“Digital Gold” Bitcoin is not a gold standard

Recently, Bitcoin has been compared to gold in many ways. In fact, Bitcoin has been called “digital gold” because of its similarities to gold. However, this may not be relevant if Bitcoin is used as a gold standard.

The gold standard is a monetary system based on the value of gold. However, most countries stopped using the gold standard a long time ago. In practice, there are three different forms of the gold standard. There is the gold coin standard (used for the circulation of gold coins) and the gold bullion standard (used for the country to sell gold bullion at a fixed price to meet monetary needs). When these practices became impractical, the gold standard was applied to governments that promised to maintain a fixed exchange rate with other foreign currencies, known as the gold exchange standard .

Comparing Bitcoin to the gold standard inevitably involves central banks and trusted third parties, both of which all digital currencies oppose. Bitcoin is designed to be a decentralized, distributed, open source, peer-to-peer currency system that does not require the involvement of trusted third parties in its operation. In order to prevent interference and still function as a currency, individuals (miners) act as trusted institutions. Miners facilitate transactions by confirming and registering transactions on a distributed ledger, the blockchain.

The value of Bitcoin is not determined by the value of gold or other fiat currencies. However, the price of Bitcoin can impact the value of gold and various fiat currencies. At the same time, digital currencies like Bitcoin can perform various functions of money, which is similar to gold, but Bitcoin is still not the same as the gold standard.

Some similarities between Bitcoin and gold are shared by virtual currencies. These include:

Durability - Bitcoin and gold are both durable. While gold, as an inert metal, can withstand chemical reactions and stand the test of time, Bitcoin will last as long as the Internet exists.

Transferability - To be useful, it must be transferable. Both Bitcoin and gold can be exchanged for other currencies, goods, and services.

Scarcity - Excess supply leads to insufficient demand. Fortunately, both gold and Bitcoin are scarce. There will be no more than 21 million Bitcoins in circulation, making it a valuable medium of exchange.

Divisibility - Bitcoin is highly divisible and can be divided 100 million times. However, with gold, it is possible, though not as easy.

Fungibility - Bitcoin and gold are fungible, they can both be replaced by other Bitcoins or an equal amount of gold without any change in value.

Identifiability – Both Bitcoin and gold are impossible to counterfeit and can be easily detected.

All of these factors extend Bitcoin's role beyond currency.

Original article: http://www.altcointoday.com/bitcoin-and-gold-standard/
Author: Gautham
Compiled by: Kyle
Source (translation): Babbitt Information (http://www.8btc.com/bitcoin-and-gold-standard)