The answer to your excellent question is a bit complex because there are two things in reality that folklore exaggerated and sometimes conflated. Virginia City - like the Comstock Mining District in general - reinvented itself many times throughout the twentieth century, and when one adds to that the general Western tendency for outrageous exaggeration (and general lying), it is not surprising to find that some things become embedded in the local folklore - somethings with bits of truth and somethings with no truth at all.

First of all, there was a period of almost four weeks following the first big strike on June 8, 1859, when the local miners were looking for gold exclusively and found that their devices that washed the soil to reveal gold were becoming gummed up by a local, heavy "blue mud." These miners weren't stupid and they probably realized that the mud was some sort of metal given its weight, but like all Western miners working in the wake of the California Gold Rush, the focused on gold, the most valuable prize imaginable.

In early July, an ore sample from what would become the Ophir Mine was taken to California's Grass Valley/Nevada City area where it was assayed: One ton of that rock (and a ton of rock is not that much!), would yield about $800 in gold (with gold selling for $16 per ounce) and nearly $4,000 in silver (when silver was selling for $1.60 per ounce). This shifted the emphasis from gold exclusively to gold and silver mining, and historically, Comstock mines yielded gold and silver at a ratio of about 1:10 in weight, or about equal value in dollars.

This early period when the miners were unaware of the silver caused a great deal of folklore in itself: I have heard tour guides tell tourists that the miners worked the Comstock for ten years!!!! before realizing that there was silver there - so this brief period of ignorance has been exaggerated a great deal.

Then there is the problem with milling silver. Gold is fairly easy to process because it does not typically bond with other elements. As a result, extracting gold from its matrix is fairly easy. Silver, however, easily bonds with just about anything, and so it is usually found in a state of being chemically bonded with other elements. Milling silver isn't simply a matter like the coaxing of free gold out of the rock and soil; rather one first has to coax silver out of a relationship with other elements. That means that ore needed not only to be crushed, but there also needed to be chemical processing to free the silver so it could be retrieved.

The result of silver's nature is that nineteenth-century milling often left a relatively high percentage of silver behind in its mill tailings (the pulverized rock that was expelled at the end of the milling process). Mill tailings were a fine powder that acted something like cement when they were laid out, compacted, and made wet. This made tailings excellent material for roads. Because mill tailings were used for Virginia City road work and because nineteenth-century milling techniques left some silver behind, it became a local matter of bragging rights that its roads were paved with silver. This combined with the legends that grew out of the early "blue mud" story easily conflated into the idea that the locals were trying to figure out what to do with the blue mud, and so they paved their streets with it (which was not the case) before realizing it contained silver.

That's a lot to unravel, but I hope you can see how these aspects of Comstock history easily combined to form a persistent bit of folklore. I handle this in a couple of my books: The Roar and the Silence: A History of Virginia City and the Comstock Lode (1998) and Virginia City: Secrets of a Western Past (2012). This excerpt from the latter gives you access to some text at our favorite price (i.e., it is free!); it doesn't deal with your question directly, but you may find it of interest since it deals with the growth of the community.

I hope this helps.