Bitcoin Vs. Gold – What’s the Difference?

New investors gain valuable insight when they learn the differences between Bitcoin vs gold. This debate has continued to flare up over the last 15 years of Bitcoin's existence for good reason. Both of these assets share some common characteristics that make them wise investments and depending on your overall investment strategy, you may find one option better suited to your needs.

Shared Features

Notably, both Bitcoin and gold operate in a way that is independent of any government. Yes, governments can put restrictions or even outlaw these assets. However, enforcing a ban on either gold or Bitcoin would prove to be extremely difficult if not impossible. All throughout history, gold has been safely stored and stashed during conflicts. To date, no government has gained total control over the gold supply.

Bitcoin vs Gold

Likewise, decentralized networks like Bitcoin are designed to survive persecution. A perfect example of this resilience can be seen in Tor networks. Your favorite knock-off movie streaming site can continue to operate due to its decentralized nature. The peer-to-peer structure of these networks eliminates any regulatory oversight from the core functionalities. Consequently, Bitcoin is very censorship-resistant.

Categories To Examine

For the sake of making the debate as balanced as possible, each asset will be judged on its capabilities in vital categories such as accessibility and fungibility. This approach should provide a fair and balanced assessment of the pros and cons of either asset. Notably, both gold and Bitcoin have proven to be lucrative investments over time. For this reason, savvy investors may want to consider participating in both markets.

Store-of-Value (SoV)

Gold has proven to be the world's longest and most reliable store of value. This precious metal has been coveted ever since ancient cultures realized it didn't corrode. These societies saw gold as the perfect representation of the ruling class. As such, it often represented immortality.

Not much has changed with gold over the last couple of thousand years. It’s still a sign of opulence and wealth. However, today it also serves as a valuable standard within the global economy. The value of gold has steadily increased over the last +200 years with the precious metal at near all-time highs of $2000 an ounce.

Of course, nowadays it's rare for a person to actually hold gold directly. In most cases, investors trade paper gold. Paper gold is a term that refers to the trading of contracts and options. Sadly, this situation means that many investors could easily lose access to their gold holdings if the centralized firm that provides and honors their paper gold investments disappears.

Bitcoin SoV

In comparison, Bitcoin is fairly new to the market. Unlike the millennia of proven SoV capabilities, gold has, Bitcoin still has to test its steel. It’s had only 15 years to demonstrate its SoV characteristics in total. However, in that short period of time, the coin has proven to be an excellent store of value. If one was to evaluate Bitcoin's performance vs gold’s over the last decade, there would be no comparison.

Bitcoin smashes gold's ROI, mostly due to its increased scarcity. There are only 21 million Bitcoins to be minted versus an unknown amount of gold. However, since Bitcoin is slightly over 15 years old, no one can say that the value of this coin will remain indefinitely. So, for the category of SoV, it’s a tie. Bitcoin has shown a way higher ROI for investors than gold and has more scarcity. However, the coin lacks long-term statistics and history to prove that it can stand the test of time like gold.

Gold Accessibility

The next category to evaluate is accessibility. Getting your hands on raw gold isn’t an easy task. It's not like you can go to your local ATM and withdraw $100 in gold bullion. Even when gold coins were used in daily transactions, they were difficult to come by for peasants. Interestingly, gold coins were first struck on the order of King Croesus of Lydia, which today is Turkey, around 550 BC.

In most instances, you will need to see a gold broker to get your hands on investment gold. Of course, you can buy gold at any jewelry store, but you are then paying more than the weight value. For these reasons, gold is not very accessible to the average investor.

On the other hand, if you already have gold, you don’t need anything else to spend it. It doesn’t matter if the internet is down, or if the world is struck back to the stone age, you can spend your gold. So in times of severe technological restrictions, gold becomes far more accessible than Bitcoin.

Bitcoin Accessibility

It's never been easier to purchase Bitcoin. The world's first digital currency is now available on hundreds of exchanges. You can buy Bitcoin today using fiat, credit, debit, or bank transfers. There are also over-the-counter services that allow you to buy Bitcoin directly in person and pay in cash. You can even buy Bitcoin directly on your PayPal account.

Bitcoin vs Gold – BTC Stats

At the very least, you will need electricity, a smart device, and the internet to access your Bitcoin. While these requirements aren't a problem for most people, there are still places in the world that lack this infrastructure. Also, in the event of some cataclysmic scenario where there is no electricity, Bitcoin users would suffer.

Micro-transactions

One of the main reasons that gold is no longer used as a day-to-day currency is that it’s notoriously difficult to conduct micro-transactions. Microtransactions are a core component of any monetary system. Imagine pulling up to the drive-thru and attempting to chip off $1.99 in gold to pay for your burger. The very idea of this type of payment system is dated.

Bitcoin is better at micro-transactions although it’s not perfect either. The network's fees eat up much of the micro-transaction. Also, there is a delay before your Bitcoin micro-transactions are finalized. This delay lasts from ten minutes to a day. These delays and fees make using Bitcoin directly for micro-transactions difficult.

Lightning Network

Recognizing the importance of micro-transactions to the Bitcoin ecosystem, developers have created an off-chain protocol called the Lightning Network that makes micro-payments efficient and affordable. The system utilizes private payment channels that allow users to send unlimited payments. When the channel closes, the payments get added to the blockchain. In this way, Bitcoin gains full micro-payment capabilities.

Large Transactions

On the other end of the spectrum, you have to look at larger transactions. Making a large purchase in gold is cumbersome, but not impossible. It’s a fair assumption to believe that you can purchase nearly anything in the world for the right amount of gold. However, getting this gold there is another story. In most cases, the cost of transporting this heavy metal could be as much as the purchase itself.

1 Kilo Gold Bar

Bitcoin can be used to make large transactions, but it’s not as sure a thing as showing up with a treasure chest of gold bars. For example, there are a growing number of homeowners willing to take Bitcoin for their home. However, even with the increase in blockchain real estate options, it’s still just a drop in the bucket of the total real estate sector.

The same goes for many sectors of the global economy. You will first need to convert your Bitcoin over to a fiat currency to complete your major purchase. Notably, the introduction of crypto debit cards makes it possible for the conversion to happen in real-time at the PoS. In the coming years, this scenario should shift a bit as more people learn about Bitcoin. For now, both Bitcoin and gold have large transaction restrictions, albeit for different reasons.

Fungibility

Gold is 100% fungible. Any two pieces of gold that are the same weight and purity always equals the same amount. For this reason, gold is nearly impossible to track, ban, or censor. Gold can be spent in a manner that obfuscates its history, making it even more private.

Bitcoin is semi-fungible. The introduction of powerful blockchain forensic firms has limited the coin's fungibility. Every transaction you conduct on the blockchain is visible to the market. The growing number of tracking firms entering the space has left analysts worried that these services could be used to tag certain Bitcoin with the intention to blacklist them from markets.

Since fungibility is a core requirement of any successful monetary system, developers have gone to great lengths to create systems to help restore and protect Bitcoin's fungibility. Coinjoin is a protocol that mixes transactions with the goal of obfuscating a transaction's sender and receiver.

Gold Security

Your gold is only as secure as your security precautions. Since most investors only own paper gold, they have no control over their assets directly. For those who own physical gold, there are costs associated with securing this asset. Large gold deposits require a safe, live security, and a host of other security features to protect the bounty. These costs only increase when you want to send your gold internationally.

Even a small-time gold owner will feel the burden of securing their physical assets from theft or loss. Tons of gold have been lost to natural disasters during transport or storage. However, since gold doesn’t corrode, these treasures remain hidden until some lucky soul stumbles upon them.

Bitcoin Security

Bitcoin provides much higher security to investors. You can carry a million dollars worth of Bitcoin on your Smartphone without drawing any attention. The digital nature of the coin makes it perfect for concealment from real-world threats. However, the cost of this is a trade-off for online threats.

Unlike gold, online scammers can steal your Bitcoin. While these thefts are never the result of Bitcoin's protocol, the third-party developers who host exchanges, wallets, and more, can leave attack vectors open that enable hackers to access your coins. To avoid these concerns, it's vital you stick to open-source and non-custodial platforms.

The key to securing your Bitcoin is holding your private keys. This passphrase is how you access your wallet. You should never share these keys with anyone, under any circumstances. If someone gains access to your private keys, they control your wallet. Remember, there are no refunds on the blockchain.

Counterfeitability

Gold is highly susceptible to counterfeiting. For centuries, goldsmiths have melted down pure gold bars, diluted them with cheaper gold, and resold them as their originals. The practice has remained a scourge to the industry for over a hundred years.

Counterfeit Gold Coin

In 2019, the gold industry saw a new type of counterfeit emerge. According to a Reuter report, the gold industry was struck by surprise when they learned that they had been housing laundered gold bars for years. Unlike transitional counterfeits that are usually easier to spot because of their weight or characteristics, these gold bars were nearly identical in purity. The only difference was that they originated from sanctioned regions of the world.

Legality

In terms of long-term legality, gold has Bitcoin beat. There is little chance that politicians will pass some anti-gold law anytime soon. However, it was less than 100 years ago that the US government passed a law confiscating all the citizen's gold. Executive Order #6102 was passed by President Franklin D. Roosevelt on August 5, 1933.

Bitcoin continues to gain popularity as more platforms and users enter the ecosystem. Recently, El Salvador recognized Bitcoin as a legal tender. At the time the move was controversial. However, there are already many other nations seeking to leverage Bitocin SoV capabilities to fight hyperinflation. However, in some nations, it may still have an uphill battle in terms of receiving legal recognition. Some countries have even gone as far as to ban this crypto. For these reasons, Bitcoin's long-term legality may remain in question for years to come.

A Battle for Standard Supremacy

Now that you better understand the differences between Bitcoin vs Gold, you’re ready to make an educated investment decision. The first thing you probably noticed is that there is no clear-cut winner across the board. Bitcoin excels in some categories and gold in others. It all really depends on your long-term goals.

For most, the returns Bitcoin has secured in its short tenure are enough to weigh the scales. However, if you already own gold, you may not see enough reason to sell the asset to acquire Bitcoin. For these reasons, it’s wise to diversify your investments by holding a little of both in your portfolio.

To learn more, make sure to visit our Investing in Bitcoin and Investing in Gold guides.