What are the difference between gold vs crypto? There are significant differences between gold and crypto though both are considered to be reliable and independent, of course with varying degrees.
This article will enlighten you with all the inherent differences between the two assets so that you can finally make the right decision if you need to choose one of them to invest in.
Though crypto has the potential to replace paper money issued and controlled by the government, it is these differences that will determine whether it is a fairer alternative to gold or not. Check out Crypto vs Gold and Silver.
Given the present scenario and facts available on crypto, it seems that this virtual money still has a long way to go to achieve it since the traditional banks still are reluctant to entertain accounts and transactions that are funded by cryptocurrencies.
- 13 Differences Between Gold vs Crypto
- Which One to Invest – Gold or Crypto?
13 Differences Between Gold vs Crypto
Gold, with its physical form as such, is significantly different from the digital currency or crypto coins that are virtual currencies.
Therefore, it is easy to use gold as everyday money all across the world for purchasing any product or service through electronic payments.
However, that is not the only difference between these two assets. Here are the rest.
1. Form Factor and Creation
Gold is a tangible asset that has a physical form that you can touch. You can buy gold in person, over the phone, as well as online. Gold cannot be destroyed but can be dissolved. This means that the 200,000 metric tons of gold extracted from the earth till now will always remain intact.
Gold cannot be created since it will need a nuclear reaction which is extremely expensive. This means that the world has to do with whatever gold it already has and the 50,000 metric tons that are yet to be extracted from the earth.
On the other hand, cryptocurrencies are virtual assets that you cannot see or touch. This exists only in the digital form and resides in the blockchain. You can purchase crypto coins online only through different exchanges.
However, cryptocurrencies can be created by companies and even individuals, though it is a practice to keep the supply of the coins limited. Crypto coins can also be destroyed by a process called ‘burning’ as and when the price needs to be raised or the number of coins circulating should be reduced.
2. Scalability and Speed
In terms of speed and scalability, gold is much more scalable and also ensures faster transactions, unlike crypto. This speed can be maintained irrespective of the size and volume of transactions made. The transfer of ownership from one wallet to another as far as gold is concerned is much more reliable as well.
On the other hand, when it comes to crypto coin transactions, the bigger the network or block size, the slower the transaction speed will be. Apart from the fact that a particular transaction needs consent from every participant in the network, there are also several other factors that result in congestion and slow speed.
In fact, in the case of Bitcoin transactions, it can take days to get confirmation on busy days. It is, for this reason, a maximum of only seven Bitcoin transactions can be processed in a second.
However, with the use of the Lightning Network, the transaction speed is enhanced but there are still other issues involved in it such as several fees that may be associated with each transaction.
Gold, as such, has been accepted as a reliable means of exchange and trade for thousands of years. It is used both as a store of value as well as a currency, even now by the central banks, since it has a long and established position in the financial system.
It is regulated and authorized by the government and central authorities. Transaction of gold is done in accordance with the Anti-Money Laundering or AML laws, Countering the Financing of Terrorism or CFT laws, and several different fraud prevention systems that it has to abide by. This is done to control, combat, and to mitigate the risks involved in it.
Cryptocurrencies, on the other hand, are not regulated by the government, whether it is in issuing them or in the operation of the crypto exchanges. However, in this changing scenario crypto is much likely to have improved and increased regulation to curtail and prevent illicit financing.
Bitcoin, as such, is banned in China already and other countries in this world are contemplating on drafting new legislation to ban cryptocurrencies. With such regulation, the adoption of crypto coins on a large scale and its store of value will be in question if more and more countries follow in the footsteps of China.
4. Energy Utilization
When it comes to energy consumption, gold mining uses less of it. The companies involved in mining gold hold fast to the rules and regulations according to the Responsible Gold Mining Principles of the World Gold Council.
In addition to that, the industry follows all ESG criteria for that matter which includes environmental effects and impacts such as climate change, water management, and more.
Moreover, the fact that gold is naturally created and therefore it does not need a lot of energy to mine or extract. It can be transacted easily or can be used as a store of value without causing any harmful effect to the planet.
Crypto, on the other hand, consumes a significant amount of energy during operation, mining, and maintaining the blockchain. In fact, according to the statistics and research reports, it uses as much energy consumed by 200 million people, three times the population of the United Kingdom.
With such a huge amount of energy consumption for crypto mining and transactions, it is inevitable that it will have a significantly large carbon footprint. According to reports, it may expect to hit 130.5 million metric tons by the end of 2024.
5. Use Cases and Endurance
Gold has passed the test of time and has several use cases over thousands of years. It has proved to be the most reliable currency and a medium of exchange and has seen it all including significant disruptions such as world wars, government intervention, advancements in technology, as well as paradigm shifts in economy, politics and social frameworks. It is undoubtedly the most dependable hedge against uncertainties and inflation.
Cryptocurrencies, on the other hand, are relatively young and have come into existence in a safe and sound world with fewer disruptions and turbulence.
Therefore, nothing can be said about its use cases and endurance since it has not yet had to face any of such challenges. It can be rightfully said that crypto is unproven over time.
6. Safety, Transparency and Legality
As compared to the crypto coins, gold is a more transparent and a safer asset to trade with. It is legal and the tracking and weighing of it is quite immaculate. It is not an easy task to pass on fake gold or to steal it, or corrupt this metal otherwise.
On the other hand, the infrastructure of crypto trading is not as safe as gold though it boasts of its decentralized and an encrypted system that is difficult to corrupt due to complex algorithms.
However, there have been a number of instances where systems have been hacked and cryptocurrencies worth millions of dollars have been wiped off the accounts of several hundreds of investors. And, all of the crypto transactions made being anonymous, it is difficult to keep a track of them.
Cryptocurrencies as well as its market are more volatile than gold. This has been the primary concern for most of the crypto investors. It calls for a closer look at the price history and some accurate analysis of the price charts to know the trends and predict a movement in the crypto market.
Sometimes, the price of a specific crypto coin may rise to astronomical heights and suddenly fall down below the expected mark, which eventually results in irrecoverable losses.
Gold, on the other hand, is not as volatile as crypto coins since it is fairly resilient to market whims, fancies of people and news. Therefore, investors can make a more educated and informed decision and not rush into it due to panic. Therefore, gold is a much more stable asset to invest in, making it a popular choice among the investors.
When it comes to performance, gold may not pay any interest or dividends, but it will surely offer a much higher store of value. This means that gold is not an asset to expect a recurring income from.
Also, storing a large amount of gold can be difficult and expensive and the large spreads can also be a bit of a concern. Add to that, sometimes, it may be difficult to prove the legitimacy and purity of the source of gold.
However, it still can provide positive returns and help in preserving wealth to use it during the times of exigencies. It simply plays a vital role as a portfolio diversifier, capital preserver, and an inflation hedge.
When it comes to purchasing gold, there are lots of ways for it. You can buy it from physical stores that sell gold bullion or gold coins, buy gold equities or ETFs, all of which have different barriers of entry.
On the other hand, speculative assets like cryptocurrencies need some more time to have a good performance track record. Bitcoin itself, just 12 years old, has a long way to go to prove that it is good to invest in spite of its high volatility, risks involved, and significant price swings.
There are also a few other setbacks to overcome to enhance its performance such as the crackdown on cryptocurrencies by China, tweets of Elon Musk, and low correlation against the US Dollar.
However, it offers great portfolio diversification options and an upside exposure in the financial market of today. The power of the blockchain technology has been able to change the way people use money and transfer funds with one another. This technology is enough to enhance its performance speed and more without requiring a middleman.
9. Average True Range
Though this is the measure of volatility, ATR is one of the most significant differences between gold and crypto which indicates the market movements on an average for a given point in time.
Denoted as a percentage of the price, the ATR of crypto, especially Bitcoin, is a lot higher in comparison to gold. This is because Bitcoin typically moves to further distances which create more opportunities as compared to gold.
On the other hand, in comparison, the ATR of gold is comparatively low, especially when you consider the stats of a few years. However, the good thing is that it is quite consistent in performance with a stable opening and closing every day.
10. Storage Process
The way crypto coins and gold are stored is another significant point of difference. Gold, being a physical asset, can be stored in safety deposit boxes or vaults in a traditional bank or even in personal safes, if the amount is small.
Crypto coins, on the other hand, do not need any traditional storage. It is just a number that is stored in the digital wallets. This secret number is known as the private key that allows access to the wallet and even to make transactions.
Storing this key online is extremely risky as it can be hacked which may result in the loss of all your coins and therefore it is feasible to use a hardware wallet to store the key.
The demand for crypto coins is usually based on price speculation. Apart from that, the demand is also dependent on the behavior of the players in the market if they specifically follow the buy-to-hold strategy.
And, the blockchain itself can also determine the demand of a particular crypto coin. However, there is no distinct pattern of demand for crypto coins noticed and it does not show any seasonality in trading as well.
Gold, on the other hand, has a history of thousands of years and it is an asset that has specific and more identifiable drivers of its demand. Moreover, in addition to that, gold tends to display seasonality in trading.
For example, sales of gold increase typically in the months of January, February, July and August. Its demand also is more during Christmas, Chinese New Year, and during the wedding seasons in Asian countries, especially in India.
12. Utility as Currency
Ideally, there are three crucial functions that determine the utility of crypto and gold as a currency. These are the medium of exchange, store of value, and a unit of account.
As a medium of exchange crypto coins are a more widely used currency for buying goods and services, though it is not widely accepted. Since crypto coins are divisible up to 8 decimal places, these coins also satisfy the unit of account functionality.
Therefore, it is countable and comparable to the cost of goods and services. The store of value of crypto coins is not much since it is virtual in nature and its worth entirely depends on how much the next person is willing to pay for buying it.
However, gold is not used in modern economies often as a medium of exchange. It is also not considered to be a legal tender. Gold also does not come with easy divisibility and its value can only be compared in ounces in a given currency. However, gold has a lot more store of value in comparison to the crypto coins.
13. Other Aspects
When it comes to stop and limit spacing, it is much wider for crypto coins in comparison to gold which is a result of the higher volatility of crypto coins.
As for the margin requirements set by a broker, it is also higher for the crypto coins than gold, once again, for its volatility, which helps the traders to decide the amount of leverage to use.
Considering the bid-ask spreads, once again it is much higher for crypto coins than gold due to the volatility factor of the crypto market. However, this may lead to amplified transaction costs which a trader needs to consider while trading.
When it comes to responsiveness or sensitivity to market news, the crypto coins react to it much more than gold. That is why the traders need to stay up to date about the new releases, news, and events. The price movements for the crypto market and the assets are much faster than gold due to these effects.
Which One to Invest – Gold or Crypto?
When it comes to investments, people usually look for a safe-haven asset. Given the choice between gold and crypto, there are lots of different factors to consider making the eventual choice. This is over and above the personal preferences.
First, if you consider investing in gold, you will get good and stable returns. Ideally, this is the most traditional way to hedge against the volatility of stocks. People who favor gold as an investment option usually do it based on specific factors such as:
- It is valuable since it is not available in abundance
- It can be used as a material for making jewelry or for consumer goods and
- The price stays significantly and consistently high since the supply of it is low.
However, cryptocurrency is not far behind and is giving gold a worthy competition. With some properties shared with gold such as its limited circulation, it is more volatile than gold.
Still, crypto ranks below gold in terms of safety, legality, and transparency. Most importantly, it is not accessible to people who have limited technical knowledge or have specific economic standing.
Therefore, both gold and crypto have their characteristic merits and demerits. It is up to the investors to choose at their own discretion which asset they want to invest in.
If you invest in crypto assets you will have a decentralized system with a finite supply of coins that you can send to or receive from anyone and from anywhere in the world. However, the investment approach may be starkly different from that followed by the investors dealing with gold.
Due to the extreme volatility of these virtual assets, you will need to have a distinct entry and exit strategy. This will help you to minimize the risks due to sudden and significant price fluctuations. Also, you will have to decide when you want to take profits, if you have to.
As for gold, which is more stable in terms of price in comparison to cryptocurrencies, you will not need to use it as a means of a transaction until and unless you want to make changes in your investment strategy and portfolio.
To put it in a few simple words, if you are looking for wealth preservation along with safety, then investing in gold is the right choice for you. On the other hand, if it is for speculation, cryptocurrency is the best option for investment.
However, if you want to make a more aggressive and effective allocation of funds, it may make sense to invest half of the amount in gold and the other half of your allocation in crypto coins.
If you are wondering which asset to choose between gold and crypto to invest in, experts say it entirely depends on personal preference and investment goals. However, knowing the differences between them will help in making your choice.