If you’ve spent any time in the crypto space (tip: check out our Intro to Crypto crash course here) you may have heard a very catchy, very intriguing phrase. Folks say with that wily look in their eyes, kind of like those cartoon psychics looking into a glass ball: Bitcoin is Gold 2.0. Yes—as in, bitcoin is the second iteration of the economic phenom represented as “Au” on ye olde Table of Elements. #tbt #isaacnewton #mortalenemy
But wait, what? How? Why does this even matter?
Great questions! Let us help.
Why Do People Compare Bitcoin and Gold?
Gold has a long history of economic value, which makes this comparison an interesting one. The term “Gold Standard,” for example, refers to a system where a country’s national currency was backed or based on the value of gold.1 Many countries, including Canada and the United States, chose gold as the “standards” for their dollars because gold’s sustained usefulness—as a conductor of heat, for example, or, because shiny, and shiny good—meant that gold retained a stable value over a long period of time.1
Eventually, countries switched from trading literal gold coins to an exchanged fiat currency, which is the form of most modern currencies, including ours. For example: a twenty dollar bill is not itself worth twenty dollars, we just accept it as a representation of such value. With the establishment of fiat currencies, most countries abandoned the gold standard—in the United States, this happened in 1933—removing gold to its current position as a safe haven for investors, which is a generally low risk investment that grows slowly over long periods.
Why is this relevant to bitcoin? Gold was unique for how it contributed to the structuring of international monetary systems—and the implication is that bitcoin may have the same potential.
How Do Gold and Bitcoin Stack Up?
Bitcoin and gold have a few key traits in common: they are assets which are generally unrelated to the performances of stock indices, or currencies. Further, both exist in limited quantities. Gold only exists insofar as it can be mined from the Earth, stemming from operations limited to very few people in very few places; similarly, Satoshi Nakamoto (the anonymous person or people that created bitcoin) only created 21 million bitcoins that themselves must be “mined” into existence. These traits have measurable impacts on each asset. But this is basically where the similarities end.
For example, BTC lacks the robust history as an economic agent that gold retains. It’s also much less stable than gold, which makes it a not-very-safe-at-all haven for investors. But BTC has a few major benefits to it which means it may outlast gold given how our financial systems may shape up in the next few decades.
For one, BTC is a decentralized currency unconnected to governments and central banks—and it’s easy to liquidate (read: cash out your chips and go home). Additionally, BTC proposes the expansion of a financial system that is divergent from the one that has structured global economies for centuries; BTC, and the blockchain that houses it, can exist beyond the limits of the global financial market. The same is not necessarily true for gold, even given its use-value (and its pretty, shiny ways). These traits poise BTC as a very powerful economic actor.
Should I Buy Bitcoin or Gold?
Unfortunately, we are NOT psychics staring into a crystal ball, so we can’t tell you what to invest in. But, we can tell you what we think, and what other experts think, and you can come to your own conclusions.
Some thinkers believe that BTC will be gold for the millennial generation: stable, safe, and (crucially) simple to liquidate. Others see no grounds for comparison, arguing that BTC is an entirely different beast. Both are valid and valuable sites of investment but people like them for different reasons.
If you ask us what we think, we think it’s possible for BTC to meaningfully go toe-to-toe with gold as an asset in the future because of its decentralized, deeply online nature. However, gold’s current market cap falls at around $9 trillion, and BTC’s cap rests at around $360 billion—that’s a huge gap for BTC to close.2 But given BTC’s rate of growth in 2020 alone, it’s not impossible.3
So?? Is Bitcoin Really Gold 2.0?
The answer to this question is the frustrating one: kind of. Sort of. Kinda. Maybe. A bit. But it’s not a one to one comparison. What we find notable about this line of questioning is the massive interest and confidence in the cryptocurrency marketplace. BTC was created in 2010—only ten years ago—and we’re already discussing the possibility of it replacing or iterating upon the five thousand year legacy of gold. To us, it seems less like BTC is the new gold and more like its own beast—with the potential to grow bigger, faster, and outside of the traditional financial structure, but comparatively with much bigger risks. If, knowing the risks, you’re interested in scoping out this comparison for yourself, we can help.
Tired of burying your gold in the yard like a spooky old prospector? Switch to crypto with Mogo Bitcoin + Rewards—it’s easier than you think.4 Check it out in the app today!
1 Lioudis, Nick. “What Is the Gold Standard?” Investopedia, https://www.investopedia.com/ask/answers/09/gold-standard.asp. Accessed 11 Dec. 2020.
2 “Bitcoin and Gold: Evaluating Hard-Cap Currencies in Times of Financial Crisis.” CoinDesk, 23 Mar. 2020, https://www.coindesk.com/bitcoin-and-gold-evaluating-hard-cap-currencies-in-times-of-financial-crisis.
3 “Cryptocurrency Prices, Charts And Market Capitalizations.” CoinMarketCap, https://coinmarketcap.com/. Accessed 15 Dec. 2020.
4 - To be eligible for Bitcoin & Rewards (formerly MogoCrypto), you must first pass Mogo’s identity and security verification process and agree to the MogoCrypto Terms and Conditions. Buying and selling bitcoin is risky and you may suffer huge losses. For more information, see MogoCrypto Terms and Conditions: https://www.mogo.ca/pdfs/MogoCryptoTermsAndConditions.pdf. All Rewards are subject to the eligibility requirements and other terms set out in the MogoAccount Terms and Conditions which may be changed or terminated at any time without notice for more information see: https://www.mogo.ca/terms-and-conditions.