Buy Gold or Bitcoin – What is a Bitcoin? Which is Better?

Buy Gold or Bitcoin?  Which is Better?

buy-gold-or-bitcoinWould you rather buy gold or bitcoin?  First, let’s consider what bitcoin is.  Bitcoin is digital currency (also called crypto-currency) that is not backed by any country’s central bank or government. Bitcoins can be traded for goods or services with vendors who accept Bitcoins as payment.  The block-chain system enables payments to be sent between users.  There is no central authority, such as a bank or payment gateway. Bitcoins are created and held electronically. They are not printed, like dollars or euros.  They’re produced by computers all around the world, using free software.

Gold, on the other hand, has something very important that bitcoin lacks.  Gold has a 5,000-year history as a store of value and wealth. This cannot be overlooked when it comes to trust and acceptance for trust for that particular asset.  Gold has been a safe-haven asset for centuries. Bitcoin remains volatile and riskier. Here’s what to consider…

What is Bitcoin?

Bitcoin (upper case B) is a platform that hosts a digital ledger where people can mine, trade and store bitcoins (lower case b).  A bitcoin (lower case b) is a digital form of currency earned through a computer algorithm that is tied to no central banking authority.  Transactions are recorded and stored on a general ledger called the blockchain.

Virtual Money

Bitcoin, is often described as crypto-currency, virtual currency or digital currency.  It is a completely virtual type of money – like an online version of cash. You can use it to buy products and services, but not many stores accept bitcoins and some countries have banned it altogether.

Remove Banks as Middlemen

Bitcoin was created to remove banks as intermediaries that control financial transactions. For example, for example, you want to transfer $ 1000 from your country to a person in another country, the money has to go through the bank in your country and that bank requires a commission for processing the transaction. Once the money reaches the bank in the other country, that bank also applies a commission. It’s not just the bank fees that are the problem. Banks store a lot of private data on their customers. Many banks have been compromised and private data has been stolen. This can be very dangerous for people who use banks, resulting in missing funds and stolen identities. Furthermore, banks have enormous power over their customers and their customer accounts.

Many believe banks have too much control over the people who use the banks and have abused their power. The final straw was the role banks played in the 2008 financial crisis. Bitcoin started in 2009, right after that crisis. Many people believe that event was one of the key reasons for creating Bitcoin. The goal was to build a system that had no single authority (like a bank). But the banks and governments control the currencies, so a new currency was created. And so Bitcoin was created: it has no single authority. This means that no bank or government can freeze your account.

How Does Bitcoin Work?

Bitcoin-to-Bitcoin transactions are made by exchanging heavily encrypted hash codes across a digital network. The network monitors and verifies the transfer of Bitcoins between users. Each user’s Bitcoins are stored in a program called a digital wallet.  The wallet holds each user’s address, as well as a private key known only to each user.  Bitcoins are traded from one personal wallet to another. A wallet is a small personal database that you store on your computer drive smartphone, tablet or somewhere in the cloudBitcoins are forgery-resistant. It is so computationally intensive to create a bitcoin, that it isn’t financially worth it for counterfeiters to manipulate the system. 

The Bitcoin network is designed to mathematically generate no more than 21 million Bitcoins.  The network is also set up to regulate itself to deal with inflation. Bitcoins can be spent by initiating a transfer request from a Bitcoin address in the customer’s wallet to a Bitcoin address in the vendor’s wallet.

Bitcoins are controversial because they can be used to anonymously transfer illicit funds or hide unreported income.  Bitcoin policy now requires transactions that involve traditional, government-backed currencies (like the US Dollar) to be attached to an identity.  Otherwise, Bitcoins are completely virtual coins designed to be self-contained for their value, with no need for banks to move and store the money. Once you own bitcoins, they behave like physical gold coins. They possess value and trade just as if they are nuggets of gold in your pocket. You can use your bitcoins to purchase goods and services online, or you can tuck them away and hope that their value increases over the years.

How Bitcoin Mining Works 

Where do bitcoins come from? With paper money, a government decides when to print and distribute money. Bitcoin doesn’t have a central government.  While traditional money is created through (central) banks, bitcoins are “mined” by Bitcoin miners. Bitcoin mining is the process of verifying, storing and securing Bitcoin transactions.  Miners use special software to solve math problems and are issued a certain number of bitcoins in exchange.


Mining computers are called nodes.  They have to be very powerful, as bitcoin mining uses a lot of computer power. The software they run connects them to the Bitcoin blockchain.  When these mathematical problems are solved, new transactions are verified and stored on the Bitcoin blockchain ledger.  Through these computations, the bitcoin miners are verifying the transactions instead of banks and credit card companies. This means there is no third party to trust or rely on.  The system provides a way to issue new currency and also creates an incentive for more people to mine.  Bitcoin mining is intentionally designed to be computationally intensive and difficult.  This is so that the number of blocks found by miners every day remains constant.

Proof of Work

The individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes whenever they receive a block. The main purpose of mining is to allow Bitcoin nodes to reach a secure and tamper-resistant consensus. Mining is also the mechanism used to introduce new bitcoins into the system.  Miners are paid transaction fees which subsidize the newly created coins. This spreads new coins in a decentralized way and motivates people to provide security for the system. Bitcoin mining is so called because it resembles the extraction of other raw materials: it requires effort and slowly makes a new currency available at a rate that resembles the rate at which raw materials such as gold are extracted from the ground.

What is a Satoshi Bitcoin 

The satoshi is currently the smallest unit of the bitcoin currency recorded on the block chain.  It is a one hundred millionth of a single bitcoin (0.00000001 BTC).  The unit has been named to honor the original creator of Bitcoin, Satoshi Nakamoto.

What is a Bitcoin IRA

The Internal Revenue Service (IRS) announced they will treat bitcoin the same way they treat stocks and bonds for taxation purposes. The IRS therefore considers virtual currencies as property and not a currency.  As a result, this designation requires a custodian in order to comply with IRS regulations regarding individual retirement accounts.

Self-Directed Gold IRA

Self-directed Gold IRAs have been used to invest in real estate, precious metals, notes, tax lien certificates, and private placements. More recently, self-directed IRAs have been used to hold bitcoin and other cryptocurrencies. These self-directed IRAs allow you to buy and hold bitcoins, or buy shares of dedicated funds that hold these assets.  Click here for more information on How to Open a Gold IRA and Setting up a Self-Directed IRA

So…Buy Gold or Bitcoin?

Neither, if you don’t understand them.  Both have a place, if you do…

Overall, both gold and Bitcoin are valuable assets. Gold has been a safe-haven asset for centuries. Bitcoin remains volatile and is indeed a risky investment. Given the circumstances, it’s up to investors to decide what works best for their financial strategies – but it’s always good to have options. It doesn’t have to be all or nothing.  You can buy and hold both…or neither.  It’s up to you and your financial goals and strategy.

Gold, as long as you are buying physical bullion and have a place to store it safely, has no counter-party risk, and has tended to keep its purchasing power throughout history. It has no yield, but makes an excellent hedge against the loss of purchasing power of cash.  Bitcoins are something new and unique in that they have a very strict increase in supply.  Further, the netwoork that issues and controls them is public. Bitcoins can easily be transferred across borders and can function as a medium for commercial exchange.  However, there are drawbacks like low transaction speed and potential restrictions from government regulation. The USA has not regulated bitcoin as a mode of payment one way or the other. Until the US Treasury gives its formal blessing, bitcoin will carry additional risk.

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