Why has gold been used as currency?
Gold has been used as a form of currency for thousands of years because of its unique properties. One of the main reasons is that it’s scarce and difficult to mine, making it a valuable commodity. Additionally, gold is durable and does not corrode, meaning it can be stored without losing value. Gold also has a universal value, meaning it can be traded and accepted as a form of payment across different cultures and civilizations.
Another reason gold has been used as currency is that it has a consistent value that is not affected by inflation or the devaluation of paper money. Governments and central banks often print more money to stimulate their economies, which can lead to inflation and devalue the currency. The Romans managed to artificially inflate their gold currency by shaving down the coins around the edges in order to make more coins from the same amount of gold. This process is known as coin clipping. This is the reason modern-day coins have ridges around the outside edges. Gold has a finite supply and its value is determined by supply and demand, which makes it a stable store of value. Because of these properties, gold has been used as a form of currency for centuries and continues to be used in some countries as a form of currency today.
What makes Bitcoin better than gold?
Bitcoin is similar to gold. Some have actually described it as “digital gold”. Gold requires work, specialized equipment, and energy to mine from the ground. There is a limited amount of gold in the Earth’s crust. As a result, on a gold standard, inflation can only happen as fast as people could mine it, which isn’t very fast when compared to the overall supply. Bitcoin is very similar in these ways. To mine Bitcoin, one must have specialized computers which solve complicated mathematical problems. This process requires energy. There are only twenty-one million Bitcoin that will ever exist. Every four years, the amount of Bitcoin rewarded to these mining computers is cut in half. So in reality it’s becoming harder to make more Bitcoin, whereas, with new gold mining equipment and technology, we are mining more and more gold over time.
In addition to the point made above, Bitcoin is better than gold because of its ability to be securely sent around the world in a matter of minutes and at a fraction of the cost. Can you imagine the cost and time it would require to send gold to someone overseas? With the creation of the Lightning network, these costs and times of sending Bitcoin are reduced to nearly nothing. This opens the doors to spending Bitcoin on small purchases such as buying a cup of coffee which can be made instantly for less than a penny in transaction fees. Before the Lightning network, it only made sense to use Bitcoin for larger transactions that would be settled in around ten minutes. This has all changed with the development of the Lightning network.
Bitcoin is more secure to store than gold as well. Gold can be stolen just like any physical asset. Bitcoin is much harder to steal if stored properly. Without the key phrase to someone’s Bitcoin wallet, you have no chance of stealing it. Many people think that Bitcoin is “stored” in a wallet because that’s how wallets in the real world work. In reality, one’s hardware wallet merely holds the private key which is required to send the Bitcoin that is allocated or “stored” on it. The actual Bitcoin never leaves the Bitcoin ledger, it just transfers ownership. Watch this video for a better explanation of how this works.
Bitcoin vs. Gold in Summary
Bitcoin is digital while gold exists in the real world. Despite this key difference, they both have similarities in what is required to mine or make more gold or Bitcoin. They both require energy and specialized equipment for mining and neither of them can be made out of thin air, unlike fiat money. Similar to the reasons email has replaced physical mail for the most part, Bitcoin is likely going to replace gold in most financial aspects of life. As shown in the chart earlier, the annual increase in the gold supply is going up and will go up faster as the price of gold increases. As for Bitcoin, the annual amount made is actually decreasing by half every four years. No one knows how much gold will exist a century from now, but we do know how much Bitcoin will exist then. This is a huge advantage Bitcoin has over gold when considering them both as a long-term store of value. Lastly, Bitcoin is much more secure to store compared to gold as long as you follow a few basic rules like having your own hardware wallet and not sharing your private keys with anyone. Gold has been used for centuries as the primary method for storing and transferring wealth. With the invention of computers and the digital age, Bitcoin will replace it since it offers many of the same features along with some added advantages.
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“Gold is a great way to preserve wealth, but it is hard to move around. You need some kind of alternative and Bitcoin fits the bill.”
-Jim Rickards
“Bitcoins are like gold bars with wings. That is why I, and so many others, view Bitcoin and its network as gold 2.0”
-Tyler Winklevoss
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