BITCOIN vs. GOLD: Which One’s A Bubble & How Much Energy Do They Really Consume

If you are investing in either Bitcoin or Gold, it’s important to understand which asset is behaving more like a bubble than the other.  While it’s impossible to understand how the market will value these two very different assets in the future, we can provide some logical analysis that might remove some of the mystery associated with the market price of Bitcoin versus Gold.

I’ve read some analysis on Bitcoin profitability and energy consumption that seemed unreliable, so I thought I would put my two cents in on the subject.

For example, many sites are using the Digiconomist’s work on Bitcoin energy consumption.  However, I believe this analysis has overstated Bitcoin’s energy consumption by a large degree.  According to the Digiconomist, Bitcoin’s annual electric use is approximately 24 TerraWatts per year (TWh/yr):

In a recent article that was forwarded to me by one of my readers, How Many Barrels Of Oil Are Needed To Mine One Bitcoin, the author used the information in the chart above to calculate the energy cost to produce each Bitcoin.  He stated that the average energy cost for each Bitcoin equals 20 barrels of oil equivalent.  Unfortunately, that data is grossly overstated.

If we look at another website, the author explains in great detail the actual energy cost to produce each Bitcoin.  According to Marc Bevand, he calculated on July 28th, that the average electric consumption of Bitcoin was 7.7 TWh/yr, one-third of the Digiconomist’s figure.  Here is a chart and table from Marc Bevand’s site showing how he arrived at the figures:

This graph shows the increase in Bitcoin’s hash rate and the efficiency of the Bitcoin Miners at the bottom.  If you want to read more detail of the analysis, I suggest you click on the link (Marc Bevand: Electricity consumption of Bitcoin: a market-based and technical analysis)

The table above shows the Bitcoin energy consumption analysis on Feb 26th at a Best Guess (average) of 4.12-4.73 TWh/yr.  However, Marc updated the data again on July 28th, as the hash rate increased, to show total Bitcoin energy consumption rose to 7.15-8.27 TWh/yr.  I took the average of his range to be 7.7 TWh/yr.

Nonetheless, I had to update the number once again because it has been three months since Marc calculated his figures.  I decided to increase the 7.7 TWh/yr rate by 45% to account for the past three months.  I arrived at the 45% figure by using the 75% increase in Marc’s energy consumption figures from Feb to July.  His energy consumption figures increased approximately 15% per month.  Thus, three months equals 45%.

Okay, after taking all these estimates into consideration, I arrived at a total of 11.2 TWh/yr for Bitcoin mining.  As you can see, this is much less than the 24 TWh/yr by the Digiconomist.  Now, if we compare the annual amount of Bitcoin energy consumption to other countries total electric consumption, Bitcoin uses more electricity than Uraguay, Kyrgyzstan, and Paraguay:

I would recommend those who want to understand the differing opinions on the Bitcoin energy consumption figures by these two analysts to go to the link I provided at Marc’s blog.  If you go to that page, you will see a long debate between Marc and the Digiconomist on why they disagree.

Regardless, I believe Marc Bevand did a much better job at crunching the numbers and details of the Bitcoin Miners and their efficiencies to arrive at a much more accurate figure than the Digiconomist.  Either way, Bitcoin does consume one hell of a lot of electricity to produce each digital coin.

Bitcoin vs. Gold:  Energy Consumption 

Now that we have a more realistic figure for Bitcoin’s energy consumption, we can compare it to gold.  According to the statistics published by the top two gold mining companies in the world, Barrick and Newmont, they consumed approximately 8.5 Gigajoules of energy to produce each ounce of gold in 2016.  Yes, I realize these energy metrics are a bit difficult to understand, but these are the figures used by the industry.  If we convert all these energy figures from Bitcoin mining and the Gold Industry to barrels of oil equivalent, we end up with the following results:

While it only takes 1.4 barrels of oil equivalent to produce an ounce of gold, it takes 10.1 barrels of oil equivalent to produce one Bitcoin.  Thus, Bitcoin consumes seven times more energy to produce each digital coin than it does for each gold oz.  Even though it takes a lot more energy to produce each Bitcoin, the Gold Mining Industry consumes one hell of a lot more energy overall.

If we assume that 85% of total global gold production comes from primary gold mining only, then the 88 million oz (Moz) produced in 2016 consumed the energy value of an estimated 123.2 million barrels of oil equivalent versus 6.6 million barrels of oil equivalent for all Bitcoin production.

Now, the reason Bitcoin consumes less overall energy than the global primary gold mining industry is due to the much small annual number of Bitcoins produced versus gold.  In 2016, the primary gold mining industry produced 88 Moz versus an estimated 650,000 Bitcoins in 2017 (based on data showing 1,800 Bitcoins mined each day).  Which means, the primary gold mining industry is currently producing approximately 135 times more gold than the Bitcoin mining industry.

While some precious metals analysts have switched over to investing more in Bitcoin (and cryptos) than gold, I don’t belong to that group.  Unfortunately, these analysts seem to have forgotten about energy and the Falling EROI – Energy Returned On Invested.  One of these analysts recently put out a video suggesting that silver only had about ten years to be removed from the shackles of Central Bank manipulation before new high-technology would produce silver for next to nothing.  I believe this analyst used the Star Trek replicator as an example.

I can assure you, the world isn’t anywhere near to producing silver for pennies on the dollar.  On the contrary, the world economy is much closer to collapsing under the weight of the Falling EROI than heading into a new JETSON’s high-tech age:

I will be publishing detailed information in the future why I believe Gold and Silver will still be the GO TO ASSETS to own versus Bitcoin and the Cryptocurrencies.

Bitcoin vs. Gold: Which One’s In A Bubble?

So, the big question on the minds of many investors is… which asset is more of a bubble, Bitcoin or Gold?  If we use the cost of production as a guide, my answer is Bitcoin.  Again, according to the data put out by Marc Bevand, he estimated that the total cost to produce Bitcoin on May 31st, 2017 was approximately $1,010:

Actually, the text above came from Marc as he was replying to my question on his blog.  However, this Bitcoin break-even cost is now outdated.  So, I sent Marc an email back at the beginning of August to see what his new estimate for the cost to produce Bitcoin.  He replied on August 8th stating his best estimate was about $1,500.  By adjusting for the increased cost to produce Bitcoin over the past two months, I came up with a figure of $1,800.  Yes, it’s a ball-park figure, but it’s the best estimate we can go by.

Now, if we compare the estimated Bitcoin cost and profit versus the same for gold, Bitcoin is the clear BUBBLE WINNER:

Currently, Bitcoin is fetching an estimated $4,700 profit per coin versus $136 for gold.  Here’s how I arrived at those figures:

Bitcoin vs. Gold Cost & Profit

Top 2 Gold Miners’s Total Cost of Production 2016 = $1,115

Gold Average Annual Price 2016 = $1,251

Estimated Gold Profit = $136

Bitcoin Current Cost 2017 = $1,800

Bitcoin Current Market Price = $6,500

Estimated Bitcoin Profit = $4,700

If we compare the estimated profit margin in these two assets, we can clearly see that Bitcoin has a great deal more FROTH than gold.  Yes, I realize I took some liberties in providing the Bitcoin production cost, but I believe it’s a pretty accurate figure.  While other articles have stated that Bitcoin mining is no longer profitable, I disagree.  I believe it is exceedingly profitable to produce Bitcoin if you have purchased the most recent mining equipment and have set up the operation in an area that provides low electric utility rates.

Alright, I imagine there are some (maybe many.. LOL) that don’t agree with my analysis.  First, many people in the precious metals industry still do not agree with the overriding factor that determines the price of gold is its cost of production.  Second, while supply and demand forces do impact the gold price over the short-term, the cost of production has always been the number one factor over the longer-term.

This last chart shows the estimated Bitcoin production cost versus the market price:

If we go back to the end of 2013, we can see a spike up and then consolidation lower in 2014.  The present Bitcoin price spike in 2017 has lasted longer than the one at the end of 2013, but we can clearly see a pattern.  Who knows how long Bitcoin will continue higher before it consolidates lower.  Some precious metals analysts now turned Bitcoin specialists are suggesting that Bitcoin will reach $13,000 by the first half of 2018.  Hell, I don’t know if that will happen.  Maybe it will; perhaps it won’t.  I really don’t care.

I have nothing against Bitcoin.  However, Bitcoin needs a very high-tech electronic system to function.  On the other hand, any poor slob in the country owning some gold can walk into town and use it as money.  Now, when I say, “poor slob,” I am using that term in jest.  Actually, I am a poor slob just like the next person.  Regardless, Bitcoin functions as an electronic asset if the machines keep working.  Now, go down to Puerto Rico and see how many people will take Bitcoin.  However, if you have cash, gold, and silver… you are ready to do some business.

If a person wants to own and speculate in Bitcoin… that’s fine.  But, it is much more prudent to hold most of one’s wealth in physical gold and silver rather than Bitcoin.

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61 Comments on "BITCOIN vs. GOLD: Which One’s A Bubble & How Much Energy Do They Really Consume"

  1. Michael Kohlhaas | November 1, 2017 at 4:37 pm |

    I am a strong supporter of cryptocurrencies. My advice is the PonziCoin.
    https://coinmarketcap.com/currencies/ponzicoin/

    BTW, fuck you Andy Hoffman!!!

  2. Michael Kohlhaas | November 1, 2017 at 4:45 pm |

    What is waste of energy producing these hollow BitCoins and other cryptocurrencies. This kind of energy waste should be forbidden by law.

    • I agree…the method of “mining” bitcoins is a total irresponsible waste of valuable resources.

      • Is it not the same for the mining of gold ?
        If we (humanity) stored that energy in the form of gasoline, how many years would we be able to produce food (you can’t eat gold) and heat our homes (you can’t burn gold) ?
        Now we are using as much energy as quickly as possible for the most stupid consumption so that the possibilities of a real crash in the future will only become bigger and bigger.
        And I mean a real crash : the collapse of industrial agriculture and no fuel anymore avalaible for transport, heating and production in general.
        Even mad max will not be possible anymore (racing through the desert when there is no gasoline avalaible, yeah make my day)
        Imho it will more look like “battletruck, warlords of the 21 century”

    • Well, people have caught on to the fraud of fiat currencies. They now need to create a new and novel deception to get people hooked. In this case they concocted a lovely scheme which deliberately wastes energy in order to give the illusion that something of real value was created. I agree wholeheartedly with you about outlawing this. But in a way I just have to laugh at how some people are conned by this, as well as how badly this deception of theirs is failing – aside from the regular die-hard pumpers everywhere most comments are anti cryptos.

  3. OutLookingIn | November 1, 2017 at 5:27 pm |

    No matter the cost.

    The cost of production does not alter one SIMPLE fact –
    Bitcoin is nothing more nor less, than a de facto digital currency and thus yet another fictitious form of wealth, with a computer system as its counter party.

    Physical gold or silver have NO counter party.

    • Right. I am convinced that the internet will be a slaughterhouse for REAL wealth that was converted into virtual crytogarbage.
      I believe that the media pushes people into the crytofrenzy to manipulate people to 1. a cashless society
      2. let goverments have more controle with time to regulate, forbid and steal what they want to funnel it to the worldbanksters.
      3. .. get wealth in the position where CIA-Scum under false flag can hack and steal billions worth of cryptos instead of having to break physical vaults.
      4. have people loose everything as soon the internet is switched off. A comming war and EMPattacks would drain the peoples pockets dry so they have to submit to the new order.

      I think cryptos are created to steal and later eradicate wealth of the people so they the get even more dependent on the bankingsystem. The fact that we don’t know who created bitcoin is a huge red Flag. I can even imagine that there is a deep buid-in switch to make all bitcoins at once disappear or unuseable.

  4. Strange how a bitcoin (a fungible bietcoin) could be mined for 1/10 or even 1/100 just a few years ago.

  5. Its very worrying that all this energy is just being wasted to produce nothing tangible at all – just “bits” on a hard drive.Its not even a coin, like one I can hold in my hand.It started at zero & one day it will return to its intrinsic value of “0”.
    R.M

    • Certainly a good point, however I believe it has to be taken in a broader context. The “goal” is that Bitcoin will replace many functions of the traditional banking system. How much energy is consumed to keep power the millions of bank branches, fuel bank employee’s vehicles, etc. etc. How much value does society derive from their services and how much of it can be replaced by a distributed peer to peer financial network? I don’t think there are realistic answers to these questions yet, but the forces at play will provide us with a real world answer soon enough.

  6. While everyone is looking at the top, I would quietly suggest “don’t forget the bottom!” Despite all the rage with Bitcoin, and even though it undoubtedly will still go higher, indeed maybe even a lot higher in the near future, one should be aware that despite this recent “diversion” of fiat currency to buy Bitcoin (in US at least), the price of gold has remained fairly stable around $1200-1300 oz. This is the definition of an “antibubble.” Gold has remained stable despite BTC’s potentially “disruptive relative revaluation of gold.”

  7. If things go under cost of production :
    Gold – mines close
    Bitcoin – miners close PLUS the network collapses with it, as processing transactions seizes.

  8. I can find the melt value of my silver and gold coins. What is the melt value of cryptocurrencies?

  9. Steve,

    Nongold question here, but wouldn’t Litecoin become more valuable then Bitcoin down the road due to its quicker use and the segwits that Bitcoin keeps going through can’t be good for it. I know there are 3/4 % more Litecoin then Bitcoin, but to me I would think Litecoin would outclass Bitcoin and Ethereum down the line.

    Jared

    • I’m buying each and every LTC dip Jared. This may be the opportunity of a lifetime.

      My opinion only..

  10. Thanks Steve!

  11. Steve,

    About BTC VS Gold…..would you comment on store of wealth side for BTC and Gold please? Please dont count on history of thousands of years etc…people have very short memories and they would not understand history and would go with digital mobile/iPad/Laptop friendly wealth rather than “hold and hide” kind of heavy stuff for wealth i.e. gold/silver etc…although, I hold and stored them o/s banking system….

    Furthermore, I read some comments from people asking Governments to ban BTC…BUT, the Governments want people to move towards digital assets and rather NOT towards gold/silver? How could you expect them to ban digital currencies/BTC ? Honestly, I did sale my 20% silver stake for cryptos (with good application potential not for BTC)…to increase my crypto table further…see what happens…thanks….regards

  12. Some poor slob just made $1000 this week on bitcoin! How much did you make on gold???

    Bitcoin just broke another record 1 BTC = $6,828.02 lololol

  13. Aw ‘eff me.
    This big fat poor slob carries a 1924 St Gaudens Double Eagle $20 gold piece.
    Why? Because I can. No other reason in particular other than it feels good to be able to have this beautiful coin in my pocket.
    Besides which, it makes a bitchin’ card cap when I play Big Fat Poor Slob Texas Hold’em at the local poker room, it puts the other players off their game.

  14. The article’s analysis is based on a misconception in favor of Bitcoin first put out by McAfee which makes a ton of money “mining” Bitcoins. First one must understand that in Bitcoin the term “mining is a total misnomer. It takes something like a billionth of a cent to produce a Bitcoin – a Bitcoin is just a couple of computer bits. For Bitcoin, the “mining” process has NOTHING to do with creating Bitcoins – that’s trivial. For a “miner” to earn a Bitcoin, which cost a trillionth of a cent to produce, he must do MAINTENANCE by validating transactions involving computer bits. As such “mining” costs are NOT production costs, but rather it’s more akin to maintenance costs like storage costs for gold and silver. These Bitcoin maintenance costs increase as the network of Bitcoin users, number of Bitcoin transactions and number of Bitcoins increase. These Bitcoin maintenance costs are many orders of magnitude greater than the inherent value of the Bitcoins themselves. I originally thought that Bitcoin was just like the tulip craze boom and bust. That’s still an accurate analogy. But now I see that it is also a Ponzi scheme that works as long as the tulip craze phase keeps propelling the market value of Bitcoin up. The miners put in their time and their computer’s time and are paid in inherently worthless Bitcoins just like in the standard Ponzi scheme, but because people have faith in Bitcoin, just like in the standard Ponzi scheme, Bitcoins can be sold for increasing amounts just like tulips were. But Bitcoins have far less inherent value than tulips. To keep the scheme going the miners must put in ever increasing amounts of time and resources – in a Ponzi scheme, one needs ever increasing amounts of input to keep the scheme afloat. When the amount of mining/maintenance starts decreasing, the market value of Bitcoin will start to decrease which will make it less attractive to do “mining”/maintenance to support the pyramid scheme and a downward (rapid and accelerating) spiral results. The blockchain technology is great and will be around for a long time, but the Bitcoins themselves have no inherent value – their market value is based purely on faith just like in the tulip craze.

    • Correct about your comment on bitcoin mining. But I’m not convinced of the lack of value. The bitcoin itself holds nothing inherent, but the system does. Bitcoin is much more about decentralization and freedom than an inherent store of value. We already have gold for that. But I can’t send the gold coins in my pocket to my family in another country in a matter of minutes and then easily spend it online or convert it to other forms. Yes, there is a crypto based on gold, but it’s not as easy to use yet. I think bitcoin holds more value in terms of its system than the fiat currencies that we all use. At least you know that there are only a limited number of bitcoin and you can trace each one to which addresses hold them. The dollars we create through using a credit card can neither be traced to anything real, other than the very real obligation to pay them back. It is a shackling debt-based system, which bitcoin is not. Just one opinion…

    • Mining/maintenance/transaction fees are malleable.

    • Thank you for this. It seems that energy needs for bitcoin maintenance are on an exponential curve. I can’t tell without working out the data points where we are on the exponential graph, but off the top of my head, I think we may have gotten to the curve, if not started around it. Thanks again.

  15. What I don’t get is the tendency of people to go one way or the other on this. Wouldn’t it be a good idea to hold both cryptocurrencies and metals? …At least that’s my MO at the moment. I can benefit from the cryptos to earn more fiat to then buy more gold. Yes, ultimately, the gold will win out, but right now, anyone can profit from cryptocurrencies, so why is that a bad thing? Let’s recognise their inherent differences and try to get the most out of both, right?

    • What a brilliant Idea David, hold both. Wish I had thought of that or purchased bitcoin when it was $2. It’s now $7000 and a good correction won’t go astray..

      Own both.

  16. Steve is correct. Gold and silver are money as energy needs to be expended to extract the commodity.

    But supply and demand always rules in the shorter term. Logic and reason need not apply. This is why the paper fiat garbage called the US dollar still reigns: supply and demand.

    Metals are a long term investment. A hedge against the charlatans who pawn fiat on the populace. It’s that easy.

    • Metals are insurance policies that pay off during disasters. Sometimes. It’s a question of hedging against the risk of loss, eh? The rest of the time they are manipulated by the paper hangers.

      Do you regret the fire insurance you bought on your house when the year ends and the house is intact ? Do you consider it a loss or another missed opportunity ? No. You renew the policy.

  17. I’ve been waiting for months for this to come out. Buy and hold bitcoin because as time goes by it will cost more to get each coin AND mining companies are holding, not selling.

  18. I keep hearing that the value of “the blockchain” lies in the fact that its decentralized & freedom for the masses.If this is so then its biggest use will be by criminals & the dark web. Also, where theres a capital gain tax must be paid or you are breaking the law – http://www.thisismoney.co.uk/money/experts/article-5019947/Do-pay-tax-sell-bitcoin-big-profit.html You don’t think the Goobermint & Bankers & HMRC are going to sit around without taking their fair share from you? I do agree with the post above about its a good idea to own both, but the risk to reward with bitcoin is now too asymetric for me now – I could end up losing alot more than I gain.
    R.M

  19. How about you, Steve, and others take responsibility for your failed predictions?

    Precious metals are not stable. They are not rising. They are DOWN. They are down in every single major currency over the past 6 years.

    This only helps newcomers. It doesn’t help those of us who have stacked since the financial crisis. We all have lives to lead, bills to pay. Precious metals do nothing, sitting there and losing money.

    It’s not an exaggeration to say that some of us have lost the equivalent of hundreds of thousands and even millions in purchasing power, while everything else inflates.

    Take some responsibility, admit you were wrong.

    • That’s a real concern for me to see this site still long on precious metals : no rise in sight. This article means cryptos will continue to outperform PMs for much longer…

    • Im in the PM since 2009 And I just lost money. Fortunately I erased that dogma from my head, And make real gains in cryptocurrencies in the last months. If I had invested in Bitcoin instead of PM since lets say 2012 or 2014 the money I invested in PM since that time, now i would have gain milions. The gold bugs are scared of cryptocurrencies like the Fiat banksters are.

    • dolph, I feel your pain but you may be barking up the wrong tree. If instead you put your energy and aimed your accusations at the right target, you’d be spot on! Who is that right target you may ask? Look over at the likes of Greenspan who made the hedge traders running the paper gold and silver plays altogether possible. Or the CME based in Illinois who are responsible for bending the practices and outcomes of a throttled physical gold and silver world. Or Jeff Christian who readily admitted that for every 100 paper traded ounces of gold and silver there is 1 ounce of the physical. Or the hedge traders racing out of the Bear Stearns building, all ecstatic about realizing that they were given a new trading game courtesy of the U.S Gov & Dimon/Chase. The problem with being able to arrive at an exact time and place for physical gold and silver to rise like a zenith is that there seems to be a one-sided game being played right now. The only organized team is the paper side of gold and silver. They can trample over otherwise nothing to compete within in the form of an organized opposition. There’s nothing there!

  20. What I find interesting is how few people own the majority of all Bitcoins.
    Less than 1% owns 90% of all coins.
    Getting more people to exchange fiat for Bitcoin rather than PMs is needed for Bitcoin holders to cash out.
    I hope people have the good judgement and patience to watch the bit coin story play out and not bet their life savings on getting a piece of the action. I was caught up in the NASDEQ dot com crash in 2000. It was demoralizing. Having some Bitcoin to transact or speculate is fine but treating Bitcoin as an investment will end badly.

    https://medium.com/@BambouClub/are-you-in-the-bitcoin-1-a-new-model-of-the-distribution-of-bitcoin-wealth-6adb0d4a6a95

  21. Speaking of bubbles IMO the elephant in the room is the paper stock mkt.
    Huge no. of folks in that bubble with very small percentage of population in either PM’s or cryptos.
    When the stk mkt bubble bursts, money will flow to safe haven. PM’s could spike and go no offer, folks will go to cryptos.

    I find it puzzling to talk about “store of energy” and in the next breath speak of the coming demise of energy.
    What kind of energy is being stored in PM’s or Bitcoin?
    If petro energy goes away perhaps one should think in “man hrs” of work.
    I can see folks with shovels digging for PM’s, but don’t know how many folks on treadmills hooked to generators would be needed to make a Bitcoin and maintain grid so Bitcoin could be spent.

    If EROI concept is correct then better use of shovel would be raising a garden and treadmill pumping water.

  22. DisappearingCulture | November 2, 2017 at 9:50 am |

    The Chicago Mercantile Exchange (CME) announced a plan to launch Bitcoin futures by the end of the year.

    http://investmentresearchdynamics.com/will-the-new-bitcoin-cme-futures-contract-benefit-gold/

    • Had it been around then, the CME would have created a futures market for tulips during the tulip craze and would have made money on the way up and during the subsequent crash.

  23. The problem is, that just only one block of the blockchain is active per time: all users try to win the lottery by trying to calculate the correct hash in parallel to each other. But there could just only be one to win the race, all others totally lost their energy effort until it starts again, when the next block is getting active to be calculated (hashed).

    But in the end, it doesn’t even matter: by hashing a token or failing to, they only produce a negative economical result by getting nothing.

    What a parallel: This totally reminds me on the gold rush, where the only winners have been the equipment sellers and lenders (shovels, etc.) together with the resellers, but never the miners. The most of them ended up broke, but at least they had some grams of material. Now its just only some numbers and characters of the alphabet.

    regards

  24. Sibanye-Stillwater shuts down Cooke gold mine, about 7,000 laid off. South Africa’s mining industry lost more than 70,000 jobs or nearly 13% its workforce since 2012, due to weak or volatile prices for some of its key commodities such as gold, soaring costs, labour and social unrest, and policy uncertainty.
    http://www.mining.com/sibanye-stillwater-shuts-cooke-gold-mine-7000-laid-off/

  25. BTC is an energy flow, while gold and silver is energy stock. Energy flow is under pressure, severely. But maybe ‘they’ came up with crypto’s to fade out the failing fiat currencies. Who knows. My bet is on the stock of energy, stuff that’s already there.

    Again, with profits collapsing due to declining net energy, who is going to maintain the very complex systems that enable transmission of fiat currencies or crypto’s? Huh? Cisco, Microsoft etc. ? I don’t think so, La La land turns into a scrapyard when the shtf.

    NEWSFLASH; internet down in Iowa, Nebraska, Washington, France and Greece. International payment systems down. Supermarkets looted in Belgium. Airforce One unable to return to the US.

    Wake up folks, this is not the time for greed.

    • Since I do not really understand the intricacies of crypto currencies, I have to resort to the time worn use of over simplified analogies. Bitcoin is like the fancy, new, maybe even fuel efficient or , GASP! Solar powered car that people pay a lot for, just like the idiots who have lined up around city blocks in Asia to buy the $1,000 iPhones, one for themselves and a few more for their family members or to resell to their friends.

      Just like BTC needs increasing amounts of electricity to maintain it, which is why some BTC companies are locating to Iceland for the cheap geothermal production of energy, the fancy new car is great- assuming you have well maintained roads to drive it on. The car and especially the roads , like the internet and power supply, require increasing amounts of maintenance , especially if they are heavily traveled/utilized.

      Enjoy the ride.

  26. The bubble story about Bitcoin we hear each year.And each year we hear how good PM’s are.
    Kognitive Dissonanz?

  27. Steve, have you considered the s-curve of technological adaption regarding bitcoin?

    https://medium.com/@mcasey0827/speculative-bitcoin-adoption-price-theory-2eed48ecf7da

    • Matt
      The S curve of technological adaption requires a final saturation point Bitcoin is still in it’s early adapter stage. It is the first application of blockchain technology.
      Please review the following
      https://www.youtube.com/watch?v=noNfMPUwOgk
      The S curve that follows bitcoin, after adaption, will be contracts which is what etherum is all about. NO Third party i.e. the network removes the need for banks and escrow services.
      Person to person with complete security no third party oversight or control.
      Today we are not at saturation point, 98% of all financial transaction have a bank or government involved taking a percentage.

  28. It seems like worthless analysis to value cryptos by energy consumption whichever figure is correct. The pyramids required plenty of energy to fabricate but arguably caused the decline of Egypt as a superpower. Energy consumed is not a fair reflection of value added.

    • gary leaf,

      I gather you are new to this blog. That being said, you couldn’t be more wrong about energy. Energy = Money.

      steve

  29. Read this article- we are getting desperate for resources (even copper). read this article. http://www.zerohedge.com/news/2017-11-02/running-out-room

  30. Hi Steve,

    What is your opinion with the fact that China produces or mines over 80% of bit coin however they have a very low cost hydroelectric Power, thus, allowing them to mine bitcoin at a very low cost price in the future.

    Thanks,

    Ken

  31. Steve
    What we are going through has happened before with the installation of the railroad where a person could travel 5 times faster then ever before and communicate great distances with Morse code. Paper money was issued by the banks and the railroads themselves totaling over 8000 different paper money currencies. Railroads would not be responsible for loss of gold and silver in transport. So gold and silver was converted to the railroad’s paper currency. Then converted to your destinations currency upon arrival. The people did NOT like paper currency and suffered great losses in transport very similarly to those using credit cards over the internet today! The multiple jumps in value of bitcoin is because 4 more countries have made bitcoin legal currency. Yes Bitcoin is in a bubble but each time it has gone into one demand fills it. Like the oriental express railroad, currency was converted to the currency in use aboard the railroad then converted at the destination back to gold or silver or the locations currency. What is the cost of producing paper currency verses a gold coin? It’s irrelevant!
    Have you sent money across the globe using SWIFT ? or Bitcoin? Credit card? Sending though the mail Silver or Gold? Bitcoin on the internet wins hands down!

    • Sending wire transfers, which takes only a few hours, is superior to Bitcoin when the network is overloaded, and it takes days.

  32. Michael Kohlhaas | November 4, 2017 at 3:23 am |

    The power consumption for one single BitCoin transaction – I am not talking about mining that crap – is 222 kWh! With that kind of energy you can run your freezer fridge combo for a whole year!

    Again, BitCoin should be forbidden by law worldwide for that useless energy waste.

  33. Comparing 1 troy ounce of gold to 1 Bitcoin is completely arbitrary and not useful. Why not 1 gram or 1 pound both would just just as arbitrary. It would make more sense to compare how much energy would it take to mine $1000 worth of Bitcoin versus $1000 worth of Gold. It doesn’t have to be $1000, but some third value that actually lets you do a comparison.

  34. Robert Happek | November 5, 2017 at 9:02 pm |

    Comparing the energy cost of creating and transacting bitcoins versus the energy cost of mining gold and silver is somewhat misleading. The energy cost of creating gold is much larger than just mining it. It takes colliding neutron stars to create those energy densities which are needed to create gold. As a matter of fact, our sun is not powerful enough to create gold.

    http://www.npr.org/sections/thetwo-way/2017/10/16/557557544/astronomers-strike-gravitational-gold-in-colliding-neutron-stars

    But I agree with Steve that the bubble in Bitgold will deflate eventually like all the other bubbles before.

  35. your bitcoin is bubble winner part of the analysis is flaw. You assume as soon as a miner start mining he will receives 1 bitcoin at the current market price. reality is at current difficulty rate, one latest model miner from bitmain will take at least 1-2 years to mine one full bitcoin. at which timeframe, difficulty rate will go up making mining increasingly harder and miner get smaller and smaller portion of bitcoin in return. basically, after certain fraction of 1 bitcoin, you will reach a limit which makes reaching 1 full bitcoin almost impossible. at which point, you can either buy more miners and fire them all at once in hope that your miner can beat the difficulty adjustment of the network and finally mine 1 full bitcoin in future. But then the total cost of mining 1 bitcoin will be more than what you estimated, $1800, more likely multiple of that. the beauty of bitcoin is you will not fully know the final cost to mine one bitcoin untill the market is saturated and reach equilibrium. You seem to know economy well, but you lack understanding of the technology behind bitcoin, and i dont blame you, most people arent technical enough to understand bitcoin fully. but thats exactly why you should try to learn more about the technology behind bitcoin, not making misinformation on the internet and draw false conclusion based on incomplete information. thanks.

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