Barrick Gold and the Unrecognized Threat of Bitcoin

tl;dr: As the gold industry consolidates, there’s an increased risk of centralization which could affect prices. Meanwhile, the environmental cost of physical gold mining dwarfs Bitcoin and the CEO of one of the world’s largest gold producers is blissfully unaware of an existential threat.

During my workout on the elliptical yesterday, I happened to come across an interview on CNBC with the CEO of Barrick Gold.

As it relates to crypto, it was the very last question of the interview that caused me to lift my eyebrows.

But, let’s get some context first before we get to that.

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The Increasingly High Stakes Game in the Gold Industry

Barrick is one of the world’s largest gold producers. It is also in the middle of an effort to take over its rival, Newmont Mining. The result would be a company that is worth around $42 billion, nearly double the size of its closest rival.

The proposed merger is further complicated because Newmont is already in the process of acquiring Goldcorp.

Now, I happen to know a bit about the gold industry because I gave a board level presentation to one of the world’s top gold producing companies.

Since I had that background, I’ve been watching this game play out with a bit of interest.

The Cost of Gold Production

Gold was also on my mind for another reason recently.

My son and I are big fans of the Discovery channel.

One of the programs they are pushing hard these days is called “Gold Rush”. It chronicles both small scale operators in rivers in Alaska as well as huge mining operators in the Yukon.

There’s a lot of technology and heavy machinery involved in mining for gold, on both the small and large scale.

There’s dredging equipment that sucks up the floors of river beds, huge trucks that carry loads of dirt for processing, and enormous sluicing machines that pump thousands of gallons of water per minute to separate the gold (video link) from the dirt.

The impact is denuded earth and huge amounts of energy consumed.

As a concerned environmentalist who is both pro-Bitcoin/crypto and concerned about the impact of Proof-of-Work mining, I started to ask myself:

“is Bitcoin actually more environmentally friendly than gold mining?”

The Energy Cost of Gold vs. Digital Gold

It turns out that I’m not the only one who has thought about this.

Vladimir Jelisavcic from Panda Analytics Inc. did a much more thorough analysis than I ever could about the environmental cost of physical gold production vs. digital gold (Bitcoin) production.

You can read through his entire analysis, but here’s the conclusion:

To summarize, gold mining’s $6.0 billion of direct energy usage is about 92 million barrels annually ($6.0 billion/$65 bbl). The world consumes about 34 billion barrels annually.

That means gold mining direct energy costs (diesel fuel) are about 0.27% of worldwide oil consumption. Bitcoin, in comparison uses about 0.07% of worldwide electricity capacity.”

It costs 3.85 times MORE energy to mine gold than it does Bitcoin.

That doesn’t account for all of the water, carbon emissions from the trucks, and destruction of the environment.

Plus, the methods of production for gold are established, they are not driving renewable energy innovation at all. By comparison, the other day I blogged about how crypto may actually be a positive driver for the development of cost-effective renewable energy sources.

Why Bitcoin May Be Better than Physical Gold

As if the environmental/energy issues are not enough reasons for why physical gold is a greater threat to our planet than digital gold, I’ll throw in three others.

Centralization

The first is centralization of production. If the Barrick-Newmont or the Newmont-Goldcorp deal goes through (or both), the degree to which one company can control the supply of gold globally is going to be astronomical.

People are worried about Bitcoin centralization (which is fair) but what would this mean for prices of gold?

Portability

Let’s say you want to hedge against a currency devaluation with gold. Then, let’s say you want to move to another country or give it to someone else as payment. Unless you are dealing with really small amounts, portability is not an easy option. It’s cumbersome and expensive.

Divisibility

If you have a gold ingot in your house, how easy is it to give half of that to someone else as payment?

What the Barrick Gold CEO Misses

During the interview, the polished, experience Barrick Gold CEO makes the case for Newmont acquisition on CNBC. He’s obviously a seasoned pitchman.

At the very end of the interview, the host asks him “one last question.”

“Do you own any Bitcoin?”

“No,” the CEO says.

“Do you have a view?”

“Gold is the only currency you can’t print or make,” he responds.

I kind of smirked.

Since I was pretty sure he wasn’t talking about “hard forks”, I felt like I had a glimpse of the future.

I am not saying that Bitcoin will replace gold, but I am saying that this CEO dismisses the threat because he doesn’t understand Bitcoin.

That means he is vulnerable.

It may take 10 or 20 or 30 years to play out, but it’s going to be interesting to watch.

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Barrick Gold and the Unrecognized Threat of Bitcoin was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.