What’s the difference between gold and Bitcoin?

The answer to that question is simply this: Bitcoin (BTC) is more of a medium of exchange than gold. It stands to become the medium of commerce on the Internet, something that gold will never be.

The Lightning protocol, built to scale transactions on the Bitcoin blockchain, makes online payments to merchants possible via the Visa network, and as I’ve written about earlier this week, Mastercard is going crypto-friendly for payments as well.

Then there is PayPal’s acquisition of Curv, the Israeli startup developing crypto asset custody technology. PayPal is already allowing its US account holders to buy crypto, and while it might be that the PayPal purchase of Curv has more to do with support for Bitcoin as an investment, it is impossible to forget that e-commerce is its main reason for existing. So, there is probably something more afoot than at PayPal, and we may have to wait a while to find out more about its next strategy for crypto.

Galen Moore at Coindesk has taken a look at Bitcoin’s place in e-commerce from two perspectives: its actual use in commerce, and a macroeconomic indicator that highlights one of the ways in which bitcoin is nothing like gold.

First, the Lightning protocol allows for faster and cheaper Bitcoin transactions, and its data is a “good proxy for interest in using bitcoin for everyday commerce,” Moore writes. At the moment, the metrics show Bitcoin’s use in commerce on the internet, remains stuck at a ceiling set in 2019 to stand at about 0.008% of bitcoin’s free-float supply (a Coin Metrics measure of bitcoin held by addresses active within the past five years).

This favours those who see Bitcoin’s use in commerce as negligible, such as U.S. Treasury Secretary Janet Yellen, who said, “I don’t think that bitcoin … is widely used as a transaction mechanism. To the extent it is used I fear it’s often for illicit finance.” That old chestnut!

Moore points out the $100 bill is hardly used in commerce either – a bit like the €500 note that is so rarely seen it was at one time referred to as a ‘Bin Laden’. The Federal Reserve says “Larger denominations such as $100 notes are often used as a store of value, which means they pass between users less frequently than lower denominations.” Indeed the estimated lifespan of the average $100 note is 22.9 years, nearly three times the lifespan of a $20 bill. Yet, the $100 bill is a popular product, with an estimated $1.42 trillion worth of $100 bills in circulation, more than seven times that of the commerce-friendly $20 bill. 

But you can’t compare Bitcoin with lower value dollar bills: it is more like the $100 note, because investors hope that Bitcoin will become like that large denomination bill, to be both a bearer instrument and a store of value. Moore says, “Like the $100 note, bitcoin isn’t valuable necessarily because it is spent, but because it could be spent.” And in this way, it is nothing like gold at all.

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