Stop Calling Bitcoin "Digital Gold" , Bitcoin Magazine

Original article: Isaiah Austin , Bitcoin Magazine

Compiled by: Yuliya, PANews

Labeling Bitcoin as “digital gold” is a misunderstanding of this revolutionary form of currency. This statement simplifies Bitcoin into an asset with only the function of storing value, obscuring its deeper technological advantages and financial potential.

Analogy is a common way for humans to understand new things. Faced with the unprecedented concept of Bitcoin, people naturally tend to look for a reference model. Before the general public has a deep understanding of the underlying mechanism of Bitcoin, “digital gold” is undoubtedly an intuitive and easy-to-accept analogy. Bitcoin is scarce, universally used, and has a storage function, so it seems natural to be called “digital gold.”

This narrative has driven adoption at the institutional and sovereign level, and was even written into the first paragraph of President Trump’s executive order on the establishment of a strategic Bitcoin reserve: “Bitcoin is often referred to as ‘digital gold’ due to its scarcity and security.”

This is an undeniable achievement. However, if Bitcoin is to realize its true potential, this narrative must be updated.

Bitcoin is not “digital gold”.

To equate it with gold is to belittle a monetary innovation that has completely disrupted the traditional financial system. Bitcoin’s fundamental properties make gold’s proud qualities obsolete, while at the same time, it is faster, safer, and more decentralized than fiat currencies.

Scarcity and finiteness

The key reason why gold has long been a store of value is its scarcity. Over the past century, annual gold production has only increased by about 1% to 2%. The difficulty of exploration, coupled with high labor, equipment and environmental costs, makes large-scale expansion of production uneconomical.

This naturally occurring supply constraint has given gold currency status since 3000 BC: in ancient Rome, a high-end robe cost as much gold as a tailored suit would cost today, demonstrating its stable value.

However, in the era of Bitcoin, it is inappropriate to use assets with fluctuating supply as a measure of value. Bitcoin is not scarce, but “limited”. Its total supply is forever locked at 21 million and will not increase due to technological breakthroughs or cosmic mining.

Through mathematics and technology, for the first time, humans have a fixed total amount of tradable currency, the significance of which goes far beyond what “digital gold” can cover.

Differentiability

Although gold can be cut, it is hardly “highly differentiable.” This property is only achieved with saws, laser equipment, and precision scales. Therefore, gold is suitable for large transactions but difficult to use for daily payments.

At current market prices, 1 gram of gold is worth about $108. If you pay for a sandwich with gold, you have to scrape off a dime, which is obviously not feasible in reality.

Historically, humans have mitigated this problem by issuing gold coins with a defined metal content. However, this also opens the door to currency debasement.

For example, the Lydian stater coins of 600 BC were issued in Lydia (modern-day Turkey) and were originally struck in electrum (an alloy of gold and silver) with a gold content of about 55%.

After the conquest of the Persian Empire in 546 BC, gold coins were gradually adulterated with base metals such as copper to reduce the gold content. This practice led to a decrease in the actual value of the coins, and by the end of the 5th century BC, their gold content was only 30%-40%.

Gold cannot be differentiated as an asset, and this defect has prevented it from being effectively used for a long time in history. In order to conduct small transactions, citizens usually give gold to the government in exchange for 1:1 coins. However, this mechanism often leads to currency dilution and the collapse of social trust due to the manipulation of power by the elite.

In history, no monetary system based on gold has been able to avoid devaluation in the end. The actual demand for micro-transactions has forced the public to rely on paper money and small currencies issued by the state, thus losing control over wealth.

Bitcoin has achieved a fundamental breakthrough in this regard. Its smallest unit, "satoshi", is equal to 1/100 million of a bitcoin. Currently, 1 satoshi is worth about $0.001, and its differential power has surpassed that of the US dollar. Bitcoin transactions do not require the help of any institution or government intermediary, and users can always directly use the smallest unit of account to trade, making it a truly non-intermediary currency system.

Therefore, in terms of divisibility and unit of account, it is almost a joke to compare gold with Bitcoin.

Auditability

The last time the U.S. government formally audited its gold reserves was in 1