How do Bitcoin, Gold and Fiat Currencies compare.

How do Bitcoin, Gold and Fiat Currencies compare?

Bitcoin, gold, and fiat currencies are three different types of currency that have distinct features and characteristics. In this article, we will explore and compare the attributes of these three currencies based on their scarcity, divisibility, portability, censorship resistance, durability, verifiability, and established history.

Scarcity:

Bitcoin has a limited supply of 21 million coins, which will be fully mined by 2140. Learn more about why it will take so much time here. This limited supply, makes Bitcoin scarce and valuable. Gold is also scarce, as it is a physical commodity that is rare and difficult to mine. Fiat currencies, on the other hand, are not scarce, as their supply is controlled by the government and central banks.  We have seen recently in the US, the amount of USD in circulation and available is growing rapidly as the FED continues to print more and more. This has the ultimate effect of devaluing the currency, or in other words, over time the value of the Dollar you hold today, will decrease over time in terms of actual spending power

Divisibility:

Bitcoin is highly divisible, with each unit of Bitcoin, (known as a Satoshi), being divisible into 100 million smaller units. Gold, on the other hand, is not as divisible, as it is a physical commodity. This makes it more difficult to divide into small units. Fiat currencies are highly divisible, with each unit being able to be divided into smaller denominations but is not as divisible as Bitcoin.

Portability:

Bitcoin is highly portable, as it is a digital currency that can be easily transferred over the internet. The private key can be memorized and also stored on a USB Drive. Gold, on the other hand, is less portable, as it is a physical commodity that can be heavy and difficult to transport. Fiat currencies are highly portable, as they can be easily carried in a wallet or purse.

Censorship Resistance:

Bitcoin is highly resistant to censorship, as it operates independently of any government or financial institution. Transactions are recorded on a public ledger known as the blockchain, which makes them immutable and difficult to hack. Gold and fiat currencies, on the other hand, are subject to censorship, as they can be seized or frozen by governments or financial institutions.

Durability:

Bitcoin is a digital currency and does not have physical form, so it cannot be damaged or destroyed. Gold is highly durable, as it is a physical commodity that does not rust or corrode. Fiat currencies, on the other hand, are less durable, as they are printed on paper or minted on coins and can be damaged or destroyed. Fiat currencies also tend to come and go when government over print them and destroy their value through hyper inflation.

Verifiability:

Bitcoin is highly verifiable, as transactions are recorded on a public ledger known as the blockchain, which can be viewed by anyone. Gold is also verifiable, as it can be tested for purity and authenticity BUT this requires specialized equipment that comes at a cost. Fiat currencies are verifiable, as they are issued by governments and central banks and have security features to prevent counterfeiting. This being said many fiat currencies have been counterfeited. As an example, according to the United States Department of Treasury, an estimated $70 million in counterfeit bills are currently in circulation.

Established History:

Bitcoin is a relatively new currency, having been created in 2009. Gold, on the other hand, has been used as a currency for thousands of years and has a long-established history. Fiat currencies also have an established history, with some currencies having been in use for over a century. The below chart illustrates that global reserve currencies have a lifespan of roughly 100 years.

Conclusion:

Bitcoin, gold, and fiat currencies have distinct features and characteristics that make them unique. Each type of currency has its advantages and disadvantages. Investors or users should consider these factors when deciding where to store their money and also what spread of asset class ownership they seek. While Gold and Bitcoin can be used as a store of value, their unique features and characteristics make them better suited for different types of transactions and investments. Fiat on the other hand is a debatable store of value considering its unlimited volume and inflationary mechanism.

 

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