In many ways, gold and Bitcoin are similar. They are both scarce; gold is scarce by nature and Bitcoin has scarcity coded into its protocol. Gold and Bitcoin are divisible; gold can be melted into small coins or even shaved into tiny flecks. Each bitcoin is divisible by eight decimal places. They are both fungible; each ounce of gold is interchangeable with the next, and all bitcoins are interchangeable with one another. Gold and Bitcoin are also very different in many respects. Gold is physical, Bitcoin is digital. Gold relies on banks for safekeeping and payments, Bitcoin is stored on a computer and tracks payments with a distributed, public ledger. Gold is vulnerable to robbers, while Bitcoin is vulnerable to hackers. The list goes on and on.
Newcomers often make these comparisons between gold and Bitcoin and ask the question: is Bitcoin better than gold? This question does not have an easy answer, and arguments revolving around it regularly crop up in the Bitcoin community. The pros and cons of gold and Bitcoin blur the line of superiority between the two, making the victor unclear. Therefore, in this series, we will present the main advantages and disadvantages that the two assets hold over one another, allowing the readers to answer this question themselves. This article will cover the advantages and disadvantages of gold and Bitcoin when it comes to transaction costs and centralization.
Gold takes up physical space, requiring a significant amount of material resources to transport from location to another. Moving gold takes roads, vehicles, human labor, and safe locations for storing the gold. Furthermore, these transportation components require large amount of resources as well. Roads require massive amounts of capital and labor, as do vehicles and storage facilities, and human labor is relatively scarce, which tends to make it expensive. Even a collector storing a small supply of gold in his or her home must expend a significant amount of resources. The collector needs a safe or some kind of storage device to securely hold the gold, as well as physical space for the storage device. The collector also has transportation costs; he or she either has to drive to a gold broker to buy the precious metal, or pay to have it shipped to his or her house. Using gold as a currency demands space on one's person, as he or she has to carry coins in their pockets or bags. This particular space requirement has historically led to the use of gold-backed paper notes as substitutes for hard cash, which creates a need for trust that we will examine in part 2.