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April 10, 2013, 01:32:41 AM |
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Currencies must be:
- scarce
- a medium of exchange
- durable
- evenly divisible
- widely accepted as payment
- used as a standard of market value, thereby enabling users of the currency to save money for later use.
Let's see how Bitcoins perform against gold.
Scarcity
Both are scarce. Gold is naturally scarce, while bitcoins were created to be scarce. The amount of Bitcoins is fixed, while new findings of gold gradually increases the amount of accessible gold. Bitcoins 1, gold 0. On the other hand, one can know for sure that new Bitcoins will never be generated. A possible criticism of Bitcoins is that it can be outcompeted by another cryptocurrency (or another solution), and therefore lose its value. Gold, on the other hand, is not likely to be outperformed by other precious metals. Bitcoins 1, gold 1.
Medium of exchange
Bitcoins perform well as a medium of exchange. They are are accessible as payment through computers and mobile devices connected to the Internet, it acts efficiently as both a currency and a payment system. People can exchange (or save) them anonymously. Exchange of gold, on the other hand, is more cumbersome. It takes days, of not weeks, to transport gold overseas, for example. Bitcoins 2, gold 1.
Durable
As a digital currency, there is no risk of breakage or other deterioration. Bitcoins are extremely, if not infinitely, durable. Gold qua gold is also extremely durable, but gold coins may suffer from physical damage, and require casting, verification, etc. Bitcoins 3, gold 1.
Evenly divisible
Each Bitcoin is of identical character and quality as the next. It is extremely simple to divide a Bitcoin into subunits. Dividing gold, on the other hand, is much more cumbersome. Bitcoins 4, gold 1.
Widely accepted as payment
Bitcoins are not yet currently widely accepted, although it becomes more accepted every day. Will it be accepted in the future? It is still too early to know. So far gold outperforms Bitcoins by far when it comes to acceptability.
Conclusion: Bitcoins have a number of advantages that gold does not have, but it is still too early to know whether Bitcoin will be established as a major currency or whether it will collapse.
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