Why is Bitcoin, a virtual currency, viewed in the same way people look at fiat currencies? Before delving deeper into this, let’s review the history of gold and how it was accepted as a store of value.
1. There is a finite supply of gold in the world. With ever-growing demand for this scarce resource, gold is very valuable as consumers who seek to purchase gold will pay increasingly higher prices in order to attain it. More importantly, mining for gold has proven to be very challenging and barriers to entry in the gold mining industry is high as well. Evidently, gold is not an easy resource to come by. In comparison, there is an infinite supply of fiat currency (USD, Euros, Pounds, etc.) controlled by central banks in a country – governments can decide to print more notes whenever they feel the need to adjust their fiscal policies.
Similar to the gold supply, there are only 21 million units of Bitcoin. The same concept applies – with a finite supply and growing demand for Bitcoin which cannot be produced or replicated outside of the Bitcoin network, the value of Bitcoin increases exponentially.
2. High fixed costs are involved in gold mining – Some of these include mining site exploration, mining equipment, licenses to operate gold mining activities and more. Similarly, earning Bitcoin requires mining equipment and hardware and these are costs that miners have to incur.
3. All over the world, gold is a material widely accepted for payments and transactions. We can sell gold in any country for the local currency. The problem with fiat currencies is that not all currencies are widely used, leading to losses when trying to exchange these currencies.
Bitcoin is created with the same standards around the world as well. As the most well-known cryptocurrency in the world currently, Bitcoin is accepted as a medium of exchange for goods and services. As the finance and technology industries move into blockchain and crypto, we will see increasing usage of Bitcoin for transactions. Moreover, the blockchain network leads to greater efficiency and lower costs to international money transfers – at a fraction of the cost one would incur with traditional money transfers through commercial banks.
Bitcoin truly is the King of Cryptocurrency, a virtual currency and store of value that is comparable to gold in all its features.