Bitcoin, Oil, and Gold: What Is the Difference?
More and more people compare Bitcoin with gold and oil. Sure, there are some similarities, since all of these assets are mineable and their prices suffered lots of bumps throughout the history, and all of them were called harmful and destructive.
Yet these assets are different, especially when it comes to the consequences for the supply when the price is increasing. A Twitter user @WallSt_Drop has posted a series of graphs, that perfectly illustrates the difference between the assets.
Let's start with oil. When the price of oil rises, the level of production changes noticeably. Why? Because it creates an additional reason to invest in infrastructure of the oil production.
When the oil production pass the oil demand, the price declines. After that it becomes less profitable to produce the same amount of oil, and the production also declines, Then prices corrects, and oil producers once again begin to produce more black gold.
And what about the real gold? The same rule applies to it. At the start of 2008 monthly gold production had been constantly declining for a decade. After that the market pushed its price, thanks to the 2008 financial crisis, and the level of gold production began to rise. And when the price of gold finally decreased in 2012, the same happened with the gold production.
And Bitcoin? Well, everything is the opposite with Bitcoin. In 2010 the reward for finding new blocks was high, the price of BTC was low. As the prices grew, rewards for miners reduced. Therefore there is no cyclic dependency, as in oil and gold.
Actually, there can't be such dependency, as it opposes the basic principle of Bitcoin. The reward for finding new block halves every 210,000 blocks. Currently, the reward is 12.5 BTC for a new block, and according to Bitcoinblockhalf.com it will halve to 6.25 in May 2020.
But how the miners will earn in 2014, when the emission of BTC will end and miners will not receive any rewards? Through transaction fees. And this is yet another crucial difference between Bitcoin miners and natural resources miners, as oil and gold producers do not have the control over sales of the product, while Bitcoin miners have it.
Bitcoin inflation has been declining, and the need for higher transaction fees to motivate and encourage miners will grow.
Both oil and gold do not have the 'real' limit of their volume, as nobody knows how many of these resources lie somewhere beneath us. And despite the concerns that all oil and gold will soon be found, producers regularly find new previously unknown oil and gold fields, as the search technology develops.
At the same ttime, everybody knows how many Bitcoins are in circulation and how many coins can be mined. This makes the mining of cryptocurrency different from the mining of natural resources.