Comparing cryptocurrencies with fiat and gold

There is plenty of articles on the internet showing the advantages of cryptocurrencies over gold or fiat. You can see one of the many comparison tables below. However, the key property is missing. It is stability.

Before we explain what we exactly mean by the stability have a look at why we think it is difficult to create a digital gold.

It is difficult to create a digital gold

Gold is a scarce natural resource. Bitcoin is a technology. Gold is just here and it is not dependent on nothing else to exist. It is possible to utilize gold in many industries or keep it as a store of value. Bitcoin, as a technology, depends on many unpredictable things and its properties can also change in time. Bitcoin is a software and there might be a bug. All bitcoins might lose significant value in a minute when some nasty bug appears. In the worse case, the network might collapse or Bitcoin might never get the trust of people back. It is hard to destroy gold and nobody does it intentionally. Bitcoin can disappear quite easily if it is sent to a wrong address or an owner lose private key. Currently, ~1/5 of coins are probably forever lost. Technically, all coins can be destroyed without any effort. A protocol is not able to ensure that digital wealth does not disappear due to silly human mistakes that cannot be taken back.

It might be difficult to perceive Bitcoin as gold since the properties of gold never change. You can use gold properties nowadays in the same way as 1000 years ago. Properties of Bitcoin changes every day. Hashrate can go up and down and Bitcoin is more or less secure. You can say that Bitcoin’s hash rate is the highest in the market but it is possible that some other projects can have a higher hash rate. Bitcoin used to be the fastest decentralized network 10 years ago. It is not true nowadays. Bitcoin is a transaction network and can serve a few people at the moment (10 transactions per second). If there are more people using Bitcoin the transaction fee will be higher and they can wait for settlement even days. One could say that Bitcoin is not perfect or usable at that moment. You can never say that about gold.

Bitcoin is not able to keep its properties unchangeable. It is no possible to create better gold. Moreover, it is very easy to create a better transaction network, a more secure network, or a more scalable network. You can even create a project, that will be better in all aspects. Gold is precious since it is unique, nobody can mimic it, and nobody can create something better. It will never be true in the technology world. It is naive to think that people will adopt a protocol or technology as a standard forever and will use it as gold. Protocols and services are here to reliably and quickly transfer data, offer some utilities, facilitate tasks, improve something, make things cheaper, more transparent or more reliable. Bitcoin does not do much of all that effectively.

The value of bitcoins is dependent on electricity. In case the protocol is not able to add a new block then coins will not be liquid basically immediately. Bitcoin requires a big amount of electricity to exist and again, it can hardly be considered as something stable. Bitcoin’s PoW requires a big amount of electricity in comparison with PoS. PoS can achieve stability much easier since significantly less energy is needed to keep the protocol work.

As a technology, Bitcoin will always have competitors and there is no generally accepted rule what to consider as digital gold. Any technological feature can be easily replicated and improved. We can measure the level of decentralization, security, speed of transactions, etc., but it does not help us. The majority of people choose the best solution for a given task. People's preferences always differ so there will be more similar networks. It is not simply possible to create a unique feature that would ultimately determine the winner. Gold cannot be challenged by other natural resources. It can happen that we need some other resources more than in the past so they become more valuable. Still, gold is number one also due to public acceptance.

Gold will never become obsolete, old, or broken. It is quite common in the technology world mainly due to never-ending innovations. At some point, it is not possible or easy to maintain old software and it is better to rewrite it from scratch. Bitcoin is a protocol working on TCP/IP and it was to be replaced many times in our history. It can happen one day. Cryptography ciphers getting old and are broken. There is plenty of reasons why protocol must be maintained, improved or even completely replaced. It is a risky business.