Gold and Bitcoin both keep rising in value. There has been an ongoing debate about which is better for the investor. A recent scandal involving fake gold bars may resolve the debate once and for all. Some financial analysts are saying that Bitcoin’s immunity to counterfeiting proves that it is in an asset class all by itself, one that is superior to gold.
The Counterfeit Gold Bar Problem
It was recently discovered that fake gold bars have been discovered in the vaults of JP Morgan Chase and other major banks. About 1,000 of the forgeries have been discovered at the present time, but experts believe that there is a larger number in circulation. These experts that more banks will discover the fake gold bars in their own vaults.
According to Reuters, some gold bars have been stamped with the logo of established refineries. These fakes are not produced by the major refineries and are often used to launder illegal gold or gold that has been smuggled. It is believed that $50 million or more of the fake gold bars have made their way into the vaults of major banks over the past three years. The ongoing problem has been kept quiet by the refineries, banks, and the gold industry.
The forgeries are so well done that many thousands of fake gold bars could have gone undetected in the past three years. What is most concerning is that the problem is ongoing. No successful measures have been taken to prevent the forgeries from entering the market.
Complicating the problem is the that the gold itself is not fake. It is real. Only the markings of the refineries are faked. This enables launderers to get the illicit gold into the market despite the efforts of regulators to stem the trade of fake bullion.
Many believe that the high prices of gold is encouraging more counterfeiting as well as illegal mining. The reason for the stamp of established refineries is to prevent gold from being priced at a discount and traded in underground markets. This could ultimately cause the price of gold to fall.
No one knows for sure where the fake gold is being created, but most believe that it is originating in China. The forgers have easy access to Hong Kong, Japan, and Thailand markets. From there the forgeries can make their way into many major banks across the world.
Bitcoin Cannot Be Faked
Those who advocate Bitcoin as a better investment than gold have taken the news of the fake gold bars as evidence of their claims. Some have even gone so far as to say that Bitcoin completely eliminates the problem of counterfeiting. The founder of a Bitcoin consumer platform in Canada, Francis Pouliot, tweeted that “Bitcoin fixes this.”
Those who operate full nodes on the Bitcoin blockchain have the ability to verify their authenticity of Bitcoin. In fact, this is what nodes do. The process is called mining, and miners who do the job are rewarded with Bitcoin for their efforts. Mining is the process by which blocks are added to the Bitcoin blockchain so that transactions can be verified.
Compare this with a physical asset such as gold. There is always the possibility that gold or fiat can be forged. The ability to determine a forgery rests on a physical examination of the asset. With Bitcoin there is no such examination required. A Bitcoin full node is essentially a “fake Bitcoin detector” according to the Bitcoin Wizard Twitter account.
Bitcoin Has More Utility Over Gold
As an investment class there is no question that Bitcoin has more utility over gold. The cryptocurrency was designed in such a way that the types of problems faced by gold, fiat, and other classes become nonexistent. Still, some are reluctant to change their ways and preferences for investing.
The strange thing about the recent revelations regarding fake gold bars have had little negative impact on the price of gold. It continues to range higher. This could be an indication that investors do not fully grasp the concept of fake gold and how it affects the market.
To grasp the utility of Bitcoin over gold one must have a basic understanding of what money is and what it is meant to do. It will then be easy to see that Bitcoin performs this function better than gold. Here’s an example that may be a little dated but is still valid.
Banks keep gold under the presumption that their vaults keep it safe, but those who own gold need a way to swap it for goods and services. Gold is not a “liquid” asset. Therefore, paper money was created. When the US was on the so-called Gold Standard a piece of paper money was nothing more than an IOU for gold. Anyone could have presented their paper money at a bank and swapped it for the appropriate amount of gold.
This changed in August of 1971 when President Richard Nixon removed the US from the Gold Standard. The USD was no longer pegged to an equivalent amount of gold. In fact, the USD was no longer backed by anything of physical form and value.
Today, money is still basically an IOU that is exchanged between individuals, banks, governments, and other entities for things of value. For this type of exchange to work the money has to be resistant to forgery. Everyone knows that paper money can be counterfeited. Now, it seems that a similar issue has tainted the supply of gold.
Bitcoin is not subject to forgery because it is a virtual asset. It can be used as money is meant to be used and exchanged for goods and services without the concern that the tokens can be faked. This alone makes it superior to gold and probably paper money as well. Wide-scale adoption is the only thing that keeps Bitcoin from replacing fiat currency because it has a greater, safer utility.
Incidents like the recent revelations about fake gold bars are only going to increase the long-term respect and appreciation of Bitcoin as an asset class.