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Gold dominated the media limelight recently. According to some analysts, its price could even hit USD $2,000 per ounce in the next year or two if lower interest rates and recession fears persist. There are parallels to be drawn between the recent gold price bubble and the bitcoin bubble back in 2017. Attracted by the promising speculative returns of bitcoin, many investors have started to allocate part of their portfolio to invest in bitcoin, sparking speculation that Bitcoin will eventually replace gold. Some bullish investors even went ahead to dub bitcoin as the “digital gold”.

However, can you really call bitcoin, the “digital gold”? In this article, I argue that bitcoin is worth way more than just a form of digital gold. While the metaphor of bitcoin as a “digital gold” is beneficial insofar that it forms an easy heuristic for the layperson to comprehend bitcoin, bitcoin’s value far exceeds gold. I will base my analysis on the Keynesian Theory of Money, which argues that money is a (I) store of value; (II) medium of exchange and (III) unit of accounting.

Why Is Gold Even Valuable?

According to author John Kay, “A fetish for gold is deeply embedded in the human psyche’.

Indeed, as human beings, we have inherited our ancestors’ worship of gold. The first of such worship was found in 550BC, when King Croesus in Lydia commanded his men to mine gold because he felt that gold is a symbol of divine and superhuman traits.

Historically, gold is valuable because it is perceived as rare, expensive to mine, a symbol of prestige. In addition, until the Bretton Woods system, governments have traditionally backed their fiat currency to gold. This gave gold a kind of revered status that few dare–or find expensive– to challenge, across generations.

Digital Gold? Bitcoin is Ontologically Different.

When we conceptualise bitcoin as a type of digital gold, we therefore need to consider the differences between bitcoin and gold.

Gold has intrinsic value. What this means is that there are various uses to gold apart from a store of value. People use gold to make jewelry, religious artifacts and wares, and gold is perceived to be valuable. Gold is physical and have a distinct look and shine to it as a metal.

In contrast, when we talk about bitcoin, many have argued that there is no “intrinsic value” to bitcoin. Because bitcoin is intended to be a digital and decentralised currency, it is only designed for that sole purpose.

Since perception is the key to value and subsequently the storage of value, then we need to reexamine the social construct of each asset class. Clearly, the ontological basis of bitcoin is completely different from that of gold.

The Ontology of Bitcoin

The fundamental value of bitcoin lies in the ideology that it is money built on open source code and little bureaucracy. This core ideology motivated the early adopters of bitcoin– people like Hal Finney, Gavin Andresen, Martti Malmi, Jed McCaleb, Laszlo Hanecz, Roger Ver, the Winklevii twins, Charlie Lee– to support, volunteer and grow the bitcoin grassroot community.

This moral code of “freedom” forms the foundation and “intrinsic value” of bitcoin. Early adopters want to believe and make this movement work, and therefore put their time, talents and financial resources to funding this movement. Slowly, this grassroot community attracted the attention of capitalists who saw the financial rewards of buying in early to this grassroot community. They started to then buy bitcoin cheaply, driving its market price up.

And many other capitalists joined in after them–Indeed, over the past ten years, bitcoin has attracted more speculative capital inflows, while gold has the directly opposite. Considering that Bitcoin is limited to 21million, and the supply of gold is limited (but uncertain), the market dynamics of the two are different. Since the market dynamics are different, each asset as a store of value should be considered differently.

The Moral Code of Economic Freedom

It is therefore important to note that the bitcoin movement is not likely to eventually die out not only because of this moral code of freedom that its early adopters subscribe to, and also because so much money has been poured into making bitcoin work already. It is likely to be far more profitable for these groups of people to invest more time, energy and resources to not letting the bitcoin movement die, as compared to starting a brand new decentralised project.

Bitcoin’s capacity as a store of value will only become better as years past, when the masses continue to recognise and witness the failure of centralised systems and governments. It is likely to eventually surpass gold’s capacity as a store of value in a decade.

Therefore, it is not exactly accurate to call bitcoin a form of digital gold.

It Is Easier To Accept Bitcoin As Currency

Imagine carrying heavy and chunky gold bars or gold coins around to pay for day-to-day living. How tiresome will the process be!

The bitcoin that we know today is not designed to handle thousands of transactions per second–nor is it used to handle cheap, stable, and secure transactions. However, even though Bitcoin can’t now operate yet like a currency, it is moving in this direction. As the number of people who hold bitcoin grows, the price of bitcoin will become more stable. The more stable it becomes, the more people will use it to trade, and it will make it a medium of exchange.

The Bitcoin Lighting Network

Today, Layer 2 solutions like Lightning Networks allows Bitcoin to have greater transactional scalability, just as the early improvements of the Internet technology allowed the bulky TCP/IP protocol to scale from a few to billion kbs. We recently found out that the Lighting Network has shown major growth and improvement on core metrics. The Lightning Network will promote the popularity of bitcoin as a means of payment. As blockchain technology improves, the biggest or most important transaction will happen at the Bitcoin base layer, and daily payments will happen on Layer 2 or even Layer 3.

There is a huge trade-off between security, price stability and speed. If you want an ultra-fast network, it needs a highly centralized design, so it’s not secure. You can’t (yet) have a cryptocurrency that is decentralized, secure, and has ultra-fast, cheap transactions. You need verification from thousands of nodes and expensive mining power to keep your network secure.

Interestingly, since Bitcoin is not widely accepted by merchants and is not used to measure the value of goods and services, we cannot say that Bitcoin has all the functions of money. Therefore, some people call bitcoin a “shitcoin” and would rather put their money in other cryptocurrencies (like bitcoin cash, lol). This however, completely ignores the most important point of money: it needs to be a means of value storage first.

As an Accounting Unit, Bitcoin Is More Superior Than “Digital Gold”

In human history, every item used as a currency was originally a collection. People collect these things for various reasons—ideology, prestige, utility, addiction, rarity, perceived value, etc.

Therefore, we can use the idea of “collection” as a litmus test to the asset’s capacity as a store of value. When groups of people want to collect certain things, they are still eager to get them for a long time; they begin to trade between individuals and groups, eventually becoming the trading medium and the unit of account. This is a time-tested process.

In this aspect, bitcoin works as a better accounting unit than gold because it is fungible and divisible. A bitcoin afterall, can be divided down into 8 decimal places with each smallest unit as identical to the other–a function that gold lacks.

Conclusion: Bitcoin Is More Than “Digital Gold”

As purported in the above, bitcoin is more than digital gold. Ontologically, there is a strong grassroot core of early adopters to the bitcoin movement, motivated by a moral code to economic freedom. When it comes to a means of exchange or an accounting unit, bitcoin is also comparable with– if not superior to– gold.

Where do we go from here? The history of bitcoin is still short and this asset class is relatively young. It is perhaps wise to buy both bitcoin and gold (when the price is right).