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It’s OK to compare Bitcoin to gold

As human beings we are born to compare and contrast. According to Harvey Silver our survival depends on it;

Comparative thinking is one of our first and most natural forms of thought. When we are infants, one of the first differences we must identify is that between mother and other. Without the ability to make comparisons—to set one object or idea against another and take note of similarities and differences—much of what we call learning would quite literally be impossible.

http://www.ascd.org/publications/books/110126/chapters/Section-1@-Why-Compare-$-Contrast%C2%A2.aspx

Social and religious comparisons are also responsible for the majority of humanity’s wars and  atrocities. 

Currently there’s heated arguments when comparing bitcoin to gold. Why some proclaim that Bitcoin is ‘gold 2.0’ others insist that ‘bitcoin is not gold.’ We believe that comparing Bitcoin to gold helps to explain bitcoin’s role as a store of value.  Here are the values that Bitcoin and gold share: 

Scarcity:

Gold has held value for over 5,000 years and a key part of that is its scarcity, more specifically its proof of work. A bar of gold has to go through an exploration and mining process before it becomes a…bar of gold. We do not know how much gold reserves there are in the world today but bitcoins are ‘mined’ electronically and will stop being mined once we reach 21 million in total (which is predicted to be in the year 2140). At that point no more bitcoins will be created therefore making it scarce from birth. 

Fungible:

A currency is required to be interchangeable. One Australian dollar in Sydney is the same as one Australian dollar in Melbourne. Bitcoin is globally fungible. 

Let’s say you are traveling from Australia to the USA via Japan. Normally you would have to plan ahead and carry Australian dollars, Japanese Yen and US dollars, or have a credit card where you are charged extra withdrawal and currency conversion fees.

Instead you have a ‘Bitcoin wallet’  and there are bitcoin ATM’s in all three of these countries, where you can convert your bitcoin into the local currency.

Now admittedly this is where Bitcoin still has a lot of room for improvement. It’s not accepted

everywhere and the ATM’s are only in larger cities at select locations 

Divisibility:

A currency must be easily divisible, so you can divide its value into smaller increments. Whereas most  currencies are divided into two decimal points (i.e. US$1.23), bitcoin has eight decimals.You can purchase US$25 worth of bitcoin which would equate to 0.00312 bitcoin (at the time of writing, bitcoin is trading around US$8,000).

The smallest unit of bitcoins is referred to as ‘satoshis’. Therefore 0.00000001 of a bitcoin is 1 Satoshi. So if one bitcoin was worth US$1 Million then 1 Satoshi would be worth US1 cent.

Durability:

Gold has proven to be an excellent store of value for this reason. You can dig up a case of gold that has been lying at the bottom of the ocean for a thousand years, give it a good clean and it has not suffered any erosion or decay. Silver is not as durable as gold because the process of cleaning silver means that you are actually scrubbing away the element itself, whereas gold has almost no shrinkage.

When you buy bitcoin you are provided with a private key. This is a series of numbers and letters that make up your personal, private signature. If you want to transfer any of your bitcoin to someone else your private key is required. Lose it and it’s like losing cash, possession is ownership.

Keep those private keys hidden in cold storage (CoinCompass shows you how) and you can ‘dig’ them up  when you, or your future kin, need them. In response to the argument that ‘something written’ is not durable, you can visit cave paintings in Indonesia that are 40,000 years old.

The best explanation for private keys is to compare it to email. You can make your email address public in that anyone can send you an email but in order for someone to have access to your email account they would need your email password. Your public keys are like an email address. Your private keys are a password that give you control to send and manage your bitcoins.

Transfer-ability:

Gold coins can be easily transferred between two owners. You can carry them around in your wallet, purse, pockets or in times of conflict bodily orifices!

Bitcoin uses a digital wallet. A wallet contains both a private key and a public address. A public address is  similar to a bank account. You can share it and receive bitcoin deposits into it. Someone in Mongolia can transfer bitcoin to someone in Finland and neither would even need to have a conventional bank account. You do not share or make public your private keys and it’s what you use to send bitcoin out of your wallet.

In transferring gold you need to physically hand it over from one person to another. With bitcoins they can be done with your smartphone to anyone else anywhere in the world, all they need to receive bitcoins is a smartphone; and there are currently more than 3.3 billion smartphone users in the world. 

Bitcoin will not replace gold, and you are allowed to have both gold and bitcoins in your portfolio. The reason for the comparison is because bitcoin is both a new technology and asset class. It took a very long time for people to understand what the internet was and there was nothing to compare it to at the time.

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