Education • 3 min read
By Sophie Nicolas
Considering the differences, and similarities, between Bitcoin and gold can help you make a more informed investment decision. So if you’re weighing up the two, here are some things that these assets have in common and things that set them apart.
In our last article, we did a deep dive into why gold will always be a safe haven for investors. We can say the same thing about Bitcoin. As the oldest and most well-known cryptocurrency there is, Bitcoin has been somewhat of an ever-present and durable investment. Bitcoin has recently become something that investors flock to in a time of financial distress.
There will only ever be 21 million bitcoins in circulation, that much we know for sure. This makes Bitcoin a limited digital asset, as after the 21 million are mined (predicted to be in 2140), there will never be more Bitcoin released, this makes it similar to gold in some ways.
Although gold may not run out as quickly as Bitcoin, studies have shown that gold production may be declining and may become economically unsustainable by the year 2050. This is due to the fact that humans have extracted all of the “easy gold” therefore, we have to dig deeper into the earth to retrieve the nuggets. This also means that gold is also a limited asset.
A speculative investment is when the asset in question has a high degree of risk where profit depends a lot on the price fluctuations of the market. Bitcoin, with its famous volatility, can definitely be categorised as a speculative investment. Gold isn’t as well-known for being as volatile as Bitcoin, but it is still considered a speculative investment as investors buy with the hopes of holding it until significant gains can be made.
Gold is tracked through a worldwide tracking system that makes it difficult to sell fake gold or steal real gold. However, while Bitcoin is also easy to trace as it is stored in a public ledger, the interfaces where Bitcoin is handled are susceptible to hacks. Exchanges can be subject to attacks and software problems, putting your assets at risk. For example, the famous Mt Gox exchange had a software malfunction which offered hackers a brief window to steal millions of dollars’ worth of Bitcoin.
Over the years, Bitcoin has grown into a reputable and trustworthy form of payment. More and more institutions are beginning to accept Bitcoin as a form of money, which is really exciting for the whole crypto community. Gold is not accepted as a form of payment, sometimes in cases like for bartering services, but gold is no longer used to purchase everyday items.
Gold, as a physical precious metal, must be stored in highly-secure vaults or safety deposit boxes. Most of the time, you must pay someone else, such as a bank, to store this gold for you. Bitcoin on the other hand, is not a physical asset and is stored in a public ledger called the blockchain. You access your assets through your personal online wallet with something known as a “private key”. This is code that is held by the Bitcoin owner who wishes to transfer it.
This makes Bitcoin riskier to hold, as there is no insurance if this gets hacked and stolen, or if you share your private key. Keep in mind that most hacks happen as a result of poor computer safety, and not because of blockchain technology. You can read more about private keys here.
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