Bitcoin vs gold: what are the differences and similarities?

You may have heard Bitcoin described as “digital gold”. And the comparison isn’t that surprising. Both Bitcoin and gold are scarce, neither is issued by a central bank, and both are used as a store of value. Still, there are some major differences. Gold has been around for thousands of years, while Bitcoin has only existed since 2009. Gold is also a physical asset, whereas Bitcoin is entirely digital.

So, how far does the comparison between Bitcoin and gold really go? In this article, we take a closer look at their main similarities and differences.

Why is Bitcoin called digital gold?

The nickname “digital gold” mainly comes down to scarcity.

Bitcoin’s protocol determines how new bitcoins are issued, and there can never be more than 21 million BTC. Gold is also scarce: new gold has to be mined, which takes time, money and energy.

Another similarity is that neither Bitcoin nor gold is issued by a central bank. This is why Bitcoin is sometimes seen as a digital form of a scarce asset.

But Bitcoin isn’t literally digital gold. The two differ significantly in terms of their history, use cases and price movements. Gold, for example, is used in jewellery and technology, while Bitcoin is part of a digital network. Historically, Bitcoin’s price has also been much more volatile.

What are the similarities between Bitcoin and gold?

The comparison between Bitcoin and gold mainly comes down to four characteristics.

1. Scarcity: There can be no more than 21 million BTC. Gold is also scarce, as there is only a limited amount available and mining new gold is costly.
2. Independent of central banks: Neither Bitcoin nor gold is issued by central banks. With Bitcoin, the way new coins enter circulation is predetermined. With gold, new supply mainly depends on mining and recycling.
3. Store of value: Gold has long been used to preserve value over longer periods. Some people hold Bitcoin for the same reason. However, there is never any guarantee that either gold or Bitcoin will retain its value.
4. Supply and demand: Ultimately, supply and demand play an important role in determining the value of both Bitcoin and gold. Scarcity alone does not guarantee value. If demand falls, the price of a scarce asset can fall too.

What are the differences between Bitcoin and gold?

Physical vs digital

Gold is a tangible asset and needs to be stored physically. Bitcoin is entirely digital. Transactions are recorded on the blockchain: a public digital ledger.

This also means they come with different risks. Physical gold, for example, can be stolen or lost. With Bitcoin, losing access to a wallet can mean losing access to your BTC.

Storage and transfer

Bitcoin can be sent digitally to another Bitcoin address, so there is no need to physically transport the asset.

Gold works differently. If you want to move physical gold, it actually needs to be transported. This can involve additional costs and security measures.

Divisibility

One bitcoin consists of 100 million satoshis, the smallest units of Bitcoin. This means you don’t need to own an entire bitcoin.

Gold can also be purchased in different weights, but dividing and transferring physical gold is less straightforward than doing so with a digital asset.

History and use

Gold has been considered valuable for thousands of years and is used in jewellery, technology, investments and central bank reserves.

Bitcoin has only existed since 2009, giving it a much shorter history. Some individuals and companies hold Bitcoin for the long term, partly because of its scarcity.

Scarcity: Bitcoin vs gold

Scarcity is perhaps the most important similarity between Bitcoin and gold. However, scarcity works very differently for each asset.

With Bitcoin, the maximum supply is fixed in advance at 21 million BTC. New bitcoins enter circulation through mining. Roughly every four years, a halving takes place, cutting the reward for miners in half. As a result, fewer and fewer new bitcoins enter circulation over time.

Gold has no comparable hard cap. This is an important difference between Bitcoin and gold: Bitcoin’s maximum supply is known in advance, while the total amount of gold that will ultimately be available is not fixed.

That doesn’t automatically make Bitcoin more valuable. Demand also remains an important factor in determining its price.

Bitcoin vs gold: price and volatility

Bitcoin is significantly more volatile than gold, meaning its price can move up and down much more sharply. Since 2009, Bitcoin has experienced substantial price increases as well as steep declines. Want to see how its price has developed over the years? Take a look at the Bitcoin price page.

Gold prices generally fluctuate less, although gold can also rise or fall significantly in value.

Supply and demand play an important role for both assets. Bitcoin’s price, for example, can react to regulation, developments in the crypto market and demand for Bitcoin. Gold prices can be influenced by factors including economic developments, demand from investors and central banks, and available supply.

How Bitcoin and gold have performed historically depends heavily on the period you look at. Past performance therefore does not indicate future price movements.

How do Bitcoin and gold behave during uncertain times?

During periods of economic uncertainty, people often look at their money and investments differently. Some investors see gold as a way to preserve value over the longer term. However, that doesn’t mean the price of gold rises during every crisis.

Bitcoin is sometimes compared with gold for the same reason. But Bitcoin has only existed since 2009 and its price fluctuates much more significantly. We therefore can’t simply assume that Bitcoin plays the same role as gold during uncertain times.

Which is a better investment: Bitcoin or gold?

There is no universal answer as to whether Bitcoin or gold is the better investment. The two differ considerably in terms of risk and price movements. Which characteristics matter most depends, among other things, on the purpose of the investment and the time horizon you are considering.

If you want to learn more specifically about investing in Bitcoin, it is important to understand the risks involved as well. Historical returns can provide insight into past performance, but they do not indicate future results.

Is Bitcoin an alternative to gold?

Bitcoin is sometimes seen as an alternative to gold because both are scarce and can be used to preserve value over longer periods. However, they do not automatically serve the same purpose.

Gold has physical applications and is held by central banks, among others. Bitcoin is entirely digital and can be transferred directly through the Bitcoin network. Their risks and price movements also differ significantly.

Bitcoin and gold can therefore be useful to compare, but Bitcoin is not simply a digital replacement for gold.

Only invest what you are prepared to lose

This remains an extremely important piece of advice: only ever invest an amount you are prepared to lose. Crypto prices can sometimes look promising, but trading crypto also carries the risk of losing your investment. Always make sure you understand what you are investing in and don’t let emotions guide your decisions. This will help you approach crypto trading responsibly.