Digital Gold Rush Depends on Traditional Gold
Digital Gold Rush Depends on Traditional Gold
How Cryptocurrencies Rely on Mineral Commodities
In 1849, the discovery of gold in California sparked one of the most famous gold rushes in history. Thousands trekked across mountainous terrain to seek the precious metal, with entire industries springing up around the rush. In fact, the desire to understand our mineral resource wealth that led to the creation of the U.S. Geological Survey was in part fueled by gold rushes like this one.
Today, a modern gold rush of sorts is underway in the realm of cryptocurrencies. Existing only digitally and not backed by any government, cryptocurrencies are monetary units that, unusually, seem to have no relationship with precious metals like gold, silver or platinum. But is that actually the case? It turns out that cryptocurrencies might be more beholden to mineral resources than they seem at first glance.
Digital Coins Come from Coin Metals
Gold, silver and copper have traditionally been the three most commonly used metals in coins throughout history. So, it’s somewhat ironic that they have a new, vital role to play in the rise of cryptocurrencies, which are billed as a radical departure from traditional money.
Cryptocurrencies typically rely on a distributed computing system known as blockchain. Blockchain has several advantages that appeal to cryptocurrency users and designers, but because it relies on computers, it also relies on the minerals that are used to produce computers.
Gold, silver and copper are important elements in modern computers, primarily because they are the three most conductive metals available for use. Gold and silver are more conductive than copper, so they are used in hard drives and circuit boards. Copper plays many roles in computers, from wires to chips.
As more and more computing power is routed towards mining cryptocurrencies, the digital markets will come to rely ever more on the traditional currency metals.
Precious Cards, Precious Metals
One of the unanticipated side effects of the cryptocurrency cash grab is a shortage of high-end graphics cards. The blockchain equations that enable cryptocurrencies to function require massive computing power, which relies on the best graphics cards. That has led to a shortage of these graphics cards and increased prices for them.
These graphics cards themselves are made with pricey materials, such as the platinum group metals. The platinum group, which includes platinum, palladium, and iridium (among others), is known for its resistance to corrosion and stable electrical properties, making it ideal for high-quality computer components.
Conducting the Business of Cryptocurrencies
Although the cryptocurrencies have always been attention-grabbing, some of the components in the computers that mine them are decidedly more understated. No modern electronic device, whether smartphone or top-of-the-line crypto-mining desktop computer, can function without silicon and aluminum.
Silicon forms the basis for nearly all computer chips, graphics cards, and transistors. Aluminum, meanwhile, functions as a heatsink in many computers, absorbing the significant thermal energy generated during the blockchain mining process and the processing of other complex equations.
Global Currencies, Global Supply Chains
One of the attractions of cryptocurrencies is that they span the globe without being tied to individual countries. However, some of the mineral commodities that power the electronics on which cryptocurrencies depend are produced overwhelmingly by a small number of countries.
The platinum group metals, for instance, are produced primarily in South Africa and Russia, while the majority of silver and copper production occurs in around a dozen countries each. Gold is more evenly spread out, but half-dozen countries were still responsible for half of world’s gold production in 2017.
The United States remains dependent on foreign sources for many of these minerals, but there is significant domestic production for copper, gold and silver.
In 2017, domestic gold mine production was estimated to be about 245 tons at a value of about $9.9 billion, while U.S. mines produced approximately 1,020 tons of silver with an estimated value of $564 million. Meanwhile, during the same year, U.S. mine production of recoverable copper yielded an estimated 1.27 million tons and was valued at an estimated $8 billion.
Start with Science
The USGS tracks the global supply, production, flow and use of the minerals that go into the computers on which cryptocurrencies depend. In addition, the USGS conducts geologic and geophysical research into the occurrence and formation of these minerals, so that future development can be informed by the best available science.