Bitcoin advantages in mining than the extraction of gold or oil are many. Gold or oil involve dug out resources, excepting Bitcoin. The three assets have had jumpy prices, and all have been destructive at the time.
Bitcoin Advantages
There are many differences between the three assets, especially after the price increases. Twitter user @WallSt Dropout had highlighted perfectly the main differences between them.
A lot of people outside #crypto compare $BTC "mining" w/ other commodity production
3 supply charts – Oil v. Gold v. BTC – The supply response to an increase in price when it comes to BTC is an important dynamic to understand. @MarkYusko @cburniske @APompliano @twobitidiot pic.twitter.com/UXjHwhGJao
— Wall St. Dropout (@WallSt_Dropout) April 2, 2018
When the price of oil starts to go up, there is a pronounced response in oil production. This is because it is an extra reason to invest in extraction capabilities.
If oil production starts to exceed demand, there is a cut down in the oil’s price. To remove quite so much oil as before, it’s not so profitable anymore. That’s why the production falls. The fast the price recovers, the quick the drill machines start to produce more and more oil.
The gold was in the same situation in 2008. The monthly gold production was low thanks to prices from previous decade. When the market urges the price of gold to go up, the financial crash happens. In 2012, the ore production levels off because of the dip of price.
The Bitcoin is functioning on a different mechanism. In 2010, when the production was high, the price was low. When the prices have increased, the rewards for mining have reduced. There isn’t the same relationship between supply and demand found in oil and gold.
Bitcoin Is different
There is a key about how Bitcoin works. The Bitcoin block mining reward diminishes every 210,000 blocks. If in the present the reward is 12.5 coins, until May 2020, the reward will be 6.25 coins.
The question is how miners will make money if the rewards will stop in 2140. Due to transaction fees. Another difference between gold and Bitcoin is that gold miners can’t control the buy and the sell of product, while the Bitcoin miners must confirm the work they complete. It could be the equivalent of an oil platform that charges the individuals that use oil in their cars.
It is a compulsory part of the system. Think about the fact that miners create a fee of land every 10 minutes. The sale of that portion of land keep miners mining.
Oil and gold are commodities that have no ‘real’ end date, there are still resources lying beneath the ground. Despite fears of peak oil and peak gold, companies keep finding more of the stuff as technology allows them to pinpoint their location and extract it with greater accuracy.
We already know how much Bitcoin is left to be mined. What makes Bitcoin mining a very different proposition than mining other real world commodities.