Debating Bitcoin vs gold is certainly not a conversation we would have been having just a few years back.
Gold – and silver in particular – has long been a favorite means of investment (or store of value) for preppers. In recent years, however, more have been wondering about the value of buying Bitcoin. It is – at present – not regulated by the government and many people are using Bitcoin to diversify their assets. What is better for preppers, however, Bitcoin or gold?
In this digital age, all kinds of investments are at the tips of our fingers. There are many ways for you to store value or make a profit. You can choose from a brokerage that places bets on the stock exchange, Exchange-Traded Funds (ETFs) that utilize commodities, or delivery services for owning precious physical metals.
However, the most true-to-its-nature virtual trade is the cryptocurrency.
Is there any merit to this new method of investment and trade? Will it replace the values of other assets completely?
Cryptocurrencies Versus Precious Metals Debate
People invest in precious metals because they are of high value, and they can have a practical and real use. Gold is a superconductor like silver, and copper is used in everything from making wires to pipes. They can all play a role in the production of electronics and hardware if you strip them of their sentiments.
People, particularly younger generations, are also attracted to cryptocurrencies. Investing in these virtual values requires lower fees, boasts ease of international trade, allows fast transactions, and more. They are easy to trade. However, as it is purely digital, it can be prone to hacks and digital theft.
Let’s generalize “cryptocurrencies” as Bitcoin and “precious metals” as gold for purposes of this article. Both Bitcoin and gold have their risks, but are they significant enough to choose one over the other?
You could be wondering which one is better than the other, and what you should invest in. So, following is an expansion on the growing Bitcoin versus gold debate with their comparisons explained.
What is Bitcoin? What is Used for?
Bitcoin is a cryptocurrency, one of many computerized digital assets designed to work as a currency or medium of exchange. Individual “coin” ownership records are stored as data in a digital ledger or an automated database. The system uses strong cryptography to secure entries of transaction records.
A digital system is in place that controls the production of additional digital records that confirms transfers of coin ownership. Bitcoin is the most widely used cryptocurrency in the world.
This description is an over simplified description of Bitcoin, but it should suffice for our purposes. If you need a more thorough explanation, see What is Bitcoin and how does Bitcoin work?
A Brief History of Bitcoin
Bitcoin’s origin goes way back to a paper from October 2008. The paper comprehensively explained the workings of a transaction system conceived of by a shadowy figure going by the name Satoshi Nakamoto. He began writing code for the Bitcoin program in 2007.
In January 2009, he released version 0.1 of the software, and launched the network by “mining” blocks of Bitcoin. The system’s backbone was the capability given to the customers to make and receive payments without involving banks or credit and debit card companies. It was (and generally is) an anonymous transaction, so it naturally gained popularity with the underground economy, and – being free of government influence – was embraced by many Libertarians.
The Power of Cryptocurrency
Bitcoin is a universal digital currency that people can spend at any participating online store or trading platform. The currency eliminates user concern on current exchange rates, and it was primarily made for businesses that reach international clientele.
When it was released in 2009, participating businesses were enabled to expand their customer base to the international territory. Local companies also benefited from the currency as it allowed convenient online transactions and purchases. Transactions are close to instantaneous.
All was well and good with Bitcoin (generally), until it encountered significant criticism in 2011. That is when hackers penetrated its system. Great concern over the currency’s security came up. Furthermore, people criticized the coin for enabling illegal and disreputable businesses to trade efficiently.
Fortunately for the coin, it has persevered despite its setbacks and is continually attracting legitimate customers and businesses despite its erratic price swings
Today, it is gaining recognition and legitimacy as a form of currency used by mainstream companies and the IRS.
In November of 2013, bitcoin’s value surpassed that of gold, making investors look at the currency as valuable and profitable.
What is Gold? What is it Used for?
Gold has a history of being valued and desired by humanity for thousands of years. Civilizations used the shiny yellow metal for high-value trade and currency. The item has also been used for jewelry, decorations, ornaments, and other aesthetic purposes. Gold has always been regarded as necessary by tribes, kingdoms, religions, and societies. People have sentiment for the aesthetic element.
In the mid-1800s, people integrated a system of currency known as the Gold Standard. In this system, people use paper money (dollars as an example) to represent the value of gold. During that time, you could take money into the bank and get gold, or vice-versa. The dollar was “backed” by the gold. This system was used until it was abolished in the mid-1930s, much to the dismay of many.
The metal is no longer used as a currency but rather as an investment asset that enables investors to profit by intelligently trading it as its value fluctuates in the market.
Many experts highly recommend that individuals and companies invest in gold as a part of their overall portfolio. It is a safe haven of value. Investors store them in exchange for cash. They grow their inventory and sell for a profit when the time is right.
The metal also hedges owners from inflation. During an inflationary period, the value of the dollar drops. When this happens, the dollar per value of gold generally increases.
Gold is also excellent protection against crises. During the past world wars, owners of the element could trade portions of it for food, shelter, or safe passage.
Bitcoin vs Gold
In many ways, gold can be thought of as a physical version of bitcoin. They both must be mined. Gold, of course, is mined from the ground where as Bitcoin is mined through the process of deciphering various computer encryptions.
They are both limited in their amount. All of the gold available in the world is around 171,300 tons. Bitcoin has a total of 21 million coins (which can be broken down into fractional amounts).
Because of the similarities between the two valuables, many people believe that Bitcoin could ultimately replace gold’s value as we progress more and more toward a digital world. However, there are significant reasons why this occurrence might be unlikely if not impossible.
Why Gold Gets the Gold Medal for Preppers
First, Bitcoin can never replace gold as the digital coin still has vast financial risk. Even if it peaks from time to time in market value, it experiences huge price fluctuations that often result in significant losses for investors and users. Gold, on the other hand, has a long history of far more stable value.
The future and viability of Bitcoin are not yet determined. This situation leaves many customers wary about the security of their virtual investments. If the system is terminated or becomes obsolete, or even comes under the regulation of government, Bitcoin will likely lose its value.
The instability and uncertainty that is the bane of bitcoin impend it from having an excellent customer base to match or surpass that of gold.
Bitcoin also has not yet reached a full status of being a truly universal and legal form of currency. A lot of countries have refused to use the coin, and some even made it illegal. On the other hand, no country will refuse gold. Contrary, most countries have significant gold reserves!
If Bitcoin cannot achieve the status of acceptance that gold possesses, the currency can never surpass the metal in its place as a valuable investment commodity and store of value.
Finally, gold is in on the rise. Since its fall in 2013, gold’s value has been increasing. Some experts have estimated that it would reach up to $8,000 per ounce by 2025.
Many people in 2013 presumed it had lost its capability to be a safe investment; however, it has propelled higher. Gold is also converting Bitcoin investors, especially now that the market is volatile. Bitcoin might be affected by downtrends when gold will not.
Buy Both Gold AND Bitcoin?
When you break it all down, time-tested investments are more secure than liquid virtual money.
That said, Bitcoin fluctuations are enticing points of profit. The good news is that you can invest in both if you want.
Experts in investments agree that there is merit to what is called a “diverse portfolio.” You should have different kinds of assets so that you can profit from each advantage a type provides.
Diversify Your Portfolio
While gold is more secure to store, you can quickly generate income by trading in cryptocurrencies if you’re careful (and lucky). But when the virtual market crumbles, gold could save the day.
Diversification works the same way when it comes to the kinds of metal you store. When a surge in industrial production occurs, companies will choose copper and silver over gold for electrical parts. Gold is impractical and too expensive for these applications. Hence, if you have silver and copper in addition to gold, you will profit when there are technological advances.
During inflationary periods, when production is low, your silver and copper stocks will not demand as high a price. However, when you earn off gold, you are protected from the economic adversity’s ill effects.
Many professional investors believe that you should, at a scale, put money on brokerage, stocks, bonds, real estate, futures, ETFs, and cryptocurrencies. However, as preppers know, gold in your hand is much different than gold “on paper” from some financial institution that assures its presence in their vault.
Gold is Good but So Is Bitcoin
Gold’s history surpasses all other investment methods. It has been valued worldwide for a very long time and there is no indication that is going to change. Wherever you go in the world, someone will be interested in any form of gold you have.
Also, due to the digitization of markets in our modern world, it is now easier than ever to purchase gold. You can easily get gold from online traders, store websites, bullion delivery services, and other means.
There are also many ways today that can give you profit from gold online. You can buy futures options, trade in the ETF for gold, or subscribe to a monthly delivery.
So, dabble in cryptocurrencies if you’d like, but as good preppers know, it’s hard to beat precious metals.