Since its launch in 2009 Bitcoin has increased exponentially in market value and price while managing to gain a strong reputation worldwide as the first digital currency and for its avant garde steps into decentralized finance. Even people outside of the financial sphere are aware of this cryptocurrency to different degrees, with some experts even debating the use of Bitcoin as a reliable store of value, rather than more traditional assets, like gold.

Arguments for Bitcoin vs. Gold range from their similar theoretical value to their scarcity, but what are the advantages and disadvantages of purchasing either of the two? Find out in this article.

What Is a Store of Value?

Historically investors have placed their wealth in assets to different degrees: properties, stocks, bonds and precious metals. As far as wealth is concerned, currency is only good for whatever value it holds and its ability to be traded for other items and necessities; it is highly restrictive in terms of taxes, trading fees and territorial restrictions (every country has its own currency, laws and customs in regards to money), and its value rely heavily in external factors.

Worldwide there have been multiple episodes of hyperinflation throughout history, where a currency lost its value rapidly and practically overnight. Money is often an asset that is regulated by the government, is extremely sensitive to climate, politics, social change and fluctuations in regimes.

For that reason, investors and wealthy individuals often choose to deposit part of their assets in different resources that are more reliable and whose values do not fluctuate too drastically over time, in order to diversify, expand and preserve their buying capacity as needed. One popular asset for that finality is gold, but there is an increasing movement of investors that defend that Bitcoin is as good as, or better, for that finality.

Characteristics of a Good Store of Value

There are a few characteristics that make up a good store of value. Besides either being a reliable currency, asset, property or commodity that has the ability to maintain its value overtime, it is also desirable that:

• It will not go out of circulation at any point in time;
• It is easily accessible and tradeable;
• It has solid value that does not depreciate easily.

Why is Gold a Popular Store of Value?

Humanity’s interest in this metal is not new. For millennia now we have been using gold as a store of value, not only for its appealing charm, but also because of its characteristics, especially the fact that it does not oxidize, degrade or easily react with other materials, which lends it the ability to survive many generations and be passed on indefinitely.

Another strong suit is the fact that gold is capable of being worked into different shapes, sizes and to be combined with other metals. So it is applied from jewelry to coins, and presently, even being used as a component in technology products.

Throughout history many global economies used the “Gold Standard” monetary system, which consisted in using money as a token that was backed by an amount of gold that existed in storage.This model was successful in terms of keeping inflation and deflation in check, but its use was discontinued mostly due to the fact that it limited the ability of countries to print out their currencies, creating an interdependability, which in turn created a fear of a gold rush.

Therefore it should not come as a surprise that gold has been used as a reliable store of value since its discovery,re humanity could even call it a store of wealth.

Why Is Bitcoin Being Considered as a Store of Value?

Bitcoin in essence relies on its exchangeability and scarcity, in order to exist. First of all, it is decentralized in nature, meaning that it does not belong to a bank or third party financial organization, meaning it provides its users with more privacy and control over their own finances. It is reliant on a secure network, due to the blockchain technology, providing more safety for transactions to happen. It is portable, divisible (it can be broken into small parts for pricing reasons) and is easy to adopt and implement.

In theory, it has the ideal conditions to be used as a store of value, considering the longevity and integrity of its blockchain, with a large and incorruptible computational force.

Bitcoin vs. Gold

After understanding both assets properties there is a clear base for comparison of both assets in terms of being reliable stores of value:

Gold

• It is a tangible asset;
• It has the material ability of lasting for many centuries;
• Besides its decorative value, it can be used in many different industries, assuring the existence of a market to trade it at;
• It does not rely on the matter of gaining popularity, since it has been around forever.

Bitcoin

• It exists in its own, decentralized and long lasting network;
• It does not rely on any government or financial institution;
• It is safe and reliable;
• It has been experiencing a long exponential valorization.

Besides the characteristics mentioned, both assets have shared properties that in theory qualify them as valuable stores of wealth:

• Scarcity: Assets that are infinite and easy to replenish have lower value than scarce resources. Both Gold and Bitcoin have that characteristic: gold for being hard to obtain, and Bitcoin for its programmed scarcity - only 21 million bitcoins will ever be minted, and no new one will be created after the year 2140.

• Fungibility: It is a concept of value uniformity, facilitating exchanges. For instance: one ounce of gold has the same value as another one ounce of gold under the same conditions. One bitcoin is worth the same amount anywhere as well.

• Divisibility: A good store of value should be divisible into smaller parts or units. That is true for gold, that can be broken down into smaller amounts, and Bitcoin, that can be divided into infinite smaller parts.

• Adoption in Society: For something to have value, society has to accept it as valuable.

Conclusion

A store of value should be a reliable asset that its owner is capable of converting into other assets through trade. That might be true for both gold and Bitcoin, but making a direct connection between both assets is impossible to ascertain for sure. Despite both having merit, they are still different types of resource.

While Gold is heavy, harder to carry, transport and safeguard, its value has been widely accepted by humanity since its discovery, and it is unlikely to stop having a sizable value and scarcity in the foreseeable future.

Bitcoin, on the other hand, while still not being widely accepted socially as a reliable store of value, is based on a secure protocol that is near impossible to stop existing. All transactions are public and decentralized, and its existence does not rely on the will of people or organizations.

The bottomline is that the most reliable store of value depends on the holders’ judgment and ability to choose the most stable option.