In what feels like ancient history, money was made of gold. In more recent history, money simply represented gold. With countries increasingly moving off of the gold standard, how will we measure value? To be clear, this is a trend that predates the rise of cryptocurrencies. We were asking these questions well before crypto came along. However, a new report asks how cryptocurrencies like Bitcoin fit into this question.

How Does Bitcoin Compare to Gold?

Grayscale, a New York-based digital investments firm established in 2013 by the Digital Currency Group,  has long believed that crypto, particularly Bitcoin, can change not only how we use money, but how we think about it. Their recent paper explains this philosophy.

Published late last month, the twenty-one-page report, “Bitcoin & the Rise of Digital Gold” begins, essentially with a brief history of money. The early sections focus on why gold was a common currency or currency backer. Those interested in economics will be familiar with the idea of what makes an effective currency: scarcity, verifiability, durability, portability, divisibility, fungibility, and recognisability.

The paper continues to compare Bitcoin to gold as a currency. They find that crypto is more scarce and more easily verifiable than gold. It’s also pretty durable, infinitely portable, almost infinitely divisible, and sufficiently fungible and recognisable. Crypto, the paper concludes, is a better money than gold. Bitcoin possesses a superior composition of ‘good money’ qualities made for a digital global economy, the paper says.

Bitcoin vs. Gold
Money market efficiency comparison: Bitcoin vs. gold; Source: Grayscale “Bitcoin & the Rise of Digital Gold” report

Is Now a Good Time to Buy Bitcoin?

The paper doesn’t end there, however. It continues to explain why now is a great time to invest in Bitcoin. In addition to all of the benefits we think of when we think of cryptocurrency, even though it’s still early, Bitcoin is growing in popularity. As Bitcoin grows in popularity, it becomes both more valuable and more stable.

The paper also identifies investment as a safe bet because Bitcoin isn’t tied to external factors. Authors assume that people are holding crypto as an investment. Other investments, like stocks, commodities, etc. are tied to specific events or locations. Conflict can disrupt the price of oil. Natural disasters can affect the price of grains. Individuals can impact the value of company stocks. None of these things are true of cryptocurrency. As a result, crypto is actually a comparatively low-risk asset that investors can use to diversify their portfolios.

Analysis

So, what about the paper?

It didn’t really say anything that the crypto community hasn’t heard before. What it did do was pretty effectively take all of the bargaining points into one place with lots of nice graphics. Basically, if you’re already into crypto, it might not be that valuable to you. However, if you have a friend who is interested in or sceptical of crypto, point them in the direction of this paper.

Those who are knowledgeable advocates of crypto may actually have some problems with the paper. For one thing, it doesn’t mention any of the barriers to crypto adoption. Further, it doesn’t really talk about crypto adoption as a currency. While it’s great to talk about crypto as a good investment, most crypto fans are ready to talk about using crypto to actually buy goods and services. The paper mentions that crypto could be an “efficient means of exchange” but that’s about it.

The authors also leave more questions asked than answered about the rise of digital gold. The paper essentially says that crypto could replace gold in principle but doesn’t offer forecasts or recommendations on that actually happening.