Will Bitcoin be digital gold? Perspectives and limits

Will Bitcoin be digital gold? Perspectives and limits

Gold and BTC are both scarce and unalterable assets (the former physically, the latter digitally) and are used as a store of value by users. However, bitcoin does not behave like gold.

2021 was the year of the definitive affirmation of crypto-currencies within the international financial system. The rise in the price of Bitcoin (BTC) and its main competitor Ethereum (ETH) has attracted the attention of the most skeptical traders, although it seems that the market has a very different role has been chosen for these “financial objects” from that which has been bitterly debated in recent years. Not useful currencies for exchange, but digital assets with store of value ambitions. In other words, BTC is proving to be something very similar to digital gold rather than cash. So far its role is supported by powerful third-party platforms like BTC Loophole.

Bitcoin is not a trading currency

In a pragmatic way, BTC is defined by the use that users make of it rather than by abstract stances. Regulators, tax authorities, and operators have spent a lot of energy framing BTC in the digital currency arena, highlighting the reasons why it could not function as a medium of exchange.

First of all, BTC’s decentralized network is not adaptable to the enormous size of the global financial system. In technical jargon, it is said that the underlying technology is not “scalable”. In fact, we consider that VISA’s payment network processes approximately 1,700 transactions per second, while that of BTC can reach 7 transactions per second in the best of cases. If these performances could have been improved, the solution would have already been implemented.

Furthermore, the transaction costs of the BTC network remain high and have proven to reach unsustainable levels in periods of greater demand from users: during the bubble of 2017 the average cost went from $ 0.3 in January to $ 50 in December while from December 2020 to date we have gone from $ 1 to $ 22.

Ultimately BTC is not a currency because it does not circulate like a currency. Users seem to prefer hoarding, de facto assigning BTC the role of a long-term investment vehicle. Consider the distribution of BTC minted from 2009 to today in digital wallets.

Some data clearly shows that most BTCs remain inactive in wallets for long periods of time and are not traded on the market. A 10% has stopped since the start of the network in 2009-2010: these are the so-called “Satoshi’s BTC”, from the name of the alleged creator of the BTC protocol. We are talking about a quantity produced when mining costs were minimal and that – if moved – could still influence the market in a decisive way today (the world’s largest BTC trading platform, Coinbase, considers the sudden sale of Satoshi’s BTCs among the catastrophic events for which no responsibility is assumed). In any case, more than 75% of existing BCTs have not actively circulated on the network for over 2 months, making BTC incompatible with the function of the medium of exchange.

The idea of a cryptocurrency substitute for cash was not necessarily wrong; it was probably in the same intentions of the creators who expressly speak of “digital cash”. As with any new technology under development, users have tried different uses of BTC over time. In fact, the narrative of BTC prevailed as a prototype of digital cash; users were mainly cryptographers or belonging to anarchist-libertarian cultural circuits. All previous digital currency projects had failed over time and there were reasonable doubts about the duration of the new project.

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