Digging Deeper - Is Bitcoin Digital Gold? A Mining Perspective

37 Pages Posted: 17 Apr 2023 Last revised: 11 Oct 2023

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Jonathan R. Karlsen

The University of Western Australia; Digital Finance CRC

Lee A. Smales

University of Western Australia

Allan Trench

The University of Western Australia

Date Written: April 3, 2023

Abstract

Bitcoin is often labelled digital gold and many studies compare bitcoin and gold prices, returns and volatility. This paper digs deeper and compares the characteristics of bitcoin mining with gold mining to assess claims that bitcoin is digital gold. We identify 20 differences between gold and bitcoin mining. Gold miners locate where gold is present while bitcoin miners locate where cheap electricity is present. Gold mining has large barriers to entry relative to bitcoin mining making it relatively difficult to start and abandon a gold mine but much easier to start and abandon a bitcoin mine. This is reflected in a greater exposure of gold miners to gold prices and a smaller exposure of bitcoin miners to bitcoin prices. While the analysis demonstrates that bitcoin mining is less complex and less risky than gold mining, the similarities support the idea that bitcoin is digital gold.

Keywords: Bitcoin, gold, mining, decentralized mining, centralized mining, proof of work, proof of stake

JEL Classification: G18, O31, O32, O33, Q02

Suggested Citation

Baur, Dirk G. and Karlsen, Jonathan R. and Smales, Lee A. and Trench, Allan, Digging Deeper - Is Bitcoin Digital Gold? A Mining Perspective (April 3, 2023). Available at SSRN: https://ssrn.com/abstract=4407838 or http://dx.doi.org/10.2139/ssrn.4407838

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Jonathan R. Karlsen

The University of Western Australia ( email )

35 Stirling Highway
Crawley, WA Western Australia 6009
Australia

Digital Finance CRC ( email )

Lee A. Smales

University of Western Australia ( email )

UWA Business School
35 Stirling Highway
Perth, Western Australia 6009
Australia

Allan Trench

The University of Western Australia ( email )

35 Stirling Highway
Crawley, WA Western Australia 6009
Australia

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