pay taxes on their Bitcoin reserves, unlike gold.
Gold has less volatility in comparison to Bitcoin. Bitcoin prices are often subject to massive price volatility, and investors are always nervous about its stability.
There are some concerns about an organized ban on Bitcoin from governments around the world. However, at present most people agree that Bitcoin will be able to thrive despite government bans, just like in China.
Comparing Bitcoin and Gold paints a clear picture of the pros and cons of trading both commodities. There are some areas where Bitcoin beats gold while others where gold outshines Bitcoin.
At present, it is impossible to declare a clear winner, but at the same time, smart investors can understand the good and bad sides of both commodities and use them to their advantage.
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