But you might be wondering, is bitcoin rarer than gold?
Bitcoin is rarer than gold as it has a limited total supply of only 21 million tokens available for trading. Bitcoin supply only receives a single bitcoin block every ten minutes. Gold is rare too due to its low supply, but it's possible to mine more from the ground; hence its supply can increase.
The rest of this article will expound more on the reasons why bitcoin is rarer than gold. You will also find more information explaining why the two investment options are not readily available and why they are considered safe investment havens.
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What Makes Bitcoin Rare?
Bitcoin is rare due to the following reasons:
It Has a Limited Total Supply
Bitcoin is rare because, from its inception, it had a limited and finite total supply. Only 21 million tokens are available for trading in the futures market.
It's source code or protocol further stipulates that bitcoin supply must have a limit which means that no more than the original 21 million bitcoins will ever get produced.
There’s a Cap Placed on Additional Bitcoin Supply
In general, bitcoin supply typically receives additional bitcoins at a rate of a single bitcoin block every ten minutes. This is a fixed rate. What's more, after every four years, the bitcoins released per block reduce by half.
When bitcoin miners unlock all the bitcoins, the world will exhaust all its bitcoin supply. Perhaps at that point, Bitcoin's protocol will change to accommodate a larger supply of bitcoin.
Owing to this set limit, bitcoin boasts an intrinsic scarcity, similar to other rare precious metals like gold. And this is the reason bitcoin goes by the name digital gold.
To date, bitcoin miners have mined approximately 18.5 million bitcoins leaving the un-mined bitcoins at below 3 million. The latter is the amount of bitcoin that is yet to get into circulation.
There’s a Cap on Bitcoin Miners' Rewards
Bitcoin miners typically receive bitcoins as a reward for their efforts once a block gets verified successfully. However, the reward amount reduces by half every four years as well.
For instance, the initial reward amount was 50 bitcoins, but 4 years later, in 2012, the amount went down to 25 bitcoins.
The periodic reduction of the reward size aims at controlling the number of new tokens in circulation. This incentive system will continue until the miners exhaust all bitcoin supplies, with the last bitcoin expected in circulation in 2140.
This process will take more than 100 years.
The Loss of Private Keys
Still, the amount of bitcoin in circulation could actually be less than 18.5 million. This is because some bitcoin owners lose their private keys while others pass on without letting anyone know the details pertaining to their bitcoin ownership.
These two factors also contribute to bitcoin scarcity since no one can access the bitcoins without the private keys instructions.
To get a clearer picture of bitcoin scarcity, let's have a look at how bitcoin comes about in the first place.
How Is Bitcoin Created?
Bitcoin is a digital currency that is "mined" by a vast network of computers. Launched in 2009, bitcoin comes about as a result of miners who verify transactions on the bitcoin network by using their collective computing power.
This makes the alternative financial system highly transparent. The encrypted system and complicated algorithms also make this blockchain technology extremely difficult to corrupt.
In addition, neither the central bank nor the federal government issues this cryptocurrency. This means no central authority, government, or bank oversees the running of this decentralized currency; hence it's entirely free of censorship.
While 21 million units sound like an inadequate amount of bitcoin for everyone to use as a medium of exchange, this unique currency is divisible into smaller units. Currently, bitcoin's units, referred to as satoshi after its founder, are divisible into eight decimal places, and this division can go further if necessary.
A single bitcoin equals 100,000,000 satoshi. However, you can buy and sell even one thousandth of a bitcoin.
What Makes Gold Rare?
Gold is rare because its supply is much lower than the demand. But unlike bitcoin, which has no intrinsic value, people have valued and traded this rare precious metal for centuries.
Currently, about 6 billion ounces of mined gold are available in the entire world. Also, unlike company shares or money, it's not possible to manufacture gold.
To get gold, you need to dig it up from the ground as an ore which then undergoes processing to extract the gold. This makes the precious metal extremely valuable.
Hence governments maintain gold reserves as a safe haven for capital. For investors, it helps protect against inflation, and many individuals tend to buy gold in the form of jewellery.
Nevertheless, even though gold is rare and is not a renewable material, you can still mine it from the ground, unlike bitcoin. Furthermore, modern technology increasingly makes gold extraction much easier to do than ever before.
Nobody knows when the world's gold reserves will get depleted, but already, there are companies looking to mine gold from asteroids in the not so far future.
Comparing Bitcoin & Gold as Investment Havens
Both bitcoin and gold serve as excellent investment opportunities. They are also incredibly liquid and a great store of value. Their limited supply brings in a notion of scarcity which in turn highly drives up their value.
That said, Bitcoin performs much better as an investment safe haven than gold. And here's why:
Bitcoin as an Investment Haven
Since the bitcoin market never gets flooded, every year, there's a limited amount of bitcoin available for trading. This amount gradually decreases with time since the number of new bitcoins issued halves every 4 years, as explained earlier.
This means that if the demand for safe haven assets were to rise, the price of bitcoin would spike higher and faster than that of other assets, including gold.
The halving of bitcoins would significantly heighten this demand, while gold issuance would most likely increase as a result of mining, as we shall see next.
Gold as an Investment Haven
Gold mining is an ongoing activity, and each year, 3,300 tons (2993710 kg) of new gold gets mined and placed on the market. This new gold is extra since the gold in the market already matches the global economy's current consumption.
Nevertheless, even with this continuous supply of fresh gold, there are always buyers eagerly willing to take up the latest gold; hence a dip in the price of gold does not occur.
Still, even though bitcoin seems to trump gold as a safe-haven asset, it's prone to high volatility. It's also highly susceptible to market news and whims, and its price tends to rise and fall dramatically pretty fast.
On the other hand, gold remains remarkably stable during market turbulence, making it valuable as a hedge against volatility in the stock market. It's no wonder that gold has served as a major safe-haven asset for hundreds of years.
With approximately 6 billion ounces of gold available against bitcoin's 21million, it means that a single bitcoin is roughly 200 times rarer than a single ounce of gold.
Besides, as more people warm up to acquiring bitcoins for investment, multinationals and even some governments are also accepting or adopting bitcoin as a medium of exchange.
While gold remains a traditional favorite for many, there's no doubt that this new asset class looks poised to be part of the near future's investment landscape.
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I’m Donny. I’m a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.