- Since Bitcoin’s creation, it has grown increasingly popular and valuable.
- It is possible for cryptocurrencies to outperform fiat money and gold.
- Bitcoin’s censorship resistance is one of the main reasons it has value.
Since it was created in 2009 by the pseudonymous Satoshi Nakomoto, Bitcoin has become increasingly popular and valuable, garnering worldwide attention. In April 2021, Bitcoin’s market capitalization crossed the $1 trillion mark, making it a more attractive investment option for many when compared to gold.
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However, there are underlying principles that determine what constitutes money in an economy. Can we use mangoes as currency? No, it lacks some critical elements that are necessary to establish the value of an asset.
Precious metals, such as gold and silver, fulfill the requirements. Modern currencies have been designed to conform to the pattern, so they retain their purchasing power. So, what about cryptocurrencies like Bitcoin? Do they possess these criteria that allow them to be used as a sole currency?
Is it possible for cryptocurrencies to outperform fiat money and gold? Here, we attempt to evaluate the benefits and drawbacks of Bitcoin vs. fiat money like the US dollar or pound sterling as well as precious metals like gold in order to discover an answer.
One of the factors that give value to Bitcoin is its censorship resistance. Bitcoin transactions are peer-to-peer and do not require third parties. On the other hand, gold is a physical asset, and its storage and transportation are costly. Fiat currencies, such as the US dollar, are subject to government control and can be inflated at will.
The second pillar that supports Bitcoin’s value is its fixed supply. There will only ever be 21 million bitcoins in existence. This hard cap on the supply makes Bitcoin scarce, similar to gold. On the other hand, fiat money has no limit on its supply, and central banks can print as much money as they want. This often leads to inflation, which devalues the currency.
Lastly, Bitcoin is decentralized, while gold and fiat currencies are centralized. Decentralization means that no single entity or government controls Bitcoin. It is not subject to manipulation by any one party.
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