Why Bitcoin Is Better Than Gold

By Michael Hooper

For thousands of years, the world's inhabitants have had a currency for exchanging value between vendor and buyer. That currency was gold. No matter what country you were from or where you were brought up, gold was always welcome.

And in some ways, gold is still a store of value today. But gold has limitations. It is hard to exchange the value of gold into tiny fractions of an ounce. You don't buy a $2.60 candy bar with $2.60 worth of gold. It is impracticable.

Bitcoin is better than gold because one Bitcoin is broken down into 100 million parts. One Satoshi is equal to one/100 millionth of a Bitcoin. Another way to look at Bitcoin is in MiliBit = 1/1000th of a Bitcoin. So one MiliBit is equal to $5.96 with Bitcoin at $5960.

Bitcoin is a ledger of Bitcoin sales/buys since its inception. This ledger is maintained by noids or miners around the world. The code for Bitcoin was written by Satoshi Nakamoto and the first transactions of Bitcoin were in 2008. You can read Satoshi's White Paper here. He basically solved the double-spending problem for digital currency. That is why the ledger for Bitcoin is so widely trusted. You can't cheat the ledger, many hackers have tried, but failed. One rich man even paid hackers $100,000 to try and hack the system but they failed.

Like Gold, Bitcoin is outside of banking. You can trade gold or Bitcoin for goods or services without any connection to a bank or government currency.

The decentralized network of miners running the ledger of Bitcoin operate outside of government. People who mine gold get paid in gold. Same is true for Bitcoin. Bitcoin miners get paid in Bitcoin for processing transactions on the network.

The circulating supply of Bitcoin is 16.6 million, but there is a maximum supply of 21 million Bitcoin. After that no new bitcoin will be created. Miners will only be paid in transaction fees. If demand for Bitcoin remains strong, Bitcoin is likely to become more scarce after that last Bitcoin is minted. And that condition could drive Bitcoin's price even higher.

Steve Wozniak, co-founder of Apple, also believes Bitcoin is better than gold. In an interview here, he says he was drawn to Bitcoin for its mathematics, its finite number of 21 million. US government can always print more dollars and is kind of "phony" that way, Wozniak said.

With 100 million parts, Bitcoin can be purchased by anyone with a computer or smart phone with a connection to the Internet.

With Bitcoin's inflation economics (strong demand, limited supply), many people around the world see Bitcoin as a store of value, a place to hide their money. Look at Argentina, which has suffered high inflation for years, its peso has fallen dramatically against the U.S. dollar. The country worked to stop people from moving their pesos to dollars by imposing high fees on such transactions. Well there is no government connected to Bitcoin, it is run by computers. And the price of Bitcoin has a history of going up compared to the declining history of the peso. So many people, including high net worth Argentina natives like Wences Casares bought Bitcoin.

Because Bitcoin is trading 24 hours per day, seven days per week, the coin is becoming the world currency. Last April, Japan said it was OK for vendors to accept Bitcoin. Many vendors are now accepting Bitcoin.

Chinese investors like Bitcoin, but the government has been cracking down on digital currencies. But the government can't stop Bitcoin.

Bitcoin is gaining popularity all over the world. Every day on Coinbase alone, about 35,000 new accounts open -- a figure that sometimes reaches 50,000 -- and thousands of people in South Korea and Japan, two countries where Bitcoin has taken off, are also bringing new money into the system, Forbes reported.

No stock or mutual fund can provide what Bitcoin provides, and that is universal appeal, acceptability, use and store of value, in every country. At 100 million parts, you can break it down to pennies. You can send Bitcoin peer to peer so your fees on the transaction are minimal. Bitcoin started in the underground with cyber punks and geeks distrustful of government, launched during the height of the financial crisis in 2008-09. But since then, many people in Japan, Europe, South America and the United States have became attracted to the currency. As a result, institutional investors like Fidelity are looking into it. When more institutional investors get into Bitcoin, the price could go even higher. But Bitcoin has a history of huge volatility. There have been about 10 corrections of 10% or more in Bitcoin this year, but each time it declined, it always came back and went on to reach new highs. I'm holding onto my Bitcoin, and probably will be adding to my position with small purchases after 10% declines in price.

Disclosure: The author owns and mines Bitcoin.