{"id":18995,"date":"2019-11-07T15:05:22","date_gmt":"2019-11-07T15:05:22","guid":{"rendered":"http:\/\/ci027cfe7950002697"},"modified":"2025-01-27T21:03:44","modified_gmt":"2025-01-27T21:03:44","slug":"bitcoin-as-digital-gold","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/markets\/bitcoin-as-digital-gold","title":{"rendered":"BTC Bullion: Three Interpretations of Bitcoin as \u201cDigital Gold\u201d"},"content":{"rendered":"
<\/div>
<\/figure>\n

Bitcoin is often described as \u201cdigital gold.\u201d While this is an oversimplification, it can be a helpful way of understanding some of bitcoin\u2019s most critical properties \u2014 the things that \u201cgive bitcoin value.\u201d<\/a><\/p>\n

One of bitcoin\u2019s preeminent use cases is in its role as a store of value, a status that gold has long embodied. Though the price is volatile, many Bitcoiners who believe in its long-term value to an increasingly decentralized society see it as a long-term investment, and citizens of countries whose economies are distressed regularly turn<\/a>to<\/a>bitcoin<\/a> as a safe haven asset.<\/p>\n

Bitcoin also derives much of its perceived value from the fact that its supply is strictly capped, in a similar way to natural and finite resources like gold. Then there is bitcoin mining<\/a> which \u2014 while just a metaphorical term for adding transactions to the Bitcoin blockchain in exchange for a bitcoin reward \u2014 can serve as another parallel between bitcoin and precious metal. <\/p>\n

Even though bitcoin is far from just a digital version of gold, these connections persist in the minds of new adopters and hardcore Bitcoiners alike. It has spurred a variety of initiatives, offerings and services from digital asset managers \u2014 each of which is its own interpretation of the analogy that bitcoin is digital gold.<\/p>\n

The Drop Gold Campaign: Bitcoin as the Digital Replacement for Gold<\/h2>\n

In May 2019, digital currency investing firm Grayscale Investments launched<\/a> an ad initiative known as the \u201cDrop Gold\u201d campaign.<\/p>\n

As the name implies, the campaign is meant to encourage potential investors to withdraw or divest their gold investments in favor of investing in cryptocurrency or cryptocurrency-based products, such as the Grayscale Bitcoin Trust<\/a>.<\/p>\n

\u201cThe point of #DropGold is to ignite a conversation with investors through highlighting Bitcoin\u2019s benefits, as compared to an investment in gold,\u201d Michael Sonnenshein, managing director of Grayscale, explained to Bitcoin Magazine<\/em>. \u201cGold is a traditional investment in a physical world but today\u2019s world is digital and demands a digital investment.\u201d<\/p>\n

As much as the \u201cdigital gold\u201d narrative might favorably imply that bitcoin has some of the more attractive qualities of the physical asset, Grayscale dismisses the comparison as actually selling bitcoin too short.<\/p>\n

\u201cWe agree that bitcoin and gold share a lot of the same properties; Bitcoin and gold are both scarce assets, they are both decentralized assets,\u201d Sonnenshein said. \u201cBut bitcoin posses a superior composition of \u2018good money\u2019 qualities made for a digital global economy. For example, the fact that you can send bitcoin electronically or that you can access your holdings from anywhere in the world are just a few of the traits that make bitcoin the superior store of value.\u201d<\/p>\n

In its online material<\/a>, Drop Gold points to the fact that bitcoin ownership is verifiable via a blockchain and easier to transfer and more fungible than gold. Essentially, the fact that bitcoin puts the \u201cdigital\u201d in \u201cdigital gold\u201d is what makes it the superior asset. So, as far as bitcoin being digital gold goes, Grayscale might argue that this is true only in the sense that bitcoin is an evolved, digital asset that will do a better job of playing a role than gold once did.<\/p>\n

DGLD: Tokenized Gold, Secured by Bitcoin<\/h2>\n

But there will always be those who argue that the physical can never be completely replaced by the digital. While firms like Grayscale see the future in abandoning legacy investments in favor of cryptocurrencies, there may be more room to combine the two. <\/p>\n

The DGLD token acts as that more direct combination, embodying the digital gold quite literally.<\/p>\n

DGLD<\/a> is the result of a partnership between digital asset management firm CoinShares, multifaceted cryptocurrency service provider Blockchain and worldwide gold dealer MKS SA. It is a network with a namesake token that represents allocated physical gold stored in a Swiss vault \u2014 each DGLD token represents one-tenth of a troy ounce of physical gold.<\/p>\n

The DGLD network was built on the Ocean Bitcoin sidechain, a network developed by the blockchain firm CommerceBlock using the same codebase<\/a> as Blockstream\u2019s federated Bitcoin sidechain, Liquid. But, instead of maintaining a federation of intermediaries between it and the Bitcoin blockchain, Ocean\u2019s sidechain automatically attests the latest block hash into the Bitcoin network at regular intervals.<\/p>\n

\u201cThe latest DGLD block hash is committed into a specific chain of Bitcoin transactions (the so-called \u2018staychain\u2019) which is extended every hour,\u201d Danny Masters, the chairman of CoinShares, explained. \u201cEach transaction in this staychain has only a single output, and so everybody can verify that the DGLD blockchain has only a single history, and a single version of ownership, with the same guarantees that Bitcoin has only a single, global history.\u201d<\/p>\n

In this way, the DGLD network would seem to have combined the physical scarcity and tangibility of gold with the immutability and transparency of Bitcoin \u2014 creating a blockchain asset that may be as close to a literal interpretation of digital gold as possible.<\/p>\n

In Masters\u2019 view, by combining certain aspects of gold and bitcoin into a unique asset, DGLD offers investors a more convenient way of investing in the former.<\/p>\n

\u201cMany people do not own physical gold, and instead own gold through a series of intermediaries, often in an ETF or similar format, primarily because of convenience,\u201d Masters said. \u201cWith DGLD, you get a convenient physical gold investment that isn\u2019t entangled in the same system of intermediaries it is meant to hedge; and because it\u2019s gold, the investment is not tied to the monetary policy whims of a central bank or fiat currency.\u201d<\/p>\n

DGLD was just introduced in October 2019, so it would be hard to confirm, but it may be that many of those who invoke bitcoin as digital gold are interested in a token that can draw that comparison more closely. <\/p>\n

Vaultoro: When Bitcoin and Gold Work Together<\/h2>\n

Of course, some may point out that only bitcoin is bitcoin \u2014 no other tokenized asset, on a Bitcoin sidechain or otherwise, has exactly the same immutability and transparency as the one and only original cryptocurrency. <\/p>\n

For those Bitcoiners, Vaultoro may be the closest thing to merging the benefits of both bitcoin and physical gold.<\/p>\n

Vaultoro is an online cryptocurrency exchange whose order book is backed by physical gold in a Swiss vault, allowing users to trade bitcoin for gold and vice versa, rather than for fiat currency. This may more directly close the loop for bitcoin as \u201cdigital gold,\u201d making the cryptocurrency quickly and conveniently exchangeable for actual gold. <\/p>\n

The service was inspired by one of Bitcoin history\u2019s most infamous events, a reminder that, for now, bitcoin has to be tied to a more traditional asset. And if that is going to be the case, the Vaultoro thinking goes, then that asset should be gold.<\/p>\n

\u201cAfter the world\u2019s first bitcoin exchange, Mt. Gox, collapsed, liquidators started to eat through all of the creditor\u2019s fiat holdings because fiat cannot be allocated. Instead, it becomes part of the exchange\u2019s balance sheet,\u201d explained Joshua Scigala, CEO and co-founder of Vaultoro. \u201cGold, on the other hand, does not need to sit in a bank, it can be allocated to the client as their legal property, and not to the exchange\u2019s books \u2026 Gold is the perfect bank-independent counter asset to bitcoin.\u201d<\/p>\n

Scigala sees the inherent advantages of both digital assets and gold but doesn\u2019t necessarily want to merge them. Instead, he\u2019s seeking to provide investors with seamless access to both independently, thus preserving those advantages.<\/p>\n

\u201cI think that both assets work perfectly together,\u201d he explained. \u201cJust because people have Netflix and nice big TVs at home doesn\u2019t mean people stop going to the cinema. Gold is a great way to hedge the crypto price risk without going back to the systemically broken and risky fiat system. Rare numbers and rare metals are the perfect partnership.\u201d<\/p>\n

Thus, Vaultoro seems to interpret the potential of digital gold for those who value bitcoin, value gold and want both of these assets to maintain the things that make them unique but in closer concert with each other. <\/p>\n

Digital Gold: Value Is in the Eye of the Beholder<\/h2>\n

There we have three distinct interpretations of the \u201cbitcoin as digital gold\u201d simile. <\/p>\n

Grayscale rejects the idea that we still need gold when bitcoin is available: Bitcoin as digital gold in the sense that bitcoin has replaced gold for the digital era.<\/p>\n

Meanwhile, DGLD has created a token directly representing gold using the Bitcoin network: Bitcoin as digital gold in the sense that the technology behind Bitcoin can be used to create a digital version of physical gold. <\/p>\n

And Vaultoro links the two assets by allowing investors to exchange between them: Bitcoin as digital gold in the sense that both are hedges against the fiat monetary system and have complementary roles to play.<\/p>\n

The interpretation you subscribe to will likely align with your own values and how much room you see for bitcoin and gold to coexist. But what is clear throughout these differences is that gold and bitcoin will be inextricably linked for years to come.<\/p>\n","protected":false},"excerpt":{"rendered":"

Where’s the value?<\/p>\n","protected":false},"author":2705,"featured_media":9632,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34],"tags":[2094,559,294],"class_list":["post-18995","post","type-post","status-publish","format-standard","has-post-thumbnail","category-markets","tag-coinshares","tag-gold","tag-grayscale"],"author_data":{"id":2705,"name":"Peter Chawaga","nicename":"peter-chawaga","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/12\/peterc-96x96.jpg"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/three-interpretations-of-bitcoin-as-digital-gold.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/18995","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/2705"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=18995"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/18995\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/9632"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=18995"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=18995"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=18995"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}