Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing

Investing in Bitcoin: A Gold Rush for the Digital Age (Graphic)

More than one observer has compared investing in Bitcoin now to getting in on the California Gold Rush of 1849.

And there are numerous fascinating parallels. The lucky few who were mining Bitcoin back in 2010, when it could be done with just about any PC, generated hundreds of bitcoins that went from fractions of a penny to over $1,000 late last year.

Investing in BitcoinBitcoin miners now must spend tens of thousands of dollars on special mining hardware, and then must hope that Bitcoin prices will remain stable enough that they won't end up losing money.

Back in California, a similar thing happened. After most of the surface gold was grabbed up by the early arrivals, miners had to spend more and more money on specialized equipment in an attempt to reach the harder-to-get gold.

And of course, the investing term "pick-and-shovel play" comes from one entrepreneur of the California gold rush, Samuel Brannan, who cornered the market on mining gear at the start of the rush and quickly became a millionaire without mining a single flake himself.

In the Bitcoin world, several companies, particularly BitFury, are having success selling increasingly powerful Bitcoin mining hardware. The Bitcoin protocol is designed to increase the mathematical difficulty of the equations that the miners must solve to maintain a steady rate of Bitcoin creation (about one block every 10 minutes, worth 25 bitcoins right now).

But while the California gold rush for individuals had petered out by the mid-1850s, the disruptive technology of Bitcoin – which will touch millions of people all over the world – has only just started to have an impact.

As the Bitcoin economy has grown, more opportunities for investing in Bitcoin have arisen. Venture capitalists are pouring money not just into Bitcoin miners, but into payment processors, Bitcoin wallet companies, and Bitcoin exchanges.

These entrepreneurs will be Bitcoin's next millionaires and billionaires.

For a more complete comparison of the California Gold Rush to Bitcoin check out the infographic below:

Join the conversation. Click here to jump to comments…

Leave a Reply

Your email address will not be published. Required fields are marked *


Some HTML is OK