Mining for Bitcoin vs. Mining for Gold

Bitcoin and gold are wildly different currencies that both present one interesting question: what happens when we mine all of it?

Many people are surprised when they learn that there is a finite amount of Bitcoin. Given that it is entirely digital, it seems more coins could always be generated. In truth, there are exactly 21 million Bitcoins available. Today, approximately 18,647,356 Bitcoins have been mined with about 2,352,643 waiting to be “unearthed.”

A Bitcoin is mined by an individual who solves complex mathematical problems with the help of a computer, or network of computers. In doing so they are able to add “blocks” – a group of approved transactions – to a chain consisting of many other blocks. The work of a miner is competitive because the individual who successfully solves the math problem is rewarded 6.25 Bitcoins. Originally, the reward was an astounding 50 Bitcoins. However, the Bitcoin system contains a rule that the reward will be halved every 210,000 blocks. The average amount of Bitcoins mined per day is about 900. Most analysts agree that the last Bitcoin will be mined in 2140. This means that approximately 12% of all Bitcoins that will ever exist remain to be mined.

How does this compare to gold? Estimating the remaining stores of below-ground gold is more difficult and involves less certainty. However, most research suggest that roughly 54,000 tons of gold still sit in the ground which represents about 21% of all gold on the planet. Analysts forecast that the remaining stores of gold beneath the surface would be fully depleted by 2035 in a 2015 report from Goldman Sachs.

These two timelines raise another question: what is the long-term value of each? Here, Bitcoin begins to look surprisingly limited despite it’s advanced technological underpinnings. The popularity of Bitcoin may, in time, erode its value given that the fervor around blockchain technology has spawned more than 4,000 other cryptocurrencies including Ethereum, Litecoin, and Cardano. Some of these alternatives have pulled investors away from Bitcoin in recent years because they are less expensive alternatives that provide the possibility for a similar growth trajectory.   

Other contrasts should be considered by the long-term investor choosing between Bitcoin and gold. For example, gold will always have a demand in the jewelry market. Gold will always have some form of practical application in technologies like computing. More importantly, gold has long been a global currency. While Bitcoin may be catching up, it has a long way to go before it equals the legitimacy of gold in every nation.

Finally, investors must consider the issue of concentration. The US Treasury is the largest single entity holder of gold. However their stores total just 4% of all above-ground stock. Meanwhile, 95% of all available Bitcoins rest in the hands of 2% of all Bitcoin holders. This figure suggests that much of the power behind Bitcoin resides with a small, elite group.

Both assets represent value. However, upon closer examination the recent hype propelling Bitcoins meteoric rise suggests that long-term investors should consider the factors that present risk that may get lost within the excitement.  

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