Bitcoin vs Gold | Kishan Sagathiya

In this article, I am trying to compare Bitcoin and Gold as instruments to store savings. I won’t talk about which one is a better investment, in this blog. That discussion involves more pieces.

This is a wonderful debate.

Michael Saylor presented his case for Bitcoin wonderfully in an objective way and there is tremendous sense and value in every point he has presented.

On the other hand Frank Giustra did a terrible job presenting the case for gold. Frank missed out on many things that work in favour of gold and don’t in favour of Bitcoin. I felt that he did not spend enough time studying the subject of Bitcoin. He kept misunderstanding Michael’s arguments, because was confused on the topic.

Here, I try to present the case for bitcoin and gold and try to provide a conclusion in the end. These points take a lot from this debate, but also add my own thoughts.

₿ Gold can be inflated by mining more, finding more mines etc, Bitcoin cannot. As the time goes, mining Bitcoin becomes more and more difficult. Gold has no such property.
₿ There is a maximum cap on bitcoin, which is 21 million. There will never be more bitcoins than that. There is a limit to its supply though the protocol. Gold has no such property.
₿ Gold is immobile. Even though it is very easy to move around compared to other commodities, its mobility is far less compared to Bitcoin. It is very easy to move around large amounts of Bitcoin. So, to perform big transactions with gold we would probably have to move around trucks full of gold, which is possible, but not practical.
₿ Gold is not divisible. Though, theoretically we can break a gold bar into two, it is not practical for transfer and transactions. Since bitcoin is digital, it is very easy to transfer very small amounts of bitcoins.
₿ Gold can be counterfeited. Normal people do not possess the skill to differentiate between real or fake gold. It is easy to create fake gold bars, fake gold coins, etc. Again, experts might have techniques to differentiate between real and fake gold but most people don’t. Bitcoin also suffers from this problem where most people don’t understand bitcoin. Though this is a problem, it is rare. For you to get a fake bitcoin, you would essentially have to use very sketchy wallets and exchanges. I would suggest sticking to mainstream wallets and exchanges and you won’t have these problems.
₿ There are many types of gold in terms of coins, bars, jewellery. Often these individual forms of gold are sold at a price very different that what gold is trading at. Often paper gold (i.e., gold sold in commodity exchanges, gold etf) does not have strong links with physical gold.
₿ Gold can be confiscated. Gold was historically seized after wars and world order changes. You can’t seize bitcoin. You have to know the private keys to seize bitcoin. To forcefully seize people or a country’s bitcoin private keys seems much harder, than seizing their gold.
₿ Gold companies themselves are selling gold, which indicates the people who have their skin in the game themselves don’t believe in it. On the other hand, Bitcoin mining companies are trying to collect as much bitcoin as they can, because they think it will go higher.
₿ Gold has history of manipulation by governments, banks and miners.
₿ If we care about impact on the environment and society, I think Bitcoin has an edge here.
Gold mining has a very bad impact on the environment and people both causing toxic waste, mercury poisoning, acid mine drainage, destruction of Amazon and very bad working conditions for miners. More on that here and here.
Bitcoin mining is also not so good for the environment because of the amount of energy that it needs. But I feel like this is quite exaggerated than how big the problem actually is. Energy is not a finite resource. Plus it is a moving resource. Your battery will lose energy even if you don’t use it. A lot of energy is lost while transmitting it to your house. Heck, so much energy is lost during its creation itself. If some technique can capture only 40% of total potential coal into energy cheaply, chances are energy companies would pick that and not bother about lost energy.
Why does so much Bitcoin Mining happen in China? Because all the dams they have created, produces more energy than what people need. If nobody uses it, it will be wasted. If you want to get into this rabbit hole, read this
🟡 Gold is ingrained in many cultures, especially in India. In India, there is an expectation to buy gold jewellaries. This cultural aspect is either not changing or will change slowly.
🟡 An entire generation has struggled with new technologies. Bitcoin is new technology for savings. These generations of people are going to find Bitcoin difficult to understand and accept.
🟡 Gold has stood the test of time. It has a history as a store of value that goes back thousands of years, around the world. Indians, especially the older generations, have deep beliefs in Gold as an instrument of savings. This belief has stemmed from the country’s long history with gold. It is a country that has gone through many different dynasties, invasions and governments. And through all this time gold has been constant. They have been able to rely on their gold as savings. Bitcoin, though looks very promising, is only 12 years old. We have not seen how it would behave during a world order change, a massive depression like in US in the 1930s, etc.
🟡 Gold is natural, bitcoin in made by humans. Bitcoin protocol is very wisely designed, but it would be foolish to think that it is perfect. We can try our best to make systems safer, but it is very difficult to consider all the cases. If, in future, any technical flaw is found in bitcoin protocol, that could cause a huge blow on bitcoin. It is questionable how long this protocol will remain sustainable and useful with rapidly evolving technologies.
🟡 Gold is scarce by nature. It is not created on Earth, but through explosion of stars in a process called Supernovae. Gold we find on Earth was likely created this way billions of years ago. I would say, that’s pretty scarce.

🟡 As an instrument of saving you need an asset with stable value. Gold prices are far more stable than Bitcoin.
🟡 Key management is not so easy.
If you manage bitcoin keys personally, you could lose your entire wealth by a small mistake that caused you to lose your private keys. In the modern world, this is far more likely to happen than having your gold stolen. I have personally lost some coins that I bought a few years ago. I will never be able to access them.
We have seen multiple data breaches so far. I bet your data is available on the internet for sale. If you don’t believe me, see it for yourself on Have I been Pwned. Your crypto exchange or wallet can get hacked and you could lose your money. This has happened before to many exchanges. One of the scariest breaches happened to an exchange called Mt Gox. Mt Gox was the biggest crypto exchange at the time, but it is not around anymore. And based on the kind of engineering talent exchanges hire, I highly doubt the sophistication of their systems.

Conclusion#

Both of these assets have a lot going for them. Keep in mind that not all points have equal weight. Some of these things matter far more than others.

Bitcoin offers better ease of use and more features, while gold has history and stability on its side.
In terms of their scarcity, at least to me it looks like they are both evenly poised and both provide extreme guarantees of scarcity.

It is difficult to quantifiably compare these two, but subjectively I feel Gold has the edge over Bitcoin, right now.

I think this will change. Newer generations are more technically savvy than previous ones. We will get more comfortable with the idea of an asset that is only digital, can’t be seen or touched or felt.