5 Reasons Why Bitcoin Outshines Gold as a Global Reserve Currency
Over the last decade, there have been endless debates regarding gold vs. Bitcoin. On both sides of the aisle, parties have put forth compelling arguments as to why they feel one asset is better than the other. Some insist that Bitcoin is digital gold, while others believe the two are not comparable by any means.
As the world shifts to a digital economy, it becomes crucial to understand what continues to make Bitcoin an attractive alternative to the world’s original reserve currency. The first step to understanding this comparison is grasping why gold is a reserve currency in the first place.
Gold emerged as a reserve currency during ancient times as a way to protect one’s wealth during times of uncertainty. It wasn’t wise to keep your holdings in a country’s specific currency during times of war. The same rings true today.
Ever since the end of WWII, the US has enjoyed a moment of supremacy over other nations. The country had acquired vast amounts of gold from Europe throughout both world wars, making it the most financially sound government globally at the time. However, this is no longer the case.
Today, the world stage continues to equalize. This equalization has cast doubt on the dollar’s future as the current reserve currency. Nowadays, there needs to be a reserve currency that works for both governments and individuals, regardless of their nation. Here are the reasons why Bitcoin is that currency:
Anyone describing gold will tell you that it’s shiny and heavy. While these characteristics make for beautiful ornaments, they do little in terms of convenience. Gold is notoriously difficult to transport long distances. In the past, gold theft was a primary concern. History recants timeless tales of Pirates making off with gold booty after a successful heist.
Gold theft became such a problem that people started just leaving their gold in the goldsmith’s vault and trading the receipts. These actions eventually led to the development of the paper-based banking system as it’s known today.
In a trillion-dollar economy, transactions can equal billions of dollars. Transporting this amount of gold would be difficult. In most instances, it would cost millions just to deliver a billion dollars worth of gold. Transport costs make gold not a viable option for the ordinary person. Additionally, Bitcoin can send the same value with the simple click of a mouse.
Even if you had a reliable way to transport your gold bullion, it would require you to take extreme security measures to protect your shipment. These precautions add to the overall cost of any venture. Reversely, those who invest in paper gold rather than the actual physical bars also face a different type of security risk.
For one, they must rely on the centralized organization that maintains records not to cheat them or lose their documents. Additionally, they have to trust that their paper holdings equal what they state. Don’t think for a second that there haven’t been times in which the gold promised didn’t equal the actual reserves a country held.
Sadly, there were multiple historic gold seizures from the public. In the US, one such confiscation occurred in 1933 during the great depression. In this instance, Franklin D Roosevelt signed the Gold Reserve Act 1934 that seized all gold bullion and coins via Executive Order 6102. The act mandated that all citizens’ gold be confiscated`. This task would be impossible with Bitcoin.
Gold proponents argue that Bitcoin wouldn’t be able to replace gold in day to day transactions, but the reality is much different. Today’s economy functions on rapid micro-transactions. Imagine attempting to chip off $5 worth of gold to pay for your lunch at a drive-through window. It’s not realistic.
Bitcoin also has its limitations in this department. During times of high congestion, Bitcoin transactions can delay, and their fees can rise. Developers created an off-chain protocol known as the Lightning Network as a way to try and combat these issues. The Lightning Network enables micro-transactions in near real-time via the use of private payment channels.
Bitcoin is more than just an “electronic peer-to-peer cash system” as described by Satoshi Nakamoto. Today, the Bitcoin blockchain underpins hundreds of other platforms. These platforms rely on Bitcoins blockchain to help maintain their security.
Today, Bitcoin’s blockchain accomplishes a host of tasks. Some platforms utilize it to verify documentation, identification, and even other blockchain transactions. In this way, Bitcoin serves more functionality than gold in today’s fast-paced economy.
Gold was an attractive option as the world’s reserve currency because there is only a finite amount available. Currently, it would only take 3.27 swimming pools to hold the entire global supply of gold (2.5 million liters). However, this finality is simply an assumption. At any moment, a new mine could discover a massive deposit of this precious metal. If this were to occur, the entire gold standard would alter.
There will only ever be 21 million Bitcoin issued. This finite supply is one of the main reasons that Bitcoin continues to draw more long term investors. These individuals, referred to as HODLers (hold on for dear life), understand that while the supply of gold could fluctuate at any moment, the quantity of Bitcoin is set in stone, or rather code.
Crucially, the supply of Bitcoin will never reach 21 million because of a variety of reasons, mostly human error. According to a recent study by Chainalysis, about 4 million Bitcoins are lost forever. These losses mean that one day a single Bitcoin could be worth an extraordinary amount.
Bitcoin has eight decimal places (0.000 000 01) precisely for this reason. Excitingly, it can break down into even smaller units. All of these features can accommodate a future where the value of Bitcoin is so high that the average transaction size decreases significantly.
Bitcoin Outshines Gold
In almost every scenario, Bitcoin outshines gold. In reality, the world would need time to travel back to ancient times for gold to make sense as a daily currency. So as long as the world doesn’t experience a meteor strike that erases computer technology off the face of the earth, Bitcoin is set to take over Gold’s position as the global reserve currency before the end of the century.