For much of human history, lumps of gold have been the yardstick against which all currencies are measured; it's the constant, unchanging backbone of the global economy. However, the price of bullion took a dive in 2016, falling from a July peak of $1,366 (£1,114) per ounce to $1,128 (£920) towards the end of last year.
At the same time, Satoshi Nakamoto's Bitcoin, a decentralised "cryptocurrency" invented in 2009, was enjoying the best year of its short life, adding more than 120% to its value in twelve months. By the time gold reached the nadir of late December, Bitcoin's price was surging, buoyed by uncertainty surrounding the dollar in the wake of November's Presidential Election.
Bitcoin would rally to an all-time high of $1,197 (£976) per coin by January 4th - beating gold and firmly etching itself in the public's consciousness. But what does that mean for the world of finance? Should we all start burning our notes and converting what remains of our economy into cryptocurrency?
Richard Branson
The short answer is "no". Bitcoin is still quite a niche type of money. Offline, it's accepted at tech-savvy outlets like CeX and a few stores and pubs around the country but it has very little cachet with supermarkets or department stores. It does have a strong following online, largely due to support from hobbyists and influential folk like Sir Richard Branson, but Bitcoin's early popularity owes a great deal to support from the iGaming community.
For example, BitCasino.io, the first licenced Bitcoin casino, abandoned fiat currency altogether in favour of a Bitcoin-only gaming environment. The website, which has already given away 12,500btc (around £9m) in jackpots, has grown to include 20 different blackjack variants and a range of lotteries. Players who visit the site and make a deposit for the first time can also pick up a welcome bonus of up to 1btc.
Security Blanket
Much of the attention afforded Bitcoin recently revolves around its position as a problem-solver in times of economic trouble. For example, investors concerned about the performance of the pound after Brexit moved their money into Bitcoin; as mentioned, the same occurred after the US Election. However, it's worth noting that the previous is precisely why gold is popular.
Bitcoin and gold are not really in competition - they're complementary; the former is simply the preferred investment medium of modern financiers and the latter the domain of traditionalists. It's interesting to note though that a number of veteran capitalists - Bill Gross and the Winkelvoss Twins - have spoken highly of Bitcoin in recent months.
Gold is never going away - it's the archetypical security blanket for investors, acting as a barrier or "hedge" against financial turmoil like deflation or a stock market crash. It's also much more stable in the long term than Bitcoin, although, with greater mainstream adoption, the cryptocurrency has become less prone to spikes in value.
Blockchain
The most likely outcome of Bitcoin's unprecedented defeat of gold in the value stakes is that the landmark technology behind the currency, blockchain, a kind of ultra-secure database, will become far more engrained in economic endeavours. Blockchain already represents something of an ideal, being almost impervious to fraud, theft and counterfeiting, and Bitcoin's current value represents an expression of trust in the technology.
Even famously conservative entities like the Bank of England are now trialling cryptocurrency based on blockchain - RSCoin. Similarly, the Royal Mint is embedding bullion sales in blockchain to provide an immutable record of ownership. Going forward, it's not unreasonable to expect gold and Bitcoin to exist in tandem - but blockchain has applications far beyond its native cryptocurrency.
