On May 12, 1848, general store owner Sam Brannan walked through San Francisco, a vial of gold dust in hand, yelling: “Gold! Gold! Gold from the American River!”
And so began the California Gold Rush.
Crypto mining may not have a Sam Brannan spreading the news, but then again, it doesn’t need one. It has the Internet, which spreads news far more quickly than one man in one city.
Read on to learn about money made both by crypto mining in the modern age and gold mining in the 1800s, and if you haven’t already, read the previous articles in this series about planning and gathering the right tools.
Set expectations
In typical early-bird-gets-the-worm fashion, forty-eighters–the earliest gold prospectors of 1848–made good money far more easily than the tens of thousands of forty-niners who showed up a year later. Forty-eighter fortunes included a 14-year-old boy who made $3,467 in 54 days, the equivalent to $103,819 today, and two miners collecting $17,000 in gold in seven days, today worth $509,065. By contrast, agricultural laborers made $1 for a 12-hour day in 1848 while skilled artisans made $1.50.
The earliest crypto miners in 2009 also had an easier time. The transaction problems they worked on were simpler, registering the lowest score of 1 on a difficulty scale. Solving them yielded a reward of 50 BTC per block. But Bitcoin was so new, it was worth roughly $0.0008–meaning 50 Bitcoins was worth 4 cents. Patience meant profit in this case. As of publishing this article, a single bitcoin is worth around $11,370. That means 50 BTC is now worth $568,500.
By May 2020, the difficulty score was more than 16 trillion, while the reward was 6.25 BTC per block–or $71,063. You read that right: The difficulty in crypto mining became greater, and the reward became less.
Of note: Just because bitcoins are created by a computer, doesn’t mean they’re in infinite supply. In fact, the Bitcoin network will be capped at 21 million total bitcoins, which means both gold and bitcoins are finite resources. Because of this, gold and bitcoin mining have experienced similar mining trajectories. To wit:
An announcement of “free” money leads to a small influx of early miners. → Miners make good money. → Therefore, even more people mine. → This depletes the finite resource (bitcoins or gold). → The resources remaining require more complex tools to access. → More complex tools require more out-of-pocket expenses. → More out-of-pocket expenses lessens your profit margin.
Mining isn’t the only way to turn a profit
When gold was discovered, most people rushed out to make their fortune mining for gold. Yet, the first millionaire of the California Gold Rush was Sam Brannan, mentioned in our introduction, who purchased all the pans, picks and shovels he could put his hands on when he realized gold had been discovered nearby. Gold prospectors purchased his supplies to start their back-breaking gold-mining endeavors. Meanwhile, Brannan got rich off these prospectors through much easier retail work.
Similarly, you can jump on the crypto mining bandwagon, or you can make cryptocurrency in a less obvious but easier way: by hosting a Bitcoin ATM. You have no upfront costs when you provide the space for a Bitcoin ATM. You simply reap the benefits, making money off renting space to host a kiosk. Or you can take the more industrious route and set up a network, which requires some money upfront but also has greater potential for profit.
You’d make Sam Brannan proud.
Check out the first two installments in this trio of posts about mining:
What Mining for Gold in the 1800s Can Teach You About Mining Cryptocurrency Today
Tools You Need to Crypto Mine and Surprising Parallels to the California Gold Rush