Torbjorn Zetterlund

Tue 26 2023

Bitcoin vs Gold: Navigating the Environmental Landscape with New Insights

by bernt & torsten

In the dynamics of investments, Bitcoin and gold have emerged as key players, each with unique appeal. Beyond financial considerations, the environmental impact of their respective mining processes has become a focal point for scrutiny. This article delves deeper into the intricate details of Bitcoin and gold mining, considering recent developments such as Bitcoin halving and the increasing cost of mining.

Gold Mining: From Nuggets to Specks

Gold, a precious metal coveted throughout human history, is typically mined from the Earth’s crust. The mining process involves extracting gold from deposits ranging from large nuggets to tiny specks. The iconic image of a prospector striking gold with a pickaxe often masks the extensive efforts required to yield even a minute amount of the precious metal.

The discovery of colossal gold nuggets, such as the “Welcome Stranger” found in Australia in 1869, highlights the allure of gold mining. Weighing in at a staggering 2,280 troy ounces, this nugget symbolizes the extraordinary finds that can occur in pursuing gold. However, such discoveries are the exception rather than the rule. In reality, the average speck of gold weighs just a single ounce, emphasizing the meticulous and labour-intensive nature of gold extraction.

Gold mining involves massive earth-moving activities, as substantial amounts of soil must be processed to extract a meaningful quantity of gold. Traditional gold mines often rely on fossil fuels for machinery and energy, contributing to carbon emissions and environmental degradation. Despite technological advancements, the resource-intensive nature of gold mining remains a significant concern.

Bitcoin Mining: Digitally Unearthing Cryptocurrency

Bitcoin, a digital currency created through mining, is on the other side of the mining spectrum. Bitcoin mining involves solving complex mathematical problems to validate transactions and secure the network. Miners are rewarded with newly minted bitcoins for their computational efforts.

Unlike gold mining, which relies on physical labour and heavy machinery, Bitcoin mining is executed by powerful computers. However, this digital mining process is not without its environmental challenges. Bitcoin mining operations are notorious for their energy consumption, often fueled by non-renewable sources. The carbon footprint of Bitcoin has sparked debates about its long-term sustainability and environmental impact.

It’s important to note that the energy consumption of Bitcoin mining is not uniform across the globe. Some mining operations utilize renewable energy sources, such as hydroelectric or solar power, mitigating the carbon emissions associated with the process. The decentralization of Bitcoin mining allows for flexibility in choosing energy sources, potentially offering a pathway to more sustainable practices.

Bitcoin Halving and Rising Costs

A pivotal event in the world of Bitcoin is the halving process, which occurs approximately every four years. Bitcoin halving is an integral part of the cryptocurrency’s design, wherein the reward for miners is reduced by half. This mechanism is in place to control the supply of new bitcoins, to cap the total supply at 21 million coins.

Due to Bitcoin halving, the mining process becomes increasingly challenging, and the rewards for miners diminish. The reduction in rewards intensifies competition among miners, leading to a surge in mining difficulty. This, coupled with the escalating costs of mining equipment and electricity, paints a picture of an industry becoming more resource-intensive and economically demanding.

Mining Rig Dynamics

To put the escalating costs into perspective, obtaining a single bitcoin now requires a substantial investment in mining rigs. A crypto mining rig, a specialized computer system that harnesses the power of graphical processing units (GPUs), has become a staple in the Bitcoin mining landscape. It is estimated that acquiring one bitcoin necessitates the deployment of around 100 mining rigs, each boasting an impressive hash rate of 12,000 TH/s.

The enormity of this investment is underscored by the time it takes to mine a single bitcoin. In a scenario where 100 mining rigs are operational, it would take approximately 42 days to complete the mining process. This highlights the intensive computational power and energy consumption associated with Bitcoin mining.

Environmental Implications

As Bitcoin mining evolves into a more resource-demanding process, concerns regarding its environmental impact intensify. The Cambridge Center for Alternative Finance (CCAF) estimates that Bitcoin currently consumes around 110 Terawatt Hours per year. This accounts for 0.55% of global electricity production, equivalent to the annual energy draw of smaller countries like Malaysia or Sweden in 2021.

The carbon footprint of Bitcoin mining, resulting from its reliance on electricity, raises questions about its long-term sustainability. However, it is crucial to note that the decentralized nature of Bitcoin allows for adaptability. Some mining operations are already shifting towards renewable energy sources, potentially mitigating the environmental impact associated with the industry.

Gold vs Bitcoin: A Dual Investment Approach

The debate between gold and Bitcoin takes on additional dimensions. Investing in both assets can be accomplished through platforms like eToro, offering a dual strategy that combines the tangible allure of gold with the digital innovation of Bitcoin.

With its physical presence, gold can be purchased for personal wear or as a valuable possession. On the other hand, Bitcoin offers a digital alternative, allowing investors to store their assets in a secure digital wallet on their smartphones. This dual investment approach provides flexibility and diversification, catering to the preferences and needs of a broad spectrum of investors.

Navigating the Evolving Landscape

The environmental implications of Bitcoin and gold mining are undergoing constant scrutiny, with recent developments shedding new light on each industry’s challenges. Bitcoin’s halving process and the escalating costs associated with mining rigs underscore the evolving nature of the cryptocurrency landscape.

As investors navigate the complex terrain of environmental sustainability and investment returns, the choice between gold and Bitcoin becomes increasingly nuanced. Both assets have unique attributes, and a balanced approach that considers the environmental impact, technological advancements, and economic viability is essential.

In pursuing a sustainable future, the responsibility falls on the shoulders of both industries. Whether through advancements in technology, increased use of renewable energy, or the implementation of responsible mining practices, the trajectory of Bitcoin and gold mining will play a pivotal role in shaping the environmental legacy of the financial landscape.