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How Bitcoin, Gold and FIAT money compares
Category / Bitcoin / Blockchain / Mining
Take a moment to imagine the perfect currency – what traits would it have? Fungibility, for sure; portability, perhaps? It would need to be durable, divisible, decentralized. Immune to forgery and counterfeit with a predictable supply. Governments would have no sovereignty over it, and most importantly, it would be adaptable. The perfect currency still doesn’t exist, of course – but Bitcoin is not far off.
It started in 2008: a user by the name of Satoshi Nakamoto published a white paper detailing a form of electronic cash. The idea wasn’t entirely revolutionary – b-cash, bit gold, and others had flirted with similar ideas. But Bitcoin brought with it decentralization, in a time when the financial crisis had struck and recession was lurking.
It was peer controlled, Satoshi detailed: users wouldn’t need to trust in a government or financial institution to verify Bitcoin’s legitimacy. It was limited, Satoshi wrote: 21 million would be created – no more, no less. It was portable and private and easily sent or spent. All it needed was widespread adoption to become successful; in 2016, with big names like Microsoft and NewEgg accepting it, it’s safe to say it has.
Of course, skepticism remains. It can be hard for a newcomer to understand why they should invest in cryptocurrencies, when the tried and tested gold bar exists, or government-issued currency has served them without issue.
Compare them, however, and it becomes clear why Bitcoin is a smart investment.
Bitcoin: 1 | Fiat: 1 | Gold: 1
Fungibility is synonymous with interchangeability. If you have ten dollars, it can be exchanged for any combination that adds up to ten: two five dollar bills, or five two dollar bills. It also means that every dollar is equal in value, no matter its source.
Each form of money must be fungible to work. Fiat is fungible by law; gold is fungible by science; Bitcoin is fungible by design.
Bitcoin: 1 | Fiat: 1 | Gold: 0
Physical goods are appealing – you can touch them and physically confirm you own them. But it comes with a whole host of other problems: how do you store it safely? Do you place it in a vault; or do you entrust it with a bank? How do you send it from country to country with minimal cost, delay, and effort?
A bar of gold in your wallet is not practical for day-to-day transactions, and shipping is slow and not always secure. Fiat tackled this issue with debit and credit – a card has replaced a stack of notes, though international transfers are still delayed. Bitcoin, on the other hand, is near-instantaneous. Sending a Bitcoin across borders is as easy as sending them across the street – no bank to wait on, miniscule fees, and no special limitations on the minimum (or maximum) amount you can send.
Bitcoin: 1 | Fiat: 0 | Gold: 1
Gold is durable: it can survive being melted, mined, and manipulated. Fiat is fragile: it can be burned or vandalized – rendering it useless. But Bitcoin, being digital, is durable. In fact, your wallet doesn’t hold Bitcoins – it holds the keys to spend a Bitcoin. A Bitcoin is really nothing more than a balance recorded on a publically shared ledger – without the key, no one can spend them. Of course, this means you’ll need to take care never to share your keys (and back them up appropriately) – thankfully, most apps and wallets make this easy.
Bitcoin: 1 | Fiat: 1 | Gold: 0
How do you pay for a loaf of bread with a bar of gold? Sure, you can shave off a dollar-and-a-half’s worth of gold, but how do you do that without a scale and a tool at the supermarket? Fiat is divisible to two decimal points – you can break it down into cents and pay for things without issue. Bitcoin takes it a step further: it’s divisible by eight decimal points. Even if only one-hundred Bitcoins were in circulation, it could still be used due to how small it can be broken down.