Bitcoin is not the new gold. On foot of the FT article today on BTC and by extension cryptocurrency energy consumption (TL:DR its a dirty dirty currency) a common thread of commentary is “what about gold, eh, look how energy intensive that is”. Well….lets do that
And it is true- gold is indeed quite energy intensive. One analysis , by Haas McCook here suggests that “we can say that Bitcoin consumes/emits less than half of what the gold mining industry does, and less than one-fifth of what bank branches and ATMs do.” So there BTC haters. Put that in your pipe and smoke it. TO THE MOON
Except… McCook is comparing not apples and apples, nor even apples and oranges but apples and strange sea cucumbers found in the icy depths of Europa.
First, he makes a significant error in lumping in all gold demand as “gold”. Recall what BTC is, fundamentally, which is a currency. Unlike gold it cant be worn, cant be used in industry, cant be put in your body as part of a medico-dental procedure. So, when looking at gold we need to look at the financial aspect of gold plus its new mining.
2020 new mining was 3500 tons and 1700 tons were recycled. His figures suggest, based on some reasonable assumptions, that we have therefore a consumption of c 265Tw. Agains this he posits BTC using 113TW. Where that comes form is unclear as the Cambridge data suggests 130-440TW . In 2020 financial gold – ETF and Central Bank was a shade under 1000 tons of the total demand of 3700 tons. So comparing the currency elements of gold and BTC we see a total financial gold electrical draw of .27*265 or 72Tw. Gold as a direct comparison to BTC is between 1/2 and 1/8 as energy intensive as BTC. If we look at stock alone, BTC is probably between 1-2% of the global value of gold. So again, it’s clear that BTC is massively more energy intensive than gold.
McCook estimates a global banking electrical draw of c 700TW. Again, the HODL’s cry, “look at how superior is BTC, merely 130TW”. But…. in 2020 the total crypto space might amount to $2-3trillion. Not small beer but…. Compare to the $70t+ pf equity markets alone not to mention the $130+ bond market and the derivatives…. The reality is that cryptos are small beer in comparison to existing asset markets – a draw of 130TW to create a market that is 1% of global (banking system supported) stock/bond markets at 700tw total seems a bad use of resources. Even if we look at just retail payments – worth at least $55trillion – and compare it to total BTC transactions – a recent report suggests that most crypto spending is to buy…more crypto – the situation is overwhelmingly clear. Again, global broad money is close to $100trillion, utterly dwarfing BTC
Bottom line – BTC is right now a huge energy hog and on a stock or a flow basis compared to other currencies and currency-like assets is vastly more energy impactful.
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