It is simple to see the similarities between Bitcoin mining against gold and oil extraction. In theory, all include discovering assets, all have had uneven value histories, and all have been named as troublesome in nature.
However, there are huge differences between the three resources, particularly with regards to cost. Twitter user @WallSt_Dropout delivered a progression of captivating graphs that clearly show those differences.
Starting with oil for example-as the cost of oil begins to rise, there’s a checked reaction in oil generation. Why? Since now there’s additional motivation to put resources into foundation/extraction capacities.
As oil production begins to surpass demand, it results in declining oil prices. The rewards of extracting oil are now not too attractive, hence a drop in production. However, as prices begin to go back to normal as a result of cuts in supply from the previous cycle, producers are once again doing motivated to increase output.
The same goes for gold. Starting in 2008, month to month gold mineral production remains low, as a result of continuous low prices in the last decade. As prices are boosted by market forces, production increases mirrors prices. As gold prices take a plunge in 2012, mineral generation also plummeted.
For Bitcoin’s situation, the inverse is the case. In 2010, when the block incentive for mining was increased, prices remained low. As prices rise, the incentives for mining cooled off. This indicates a different pattern between supply and demand for oil and gold.
This is a primary indicator of how Bitcoin operates. The Bitcoin block mining incentive halves every 210,000 blocks. Based on data from Bitcoinblockhalf.com by May 2020, the incentive will decline to 6.25 coins.
In what manner will miners profit after the block rewards cease in 2140? The answer lies in transaction expenses. Gold miners have no say in the buying and selling of the product, while in the case of Bitcoin, miners determine transaction fees for the approval work that they engage in.
As the Bitcoin inflation rate gently declines, the importance of transactions fees to reward miners to continue mining will increase-but not anytime soon.
Oil and gold are products that have no ‘genuine’ end date, i.e. there are still assets lying underneath the ground. Regardless of fears of increases in oil and gold, companies continue to make more discoveries as innovation enables them to locate new areas. In the case of Bitcoin, the matter is a whole different ball game.