Why Would People Prefer Bitcoin and Ethereum Classic Rather Than Gold?
People could buy gold instead of Bitcoin (BTC) or Ethereum Classic (ETC), but in a connected world, it is sometimes better to hold BTC and ETC rather than gold.
The reasons for this may revolve around trust minimization, self custody risks, and long distance transfers.
Currently, the great majority of people must be investing in BTC and ETC for the upside potential and expected returns, but payments will be an increasingly important use case as time passes by, especially if we expect crises and globalization which would increase centralized control over our lives.
Trust Minimization
Physical gold may be even more trust minimized than Bitcoin and Ethereum Classic. After all, BTC and ETC are on the internet, which means that if there are outages, then there is no accessible money!
Additionally BTC and ETC depend on trusted third parties, albeit well decentralized, such as core developers, node operators, and miners.
Gold may be physically held which means that there are no banking institutions, service providers, developers, or miners that would pose a risk to our holdings.
This may represent a complementation between the two types of investment rather than a competition as we will explain below.
One thing that gold bugs must understand is that holding gold at a financial institution is not trust minimized and confers no benefits in moments of stress.
Similarly, BTC and ETC holders should be aware that holding their crypto assets in centralized exchanges is no different than the traditional way of banking institutions.
Self Custody Risks
The similarity between digital gold, such as BTC and ETC, and real physical gold is that holding physical gold is not very different than holding the private keys of addresses in the Bitcoin and Ethereum Classic blockchains. In this sense, the risks are similar.
Physically held gold must be stashed somewhere secretly at home or other places. If government or thieves were to try to steal or confiscate it, then they would have to go through the trouble of searching for it and retrieving it even if we resist.
The same happens with BTC or ETC, the only way to steal or confiscate crypto is by seizing the private keys from the owner.
But this kind of self custody is precisely the reason why people started to deposit their gold with gold smiths 600 years ago!
The convenience of having a third party build the secure facilities to hold valuable assets was a main driver for the creation of banking in the first place.
Long Distance Transfers
However, gold is not transferable over a telecommunications channel as BTC or ETC are.
An amazing explanation that Satoshi Nakamoto, the creator of Bitcoin, gave comparing physical gold and Bitcoin was precisely the ability of BTC to be transmitted over a communications channel.
In 2010 he wrote:
“As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties:
- boring grey in colour - not a good conductor of electricity - not particularly strong, but not ductile or easily malleable either - not useful for any practical or ornamental purpose
and one special, magical property:
- can be transported over a communications channel
If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it.
Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it.
I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something.
(I'm using the word scarce here to only mean limited potential supply)”
What Is the Best Strategy to Follow?
So, given these comparisons between physical gold and crypto, what is the solution to storing our wealth in a world that seems to be increasingly risky with regards to central control and potential dystopia?
Well, in a way BTC and ETC are physically held as gold is, but they have the advantage that they may be tranfered long distance through the internet.
The best method to hold crypto is to use a non-custodial wallet with our own private keys, but to secure our private keys we need to write down our secret passphrases and store them in paper, which is a form of physical custody!
Another difference is that with physical gold, we can hold a limited amount of value because, for example, it would be very cumbersome and revealing to bad actors to walk around with 3 kilos of the metal!
With Bitcoin and ETC, we can carry billions of dollars in value with a single secret passphrase.
This is a major advantage.
However, when the big crises comes and we find ourselves with our loved ones isolated in places with no internet, then these advantages of crypto are not that great because it will not be accessible.
Perhaps a better and balanced approach is to distribute our wealth between gold coins, silver coins, and other physical items that may hold value during severe crises, such as ammo or first aid medications, such as common antibiotics, but to also have a considerable share of BTC and ETC in our emergency savings.
Because we may have intermittent internet access, then having a portion of our survival reserves in BTC and ETC will also be certainly useful.
Thank you for reading this article!
To learn more about ETC please go to: https://ethereumclassic.org
