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Is bitcoin the new digital gold?

Barely a week passes without the digital currency bitcoin breaking new records. At this point in time, its value is even above that of physical gold. What is this encrypted currency of bits and bytes? And is it really an alternative to long-term and secure investments?

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A short history of bitcoin

Satoshi Nakamoto, known as the father of the cryptocurrency, uses so-called peer-to-peer networks, also used to exchange and share files, to transfer bitcoins from one person to another, without intermediaries. The mining of bitcoins blocks is a process that creates this virtual currency. The first block, or genesis block, was mined by Satoshi Nakamoto.

As the success story of bitcoin has continued unbroken, more and more traders are accepting payments in this virtual currency. The stock price rises at a rapid pace and trading in and transferring bitcoins is getting easier. The time when exchange rates were negotiated personally in forums is over. Prices are now determined by professional platforms.

The biggest advantage of bitcoin is at the same time its biggest drawback: the absence of state regulation and means of control. The cryptocurrency has the reputation to serve above all dubious businessmen, tax evaders and criminals. After all, it is an anonymous means of payment with which large amounts of money can easily be moved worldwide.

Bitcoin as an alternative to gold?

Gold is a material that has fascinated people for thousands of years. It is used in jewellery, such as this precious gold bracelet, in payment methods and it has always been a symbol of prosperity and status. Up to the 1970s, many currencies were covered by the corresponding gold holdings of the central banks as well as a state guarantee. The gold price is the yardstick for the global economic mood: the greater the uncertainty, the more the gold price rises. In periods of economic growth, however, investors often prefer to invest in more high-yield investments, such as shares.

But how can bitcoin increase in value if it can be created through mining? Quite simple: the effort necessary to mine and create a bitcoin is growing steadily. From 2009 to 2017, the number of bitcoins increased from 0 to 16 million, but by 2025 less than 4 million will be added to this number, and only 20 million by 2033. The risks lie primarily in their use, as the value of bitcoins is determined solely by demand. This means their value can’t be predicted and is very volatile. Another uncertainty is the security, because even if there are many possibilities for safe storage, comprehensive technical knowledge is necessary to keep them safe. In case of theft there is no chance to get the coins back, as all transactions are irreversible.

Are you willing to take the risk?

Whether you want to invest in bitcoin, gold, shares or real estate, which investment you choose depends on the risks you are willing to take. Whoever is speculating on bitcoin has been able to achieve enormous returns in the past, but this does not mean that it will continue this way forever. Anyone prefers a safer investment and relies on a lasting value​​ instead of speculation, might consider gold a more interesting investment. After all, gold is not only a digital investment, it can also be worn as jewellery.

Are you in need of advice? The BAUNAT team is available to answer all your questions and to help you with the selection of your gold and diamond jewel, via different channels.

Written by: CHLOÉ POUPON-DUMONTET Diamond Jewellery Advisor

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