New Report Shows Gold Mining Uses Far More Energy Than Bitcoin, Over 20x Energy Consumption

We hear a lot about how bitcoin’s proof of work (PoW) consensus mechanism uses an unsustainable amount of energy. A new report, however, shows that gold mining uses significantly more energy than bitcoin mining.

The fact that gold mining burns more energy than bitcoin mining should not be a surprise. Gold has been around for thousands of years and has a significantly larger market cap than bitcoin. Gold also needs to be physically extracted from the ground in far-flung parts of the world, while bitcoin can be mined with a computer.

Nevertheless, the study is being heralded across the crypto community as proof that bitcoin’s energy consumption isn’t that bad.

What did this study reveal? The study from LongHash showed that gold’s annual mining costs are about 20 times higher than bitcoin’s:

Annual Cost of Mining Bitcoin: $4.3 billion

Annual Cost of Mining Gold: $87.3 billion

Both bitcoin and physical gold are seen as reliable stores of value. While gold is backed by thousands of years of usage as a store of value, bitcoin is a relative newcomer to the scene. Nevertheless, it makes sense to compare two of the most popular stores of value with one another.

How to Estimate Bitcoin’s Energy Usage

How did LongHash come up with the figures above? Obviously, there’s no definitive source for bitcoin’s total energy consumption. Even if you measure hashrate and assume that hashrate is being provided by certain mining rigs, you can’t get an accurate energy consumption estimate for the bitcoin network because there are so many auxiliary costs associated with bitcoin mining – including transporting mining rigs worldwide, cooling the hardware, maintaining those rigs, etc.

So how did LongHash do it? Here’s how they explained their “top-down” approach to calculating bitcoin’s energy consumption:

“The top-down approach estimates power consumption based on block rewards. Every time a new block is created, 12.5 Bitcoins are given to miners. Assuming 10-minute time intervals between blocks, that comes to about $562,500 every hour (12.5 x $7,500 x 6) earned by miners. If miners were using 30% of that $562,500 per hour to buy electricity, how much would they buy? The answer provides an estimate of power consumption. Electricity prices vary greatly, but we can assume about $100 per MWh for the cost of power to the ultimate end-user. That comes to about 1,688 MWh to support the Bitcoin blockchain.”

This obviously varies from the bottom-up approach of bitcoin energy consumption, which looks at the mining hardware bitcoin miners are using – say, the Antminer S9 – and estimates bitcoin energy consumption that way. When calculating energy consumption and hashrate from the bottom-up, we get a total network hash rate of 50 exahashes per second, which gives us 7,000 MWh.

There’s a big discrepancy between the bottom-up and top-down approach when calculating bitcoin energy consumption. The top-down approach gives us 1,688 MWh while the bottom-up approach gives us 7,000 MWh.

Longhash split the difference between the top-down and bottom-up estimates, giving us 4,344 MWh of energy needed to run the bitcoin network, or about $4.3 billion.

How Does Bitcoin’s Energy Consumption Compare to Gold?

LongHash estimates it takes about 4,344 MWh of electricity to run the bitcoin network. But what about physical gold mining?

LongHash looks like statistics from global gold mining corporations, including Barrick Gold Corporation (the world’s largest gold mining company):

“In 2017, Barrick produced 5.3 million oz. of gold. Page 32 of Barrick’s 2017 annual report discloses gold production cost of $794/oz., or $4.2 billion. Each year approximately 88 million oz. of gold are mined worldwide. Assuming Barrick’s $794 cost/oz., it cost $70 billion per year to mine the world’s gold production.”

Barrick doesn’t disclose the amount of energy they use to extract that gold, but LongHash looked at “clues” in their annual report, including:

“Most of Barrick’s direct energy costs are diesel fuel. Page 40 of its 2017 annual report shows $346 million of 2018 future crude oil exposure at $78/bbl. If we use current forward prices of $65/bbl, we come up with $288 million per year of energy costs, or $54/oz. in oil costs, for Barrick.”

After extrapolating this data across the global gold industry, LongHash believes gold mining uses $6 billion of direct energy usage, or $87.3 billion of total annual costs:

“If we assume the world gold industry has a similar cost structure, we can estimate $4.8 billion in energy costs for the gold mining industry. Barrick has a world-class portfolio of low-cost mines. Let’s assume that the global cost average is 25% higher than Barrick. That would imply $6.0 billion of energy cost, and $87.3 billion of total annual costs.”

$87.3 billion is obviously significantly larger than bitcoin’s energy consumption of $4.3 billion.

“Bitcoin Mining Is Still Far More Efficient than Gold Mining”

LongHash summarizes their study with a surprising claim:

“…Bitcoin mining is still far more efficient than gold mining. I think the world would be a better place if we mined less gold, and increased our adoption of Bitcoin as a store of value.”

Ultimately, it’s difficult to analyze the energy consumption of gold mining and bitcoin mining activity. However, LongHash has used a number of clever metrics in an attempt to quantify these factors.