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What are the key differences between gold and bitcoin?

Transparency, Safety, Legality

Gold’s established system for trading, weighing and tracking is pristine through its vast infrastructure of gold traders. It’s very hard to steal it, pass off fake gold, or otherwise corrupt the metal.

«Bitcoin is also difficult to corrupt, thanks to its encrypted system and complicated algorithms» 

Bitcoin is also difficult to corrupt, thanks to its encrypted system and complicated algorithms, but the infrastructure to ensure its safety is not yet in place. The Mt. Gox disaster is a good example of why bitcoin traders must be wary. In this disruptive event, a popular exchange went offline, and all of its user’s bitcoins, totalling around $460 million, was stolen.

Rarity

Gold can continue to be mined until a certain point in the far future, but eventually there will be no more bitcoin. The algorithm that manages the blockchain rewards miners for verifying and processing transactions, but in as little as 10 years, the supply will run out.

Some claim, that this higher level of scarcity means that bitcoin could have a higher price ceiling than gold, and is the most important catalyst for the current speculative bubble.

Baseline Value

While gold is physically useful for jewellery and industry, bitcoin’s applications are not yet clear. So far, it is a digital instrument of speculation and value transferability, but it is difficult to buy things with and has limited utility as a currency.

Being an exclusively faith-based currency is price-positive when there is popular support, but the opposite might also be true. There’s not much stopping bitcoin from hitting $0 other than belief. As the world saw during the Dutch Tulip Mania, this could have adverse consequences.

Volatility

Largely due to the properties above, bitcoin is more volatile compared to gold. As price increases, people’s opinions on the revolutionary currency become stronger than ever. This newfound confidence will accordingly cause wild price swings.

Liquidity

It’s much easier to get cash for gold than cash for bitcoin. In the limited number of exchanges that allow fiat withdrawal, all impose daily limits, and most banks are still afraid to accept and deal with it, meaning that bitcoin is not as liquid as it could be. People worldwide purchase gold and are willing to pay for it while bitcoin’s market is limited.

Internet-Free

Another interesting difference between gold and cryptocurrencies is that gold is not dependent on the operation of the internet, thus affording it a degree of protection from heavy-handed regimes. Precious metal companies and gold dealers have long been established traders of gold and the go-to place to buy precious metals.

We can see that gold has a fierce new competitor as the ultimate safe haven after dominating this arena for thousands of years. Only the test of time will determine if its a real opponent or just another phase.

Joshua Rotbart, is managing partner of J. Rotbart & Co., a Hong Kong-based firm specializing in investments in gold and other precious metals.