Bitcoin vs Gold: Store of Value Comparison

Bitcoin mining requires a large amount of electricity in order to secure the network and keep transactions running smoothly. In this article the pros and cons of the electricity use for the bitcoin network will be explored and if it is a useful use of energy or if we should switch to Proof Of Stake for our future monetary system

Forget what you know about cryptocurrencies and think of bitcoin as an improved form of gold with largely the same principles. Let us think about the core properties of money which are; durability, Portability, Divisibility, Uniformity, Acceptability, Fungibility, Stability of Value, Recognizability and Sustainability.

For gold we can see that is it an extremely durable metal, resistant to corrosion and has been proven to last thousands of years without becoming worn. Bitcoin is like this as well, it does not degrade over time and can be stored in wallets for hundreds and possibly thousands of years. As for portability gold is very compact and a person can easily carry and conceal about 15kg of gold on their person worth about $1 million US dollars and transport that wealth over distances and though time. Bitcoin improves on this even more, a person can now carry no weight at all with the value being stored within our brain’s neural links in the form of 12 memorised words, billions of dollars can now be stored via neural storage thanks to bitcoin’s technology, another brilliant improvement over gold.

The next property of money is divisibility, gold is great because it can be melted down and reshaped into what ever form you would want it in, it can be mixed and combined with other metals as well a great and useful property. Bitcoin takes this a step further being able to split a single bitcoin down into a unit called a Satoshi which is a hundred millionth of a bitcoin, so within our human world we could split 0.1 bitcoin throughout the entire population and have some to spare, a vast improvement over gold once again. Next is uniformity, gold is lacking a bit on this front which is why often times we will see stamps on the gold claiming its purity and we might have to pay someone to verify this by drilling a sample, within the bitcoin network all coins are created equal, no need to verify.

The next property of a high quality money is Stability of Value. Gold has been a very stable form of value with its earliest processing dating back to 4600 - 4200BC from the Necropolis in Bulgaria. throughout this time for over 6000 years it has been a stable place of value during economic crises and famine so in this respect gold wins as it has been around for so much longer than bitcoin, which is not old enough to drink alcohol if it were human in western societies (Maybe beer in a few eastern European countries), so time will tell if it will be a store of value. During covid and the money printing era, bitcoin’s price went up from around $10,000 to where it is now at over $100,000 so it is clear that during its first big economic stimulus people did value it as a safe haven against the inflating currency supply.

As tensions have been heating up within the global geopolitical sphere, bitcoin has been starting to become a widely accepted form of payment by nations in order to get around sanctions as was seen during the Russian oil was dumped onto the market in 2020, making crude oil prices go negative for the first time in history, it was treated as trash that companies would pay to have removed for a short period, Russia started to accept bitcoin payments for oil around this time.

Now we get to the main part of the article, sustainability. How can we justify using over 100 Terra-watt hours of electricity to power the bitcoin network in 2023 with increasing use of electricity as the network grows? Why do we need to expend such a vast amount of energy for our precious new form of gold? Well it would be an unfair fight without comparing the resource usage in order to mine gold. Gold uses not only electricity but can be quite detrimental to the natural environment, also processing and refining all the gold into bars leads to a lot of environmental waste and drinking water pollution. In 2023, 250 billion dollars was spent on gold mining, which is the same amount as the salaries of 20 million citizens earning the average global GDP. For bitcoin we cannot discount that there are rare earth materials within the bitcoin mining units, but they lose their useful processing power over time as according to moores law and become less useful as computing systems become more powerful. So over time these old machines become useless but their rare earth elements can be recycled into brand new machines which have improved chips with the same input material. In addition the electricity these machines run on to power the network can be generated sustainably, running off solar, wind or even volcano energy as shown within El Salvador. I have written a separate article on this topic (https://bitesizedblockchain.com/bitcoin-to-enable-wireless-electricity-transmission)

Gold mining is incentivised to be as cheap as possible in order to boost the economic output of gold producing nations, so environmental regulations can be too loose, leading to heavy pollution within the environment and larger water and food supplies. Once gold is mined it is largely used as a financial asset mostly and not much as a industrial metal, so most of the supply lays dormant within a vault. The job of the gold miner is often a tough job under harsh conditions which are away from the home and within the presence of toxic contaminants which cause different sorts of health issues. The enclosed space is also susceptible to caving in and endangering the lives of those who go out every day to mine materials which are not used as industrial metals to produce cars or other consumer goods. Why not just do the hard expensive "mining" in a more safe and sustainable way within mining farms on the surface which causes less human health issues and environmental pollution? Gold's main use is that of a financial asset rather than industrial metals like silver which have a much higher stock to flow ratio as they are utilised widely for many industries. In addition the bitcoin mining process is not purely expending energy in order to mine the coins like is done with gold, this electricity usage has a dual purpose and is used to secure the network through hashing power which will be discussed in part two