In 2012, crypto pioneer Charlie Shrem, reporteldy one of the first people in the world to read Satoshi Nakamoto's white paper explaining Bitcoin's power, told Cameron and Tyler Winklevoss why they should care about an intangible asset, backed up by no centralized authority, that had been created by a person or group of people whose identity no one knew.
Their conversation -- as relayed in journalist Ben Mezrich's book Bitcoin Billionaires -- included Shrem explaining how Bitcoin could be considered "digital gold" because of several properties that the two assets have in common.
To understand Bitcoin, you need to understand gold, and why it beat out 117 other elements on the periodic table to become humanity's preferred store of value for thousands of years.
What made gold special
Gold didn't become valuable because it's shiny and relatively rare. Being rare is nonnegotiable for a store of value, of course, which disqualifies elements like copper. But other qualities are nonnegotiable, too.
There are three qualities to consider in picking a store of value:
- It has to be something that you can, well, store. So the noble gases on the periodic table don't qualify.
- It can't be too rare. So osmium, astatine, francium, and others are out of the running.
- It can't be too reactive or corrosive. Goodbye, alkali metals including lithium, sodium, and potassium.
Gold ruled the roost for these purposes, yet not even gold perfectly checked off each box. The yellow metal had room for improvement in all three criteria.
A better gold
Bitcoin's advantages over gold are as follows.
Known quantity
Both are rare, with only 21 million Bitcoins in existence, including those that remain to be mined, while all of the gold that has been mined in history would make a cube that's 22 meters on each side.
But only one has a fixed supply. Only 21 million Bitcoins will ever be in existence. Last year, at least 3,300 tons of gold were mined, and a long-term concern for the precious metals industry is that one day, asteroids containing enough gold to make every human a billionaire may finally be tapped.
Better fungibility
They're both fungible, like money, in that a unit of each can be used for exactly the same purpose. But Bitcoin is more fungible, since you don't have to worry about how pure any unit is, unlike gold.
Image source: Getty Images.
No way to fake a Bitcoin
While gold is difficult to counterfeit, Bitcoin is downright impossible to counterfeit. The cryptocurrency's open-source code is thought to be unhackable, as cybersecurity expert Dan Kaminsky concluded after setting out to hack it. Kaminsky was thwarted at every turn, leading him to theorize that Satoshi Nakamoto must have been multiple people to build something that was so fail-safe. Either that, or he was "a genius on a whole new level."
CRYPTO: BTC
Key Data Points
Better portability
To these three, I would add a fourth: Bitcoin is infinitely more portable than gold, since, unlike gold, it can be sent to an intended recipient thousands of miles away in seconds. You don't have to melt it in a furnace if you want to send someone half a Bitcoin, or a third of one, or whatever amount down to 0.00000001 Bitcoin, named a "Satoshi."
A warning on Bitcoin
While both Bitcoin and gold are volatile compared to fiat currency, Bitcoin is the far more volatile of the two. When gold prices dropped 6% in one day last October, it was the biggest one-day drop in 12 years. By contrast, Bitcoin fell by 14% in a day as recently as 2022, when the crypto exchange led by Sam Bankman-Fried went bankrupt, and it's lost over half its value in one day before, albeit at a time when the market for it was less mature.
Despite its greater volatility and risk, I see far greater long-term potential upside for Bitcoin. For these four reasons, I'd choose Bitcoin over gold.
