Bitcoin Will Become Closer to Digital Gold
August 14, 2021
There are several Bitcoin claims that Bitcoin is growing fast and its value will be equivalent to Digital Gold. This has increased the focus on the two commodities; Bitcoin as a digital currency and Gold as a mineral. Bitcoin is a peer-to-peer decentralized digital currency which was first introduced and mined in 2009, while Gold is a precious metal and a tangible asset. Some of the features that distinguish Bitcoin and Gold include the level of volatility, the demand sources and the storage procedure.
Despite the disparities, there are certain features which are common to both Bitcoin and Gold that indicate that they are similar. These features have stirred up few assumptions that Bitcoin is becoming like the valuable metal.
Coinbase declared this in a statement:
"Armed with a myriad of technological advantages, accelerating development, and maturing global market, Bitcoin is a store of value to rival gold in the digital age."
Technological experts, investors and cryptocurrency traders believe that Bitcoin has the capabilities to replace gold. Gold was made a standard store of value in 1971 and its worth has significantly increased over 6474%. This rise in value is owed to the relative scarcity of gold and the difficulty experienced in mining it, unlike other metals. Likewise, Bitcoin is also built to be scarce. The Proof-of-Work process of mining Bitcoin that requires solving cryptographic algorithms also makes it hard to mine Bitcoin.
Currently, there are about 170,000 metric tonnes of gold available in the world and about 18,789,468 Bitcoins in circulation and the total maximum supply of Bitcoin is 21,000,000. This limited supply creates increased demand and a corresponding increase in value. With the great demand for Bitcoin, it is believed that it will soon replace gold as Bitcoin has an added benefit of being exchangeable via communications network.
In a bid to increase the scarcity of Bitcoin, Satoshi Nakamato coded from the start to half the reward level of mining every 210,000 blocks. After already three successive halving, the fourth mining reward halving is set to be halved in February 2024, the coin reward will decrease from 6.25 to 3.125 coins. This halving will put the total amount of Bitcoins rewarded and supplied in a year to 0.85%.
As stated by Coinbase:
"Gold's stock to flow is higher than any other metal commodity, and Bitcoin is set to soon follow,"
With this next halving, the Bitcoin stock-to-flow will be almost equivalent to that of gold.
stock-to-flow of bitcoin and gold (scarcity) Source: medium.com/@100trillionUSD
Value with demand
As there is a loss of value in a commodity with decreasing demand, which usually affects most digital currencies and fiat currencies, the stock-to-flow (S2F) of Bitcoin as well as technological advancements help maintain Bitcoin's value as there is constant demand for Bitcoin.
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