Is Bitcoin Like Fiat Money or Gold? What Makes Bitcoin Valuable?

Bitcoin is not anymore, the “next big thing” or a thing of the future, but it has real potential, and it is working to change the financial model extensively. It is the natural progression to be the form of money in digital form. Everyone knows that from ancient times the concept of money has been used and seen in different forms in history, which have become the alternative to the barter system. Over decades, humans have been using precious metals to exchange goods and services, and now they have converted to use a digital form of money by sitting at home. All these things are the concepts of financial evolution that humans make. 

However, not everything can be used as a form of money, and there are underlying principles that can decide what can be considered the ideal form of money for the economy. Money should have essential elements that can help in determining the value of an asset. In earlier times, precious metals were used because they meet all the basic criteria or had essential elements. In today’s time, modern currencies are designed to fit in the economy and hold their value. Now, cryptocurrencies have evolved, and people wonder whether these digital currencies have all the elements required to have a value enough that these can use as a form of money? 

Well, this ultimately depends on cryptocurrencies themselves, whether they can outclass gold or fiat money or not. Additionally, the value of a currency is determined by its rarity or scarcity. A cryptocurrency like bitcoin is limited in number or has a limited supply, making it far better than fiat money and gold. Also, bitcoin is innovative compared to fiat money and gold as it is digital, decentralized, portable, safe, and durable. If you want to know more about bitcoin payment, you can read from here that how you can pay through bitcoin.

Let’s learn about the benefits and detriments of cryptocurrencies over fiat currencies and precious metals like gold. 

The Value of a Currency

Humans have developed different forms of money or currencies to provide ease to transact money. Every time the evolution was made was to overcome the limitations that the barter system or previous money had, including the time consumed to find the genuine commodity, agreement over the quantity of a commodity, and restarting the entire process if it doesn’t go right. It is unbelievable, but products like seeds, salt, beans, weapons, and animal skins have been used in past decades. But due to their limited value because of easy procurement and production, these things or commodities lost their relative exchange value. 

There was a great need to find a valuable currency that humans turned into precious metals like gold. The main reason behind this was precious metals were precious and can be used as currencies, and even today, gold and other metals are used for exchange because of their scarcity. After metals, paper currencies and coins were developed to exchange between two parties and were issued by banks and were backed by the government. The development of paper currencies gave rise to the financial system that people started to trust and is continued till now. 

However, it is understood that to be a form of money, a currency or a commodity needs to be scarce enough to maintain its value and be highly durable and easily transferrable. On such basic elements, cryptocurrencies like Bitcoin were developed in 2009. 

Is Bitcoin Equivalent to Gold, or Is It Better Than That?

As of now, we have understood the characteristics of an ideal currency, and now it can be easily estimated whether bitcoin stands fair against gold or fiat money or not. By looking at the properties of gold, it is clear that bitcoin is far better than gold. Bitcoin shines in all the criteria as it is developed on a modern technology known as blockchain that solves all its issues.  Bitcoin is limited in its quantity which helps it retain its value similar to gold. It is a decentralized currency that offers high security and provides ease of transactions as it can be transferred digitally. Some people even think that if fiat currencies are removed from the economy, bitcoin and cryptocurrencies can be used as the primary form of money.

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