Why Bitcoin Could Replace Gold
Introduction
When Satoshi Nakamoto, the creator of Bitcoin, wrote his white paper in 2008, he wrote it in response to the global financial crisis. He believed that traditional currencies were becoming increasingly unstable and vulnerable to collapse.In his paper, he proposed using distributed ledger technology (DLT) to build an immutable and transparent digital currency (dubbed bitcoin). Since then, many people have discovered that they can use bitcoin for much more than just making payments.
Today we'll explore why cryptocurrencies like Bitcoin could replace gold as a store of value.
An infinitely scarce asset
Bitcoin is an infinitely scarce asset, like gold, which cannot be created or destroyed. Bitcoin's all-out supply is covered at 21 million bitcoins and will never increase.The number of bitcoins in existence will increase as a result of mining. Still, the creation rate stays constant because mining difficulty adjusts to keep blocks being found on average every ten minutes.
This cap makes Bitcoin an extremely scarce resource and ensures that no single person has the power to create more Bitcoins than anyone else could ever need or use.
Unlike gold, though, which is physically limited by its weight and size, Bitcoin’s scarcity comes from its digital nature. There can only ever be 21 million units in circulation because that's how many decimals are represented in its codebase.
Institutional Support
As we've seen, bitcoin is a handy tool for investors, and it's convenient, fast, and mostly anonymous.But this is far from the only reason it could replace gold as the world's preferred store of value.
Bitcoin is also catching on with institutional investors—some of which are moving away from traditional asset holdings like gold due to its volatility and lack of liquidity (that is, it's difficult to sell large amounts quickly).
Fidelity Investments, one of the largest investment management companies in the world, has added a bitcoin feature to its portfolio website for clients who want exposure to digital assets.
Last week, Goldman Sachs announced plans for a cryptocurrency trading desk to offer customers access to Coinbase and Circle accounts through its prime brokerage business.
And JPMorgan Chase opened up an investment option for its customers called "JPM Coin" that lets them buy or sell cryptocurrencies directly through their bank accounts while making purchases with cash at physical stores or online retailers like Amazon."
Blockchain Eases compliance concerns.
Blockchain allows multiple parties to record and track transactions without needing a significant party.Every transaction is recorded on a universal public ledger called the blockchain. Transactions are recorded in blocks that contain data about who made the transaction and what they paid (in bitcoin or another cryptocurrency).
The blocks are linked together chronologically via cryptographic hashes alluding to their previous block, creating an unbroken chain that cannot edit once it's been written into the ledger.
-This means that once someone has made a transaction, no one can change it unless everyone agrees to do so—and by definition, no single entity controls everything.
-Because of this structure and its ability to prevent double-spending—where someone tries to spend their money twice.
Bitcoin became "digital gold" since people could trust its value wouldn't change over time as long as there were enough miners verifying transactions using expensive computers running complex algorithms. And they were preventing attacks from hackers trying to create coins out of thin air without proof that they had done so legitimately through mining operations.
There is a limited supply of bitcoin.
The supply of Bitcoin is limited. There will be a maximum of 21 million bitcoin in circulation by 2140, as the algorithm governing how many bitcoins are released into the world changes to cap their number.If more people start using and holding Bitcoin, a finite supply will still be available to meet demand.
The same cannot be said for gold: as people continue to mine it over time, its price may rise (or fall) depending on market conditions, but its supply remains constant.
Unlike gold, bitcoin is easily divisible.
Unlike gold, bitcoin is easily divisible and can be divided into eight decimal places (0.00000001 BTC).That means if you had 1 BTC and wanted to buy a coffee for USD 1, you could pay with 0.0000001 BTC.
In comparison, gold isn't divisible at all—you couldn't divide an ounce of gold into smaller currency units like that.
Bitcoin's divisibility also allows for easy transactions: you don't have to worry about carrying massive amounts of cash or getting a physical wallet big enough to fit all your precious metals.
Instead, with Bitcoin, there's no need to change your lifestyle just because you want to add more money to your bank account; it's as simple as sending an email.
