Is Gold Mining More Energy Intensive Than Bitcoin Mining?

Energy consumption is often a topic of concern when it comes to Bitcoin mining. Other altcoins are also expensive to mine, but Bitcoin mining is especially energy intensive, taking up the lion’s share of the combines hash rates of all altcoins. Bitcoin, often referred to as digital gold, has plenty of room for improvement when it comes to energy efficiency. Miners are mainly the ones responsible for finding efficiencies, given that equipment manufacturers can only do so much, and there are ways to improve energy consumption when it comes to Bitcoin mining. When it comes to its physical cousin, gold, efficiency is much harder to find.

Bitcoin Mining vs Gold Mining

Gold mining is said to consume much more energy than Bitcoin mining. Some estimates show that extracting the precious metal from the belly of the earth can cost about 20 times more than Bitcoin mining. In a recent article, titled “Bitcoin Uses a Lot of Energy But Gold Mining Uses More” by Vladimir Jelisavcic shows an absolute comparison between gold mining and Bitcoin mining. The article points out that $87.3 billion USD is spent on mining gold every year whereas $4.3billion is used to mine Bitcoin.

The Market Valuation Argument and The Comparison

But absolute dollar for dollar comparisons are not enough to ascertain whether one kind of mining is more energy intensive than the other. The valuation of the product is key to understand which kind of mining is more worthwhile, because by the sheer energy consumption numbers, Bitcoin should win by a knock out. When comparing Bitcoin mining to gold mining it is necessary to keep the following factors in mind:

• Physical mining, the kind needed to extract gold, is necessarily more resource intensive. Gold mining machinery cannot operate using renewable energy at the same rate that Bitcoin mining machinery can.
• Estimating global gold mining activities is much more difficult than estimating Bitcoin mining activities. Considering gold, there is a lot of illegal and artisanal mining that cannot be accounted for properly, while some gold-rich jurisdictions do not have the kind of accounting standards in place that would allow experts to establish the amount of gold mined.
• On the other hand, Bitcoin mining can be easily calculated through blockchain data, and an estimation about the energy inputs can be derived more accurately.
• The market cap for gold is around $8 trillion USD, whereas cryptocurrency market cap is around $200 billion USD at the moment.

Bitcoin Uses a Lot of Energy, But Does Gold Mining Use More?

Vladimir Jelisavcic relies largely on the annual report of the largest gold mining company, Barrick Gold Corporation to circumvent some of the uncertainty in the industry regarding costs and energy consumption:

• The firm produced 5.3 million oz of gold.
• The cost of mining 5.3 million oz of gold was $4.2 billion USD.
• Mining 88 million oz of gold – which what the world is estimated to mine per year – costs $70 billion USD using the $794 USD per oz of gold that Barrick reported.
• Barrick Gold reports show that diesel consumption is around $54 USD per oz – given oil price is at $65 USD per barrel.
• At this rate, which is much more efficient than the average gold mining rates around the world, the world would need around $4.8 billion USD worth of fuel to extract the amount of gold it does annually.
• Therefore, it can be inferred that the world invests around 0.27% of the oil it produces in the extraction of gold – considering that gold mining operations are not as efficient as Barrick’s.

How Much Oil Would Bitcoin Use at Comparable Rates?

Using the electricity consumption of an S9 and an estimation of how many of those Antminers are needed to sustain current hash rate levels, Jelisavcic managed to calculate that Bitcoin mining consumes around 5,700 MWh of electricity a year. That is about 0.1% of the electricity that the world can generate. This makes Bitcoin less energy intensive than gold as a whole.

The Caveat

Nevertheless, the numbers that Jelisavcic presents do not tell the whole story. A barrel of oil can provide about 1,700 kWh of electricity. Judging by than number, it takes around 3,353 barrels of oil per year to sustain Bitcoin mining per year. It takes around 250,000 barrels of oil to fuel gold extraction. Gold uses in theory 74.5 times more oil than Bitcoin would use to sustain current extraction levels, but the market for gold is 800 times larger than the market for Bitcoin.

Hash Rate is an Issue!

Jelisavcic suggests that given current energy consumption, it would be better for the world to shift from gold to Bitcoin as a store of value, without considering that increasing the market cap of Bitcoin to a level where it becomes competitive with gold, will trigger a mining frenzy that can well throw all these calculations out the window. Hash rate adjustments can make it exponentially more energy intensive to mine a single coin. An increase in Bitcoin prices by a factor of just 100 – an eight of what it would need to replace gold – would mean that Bitcoin prices would jump from about $6,500 USD now to $650,000 USD.

Considering that hash rate can be used to a certain extent as a way to measure energy consumption by proxy, it is important to consider how mining capacity increased as a function of price at a given point to illustrate what Jelisavcic is really advocating for. On January 1^st, 2017, Bitcoin price was at $998 USD. A year later, Bitcoin prices climbed to $13,812 USD per coin, or roughly 14 times. Hash rate on January 1^st, 2017 was 2,463,611 TH/s. A year later the hash rate increased to 14,975,581 TH/s, or roughly 6 times. Using these numbers, an increase in Bitcoin prices by a factor of 100 would bring an increase in hash rate by a factor of 43 – assuming mining equipment producers can keep up with the demand.

Real Energy Efficiency

This means that Bitcoin would be using up the equivalent of around 144,000 barrels of oil per year to boost its market cap to 1/8 of gold’s. In this scenario, gold would deliver 8 times the value, spending just twice as much energy as Bitcoin. Therefore, gold would be much more energy efficient than Bitcoin in terms of the store of value it provides.

Naturally, there are many other factors that would affect this comparison. Bitcoin can be more flexible in terms of efficiency than gold because it can be mined anywhere in theory, so miners could go to the locations where they enjoy the best energy efficiency. Nevertheless, a look at the efficiency issue from a macro perspective, makes gold a clear winner in terms of efficiency, given current market conditions, technology and network conditions.