9.4
7.470 Reviews
English
EN
By: Luuk Soons
Bitcoin is often compared to gold. To many investors who are not familiar with Bitcoin, this seems absurd. In this article, I will describe why a comparison of Bitcoin with gold is relevant and what the implications of that might be.
The bitcoins within the distributed Bitcoin cash book (The Blockchain) are compared to digital gold. This is because the design of Bitcoin is derived from the action of gold. Bitcoins, like gold, are scarce. A maximum of 21 million bitcoins will be mined by the Bitcoin miners.
The total number of bitcoins that can be mined decreases by half after every four years. This decrease in production is known as the Bitcoin halving. The Bitcoin halving cycles cause inflation to continue to decline and the supply-to-supply ratio to become higher. This is called the stock-to-flow (S2F) ratio said.
At the time of writing, more than 18 million bitcoins have already been mined. So, most bitcoins have already been mined. The annual inflation rate of Bitcoin's money supply is around 3.6% and the stock-to-flow ratio is around 25%. Next Bitcoin halving will take place in May 2020, making these figures comparable to those of gold. Gold has a stock-to-flow ratio of 62 and an inflation rate of below 2%.
In practice, a high stock-to-flow ratio means that it is extremely difficult to mine more new gold or bitcoin in the event of increasing demand to such an extent that it has an impact on the price. Increasing production will not lead to significant price inflation. It is extremely expensive and complex to be able to mine more gold. It has also become extremely costly and complex to be able to mine bitcoins.
It is also impossible to mine more bitcoins than is mathematically recorded in the protocol. In addition, there is a capital-intensive Bitcoin mining industry which consumes as much electricity as a country like Denmark. All these miners try to mine bitcoins and at the same time secure the network with an almost unimaginable computing power against attacks or changes. Changes to the protocol can only take place on the basis of an almost unanimous network consensus.
The Bitcoin protocol, based on mathematics, a simple code base, algorithms, cryptography and computing power, has grown organically and against all odds. After 11 years of development, an antifragile and almost indestructible decentralized network has emerged. Within this network of mutually reinforcing network effects, for the first time in the history of mankind, inelastic and absolute scarcity has been achieved.
The transparent cash book of Bitcoin is also an independent, three-dimensional Decentralized accounting system where it has become almost impossible to counterfeit bitcoins, let alone increase the quantity. Gold does not have this luxury, as it requires a third party to verify and guarantee the authenticity and authenticity of a gold bar.
Nevertheless, gold, like bitcoin, has unforgeable costliness, a unique unfalsifiable preciousness. The crucial difference is that the preciousness of gold was previously recognized by almost all of humanity. This is not yet the case with Bitcoin. Gold has a long history of development and has been used as the ultimate monetary asset for store of value and unit of account. Bitcoin possesses the same monetary properties that led to the gold standard. In fact, Bitcoin eliminates a number of problems that gold faces, including the problem that human centralization of power usually leads to corruption.
Any money system in the hands of man leads to the centralization of power and the misuse of money. Gold as sound money has eventually been centralized, misused and manipulated by those in power for their own purposes; and finally abolished in order to gain total control of the most powerful instrument on earth: the fiat debt press of the world's reserve currency.
Now there is Bitcoin, an immutable decentralized money system based on the monetary principles of gold, but without the limitation. Within the Bitcoin network, every full participant is sovereign and a definitive separation between money and government (whether in the form of a central bank or state power) is realized. Furthermore, it is possible to build on Bitcoin. A completely new and alternative monetary system can be built with it.
The Bitcoin network has never been stronger, the longer Bitcoin it survives and develops, the more bitcoins will be recognized as precious monetary commodities. In this sense, Bitcoin is a speculative investment which, given its current small capital market, can yield enormous returns. Below in the graph you can see how small Bitcoin is compared to gold.
Market cap Bitcoin and gold
Plan B, an anonymous Dutch quantitative analyst (quant), who works as an asset manager for a major financial institution in the Netherlands, has created a statistically significant model from Bitcoin's mad road to $1 million per BTC by 2028.
Bitcoin to $1 million?
In this development, gold and bitcoin will act as complementary allies. Gold as the tried and tested means of value storage and preservation of purchasing power and Bitcoin as the speculative means of appreciation and wealth accumulation. Should Bitcoin succeed, a lot of capital will flow into this completely new and enigmatic asset class. All of this is taking place in an uncertain period of increasing financial repression, capital flight and an imminent wealth transition that will begin in full swing once central banks finally lose control of the current ostensible financial order.
This article is based on the free online Bitcoin course and the many different articles about the development of the world of crypto finance. This information can be found on the bestebank.org. The article was written by Luuk Soons, the editor-in-chief of this in-depth bitcoin crypto knowledge base.
Disclaimer: This article on Bitcoin and gold is for educational purposes only. It is not investment advice.
