How Does Bitcoin Compare to Gold?

Matt Eitner is the chief executive officer of Laidlaw & Company Ltd., which concentrates on investments in natural resources, social commerce, and healthcare. As CEO, Matt Eitner provides his clients with a number of investment options to fill out their portfolios, a recent one being the digital currency Bitcoin, which has generated much discussion about its potential as compared to the traditional gold standard of valuing wealth.

Bitcoin and gold have two major similarities. They are both monetary systems unbound by national regulatory restrictions and can function on the global economic scene. Also, both can be generated only in limited quantities. However, that is where common features end, for Bitcoin is an intangible asset that exists purely online. As such, the applications of these two products outside of currency differ greatly.

Until the 1970s, gold was used both to set standards for paper money systems and, as a tangible asset, currency in and of itself. It is also a raw material in chemical reactions and manufacturing, and a vital resource for the aerospace and medical industries. Most importantly, gold is irreplaceable and no other element shares its physical, chemical and aesthetic properties.

Bitcoin, on the other hand, has limited uses. Typically, it has the potential to function as a blockchain network and as a speculative asset. However, it can also be replaced by close to 2100 other cryptocurrencies now in existence. This makes Bitcoin a less stable standard to use than gold. Ultimately, while both have the potential to be valuable assets, their dynamics as currency are fundamentally different.