On June 29, 2020, ZeroHedge reported the biggest gold-counterfeiting scandal in modern history with 83 tons of fake gold bars discovered in Wuhan, China — equivalent to 22% of China’s annual gold production and more than 4% of China’s gold reserve as of 2019.
A dozen financial institutions, chiefly trust companies or shadow banks, loaned 20 billion yuan or $2.8 billion over the past five years with pure gold as collateral to Wuhan Kingold Jewelry Inc.— the largest privately-owned gold processor in China’s Hubei province. It was later found out that the gold was in fact, gold-plated copper.
Bitcoin’s core attributes, such as open verifiability, unforgeability, and predictable supply, make such issues impossible. Open verifiability and unforgeability are quintessential features for the integrity of the Bitcoin blockchain. For example, without these attributes, it would have been easier for Craig Wright to falsify his claims of ownership of Bitcoin addresses and change their timestamp to prove he is Satoshi Nakamoto. As a result, this makes Bitcoin a superior asset to Gold in many aspects.
Bitcoin’s most important characteristic is its scarcity with a limited supply of 21 million. Its monetary policy is predictable and follows a predictable schedule wherein the new Bitcoins created halves every four years, until the year 2140 — in other words in 120 years. Currently, the amount created every 10 minutes is 6.25 bitcoin. Additionally, Bitcoin relies on private keys to sign, seal, and prove ownership — preventing counterfeits. The best analogy is, a private key is to Bitcoin what a secret code is to a safe where cash and precious metals are stored. To unlock the safe or Bitcoins one needs the secret code/private key.
In light of the biggest gold counterfeit scandal in recent history, the question remains whether a portion of gold bars held by various financial institutions around the world do in fact meet their purported high-quality standard. Only time will tell but at 21Shares, if this does not hold true, we are anticipating smaller financial institutions to start shifting to safer and digital-native assets such as Bitcoin for the previously-mentioned reasons.