What is Bitcoin?

Bitcoin is a digital/virtual currency that is backed by blockchain technology. Blockchain Technology is a decentralized and a distributed public ledger where data gets recorded on the entire network of computers on its network and it becomes almost impossible to tamper with the data.

Bitcoin was created by a pseudo-anonymous person/organization named Satoshi Nakamoto after the advent of the 2008 Financial Crash. The idea was to have a currency that is not backed by any government/organization and is highly decentralized so that it cannot be controlled or manipulated.

Bitcoin is currently being traded on all crypto exchanges and is being used to send cross-border payments without the need of an actual bank. In fact, sending Bitcoin for cross-border transactions is way cheaper than using a bank for the same operation. And because of this feature, many people are using Bitcoin, making its price going all the way up.

This makes Bitcoin an investment option too, making many retail and now, even institutional investors invest in Bitcoin to hedge their funds. But where does this leave the other investment options? Let’s read further.

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Gold Vs Bitcoin!

Bitcoin has many critics. And the reason for their harsh stance towards Bitcoin can be the existence of the supposedly much safer investment option, often regarded as GOLD. The reason why many people compare Gold to Bitcoin is due to Bitcoin’s anti-inflationary nature, just like gold.

According to Bitcoin’s algorithm, there can only be 21 million Bitcoin units that can ever come into existence. Currently, there are 18+ million Bitcoin units out in the world while the rest are getting mined (found) by the Bitcoin validators. This makes Bitcoin just like gold, a digital gold. Rare in nature.

But there are a few differences between them. Let’s talk about them.

1. Volatility

In terms of volatility, Gold has always had an edge over Bitcoin. Since the supply of gold is being controlled by gold mining companies, and then the government of the country where gold is mined, hence, the prices of GOLD have always been regulated by organizations.

However, this is not the case with Bitcoin. Bitcoin, on the other hand, is highly decentralized and its creation (mining) can be done by anyone, anywhere and anytime. This makes the control on the prices of Bitcoin very difficult. And that is why when the Bitcoin market takes a dip or a jump, the magnitude is very high as compared to the gold market.

2. Storage

Gold is a physical asset that needs physical space to be stored. From a micro-level (being used as jewelry) to a macro level (being used as a reserve in the central bank’s undisclosed locations), gold needs physical space for the storage, which does add up to the cost of owning it.

However, as the popular tagline suggests, Bitcoin: The Digital Gold, doesn’t need any physical space to be stored. It’s in a digital form that can be accessed from any part of the world. However, if we get into the technicalities of whether Bitcoin really consumes any physical space or not, many people argue that since Bitcoin is accessed via mobile/PC, it does occupy space. In fact, many critics of Bitcoin argue that the large mining farms made for Bitcoin should also add up to the overall spectrum of Bitcoin physical storage.

That being said, on an individual level, accessing your Bitcoin remotely is way easier as compared to gold because it is digitally stored.

3. Rarity

This is the part where a lot of people have a lot of opinions. Gold is rare, period. But it is rare only till we find an efficient way to extract it from gold-rich soils. Many people argue that the extraction process of gold has such a low output in terms of volume and cost-benefits analysis, that is bound to be perceived as low. However, once an efficient mining process comes into the picture, the output of gold mining will increase drastically, making the rarity of gold non-existent.

Some critics also argue that every year/decade, more and more natural gold mining reserves are being discovered, questioning the very existence of the rarity of gold in nature.

However, this is not the case with Bitcoin. As per the Bitcoin algorithm, there are only be 21 million. Also, as more and more Bitcoin is getting mined, the difficulty to mine Bitcoin also increases. In fact, to make sure that Bitcoin remains rare in nature, Satoshi Nakamoto also designed the Bitcoin Halving process where the Bitcoin block reward (Bitcoin mining rewards to Bitcoin miners) gets halved every 4 years.

4. Price Actions in Recent Years

Bitcoin, due to its volatility has seen a roller-coaster ride in recent years (2017-2021) spewing 10 folds profits and 10 folds losses as well. However, Gold, on the other hand, has been a safe investment option with a steady rise in its price with little correction.

Gold price in the year 2017 in India was around ₹30,000 as it made its way all the way up to ₹57,000 in August 2020, an impressive 90% increase in price. After its all-time-high, it went through a correction and is currently being traded at ₹47,830 (as dated on 25 February 2021).

However, things weren’t the same for Bitcoin in terms of price action. Bitcoin in 2017, went from a mere ₹57,408 ($750 )worth asset to a whopping ₹13,03,260 ($20,000) worth asset within a span of 12 months before collapsing all the way down to just ₹4,26,500 ($8,200) in the next 2 months (February 2018). Bitcoin further lost its value in terms of price for the next 10 months (January 2019) as its value dipped all the way down to ₹2,43,400 ($3,500).

However, it soon gained pace and reached ₹7,78,890 ($11,000) in July 2019 before crashing all the way down to ₹2,51,023 in March 2020 ($3,500). Since then, Bitcoin has witnessed a staggering surge in its price, and in February 2021, it reached its ATH at the ₹43,02,800 ($58,000) price mark. It is currently being traded at ₹37,50,000 ($49,000)at the time of writing this article (25 February 2021)

How to Invest in Gold

Indian traders and more importantly, most of the Indians have been buying Gold not just for investment purposes but also from the security aspects. Gold in India is highly regarded in festivals and marriage ceremonies. Due to this, the demand for gold has always been high. Today, you can invest in gold in two ways. You can either buy Physical Gold (Gold coins, Gold Bricks, Gold Jewelry, and Artifacts) or Paper Gold (Sovereign Gold Bonds, Gold ETFs, Gold Mutual Funds).

1. Physical Gold

Indians have been buying Physical gold for ages. There are countless physical shops/malls/showrooms in India like Tanishq, PC Jewellers, Kalyan Jewellers, Bluestone, Vaibhav Jewellers, and many more offering gold buying services. Apart from these big brand names, there are street shops in every nook and corner of India selling Gold at market competitive rates.

2. Paper Gold

In terms of investing in Paper Gold in India, there are many websites like Zerodha, Sharekhan, HDFC Securities where you can buy Paper Gold in the form of Gold ETFs & Gold Mutual Funds. To create your account on these websites, you must have a Demat Account.

How to Invest in Bitcoin

Bitcoin in India came at a much later stage as compared to Gold. And probably that’s why it hasn’t reached as many Indians as Gold has. However, with the kind of media coverage that Bitcoin has lately been getting, it won’t take much time for Bitcoin to reach to ears of all Indians.

One can invest in Bitcoin in India in two ways. Either he mines it or simply buys it.

1. Mining In India

Mining in India is getting quite popular amongst many tech enthusiasts. To mine bitcoin in India, you first need to arrange all the required hardware for a mining rig that will be used to mine bitcoin. The hardware requirement might change according to the type of mining rig you are preparing. To mine Bitcoin in India, you need to have any 1 of these 3 mining rigs: CPU Mining Rig, GPU Mining Rig or ASIC mining rig.

2. Buy Bitcoin From Exchanges

The initial capital investment to mine Bitcoin in India can be costly. However, in order to own Bitcoin, without much capital investment, you can simply use a crypto exchange to buy Bitcoin in India. Cofinex P2P platform is one of the best crypto exchanges in India to buy Bitcoin. It is fast, secure and very reliable. Buying Bitcoin in India on the Cofinex P2P platform can be done either via bank transfer or simple UPI payments (Paytm, PhonePe & Google pay).

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Use Case of Bitcoin & Gold

Bitcoin and Gold are often considered to be the same because of their intrinsic nature. However, there are many people who find them to be a lot more different than being similar because of their utility.

Gold in today’s world is majorly being used for personal jewelry purposes. According to Verge Science, 47% of Gold (92,947 Tonnes) is being used in the jewelry industry, while 14% of gold (28,091 Tonnes) is being used in the semiconductor industry. And the rest of the 39% of gold is being held by banks and governments as reserves. Gold is also being used in the medical industry to develop medicines and drugs.

When it comes to Bitcoin, it was initially used as currency, a mode of payment. However, due to its mainnet, many decentralized applications started to build on it. Looking at the mass adoption of the Bitcoin network amongst the blockchain developers, many people started to see Bitcoin as a valuable asset, and hence, ever since then, it has also been used as an investment option.

Legality of Bitcoin & Gold in India

Even though the popularity of Bitcoin in India is on the rise and it had earlier surpassed the price of 1 KG of Gold, Bitcoin is still struggling from the legality point of view in India. The regulators in India have a very risk-averse attitude when it comes to maintaining the financial stability of the economy. Hence, they consider a volatile asset like Bitcoin very risky as compared to Gold

That being said, neither Gold nor Bitcoins are considered legal tender in India. It is just the Indian Rupee that is considered legal tender directed by the RBI. However, trading of Gold in India is legal and the capital gains from the Gold trading are taxed accordingly.

When it comes to Bitcoin, as of now, trading Bitcoin in India is not illegal. However, in March 2018, the RBI (India’s central bank) had advised all the commercial banks in India to avoid facilitating Bitcoin-INR transactions to all the crypto exchanges working in India. This decision was soon challenged by all the crypto exchanges and 2 years later, in March 2020, the Supreme Court of India lifted the crypto restriction.

In March 2021, the Government of India is planning to regulate cryptocurrencies and has drafted a “Crypto Bill” which they soon will be discussing in the budget session of 2021. It’s time to wait and watch.

Conclusion

Even though Bitcoin came into existence just a decade ago, the rivalry between Bitcoin and Gold seems like an old age war. However, instead of making them compare to each other, we, as a group of stakeholders, need to understand their individual potential in the current financial system and exploit their powers to reap the highest level of benefits.