Is Bitcoin Mining a Modern Gold Rush?

In 1848, a humble American carpenter named James W. Marshall caught sight of gold shimmering in a California river. By the next year, the news of plentiful gold had spread around the world, and hundreds of thousands of people rushed to California from almost every continent on earth.

Dubbed “Forty-Niners” after the first year of the California Gold Rush, the waves of immigrants hoped to discover their own rich veins of gold and strike it rich. In reality, very few of them became wealthy. James W. Marshall himself never turned a profit from the discovery that started it all.

Just like the California Gold Rush of the mid-19th century West, today’s gold rush begins with mining, though mining Bitcoins is a bit more complicated than panning for gold.

The success of the few 49ers parallels the stories of early Bitcoin investors like Jered Kenna, who paid 20 cents each for his first Bitcoins in 2010. Today he’s one of the world’s leading experts on the cryptocurrency, and holds a Bitcoin portfolio worth undisclosed millions.

The modern Bitcoin craze echos many elements of the mid-19th century Gold Rush. When the Gold Rush began, California had little or no organized law enforcement, leaving 49ers to work out their own system for staking claims. Today, lawmakers struggle to understand exactly what Bitcoins are and how they work, let alone how to legislate their use. Some are still updating the books to recognize Bitcoins as legal currency.

The massive influx of thousands of people to the West Coast in less than a decade wrought lasting changes. San Francisco went from a population of 200 to over 30,000 in just over 5 years, and California created a state legislature, elected a governor, and became a state in just 2 years. The changes weren’t all good: the mining techniques wrought harm on the rivers, lakes, and overall landscape. The Gold Rush also increased tensions between the native California Indians and the settlers who forcibly removed them from their homes.

It’s impossible to know today how Bitcoins and the new wave of cryptocurrency will impact the economy. Widespread adoption of Bitcoins, which are global and practically untraceable, will change the landscape of the global economy, but the exact results are impossible to predict.

Bitcoin Mining vs Gold Rush

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Bitcoin – A Modern Gold Rush?

To strike it rich or hash it rich? The recent scramble for Bitcoin fortunes bears an odd resemblance to the Gold Rush of California in the mid-19th century. But instead of shovels and buckets, these miners use computers and cryptography.

While there has been a period of overnight Bitcoin fortunes, the real billionaires will be those creating the industries around it.

  • California Gold Rush – 24 Jan 1848
    • John Marshall finds gold in the American River at Sutter’s Mill.
  • Bitcoin Rush – 03 Jan 2009
    • Satoshi Nakamoto mines the first 50 bitcoins (BTC).
  • California Gold Rush – 12 May 1848
    • Residents of San Francisco rush to pan gold.
  • Bitcoin Rush – 1 Apr.-10 Apr. 2013
    • BTC price up from $97 to $237 in 10 days – then falls.
  • California Gold Rush – 19 Apr 1848
    • “New York Herald” reports ‘gold fever’ on the East Coast.
  • Bitcoin Rush – 11 Oct.-30 Nov. 2013
    • BTC price rises from $126 to $1,119. KnCMiner sells $3 million-worth of BTC mining rings within 4 days.
  • California Gold Rush – 1849
    • 90,000 miners arrive in California.
  • Bitcoin Rush – Mid-Dec. 2013
    • Number of merchants accepting BTC exceeds 15,000
  • California Gold Rush – 1850
    • San Francisco’s population grows by 3,000% in 2 years. California becomes a US state.
  • Bitcoin Rush – Dec. 2013
    • Pantera Capital unveils plans for $146 million bitcoin investment fund.
  • California Gold Rush – 1852
    • Record gold yields, as 20,000 Chinese workers arrive in San Francisco.
  • Bitcoin Rush – 3 Feb. 2014
    • BTC price starts to slide as BTC exchange MtGox refuses to execute Bitcoin withdrawals.
  • California Gold Rush – 1853 – Technical Innovation
    • Placer gold depleted – hydraulic mining turns the rush into an industry.
  • Bitcoin Rush – 20 Mar. 2014
    • KnCMiner sells $2 million-worth of its Titan miner for $9,995 a piece during a 2-hour presale.
    • +117 million reported total investment in BTC start-ups
    • +300 the number of startups.
  • California Gold Rush – 1857
    • California gold yields flatten out at $45 million a year.
  • Bitcoin Rush – 17 May 2014
    • BTC price sits around $440 as the first Bitcoin debit cards are released.

Even in terms of value, Bitcoin seems almost as big a business as the Gold Rush.

  • Worth of gold extracted in California* – 1849
    • $276 million
  • Worth of all extracted BTC since the beginning* – 3 Jan. 2009
    • $0
  • Worth of gold extracted in California* – 1850
    • $1.13 billion
  • Worth of all extracted BTC since the beginning* – 1 Jan. 2011
    • $1.5 million
  • Worth of gold extracted in California* – 1851
    • $2.07 billion
  • Worth of all extracted BTC since the beginning* – 1 Jan. 2012
    • $41.6 million
  • Worth of gold extracted in California* – 1852
    • $2.23 billion
  • Worth of all extracted BTC since the beginning* – 1 Jan. 2013
    • $143.9 million
  • Worth of gold extracted in California* – 1856
    • $2.23 billion
  • Worth of all extracted BTC since the beginning* – 1 Jan. 2014
    • $9.1 billion

But there is a big difference. The price of gold mining made it a predictable investment. But the price of bitcoins… well…

  • Official US gold price (oz.)* – 1849
    • $522
  • Price of BTC – 1 Jan. 2011
    • $0.3
  • Official US gold price (oz.)* – 1851
    • $522
  • Price of BTC – 1 Jan. 2012
    • $5.2
  • Official US gold price (oz.)* – 1852
    • $522
  • Price of BTC – 1 Jan. 2013
    • $13.5
  • Official US gold price (oz.)* – 1853
    • $522
  • Price of BTC – 4 Dec. 2013
    • $1,151
  • Official US gold price (oz.)* – 1856
    • $484
  • Price of BTC – 12 May 2014
    • $441

What About Mining?

If you start crunching the numbers, then you’ll find that mining BTC offers only a slight improvement in profitability over gold mining in 1850.

  • 750,000 lbs – the amount of gold that was extracted in California during the years 1848 – 1858.
  • That’s 75,0000 pounds/year
  • At current* prices that’s $1,373,554,541
  • 17,718,750 – the number of BTC that will be produced in BTC’s first ten years.
  • That 1,771,875 BTC/year
  • At current* prices that’s $1,164,000,000

Even if 1 BTC was worth $522, mining gold in 1850 would still pay much more than mining bitcoins today.

California gold miner

  • $551 – daily revenue in 1848*
  • $166 – daily revenue in 1852*

BTC miner

  • $4 to $19 – daily average revenue in 2014

Is Bitcoin a modern Gold Rush? The 2013 rush made fortunes overnight, and generated even more publicity for Bitcoin – so that now, start-ups, programmers and venture capitalists are rushing to build an infrastructure around the cryptocurrency. And each one is hoping to strike it rich.

Sources

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