This article Gold vs Crypto vs Fiat : Which is better? focuses on the comparisons between the traditional forms of money. These opinions are of the author, and not necessarily of CryptoKnight.Asia.
There have been several debates about this already. Is Gold, Bitcoin or Fiat the best form of money? Which should be the de facto use for transactions and exchange of value?
In truth, each of them have their merit and their reasons for existing. However, for the purposes of debate here, we want to compare them side by side and consider which might be the future.
We will be using these criteria of sound money to judge each:
- Adopted – Do others recognize this as a money and will accept it in exchange of their goods and services?
- Portable – Is it easy to move this around?
- Durable – Can this form of money last or is it easily destroyed physically?
- Fungible – Is one unit of money indistinguishable from another?
- Divisible – Is this unit of money easily divisible?
- Stability / Store of Value – Does this form of money hold its value over time?
Let’s start with Fiat.
We start off with fiat money, the paper dollars you and I keep in our wallets for daily transactions.
Adoption – B. Fiat Money is adopted throughout the world ever since the U.S. unpegged dollars off gold in 1971. Now, Fiat money is internationally recognized and adopted. However, specific currencies need to be swapped with others as you travel across countries, hence the B.
Portable – B. Fiat Money is very easy to bring around in your pocket. However, it doesn’t get an A because nowadays governments are very strict about bringing cash across borders. You will need to make a declaration unless you want to do it illegally.
Durable – C. Fiat Money is by nature not durable. It’s not meant to last the ages. Once every several years, governments will take in fiat that has become torn or old and exchanges it for new ones.
Fungible – A. Fiat Money is fungible. You can’t distinguish one $10 note from another, except by its serial number. Hence, some form of tracking is still possible, but unlikely.
Divisible – A. Fiat Money is divisible up to one cents, or $0.01. Rarely are things worth $0.01 or less in any economy hence the divisibility more than serves its purpose.
Stability / Store of Value – D. Fiat Money has a track record of losing its value over time to inflation. This happens because governments never switch off the printing press. By printing more fiat, they essentially devalue all the other fiat in circulation. Also, it has a terrible track record in history. All fiat used by governments have failed one way or another. In fact, the U.S. dollar has lost 97% of its purchasing power since it was created in 1913 – in a way, you can call this a failure.
Gold has traditionally been seen as a store of value and has been recognized as money for over 5000 years.
Adoption – A. Generally, if you were to buy anything with gold, people will accept and recognize it as a form of money. Not that they will appreciate actually receiving the gold! Gold is internationally recognized and all across the world, it is perceived as valuable.
Portable – D. Gold is terribly hard to move across countries. In fact, you wouldn’t keep it in your wallet to make transactions. However, this is a result of governments not willing to issue 99.99 pure gold to be used in transactions. (It might not be practical as gold is really malleable)
Durable – A. The same gold that was used in Jesus’ time is likely to be in circulation or stored somewhere today – only that people wouldn’t know as it has likely been melted and made in a different form. Gold will last the ages, from the very beginning of commerce till today.
Fungible – A. You can’t tell one piece of gold from another, except nowadays they put serial numbers on them. However, it can be melted down and made into another form without issue. Hence the A rating.
Divisible – C. Gold can be divisible, but only if you own a gold manufacturing plant! If you’re like the most of us, you probably won’t carry a gold bar to buy a car or a house. Neither can you break down one 1 oz gold coin into smaller pieces to get your Starbucks.
Stability / Store of Value – A. Gold has been used as money for thousands of years, and likely it will be for the next thousand to come. There is no better form of storage of value than gold. Nothing else (except Silver) even comes close when it comes to this.
So we come to the newest innovation, Bitcoin. Will Bitcoin be able to replace fiat, or replace gold as the new form of money for a new era?
Adoption – D. Bitcoin is new young and estimated adoption rates in the world is likely to be less than 1%. If you were to move to most shops in the world, you’re likely to get a weird stare if you ask “Can I pay in Bitcoin?”
Portable – A. Bitcoin is the most portable form of money. All you need is to remember your private key or bring your hardware wallet anywhere you go, and you will have it with you. No governments or customs officer can stop that – because Bitcoin exists on the internet. Imagine this: You are in Singapore, you bought some Bitcoin, and then now you fly to Japan without a single fiat. Now, all you need to do is to have an internet connection to start buying things in any of the 260,000 retail stores there!
Durable – B. Bitcoin is highly durable because it exists as code on the internet. You can’t destroy Bitcoin unless you destroy the internet – that’s how durable it is. However, you can still lose it if you are hacked or if you forget your private keys. Many people have lost them, and are still feeling the pain till today! For that reason, I can’t give it an A. Some may argue you can lose cash or gold by theft too, but the internet makes it more susceptible of holders of Bitcoin to international hackers.
Fungible – A+. Bitcoin is code. So one Bitcoin or a fraction of a Bitcoin is simply indistinguishable from another. This gets an A+.
Divisible – A+. Bitcoin can be divided down to one hundred millionth, or one satoshi. This means that 100 million satoshi will be equal to a single Bitcoin. This makes Bitcoin possibily usable as a daily currency. However transaction fees have risen in the past year due to increased adoption, but that’s another topic for another day.
Stability / Store of Value – B. Theoretically speaking, there can only be 21 million Bitcoin in existence. Many of these bitcoins were lost as people forgot their private keys, leaving them in cyberspace, forever unfound. With that limited supply, this makes Bitcoin a great store of value – no governments or private companies can print it at will. However, Bitcoin doesn’t get an A because it is untested and unproven – it has only been in existence for 10 years, compared to Gold with a track record for 5000 years. Will it stand the test of time? Only heaven knows.
So which is better?
So there you go, the three forms of money compared side by side. Many people in the gold camp argue for its track record, while people in the Bitcoin camp argue for technology. The truth is, what’s stopping you from owning both?
What is your preferred form of money? Leave your thoughts in the comments below!