Bitcoin is not the new gold standard

Recently, many people have started comparing Bitcoin to gold. Indeed, Bitcoin is called digital gold for a reason, as it has many similarities with gold. However, it may be inappropriate to regard Bitcoin as a gold standard.

The gold standard is a reference to a monetary system based on the value of gold. Most countries stopped using the gold standard a long time ago. In reality, there have been three different forms of the gold standard. First there was the gold coin standard, where gold coins were circulated in the market, and then there was the gold bullion standard, where the government sold gold bullion on demand at a fixed price instead of currency. When these forms no longer met practical requirements, the gold exchange standard developed into a government commitment to exchange its own currency for foreign currency at a fixed exchange rate.

Comparing Bitcoin to the gold standard inevitably brings central banks and trusted third parties to the opposite side of digital currency. Bitcoin was designed to be a decentralized, distributed, open source peer-to-peer currency system that does not require the participation of trusted third parties. In order to prevent any intervention and still function as a currency, individuals (miners) play the role of trusted institutions. Miners facilitate transactions by confirming and registering them on a distributed ledger called a blockchain.

The value of Bitcoin does not depend on the value of gold or any other fiat currency. However, the value of Bitcoin can be hedged against the value of gold and different fiat currencies. At the same time, digital currency can perform all the functions of ordinary currency, which is similar to gold but still different from the gold standard.

The similarities between gold and Bitcoin are the same as the characteristics of virtual currencies. These characteristics include:

Durability - Bitcoin and gold are both durable goods. Gold is an inert metal that resists chemical reactions and thus stands the test of time. As long as the Internet exists, Bitcoin will continue to exist.

Transferability – In order to serve the purpose of money, it should be easy to change hands. Both Bitcoin and gold can be transferred in physical form and used to trade for other currencies, goods and services.

Scarcity - If there is an excess supply of something, there will be a lack of demand. Fortunately, both gold and Bitcoin are scarce. There are only 2.9 million units of Bitcoin in circulation, which makes it valuable enough to be a medium of exchange.

Divisibility - Bitcoin is highly divisible, it can be divided into 100 million times. Although gold is not so easy to divide, it is not impossible.

Fungibility - Both Bitcoin and gold are fungible, they can be easily replaced by another unit of Bitcoin or an equal amount of gold, but the value will not change.

Identifiability – Both Bitcoin and gold are impossible to counterfeit, and they are easily detectable.

All these factors make Bitcoin a more valuable form of money than any other form of currency.