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Bitcoins and other electronic currencies present a new form of investment that’s turning heads across the financial world. While Bitcoins have gained impressive traction in recent years, can this new and unproven market match up to gold?
Bitcoin is a cryptocurrency, so called due to the encrypted data used in its transaction. Bitcoin was first created by an anonymous group of programmers known as Satoshi Nakamoto, and was first released as open source software in 2009.
To be honest, it’s not exactly easy for laymen (including us) to understand exactly how bitcoin works. (An explanation can be found here.) However, the important facts are:
Bitcoins have also gained traction in emerging economies such as China, as well as in African countries where more conventional monetary transfer systems exist. Indeed, one in three Kenyans claims to own a Bitcoin wallet.
Interestingly, the number of bitcoins ever able to exist is capped via its computing at 21 million. Roughly 75% of all the Bitcoins that can ever exist are now in circulation, which has caused the cryptocurrency’s value versus USD to skyrocket from around $720 over 2013 to $2,000 + today.
The chief reason one might invest in bitcoins is that their value has increased significantly in a short space of time – 210% in the last year. However, whether they will hold their value is another story. Bitcoins have not been around for long and have a limited track record.
Gold has been used for centuries as a store of wealth, and is a currency recognised around the world. Gold has been discovered at the same rate for a long time, meaning its scarcity has not been compromised and its value has remained steady, making it ideal for long-term investment.
Investing in gold can also be tax free. If you invest in UK gold coins which are legal tender you will not be charged any Capital Gains Tax.
What’s more, physical gold has intrinsic value which can never drop to zero – the same cannot be said for bitcoin.
While the advantages of investing in physical gold to safeguard one’s prosperity are manifold, its relevance is in no way diminished by technological advancement. Much like bitcoins, gold sits outside of traditional banking systems and is thereby free of intervention and interference.
With gold you have a physical asset that can be rapidly liquidated, all while remaining safe from economic uncertainty.
Bitcoins may suit those looking to engage in business in economies that simply cannot be as easily reached through conventional payment avenues. As an investment resource, bitcoins’ lack of physical form doesn’t undermine its transparency, as investors can monitor “block chains” and online ledgers that visibly convey the cryptocurrency’s value.
However, gold’s stability is also owed to its historic ties with our society, which has led to its status as the safe haven investment asset of choice today. Commonly held as the highest performing asset of the 21st Century, gold’s relationship with both established and emerging economies, coupled with its scarcity overall, makes it a consistently attractive choice. Bitcoins, in the meantime, are a self-contained industry and have the potential to drop to zero value.
Bitcoins are yet unproven, while gold shows consistently that investment in a physical object is the best way to hedge against uncertainty.
It should also be pointed out that bitcoins have thus often been used in criminal activity, especially on “the dark web”. This means that despite claims of safety, they currently predominantly exist in a world that isn’t entirely stable.
While both bitcoins and gold have seen impressive growth in recent years, gold’s advantages are clear. As a physical asset that is universally known and highly regarded, its appeal remains greater than any digital alternative.
Gold’s safe haven investment remains during the course of the current economic uncertainty. Elements of change such as Article 50, political leadership in the USA and UK, as well as market growth factors in forthcoming superpowers such as India and China will see more and more investing in gold to protect their wealth.
Furthermore, investment in gold ensures that you have wealth accumulated that is free of taxation, with a guaranteed legacy you can take forward with you. While both gold and bitcoins present opportunities to grow your success, even technology’s wildest advances can never completely overshadow the prestige and security offered by physical gold.