Bitcoin has been around the corner only for a little less than 10 years but it has already outperformed all traditional investments such as stocks and gold.
Often being referred to as a "digital gold", it's been compared to the physical one in terms of dollar price for a quite some time now.
However, it also has other useful properties that contribute to its rise in popularity and price which people stopped talking about it.
I believe these properties along with Bitcoin's growing network effect should make everyone consider it as a potential investment and even a tool that could eventually replace the traditional financial system.
#1 Store of value/investment
Gold has been considered the store of value for hundreds or even thousands of year.
Its dollar price is relatively stable and factoring in the inflation, you could (almost) always be sure that 1 ounce of gold buys you roughly the same amount of goods it did 10 years ago.
Bitcoin on the other hand not only lets you buy more goods each year, its dollar price grows so quickly, it makes a poor person rich.
With the exception of 2014, Bitcoin's price grew anywhere between 50 to 5000% per year:
- 2011: +1312%
- 2012: +117%
- 2013: +5753%
- 2014: -66%
- 2015: +53%
- 2016: +116%
- 2017 (until today): +257%
When looking at the January 2011's price until today, it went from $0.30 to $3 515 (as of the date of writing) which is a mind-blowing 1 133 770% increase.
And that's just in less than 7 years.
Gold on the other hand only grew around 3293% since 1970.
When purchasing an investment gold you have to make sure you're getting it from a trustworthy seller such as a bank.
Each gold coin or gold bar comes with a certificate, but even then, you can never be sure it isn't counterfeit.
Often enough, you have to get gold's authenticity verified before purchasing or when selling (despite the certificate), which adds to the cost significantly.
With Bitcoin, verification can be done at home with a full Bitcoin node. It's a special software that downloads and verifies every single transaction that ever took place.
Because Bitcoin is based on public key cryptography and one-way hashing functions which are impossible to break in a timely manner, counterfeiting bitcoins is out of the question.
Unless you have a gold dust, it's virtually impossible for an ordinary Joe using it for (every day) payments.
The smallest and lightest gold coin that is readily available on the market is 0.05 ounce (1.42 grams) and costs around $90 as of today.
While you could be able to buy your weekly groceries with it, most people's daily expenses are way below a single coin.
For this reason alone (and many others) you would hardly find a vendor that is willing to go through the pain of accepting gold for his goods and services. Similarly, no sane person would bother chopping his gold bar into microscopic pieces just to buy a coffee.
Bitcoin being a piece of code is and can be highly divisible.
The smallest unit called satoshi is represented as 0.00000001 BTC which is currently priced at $0.000035. If Bitcoin ever becomes too expensive the code can be altered to move the decimal point as needed.
Gold is heavy.
Imagine you're buying a house for $300 000. You'd need to carry almost 6kg of gold which is not only annoying, it's also a security concern since it's not easy to hide the fact you're carrying it with you.
Your Bitcoin wallet will always weight the same.
It's either 0 gram if it resides on your phone or a few grams if you use a dedicated hardware wallet such as Trezor.
It doesn't matter whether you're carrying $300 000 worth of Bitcoin or $300 000 000. You can always move it with ease.
#5 Storage cost
Because gold is heavy and bulky you can't just hide it under your pillow. It attracts attention thus security measures need to be taken.
When storing gold you are basically limited to two options.
Either you store it at a bank's vault or your own.
The first one requires trust and starts at around $500/year and can grow quickly based on the weight of your stash. The second one is trustless but may be less secure depending on the price, size, material, and location of the vault.
Storing Bitcoin can be very trustless, secure and cheap at the same time if you choose the right device.
Personally, I use a $100 hardware wallet Trezor that secures my coins with a PIN and passphrase. The backup which is small and discreet is hidden at a different location in a way that only I'm able to use.
#6 Transaction cost
Anything physical will always be more costly over digital.
Because of points 2, 3, 4 and even 5 making any kind of transaction with gold comes with a high cost. For this reason, gold has historically always been used mostly by the wealthy.
They used it to buy real estate, fund wars, invest etc. On the other hand, cost/benefit ratio is greatly reduced for small transactions such as purchasing goods and services thus it's not very beneficial to ordinary folks.
Despite Bitcoins high dollar value, it's utility is practically endless because of relatively low transaction fee (even more so with the Lightning Network), high divisibility and every other property that gold lacks.
It doesn't matter whether you transact $5 or $5 000 000 the transaction fee will always be the same as long as the transaction data is of the same size.
#7 Predictable supply
We believe that gold's supply is near its limits and once we hit it, the value of gold will sharply increase. However, believes don't mean anything in reality and there's a great deal of uncertainty with gold.
What if we find new gold sources? What if an asteroid crashes into the Earth and brings new gold from the space with it?
Bitcoin's distribution and maximum supply is a well-known fact. We know that there will only ever be 21 000 000 BTC and this limit is secured by so-called consensus rules that are very difficult to impossible to change.
This sets Bitcoin to be more valuable in the future both in terms of nominal price and market capitalization.
There are also other features (decentralization, scripting language etc) that make Bitcoin better than gold but I didn't include it in the list because it would be like comparing apples to oranges.
Now, I'm not saying that gold is bad and you shouldn't invest in it.
Gold has some good properties too and most importantly it has been proven by time. Bitcoin is a young technology that can fail at any point and you should always keep that in mind.
Bitcoin on the other hand, is a young technology that can fail at any point and you should always keep that in mind.
However, we live in a world that is run by technologies and this trend isn't going away anytime soon.
Despite being immature, Bitcoin already found its purpose mostly as a store of value and its utility will only grow as more bright minds join this tech revolution.
Please let us know what you think in the comments section below.