In recent years, bitcoin mining has become a multi-billion dollar industry. Instead of searching for rare metals, bitcoin mining involves a computational operation to find a rare number. By its very nature, it is a permissionless and commons-based peer production process. But nowadays, with stronger competition, the profitability of bitcoin mining is getting smaller, while the capital investment required is growing. Bitcoin mining may already exceed the total energy consumption of Singapore. Similarly, gold mining relies on energy resources and capital. It stands to reason to consider a commodity-based review.

The economic cycle of raw materials tends to regulate itself. Higher demand is followed by a price increase, which in turn encourages investment in exploration and mining technologies. If there is a higher demand the price will usually increase, which implies more effort and more risk for the exploration of new sources. When producers find new recoverable deposits, they can extract more raw materials. With an increased stock, prices will usually fall. In the past, the gold mining industry had enormous problems keeping up with demand shocks, especially during the time of the gold standard, when gold was in high demand. The following graphic shows the increasing gold production in the late 1920s (Figure 1).

In the 1930s, Federal Bank statistician Carl Snyder predicted an annual economic growth rate of 3%. Hence, miners needed to keep up with the growing demand for gold. Right after the introduction of Britain’s gold standard, there was about 40,000 metric tons of gold above ground. The relatively constant annual production of 600-700 metric tons differed from the 3% target. While the extraction of resources is limited, economic growth is not dependent on gold production. In fact, the discovery of orebodies has declined in recent years despite record exploration expenditures. Swedish economist Gustav Cassel coined this observation the “paradox of the gold standard”.