Like all proponents of alternative currencies, we’re eagerly awaiting the much-hyped debate between billionaire goldbug Frank Giustra and billionaire Bitcoiner Michael Saylor on gold vs bitcoin to be streamed live on the Stansberry Research YouTube channel!
Gold is a currency, occupying the same position as cryptocurrencies; after all, they have the same common enemy – fiat currencies; they share the same mission, to provide a reliable alternative to government-backed money. Both gold (used as a currency and digitally with Glint’s bespoke app and Mastercard®) and cryptos such as Bitcoin, are alternative global currencies allowing consumers to take greater control over their finances and help protect their purchasing power over the long-term.
Currently, the financial system punishes us all; through a combination of low interest rates, rising inflation, record-high government borrowing and continuing quantitative easing, the value of national currencies erodes, hitting our savings and the lasting value of our money.
Whilst the value of gold can obviously decline, as we’ve seen since its summer peak last year, the fundamentals that ensure that gold is seen by many as a more reliable long-term store of value remain in place – gold prices are up almost 50% over the last five years, despite the recent dip.
Glint has enabled gold to be used as everyday money all over the world via electronic payments. Thanks to Glint’s fast and secure platform, gold can now, not only be used to save for the future, but it can also be spent on a daily basis, anywhere in the world using your Glint Mastercard® or increasingly with Glint’s direct peer to peer (P2P) transfer, Glint it!
Bitcoin’s recent performance has obviously been hugely impressive – it’s up over 600% on the year – however, there is huge volatility which can impact its viability as an everyday currency. Bitcoin’s volatility lies between 75% to 125% compared to 8-20% for gold.
This volatility is also enhanced as around 95% of all Bitcoin is controlled by just 2% of accounts, meaning that the ‘whales’ have undue influence on the performance and value of the currency. Other research suggests 2% of ‘whales’ control 71.5% of Bitcoin, even taking this lower figure into account, ownership is hugely disproportionate.
In addition, the high transaction fees of purchases with Bitcoin – the average fee for a Bitcoin transaction in the last 7 days is over $45 – suggest that it is of limited use as an everyday currency in its current format. By comparison, Glint’s Mastercard® and Glint it! transfer and payments transactions are free to our users – although we do charge a small fee on some services such as currency exchange, or for taking cash from an ATM.
Let us compare some of the key characteristics of both gold and Bitcoin.
• CONCENTRATED OWNERSHIP
Gold ownership is widely spread amongst people around the world. The world’s central banks only own 17% of the world’s gold.
95% of the market cap of Bitcoin is held by only 2% of Bitcoin wallets – even if it is less than this – 71.5% according to some research – this is creating a new generation of oligarchs (the initial coin holders) to replace the old.
• SCALABILITY & SPEED
Glint has enabled gold to be used in payments and unlike Bitcoin, transactions are fast – within 200ms, this can be maintained regardless of volume of transactions. The transfer of gold ownership from one Glint wallet to another is therefore scalable.
The bigger the Bitcoin network gets the slower it is likely to become – there are variety of causes from congestion to increased block size. Bitcoin can take days for transactions to be confirmed when busy: 5 days in 2018. Plus, since its launch, Bitcoin has only been able to process a maximum of 7 transactions per second.
Although the Lightning Network is designed to speed up transaction processing times, there are still issues with fees as each transaction can be subject to several fees.
For thousands of years, gold has been accepted as both a currency and as store of value, with a long-established position within the financial system. Gold is used as money and stored by central banks. In the UK, Glint is authorised and regulated by the Financial Conduct Authority, under the Electronic Money Regulations 2011, for the issuing of electronic money (FRN 900657). Gold is not regulated by the FCA.
In the US, Glint is a U.S.-based authorized Card Program Manager. Funds are held at Sutton Bank, Member of the Federal Deposit Insurance Corporation (FDIC), in an FDIC-insured account. Glint Pay Inc. employs effective Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), and fraud prevention systems and controls to mitigate and combat risks.
All cryptocurrencies are likely to face increased regulation. In the US, recently there has been the SEC lawsuit against Ripple and previous comments from Janet Yellen have focused on the need to curtail Bitcoin to stop illicit financing. Globally, Bitcoin is already banned in China, and India has drafted legislation to ban digital currencies once again. The viability of Bitcoin as a currency and store of value could be called into question if more countries follow China.
Decentralisation is freedom from government control and influence. It can refer to the means of exchange as well as the ledger or even ownership.
Gold is centralised, which means because of its physical nature it cannot be easily stolen if it is stored in a secure and insured vault. Its means of exchange is centralised which has benefits as it means that it cannot be hacked digitally.
Glint’s clients know their gold is secured in a Brinks Vault in Switzerland. Brinks is insured by Lloyds of London and their policy covers the replacement value of Glint client’s Gold as held in their vault.
Gold is not concentrated in one particular country – in terms of both mining and ownership (see above). Gold is mined in many countries – the World Gold Council provides data on gold production for over 40 countries – and although China is the largest producer in the world, it accounts for around 11% of the global total.
The Bitcoin community see the decentralised nature of Bitcoin as one of its main strengths that define its value, however the perceived independence that decentralisation gives is misplaced because:
• Blockchain: The distributed ledger is inherent to Bitcoin’s nature. However, although a distributed ledger has some benefits it is of less use when the nature and value of the currency is centralised.
• Although Blockchain is in place, people increasingly buy Bitcoin through exchanges which use centralised ledgers.
• Bitcoin miners are centralised in physical premises that rely on centralised human /energy resources. This means that there is a risk that they could be shut down by governments easily – for example, around 65% of Bitcoin mining originates from China. Government intervention could cause huge issues on a global scale and lead to price increases in mining costs as well as devaluation of Bitcoin.
• There is a risk that governments could severely curtail Bitcoin to the point where it loses its ambitions to become a global alternative currency – currently Bitcoin can remain anonymous, while this is the case, increased regulation and state interference could be more likely.
Bitcoin exchanges which have seen huge thefts via hacking. E.g. clients of Mt.Gox lost over 850,000 Bitcoin in 2014. Last year, a data breach saw the personal details of 270,000 crypto users published online.
• ENERGY CONSUMPTION
Many gold mining companies adhere to the World Gold Council’s Responsible Gold Mining Principles, which cover ESG criteria for the industry, including environmental topics such as water management and climate change.
Gold is created naturally. Once a unit of gold is mined and extracted, it does not consume further energy and can be transacted or used as a store of value without detriment to the planet.
Cambridge University have calculated that operating and maintaining the Bitcoin blockchain and its transactions requires extremely large amounts of energy estimated to be the equivalent of that used by a country of over 200m people, around 3 times the UK population.
Bitcoin requires mining and therefore considerable energy consumption for not just creation but all transactions. Currently, 60% of Bitcoin mining originates in China, with a huge carbon footprint – expected to hit 130.50 million metric tons of carbon emission by 2024.
Physical gold can be transferred anonymously. Physical gold can be taken across borders, although with be subject to customs checks and restrictions.
However, digital gold through Glint isn’t anonymous. All Glint customers have their identity verified in line with global laws relating to financial crime.
Bitcoin wallets can remain anonymous if the holder wishes to ensure this. This means that instant payments between accounts remain anonymous and can be untraceable. These payments can also be borderless.
This can be viewed as a threat to government and suggests that increased regulation and state intervention is likely to control or curtail Bitcoin.
• STOOD THE TEST OF TIME
Gold has been used as money for at least 3,000 years. It has survived as money and a medium of exchange through the greatest of disruptions including world wars, dramatic leaps in technology, government intervention as well as seismic shifts in social frameworks and politics. Over time, gold has proven to be a reliable hedge against inflation and uncertainty.
The nature of anything defined by human beings is subject to corruption, sometimes with the best intent. Gold is created naturally and is a finite resource – this is part of its intrinsic value.
As yet, Bitcoin has not had to face any of these challenges and is therefore untested over time.
Whether you’re a goldbug or a Bitcoiner, it’s sure to be a fascinating debate.
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