Gold has a rich history as a monetary metal, store of value and symbol of wealth. Its unique properties have led it to be adopted as money by numerous civilisations, dating back to 600 BCE.
January 13, 2022 15:50
For a commodity to be considered money, there are a number of properties it should possess. Six of the most important are durability; portability, divisibility; fungibility (being replaceable by an identical item); being difficult to counterfeit and scarcity.
Gold maintains each of these properties, hence its appeal to modern investors and governments as a store of value.
But despite gold’s strong track record, Crystal Oak Capital’s managing principal, Kane Kalas believes gold is in the process of being dethroned.
He argues that Bitcoin, the world’s first decentralised digital currency, possesses even stronger monetary characteristics and reasons that the meteoric rise in Bitcoin’s value is due to its superiority over gold as a store of value.
Comparing gold to Bitcoin in the context of the six characteristics above, he says:
Durability
Gold has many durability advantages over other metals. It does not rust or tarnish and is the most corrosion-proof and oxidation-resistant metal.
But because Bitcoin is simply digital code, it does not degrade at all.
Portability
Gold is heavy and difficult to transport, says Kalas. “Conversely, it is very easy to carry or transfer value with Bitcoin. Any monetary value denominated in Bitcoin can be stored on a tiny hardware device which can fit in a person’s pocket. Any value – even amounts in the millions, billions, and theoretically, trillions of dollars – can be transferred across the globe quickly, permissionlessly and with ease.”
Kalas adds that even fiat currency, known for its transferability and ease of use, has portability problems compared to Bitcoin. Transferring large sums of fiat currency requires third-party consent and involves fees in excess of Bitcoin transfer fees.
Divisibility
“This is another poor category for gold,” says Kalas. “Due to gold’s significant value per ounce, conducting everyday transactions in gold is nearly impossible – it would require bartering in quantities of gold barely visible to the naked eye and would result in rounding errors.”
“Both fiat currency and Bitcoin have superior divisibility compared to gold, but, again, Bitcoin outshines even fiat in this category. While the United States dollar is divisible down to one cent, Bitcoin is divisible to eight decimal places.”
Fungibility
Kalas says “Fungibility is yet another property of money in which Bitcoin has a competitive advantage over gold. Bitcoin does not have varying degrees of purity. Every Bitcoin is identical in their lack of physical properties.”
Difficulty of counterfeiting
Gold has unique properties that make it difficult to counterfeit. However, for centuries counterfeiters have passed off phony gold bars filled with tungsten as legitimate.
Non-counterfeitability is yet another strong advantage of Bitcoin as a monetary instrument. A “double spend attack,” in which a single quantity of Bitcoin is spent simultaneously more than once, is the closest thing Bitcoin has to a counterfeitability problem. To date, no double spends attacks have ever occurred on the Bitcoin blockchain. Bitcoin’s emphasis on security makes such an attack unlikely.
Scarcity
Unlike fiat currency – which can be printed in infinite supply at the whim of governments or central banks – a finite amount of gold exists on earth.
But gold is still being discovered in mines and on the ocean floor. It is unknown how much gold exists on earth – and how much gold exists in space is an even bigger mystery.
One scarcity benefit of gold is that mining and panning is expensive. Gold bugs believe this cost will ensure low inflation in gold’s circulating supply well into the future.
“If you are worried about scarcity, why own something that has an unknown universal supply, when you can own bitcoin, which has a known finite supply,” posits Kalas. Bitcoin’s open-source code stipulates that a total of only 21 million Bitcoin will ever be created.
So why isn’t gold a good investment?
“The first thing I did when I learned about Bitcoin in 2012 was sell my gold,” recalls Kalas. “Gold’s use as a monetary metal accounts for more than half of its demand worldwide. I expect many of the current hoarders of gold will trade it for bitcoin in the coming year.”
Kalas also points out that, unlike investing in stocks, bonds, real estate, businesses or cryptocurrencies that can be staked on decentralised finance (DeFi) platforms, investing in gold
earns no yield.
“As Warren Buffet would say, it is not a ‘productive asset’. To own it, you better be pretty sure that more people are going to want it in the future than they do today. I’m pretty sure of the
opposite.”
These are not the opinions of The Jewish Chronicle.
