There has been a lot of comparison between bitcoin and gold in the recent times. Bitcoin has been compared to gold in many aspects. In fact, bitcoin is also called digital gold for a reason due to various similarities it shares with the yellow material. However, referring to bitcoin as a gold standard may not be relevant.
The gold standard is a reference to the monetary system that was based on the value of gold. While most countries stopped following the gold standard long ago. There are three different forms of gold standards that were in practice, gold specie standard where gold coins were in circulation and then there was gold bullion standard where the government sold bullion on demand at a fixed price in place of currency. As these practices became impractical, the gold exchange standard was put in place where the government promises certain fixed exchange rate to currency from other foreign currencies.
Comparing bitcoin to the gold standard will inevitably bring in the central bank and trusted third parties into the fold, which is everything that the digital currency stands against. Bitcoin was designed to be a decentralized, distributed open source peer to peer monetary system that works without the involvement of a trusted third party. In order to prevent any intervention and still to be able to function as a currency, individuals (miners) play the role of a trusted party. Miners facilitate transactions by confirming them and registering the same on a distributed ledger called blockchain.
The value of bitcoin is not dependent on the value of gold or any other fiat currency. However, bitcoin’s value can be hedged against the value of both gold and different fiat currencies. at the same time, the digital currency is capable of performing all the functions of money, which is similar to that of gold but still not the same as gold standard.
Some of the similarities shared between gold and bitcoin are same as the properties of ideal money. These features include –
Durability – Bitcoin and gold are both durable. While gold being an inert metal can withstand chemical reactions to stand the test of time, Bitcoin will continue to exist as long as the internet is around.
Transferability – In order to serve its purpose, it should be possible to change hands easily. Both bitcoin and gold can be both physically transferred and exchanged in return for other currency, goods, and services.
Scarcity – Something in excess supply will not have enough demand. Luckily both gold and bitcoin scare. There will be only 29000000 bitcoins in circulation ever making it valuable enough to be a medium of exchange.
Divisibility – Bitcoin is highly divisible, it can have divided by 100000000 times. However, with gold, it is not that easy but yet possible.
Fungibility – Bitcoin and gold are fungible, they can be easily substituted by another bitcoin or the same quantity of gold without any change in the value.
Recognizability – Both bitcoin and gold are both impossible to counterfeit and it can be easily detected.
All these factors make bitcoin more of a money than all the other forms of money out there.
Ref: Gold Standard | Miles Franklin
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