Bitcoin and Gold are assets that are currently about the same price range as each other, but they do still have significant differences that can affect your choice of trading. A critical point about the two commodities is that they’re both real money, and it’s their properties that set the two apart.
Mostly, trading bitcoin and Gold are two very different markets to concentrate on. It’s different because Gold is a metal that is a precious tangible asset that began thousands of years ago. Meanwhile, Bitcoin is a peer-to-peer digital currency that is not in government control and was first mined in 2009.
Although Bitcoin is a cryptocurrency, traders can carry out informed decisions while capitalizing on the price movements. Although the essence of the trading can similarly be found in Gold, their differences such as sources of demand, storage procedures, and volatility levels ultimately differentiate the two assets.
Following this, here is a complete guide for traders with regards to bitcoin and Gold.
What is Gold?
Gold was initially thought of as a currency at least between 2000-3000 years ago. Further, Gold was used to make jewelry, decorative ornaments, and medicinal equipment during the ancient civilization. Gold was first used as currency by the Turks in 600 B.C, and it continued to be used until the mid-1800s because of an established system called the Gold Standard.
The Gold Standard allowed individuals to use paper money with a value directly linked to Gold. Countries such as Britain and the United States of America stopped using the gold standard and was replaced by the fiat money. The effects of these changes stopped using Gold as a form of currency.
People today consider Gold as a safe-haven asset due to its value as a material such as limited in supply, counterfeit-resistant, and divisible, not to mention it’s scarce. Moreover, the demand and supply are disproportionate since Gold must be mined from the ground and processed.
What is Bitcoin?
Bitcoin is a blockchain-based digital currency that has a lot of similarities to Gold. Ideally, Bitcoin also has to go through a mining process using a specialized computer’s total power. Following this, the miners then have to solve computational problems to chain blocks of transactions together.
Whenever miners chain blocks of transactions together, they are rewarded with new bitcoins. Consequently, new bitcoins are made approximately every 10 minutes. The best thing about Bitcoins is that people can use them to invest or for making transactions.
The Main Differences Between Bitcoin and Gold
One of the most significant distinctions between bitcoin and Gold is the volatility of both resources. Bitcoin is a volatile asset that involves massive price movement regularly. Furthermore, Bitcoin is also known to experience low volatility, which creates more opportunities for traders compared to Gold.
Another difference that Bitcoin and Gold have is their storage procedure. Since Gold is a tangible asset, Gold has to be stored in safety deposit boxes or vaults in banks, and even personal safes. On the other hand, Bitcoins aren’t necessarily stored in the same way as Gold but is stored through a private key.
A private key is a secret number that allows a miner to transfer their Bitcoin to another. A person needs to have a software or hardware wallet to secure their private key and prevent risks such as hacking from occurring.
The Usefulness of Bitcoin and Gold as Currency
The usefulness of bitcoin and Gold as a currency still has a lot of disagreements. Economists provided three crucial functions to describe money, all of which must be fulfilled. The three essential functions to describe money are the medium of exchange, the unit of account, and store of value.
Medium of Exchange
The medium of exchange refers to the ability of the Bitcoin or Gold to be used as a currency as a means to exchange for goods and services. Although it isn’t widely accepted in many organizations, there are a few that allows cryptocurrency as a means of exchange.
Following this, companies such as Microsoft, Reeds Jewelers, Shopify, Newegg, and CheapAir are accepting cryptocurrency as a medium of exchange. On the other hand, Gold cannot be used as a medium of exchange nowadays due to the abolished Gold Standard system.
Unit of Account
A potential currency must be countable to satisfy the unit of account function so that there is something to compare the costs of goods and services. The unit of account fits in the criteria of Bitcoin mainly because the cryptocurrency is divisible.
Following this, since Bitcoin has eight decimal places, it will be easy to tell if a person who owns a bitcoin has a gain or a loss. Since the unit of account is a reliable way to measure the wealth of a person.
However, Gold also fit into the criteria of the unit of account because it is also divisible. The value of Gold can be converted into other items by basing it on the value of Gold per ounce in a particular currency.
Store of Value
The store of value refers to how an asset will still be considered an asset in the future because it is about how badly people want it overtime. For instance, perishable goods such as cheese have a bad store value because it will spoil over time. Consequently, it’s essential to know whether Bitcoin and Gold will still hold the same value over time.
Looking at the usefulness of Bitcoin and Gold as a currency is essential for trading. But, since Bitcoin and Gold don’t meet all the three criteria to be used as a currency, it makes it hard to tell the difference. Further, even though both Bitcoin and Gold share a couple of similarities, there are still significant differences that could explain the two apart. Regardless, trading Bitcoin needs massive risk management because it is a volatile asset, and there are certain precautions needed to secure this digital currency. While Gold is still a safe-haven asset due to its low volatility compared to Bitcoin, keep in mind that the two are completely different assets.