Bitcoin: Why cryptocurrencies can never replace gold?
Big names from the industry are diving into bitcoin and are using the term digital gold to describe bitcoin and other cryptocurrencies. Some central authorities across the world have claimed that cryptocurrencies like bitcoin could replace gold as a great store of value. But the comparison of both is highly flawed and is full of risks that may mislead the regular users into trusting in bitcoin that is volatile and could deplete your savings rapidly. So if we are talking about the store of value, let us why gold is a store of value.
Gold is a store of value as scarcity and physical properties mean that its value will remain consistent or increase over time but will not decrease. Talking about cryptocurrencies, on the other hand, these currencies are extremely volatile. They can only be generated according to their demand which means that they don’t hold their value for the long term. There are unpredictable spikes in bitcoin. These spikes are one of the main reasons why cryptocurrencies like bitcoin cannot be used as an everyday form of exchange, so cryptocurrencies are treated as risky investments. If you want to know more about the bitcoin market, you are advised to land on the ethereum-code.me platform.
Many crypto experts are 100% sure that bitcoin cannot replace gold, and even some crypto advocates say that bitcoin has a long way to go before it gets recognized as a form of money and store of value. Gold has intrinsic value and can be used as money. This declares that bitcoin cannot be compared with cryptocurrencies and also let us learn some other reasons why bitcoin or other cryptocurrencies cannot be compared to gold.
Pitfalls in the infrastructure of cryptocurrencies
Almost all cryptocurrencies use blockchain technology as their underlying technology as it is a decentralized system that keeps track of the exchange of digital currencies. The increase in the infrastructure of tech in the name of enhancing scalability has only given it much vulnerability. To handle the demand of bitcoin globally, the bitcoin network relies on off-chain transactions. In off-chain transactions, users can buy and sell bitcoin outside the blockchain network. The off-chain transactions were supposed to be around the constraints of blockchain. Still, these provide security and verify the vulnerabilities that can be maneuvered before written in blockchain, which opens opportunities for foul play with users’ money.
Also, it is inefficient for bitcoin exchanges to process blockchain transactions as it consumes much energy and time. It has been noticed that bitcoin mining uses a lot of electricity, and this is why the critics accuse bitcoin miners of reckless damage to the environment for such speculative assets.
Cryptocurrencies aren’t immune to inflation.
Any asset that is subjected to inflation can never be considered a good store of value. Fiat currencies aren’t considered a good store of value as inflation dilutes the real value of the currency, resulting in its increased supply. This is something that happens with cryptocurrencies like bitcoin regularly. An increase in the trend of bitcoin has led to the expansion of the crypto pool, and this has eroded its worth. In such cases, the purchasing power of users drops, and holders are required to need more in order to buy goods. This has made crypto developed to burn coins, which means sending the usable tokens to disabled or unusable accounts, resulting in decreased supply.
On the other hand, gold isn’t influenced or impacted by inflation, and its price is known to increase at times of inflation when investors rush to invest in such safe-haven assets.
Instability is inherited
Cryptocurrencies like bitcoin have no intrinsic value, and there is no purpose for these currencies other than being the medium of exchange. Bitcoin and other cryptocurrencies are treated as investment assets, but they are highly volatile, and their price is known to fluctuate a lot. One of the major obstructions to bitcoin and other cryptocurrencies is a paradox: people tend to buy cryptocurrencies but never use them as a medium of exchange. Instead, they store them and want their value to increase over time. However, if bitcoins aren’t used as a medium of exchange, their value will fall, and even investors will sell the crypto coins, resulting in a decreased value.