One obvious way to show that a theory is wrong is to look at its limits: What happens if the supply of bitcoins suddenly dropped to zero? (forget the technical aspect, and the panic this would generate among asic companies etc. this is pure gedanken from a social perspective...) Does bitcoin loose all its value? does it become infinitely valuable?
If there was a local (in time) relation between kw/h and price, one of the two should happen, right? But I am pretty sure that neither would happen. Bitcoin price would probably go up somewhat. But that would be more psychological (knowing that the supply is now even more limited, people would predict that it would go up, so they would want to sell it for a higher price).
I actually have some sympathy for the labor theory. However the relation between labor and value is not a one-to-one relation and it is not local in space-time. Globalization means you have to compete with China, but there is also "memory" and fluctuations, so you have to compete with the guy from 2 years ago who has decided to keep his savings in bitcoins rather than dollars.
Bitcoin has no intrinsic value. As a currency, It is actually a system to keep track of value (earlier ripple -i.e. ripplepay- was more explicit about this, but it never became popular since it lacked incentive). Mining is actually a red harring. It is just to interest people and resolve the problem of power concentration due to printing of the exchange units (traditionally done by the central banks).
Consider this. I do translation to earn bitcoins, then I buy stuff with them. The guy who sells me the stuff with bitcoins uses them to do other things. It is the "translation" or the "thing" that I bought with it which has any use value. Bitcoin simply keeps track of the fact that I did translation for someone. But within a free market framework such that the value of that translation may increase or decrease compared to if I had accepted dollars instead of bitcoins or if I did the translation now.
Now if you think, dollar is the "unit" of value, than yes the bitcoin value has been increasing. This means that the translation I did in 2011 is worth something like 10 translations now. This is true in space also, the work I do in my everday life is worth 10 units of the same work if it was done in China instead of where I live.
Bitcoin is designed such that it is a very advantageous repository of value as compared to dollars. If I keep my savings in bitcoins instead of dollars, they preserve their value much better over time (no inflation, limited supply etc.).
Topic: Anyone want to help me tear this to shreds? (Read 2534 times)
Regardless, you said mining costs decide the lower bound of the bitcoin price. Does that mean you claim that bitcoin price can not drop below mining costs?
Yes it can, if the bitcoin price is constantly dropping, then less and less people will invest in mining devices, investors only need to put some low price buy order every day and they will be automatically filled. But due to limited supply of coins, the sell pressure is very low, when there is no panic selling, it is very difficult to buy large amount from exchange (Those who wanted to sell already sold, those currently holding coins are all ROIed, they will not sell even the price dropped)
Hmm, I have been mining, and I gotta say, throwing money into mining hardware right now is probably a stupid idea. It was "profitable" for those who preordered early, since they got their devices first and were able to mine before difficulty skyrocketed, but it actually wasn't profitable, because if they had bought bitcoins instead of preordered hardware, they would have had a lot more coins than they will likely ever be able to mine at this point. And anyone new hoping to mine is likely going to get their devices after difficulty increases have made them not worth it, too.
True, it is difficult to estimate the number of pre-order and new ASIC chips that entering the market now(For example bitfury just added 180T hash power in a couple of weeks)
I think there are some psychology behind mining enthusiasm:
1. People with investment background still have some old habbit, they want to produce bitcoin instead of buy. Once the machine is built, it can mine forever. But no one have a good clue about how fast the return is diminishing, it is all guess
2. Even mining cost is a bit higher than the current market price, it is still better than buying large amount directly from the market since that will raise the exchange rate dramatically and get a bad excute price
I believe that there are many business plans being laid out. Just had a look at http://www.cryptx.com/ yesterday, a solar powered data center has been bought
All these will ensure that the competition and cost of mining will rise quickly approaching the market price, then we'll see what will happen. My guess is that the bitcoin price will rise, since more money will be redirected to exchanges by then
They won't. Due to extremely limited supply of coins on the market, even 1 million dollar order will raise the price by 10%, 1 billion dollar might raise the price to $100K and they still can not get enough coins
So most of those money will first go to mining devices, since that is the lowest possible cost to acquire coins, and it will not affect the exchange rate.
So most of those money will first go to mining devices, since that is the lowest possible cost to acquire coins, and it will not affect the exchange rate.
But that's the thing, it's not the lowest possible cost. Or it doesn't have to be. If bitcoin stays at $120, and enough miners join that mining profitability is about zero, if electricity prices go up due to demand, it will be cheaper to buy coins on the exchange than to buy mining devices. Even with mining being profitable it's a bit more expensive, since you have to pay off the cost of the hardware while you are paying for electricity. Plus $1 mil dumped into the market will get you about $1mil of coins right now, plus some loss due to price increase, whereas $1mil dumped on mining hardware will maybe get you enough coins, but that's assuming everyone else isn't buying lots of hardware and taking your piece of the profits, too.
Regardless, you said mining costs decide he lower bound of the bitcoin price. Does that mean you claim that bitcoin proce can not drop below mining costs?
It also means, no matter how much fiat money are waiting to be invested in bitcoins, as long as mining cost is lower than the exchange rate, those money will flow into ASIC devices and electricity bills. There might be much more money than you can imagine waiting to be invested in bitcoins
Hmm, I have been mining, and I gotta say, throwing money into mining hardware right now is probably a stupid idea. It was "profitable" for those who preordered early, since they got their devices first and were able to mine before difficulty skyrocketed, but it actually wasn't profitable, because if they had bought bitcoins instead of preordered hardware, they would have had a lot more coins than they will likely ever be able to mine at this point. And anyone new hoping to mine is likely going to get their devices after difficulty increases have made them not worth it, too.
How is money different from any other good or commodity?
People tends to believe that money is a benchmark of value, unit of counting, just like they always consider one meter is a fixed amount of distance. They consider one dollar contain a fixed amount of value regardless of production cost (Actually the cost of making one dollar is close to zero). Although this is just misconception, but majority of people think this way. Anyway, this is a bit off-topic
How can mining cost decide the lower bound of the price? This is what the other guy was insisting, which didn't make any sense to me. If the market value of bitcoin is $90, and due to increase in electricity prices (it's winter, so more people paying for heating) it costs $100 to make a bitcoin, how can a miner sell his bitcoin for $100 in a $90 market?
Can you explain this process? Aren't miners a relatively teeny-tiny proportion of the exchange market where people compete for bitcoins?
Can you explain this process? Aren't miners a relatively teeny-tiny proportion of the exchange market where people compete for bitcoins?
Suppose that investors have 1 billion dollar waiting to be invested in bitcoin, would they just buy bitcoin from exchanges?
They won't. Due to extremely limited supply of coins on the market, even 1 million dollar order will raise the price by 10%, 1 billion dollar might raise the price to $100K and they still can not get enough coins
So most of those money will first go to mining devices, since that is the lowest possible cost to acquire coins, and it will not affect the exchange rate. Only when mining becomes no longer profitable, those money will go to exchange to purchase coins
It also means, no matter how much fiat money are waiting to be invested in bitcoins, as long as mining cost is lower than the exchange rate, those money will flow into ASIC devices and electricity bills. There might be much more money than you can imagine waiting to be invested in bitcoins
And believe me, 1 billion dollar is so tiny amount of money, FED has been printing 2.8 billion dollar per day for almost a year
The mainstream theory of value is that the value has its roots in the minds of the market actors. If the value of something rises, labour and capital lines up behind that, until the diminishing return makes it unprofitable to invest more.
This theory only applies to goods and services, you will have trouble applying this theory to money
Under labour theory of value, if the cost dropped to $50 to mine a coin, miners will sell each coin at a price little bit over $50, thus drive the price down
But this does not apply for bitcoin, since the coin supply is always fixed and it is getting less and less. At mean time, the demand is getting higher and higher. The price will rise forever long term wise and mining cost will decide the lower bound of the price range
In reality, after the mining cost dramatically reduced (the arriving of ASIC devices in March) , the bitcoin price skyrocketed. This means the bitcon's price is mainly decided by the degree of competition among miners. ASIC devices absolutely raised the competition to an unprecedented level
Bitcoin value is decided, like for all other things, from the minds of every actor.
Interesting thread. Beware of "Rational Behavior" arguments, of one type or another.
Keep the ideas coming, please.
Keep the ideas coming, please.
The mainstream theory of value is that the value has its roots in the minds of the market actors. If the value of something rises, labour and capital lines up behind that, until the diminishing return makes it unprofitable to invest more.
This theory only applies to goods and services, you will have trouble applying this theory to money
How is money different from any other good or commodity?
But this does not apply for bitcoin, since the coin supply is always fixed and it is getting less and less. At mean time, the demand is getting higher and higher. The price will rise forever long term wise and mining cost will decide the lower bound of the price range
How can mining cost decide the lower bound of the price? This is what the other guy was insisting, which didn't make any sense to me. If the market value of bitcoin is $90, and due to increase in electricity prices (it's winter, so more people paying for heating) it costs $100 to make a bitcoin, how can a miner sell his bitcoin for $100 in a $90 market?
This means the bitcon's price is mainly decided by the degree of competition among miners.
Can you explain this process? Aren't miners a relatively teeny-tiny proportion of the exchange market where people compete for bitcoins?
The mainstream theory of value is that the value has its roots in the minds of the market actors. If the value of something rises, labour and capital lines up behind that, until the diminishing return makes it unprofitable to invest more.
This theory only applies to goods and services, you will have trouble applying this theory to money
Under labour theory of value, if the cost dropped to $50 to mine a coin, miners will sell each coin at a price little bit over $50, thus drive the price down
But this does not apply for bitcoin, since the coin supply is always fixed and it is getting less and less. At mean time, the demand is getting higher and higher. The price will rise forever long term wise and mining cost will decide the lower bound of the price range
In reality, after the mining cost dramatically reduced (the arriving of ASIC devices in March) , the bitcoin price skyrocketed. This means the bitcon's price is mainly decided by the degree of competition among miners. ASIC devices absolutely raised the competition to an unprecedented level
Quote
With his theory, he can not explain this: With the arriving of ASIC, the mining efficiency increased by 10 fold but the price of bitcoin also raised by 10 fold
The daily coin supply is fixed, efficiency has nothing to do with coin generation. What really matters is the number of miners. If the number of miners doubled and their individual cost stays the same, the coin price will double, and the total electricity consumption will also double
It can also be like this: The number of miners do not change, but each of them use double electricity to mine the coin, in this case the coin price will also double
The daily coin supply is fixed, efficiency has nothing to do with coin generation. What really matters is the number of miners. If the number of miners doubled and their individual cost stays the same, the coin price will double, and the total electricity consumption will also double
It can also be like this: The number of miners do not change, but each of them use double electricity to mine the coin, in this case the coin price will also double
Well, nope, this is the labour theory of value. Cost follow price, modified with speculative foresight and errors. Same with gold.
This is not labour theory of value. It is a mixture of supply/demand analysis and some special character of bitcoin
The daily coin supply will be cut by half every 4 years, while the adoption rate will be higher and higher, the demand will always outpace supply in the near future
However, even demand is higher, those demand will not directly translate into a higher exchange rate, because smart investors will always consider the cheapest way to get coin, thus investing in mining rigs. So fiat money will first flow into mining rig producers and power companies, only after mining cost rose above coin price, they will start to buying coins
This is the reason that mining cost will always drive the exchange price of bitcoin in the near future
Currently mining is still very profitable with latest ASIC devices. It is easy to forecast that the price will not rise too much until mining becomes barely profitable
This spring, after the deliver of working ASIC devices, many people realized that mining with GPU will not be profitable and their only way to get coin (If they did not preorder ASIC last year) is to buy, that pushed price up quickly
And current situation proved that they were right, if they put those money into ASIC rigs order at that time, they will be at the end of the queue to get ASIC devices, thus barely make some coin. (In March, $4000 could buy you 80 coins, but if you order some ASIC devices from BFL with $4000, you will never be able to mine 80 coins)
It is really the labour theory of value, but I have to add that the capital must be regarded as condensed work to make it obvious. There is also a time lag, and speculation and speculation errors.
The mainstream theory of value is that the value has its roots in the minds of the market actors. If the value of something rises, labour and capital lines up behind that, until the diminishing return makes it unprofitable to invest more.
Same with a downward price move. First the miners will stop the machines and fire the manpower to keep it, with even lower price the equipment will be abandoned to save the machine room space.
Every decision of course take everything into account, obviously including the price forecast.
Electricity price? Why would I care? 
Clouds, night.
Quote
With his theory, he can not explain this: With the arriving of ASIC, the mining efficiency increased by 10 fold but the price of bitcoin also raised by 10 fold
The daily coin supply is fixed, efficiency has nothing to do with coin generation. What really matters is the number of miners. If the number of miners doubled and their individual cost stays the same, the coin price will double, and the total electricity consumption will also double
It can also be like this: The number of miners do not change, but each of them use double electricity to mine the coin, in this case the coin price will also double
The daily coin supply is fixed, efficiency has nothing to do with coin generation. What really matters is the number of miners. If the number of miners doubled and their individual cost stays the same, the coin price will double, and the total electricity consumption will also double
It can also be like this: The number of miners do not change, but each of them use double electricity to mine the coin, in this case the coin price will also double
Well, nope, this is the labour theory of value. Cost follow price, modified with speculative foresight and errors. Same with gold.
This is not labour theory of value. It is a mixture of supply/demand analysis and some special character of bitcoin
The daily coin supply will be cut by half every 4 years, while the adoption rate will be higher and higher, the demand will always outpace supply in the near future
However, even demand is higher, those demand will not directly translate into a higher exchange rate, because smart investors will always consider the cheapest way to get coin, thus investing in mining rigs. So fiat money will first flow into mining rig producers and power companies, only after mining cost rose above coin price, they will start to buying coins
This is the reason that mining cost will always drive the exchange price of bitcoin in the near future
Currently mining is still very profitable with latest ASIC devices. It is easy to forecast that the price will not rise too much until mining becomes barely profitable
This spring, after the deliver of working ASIC devices, many people realized that mining with GPU will not be profitable and their only way to get coin (If they did not preorder ASIC last year) is to buy, that pushed price up quickly
And current situation proved that they were right, if they put those money into ASIC rigs order at that time, they will be at the end of the queue to get ASIC devices, thus barely make some coin. (In March, $4000 could buy you 80 coins, but if you order some ASIC devices from BFL with $4000, you will never be able to mine 80 coins)
I might add that if the speculators really believe that cost drives price, there will be some volatility around the block reward halving, but that didn't happen the last time, if I remember correctly.
^ ^^ Thank you. This is what I've been arguing with him about. If miners spend twice as much on electricity, and demand twice as much for their coins, they'll be laughed out of the market, where lots of people already have coins they didn't spend twice as much to obtain.
Yes. With gold, it takes maybe 10 years to respond to an increase in price. First the mine owners have to be certain that the price increase is stable, then they have to invest in planning, geological investigation, equipment and organization. With bitcoin it is a bit quicker. Another difference is that increased mining will not increase supply basically, because the strong negative feedback of the difficulty (exept there is a time lag on the difficulty).
Bitcoin mining is more speculative, because it is not enough to know the price of the equipment, the delivery time and the cost of electricity. The most important factors in mining is 1. when will the equipment really be delivered? 2 What is the price at that time of delivery and the time afterwards? 3. What will be the difficulty at the time of delivery and the time afterwards? Since all these things are partly interdependent, there is a lot of room for speculative error in either direction.
^ ^^ Thank you. This is what I've been arguing with him about. If miners spend twice as much on electricity, and demand twice as much for their coins, they'll be laughed out of the market, where lots of people already have coins they didn't spend twice as much to obtain.
Oh it got even more messed up than that. Eventually I just dropped the conversation, because it was taking more time and braincells to process than I cared to waste on him, but here's is a highlight:
My gist of the entire exchange is that cattimiptwax believes in the labor theory of value, where things are priced based on how much work you put into it, instead of being freely exchanged on the market based on supply/demand. It seems this whole claim is based on the idea that as bitcoin costs more to make, electric companies will demand higher price for bitcoin, and thus bitcoin value will go up. Maybe I misread it, but it was rather difficult to follow at times.
Quote from: cattimiptwax
A society would have long since collapsed before that, since nobody could afford electricity.
One more time...
Here we have an example with actual cash value attached, just so you can see. At point A, a single bitcoin can buy you 30 tons of coal. Obviously, you're going to use a small fraction of a bitcoin for something like milk and eggs, so a single bitcoin being produced is a LOT of money, relatively. Obviously the value of a bitcoin would start out much smaller, with much higher amounts, but this is sorta throwing you in to the point where it has been mined for a little while.
Suppose, as you said, that the 'value' of the bitcoin 'doubled'. If you look at the above, there's simply no way it can double, without having an equal impact on everything else. Suddenly, mining would be twice as profitable, because you'd do the same work for twice the reward. Knowing this, coal/resource prices would rise to twice as much, because selling them any less would be less profitable than simply using them on their own to generate electricity. So the electric company pays twice as much, and produces the same amount of electricity as normal. Obviously, the electric company has to charge more for electricity to make up for this sudden change, so the cost to a consumer of 1MWh has to be double what it used to be, otherwise the electric company would be better off simply mining to break even. Another example would be a great new invention that allowed one to mine bitcoins with half the needed power. Unfortunately, this is no different than the above example. If you halve the power needed, you halve the floor value of the currency. Were it not for the increasing difficulty, this would actually help in lowering costs (and profits, so companies have no reason to do so), so long as it happened with regularity.
I don't even see any way that you could 'fix' these problems with it, were it to be used as a real currency. The mining aspect would have to be completely revamped, or removed. If you eliminated the difficulty curve entirely, that would prevent the cost of electricity of rising, but it would also ensure that everyone ever would have absurd amounts of bitcoins, which would devalue the currency just the same. The only other alternative would be direct and heavy government regulation (price fixing, government controlled power companies, etc), which would still probably require some modification to the core of bitcoin. Basically, in order to make it work, you have to make it less like it is, and more like what we already have.
One more time...
- A: 1 bitcoin = 1MWh = 30 tons of coal = $1000
- difficulty up!
- B: 1 bitcoin = 1.1MWh = 33 tons of coal = $1100
- difficulty up!
- C: 1 bitcoin = 1.2MWh = 36 tons of coal = $1200
Here we have an example with actual cash value attached, just so you can see. At point A, a single bitcoin can buy you 30 tons of coal. Obviously, you're going to use a small fraction of a bitcoin for something like milk and eggs, so a single bitcoin being produced is a LOT of money, relatively. Obviously the value of a bitcoin would start out much smaller, with much higher amounts, but this is sorta throwing you in to the point where it has been mined for a little while.
Suppose, as you said, that the 'value' of the bitcoin 'doubled'. If you look at the above, there's simply no way it can double, without having an equal impact on everything else. Suddenly, mining would be twice as profitable, because you'd do the same work for twice the reward. Knowing this, coal/resource prices would rise to twice as much, because selling them any less would be less profitable than simply using them on their own to generate electricity. So the electric company pays twice as much, and produces the same amount of electricity as normal. Obviously, the electric company has to charge more for electricity to make up for this sudden change, so the cost to a consumer of 1MWh has to be double what it used to be, otherwise the electric company would be better off simply mining to break even. Another example would be a great new invention that allowed one to mine bitcoins with half the needed power. Unfortunately, this is no different than the above example. If you halve the power needed, you halve the floor value of the currency. Were it not for the increasing difficulty, this would actually help in lowering costs (and profits, so companies have no reason to do so), so long as it happened with regularity.
I don't even see any way that you could 'fix' these problems with it, were it to be used as a real currency. The mining aspect would have to be completely revamped, or removed. If you eliminated the difficulty curve entirely, that would prevent the cost of electricity of rising, but it would also ensure that everyone ever would have absurd amounts of bitcoins, which would devalue the currency just the same. The only other alternative would be direct and heavy government regulation (price fixing, government controlled power companies, etc), which would still probably require some modification to the core of bitcoin. Basically, in order to make it work, you have to make it less like it is, and more like what we already have.
My gist of the entire exchange is that cattimiptwax believes in the labor theory of value, where things are priced based on how much work you put into it, instead of being freely exchanged on the market based on supply/demand. It seems this whole claim is based on the idea that as bitcoin costs more to make, electric companies will demand higher price for bitcoin, and thus bitcoin value will go up. Maybe I misread it, but it was rather difficult to follow at times.
With his theory, he can not explain this: With the arriving of ASIC, the mining efficiency increased by 10 fold but the price of bitcoin also raised by 10 fold
The daily coin supply is fixed, efficiency has nothing to do with coin generation. What really matters is the number of miners. If the number of miners doubled and their individual cost stays the same, the coin price will double, and the total electricity consumption will also double
It can also be like this: The number of miners do not change, but each of them use double electricity to mine the coin, in this case the coin price will also double
Well, nope, this is the labour theory of value. Cost follow price, modified with speculative foresight and errors. Same with gold.
Oh it got even more messed up than that. Eventually I just dropped the conversation, because it was taking more time and braincells to process than I cared to waste on him, but here's is a highlight:
My gist of the entire exchange is that cattimiptwax believes in the labor theory of value, where things are priced based on how much work you put into it, instead of being freely exchanged on the market based on supply/demand. It seems this whole claim is based on the idea that as bitcoin costs more to make, electric companies will demand higher price for bitcoin, and thus bitcoin value will go up. Maybe I misread it, but it was rather difficult to follow at times.
Quote from: cattimiptwax
A society would have long since collapsed before that, since nobody could afford electricity.
One more time...
Here we have an example with actual cash value attached, just so you can see. At point A, a single bitcoin can buy you 30 tons of coal. Obviously, you're going to use a small fraction of a bitcoin for something like milk and eggs, so a single bitcoin being produced is a LOT of money, relatively. Obviously the value of a bitcoin would start out much smaller, with much higher amounts, but this is sorta throwing you in to the point where it has been mined for a little while.
Suppose, as you said, that the 'value' of the bitcoin 'doubled'. If you look at the above, there's simply no way it can double, without having an equal impact on everything else. Suddenly, mining would be twice as profitable, because you'd do the same work for twice the reward. Knowing this, coal/resource prices would rise to twice as much, because selling them any less would be less profitable than simply using them on their own to generate electricity. So the electric company pays twice as much, and produces the same amount of electricity as normal. Obviously, the electric company has to charge more for electricity to make up for this sudden change, so the cost to a consumer of 1MWh has to be double what it used to be, otherwise the electric company would be better off simply mining to break even. Another example would be a great new invention that allowed one to mine bitcoins with half the needed power. Unfortunately, this is no different than the above example. If you halve the power needed, you halve the floor value of the currency. Were it not for the increasing difficulty, this would actually help in lowering costs (and profits, so companies have no reason to do so), so long as it happened with regularity.
I don't even see any way that you could 'fix' these problems with it, were it to be used as a real currency. The mining aspect would have to be completely revamped, or removed. If you eliminated the difficulty curve entirely, that would prevent the cost of electricity of rising, but it would also ensure that everyone ever would have absurd amounts of bitcoins, which would devalue the currency just the same. The only other alternative would be direct and heavy government regulation (price fixing, government controlled power companies, etc), which would still probably require some modification to the core of bitcoin. Basically, in order to make it work, you have to make it less like it is, and more like what we already have.
One more time...
- A: 1 bitcoin = 1MWh = 30 tons of coal = $1000
- difficulty up!
- B: 1 bitcoin = 1.1MWh = 33 tons of coal = $1100
- difficulty up!
- C: 1 bitcoin = 1.2MWh = 36 tons of coal = $1200
Here we have an example with actual cash value attached, just so you can see. At point A, a single bitcoin can buy you 30 tons of coal. Obviously, you're going to use a small fraction of a bitcoin for something like milk and eggs, so a single bitcoin being produced is a LOT of money, relatively. Obviously the value of a bitcoin would start out much smaller, with much higher amounts, but this is sorta throwing you in to the point where it has been mined for a little while.
Suppose, as you said, that the 'value' of the bitcoin 'doubled'. If you look at the above, there's simply no way it can double, without having an equal impact on everything else. Suddenly, mining would be twice as profitable, because you'd do the same work for twice the reward. Knowing this, coal/resource prices would rise to twice as much, because selling them any less would be less profitable than simply using them on their own to generate electricity. So the electric company pays twice as much, and produces the same amount of electricity as normal. Obviously, the electric company has to charge more for electricity to make up for this sudden change, so the cost to a consumer of 1MWh has to be double what it used to be, otherwise the electric company would be better off simply mining to break even. Another example would be a great new invention that allowed one to mine bitcoins with half the needed power. Unfortunately, this is no different than the above example. If you halve the power needed, you halve the floor value of the currency. Were it not for the increasing difficulty, this would actually help in lowering costs (and profits, so companies have no reason to do so), so long as it happened with regularity.
I don't even see any way that you could 'fix' these problems with it, were it to be used as a real currency. The mining aspect would have to be completely revamped, or removed. If you eliminated the difficulty curve entirely, that would prevent the cost of electricity of rising, but it would also ensure that everyone ever would have absurd amounts of bitcoins, which would devalue the currency just the same. The only other alternative would be direct and heavy government regulation (price fixing, government controlled power companies, etc), which would still probably require some modification to the core of bitcoin. Basically, in order to make it work, you have to make it less like it is, and more like what we already have.
My gist of the entire exchange is that cattimiptwax believes in the labor theory of value, where things are priced based on how much work you put into it, instead of being freely exchanged on the market based on supply/demand. It seems this whole claim is based on the idea that as bitcoin costs more to make, electric companies will demand higher price for bitcoin, and thus bitcoin value will go up. Maybe I misread it, but it was rather difficult to follow at times.
With his theory, he can not explain this: With the arriving of ASIC, the mining efficiency increased by 10 fold but the price of bitcoin also raised by 10 fold
The daily coin supply is fixed, efficiency has nothing to do with coin generation. What really matters is the number of miners. If the number of miners doubled and their individual cost stays the same, the coin price will double, and the total electricity consumption will also double
It can also be like this: The number of miners do not change, but each of them use double electricity to mine the coin, in this case the coin price will also double
Electricity price? Why would I care?
thats what i want! electric co. pays you every month!
Oh it got even more messed up than that. Eventually I just dropped the conversation, because it was taking more time and braincells to process than I cared to waste on him, but here's is a highlight:
My gist of the entire exchange is that cattimiptwax believes in the labor theory of value, where things are priced based on how much work you put into it, instead of being freely exchanged on the market based on supply/demand. It seems this whole claim is based on the idea that as bitcoin costs more to make, electric companies will demand higher price for bitcoin, and thus bitcoin value will go up. Maybe I misread it, but it was rather difficult to follow at times.
Quote from: cattimiptwax
A society would have long since collapsed before that, since nobody could afford electricity.
One more time...
Here we have an example with actual cash value attached, just so you can see. At point A, a single bitcoin can buy you 30 tons of coal. Obviously, you're going to use a small fraction of a bitcoin for something like milk and eggs, so a single bitcoin being produced is a LOT of money, relatively. Obviously the value of a bitcoin would start out much smaller, with much higher amounts, but this is sorta throwing you in to the point where it has been mined for a little while.
Suppose, as you said, that the 'value' of the bitcoin 'doubled'. If you look at the above, there's simply no way it can double, without having an equal impact on everything else. Suddenly, mining would be twice as profitable, because you'd do the same work for twice the reward. Knowing this, coal/resource prices would rise to twice as much, because selling them any less would be less profitable than simply using them on their own to generate electricity. So the electric company pays twice as much, and produces the same amount of electricity as normal. Obviously, the electric company has to charge more for electricity to make up for this sudden change, so the cost to a consumer of 1MWh has to be double what it used to be, otherwise the electric company would be better off simply mining to break even. Another example would be a great new invention that allowed one to mine bitcoins with half the needed power. Unfortunately, this is no different than the above example. If you halve the power needed, you halve the floor value of the currency. Were it not for the increasing difficulty, this would actually help in lowering costs (and profits, so companies have no reason to do so), so long as it happened with regularity.
I don't even see any way that you could 'fix' these problems with it, were it to be used as a real currency. The mining aspect would have to be completely revamped, or removed. If you eliminated the difficulty curve entirely, that would prevent the cost of electricity of rising, but it would also ensure that everyone ever would have absurd amounts of bitcoins, which would devalue the currency just the same. The only other alternative would be direct and heavy government regulation (price fixing, government controlled power companies, etc), which would still probably require some modification to the core of bitcoin. Basically, in order to make it work, you have to make it less like it is, and more like what we already have.
One more time...
- A: 1 bitcoin = 1MWh = 30 tons of coal = $1000
- difficulty up!
- B: 1 bitcoin = 1.1MWh = 33 tons of coal = $1100
- difficulty up!
- C: 1 bitcoin = 1.2MWh = 36 tons of coal = $1200
Here we have an example with actual cash value attached, just so you can see. At point A, a single bitcoin can buy you 30 tons of coal. Obviously, you're going to use a small fraction of a bitcoin for something like milk and eggs, so a single bitcoin being produced is a LOT of money, relatively. Obviously the value of a bitcoin would start out much smaller, with much higher amounts, but this is sorta throwing you in to the point where it has been mined for a little while.
Suppose, as you said, that the 'value' of the bitcoin 'doubled'. If you look at the above, there's simply no way it can double, without having an equal impact on everything else. Suddenly, mining would be twice as profitable, because you'd do the same work for twice the reward. Knowing this, coal/resource prices would rise to twice as much, because selling them any less would be less profitable than simply using them on their own to generate electricity. So the electric company pays twice as much, and produces the same amount of electricity as normal. Obviously, the electric company has to charge more for electricity to make up for this sudden change, so the cost to a consumer of 1MWh has to be double what it used to be, otherwise the electric company would be better off simply mining to break even. Another example would be a great new invention that allowed one to mine bitcoins with half the needed power. Unfortunately, this is no different than the above example. If you halve the power needed, you halve the floor value of the currency. Were it not for the increasing difficulty, this would actually help in lowering costs (and profits, so companies have no reason to do so), so long as it happened with regularity.
I don't even see any way that you could 'fix' these problems with it, were it to be used as a real currency. The mining aspect would have to be completely revamped, or removed. If you eliminated the difficulty curve entirely, that would prevent the cost of electricity of rising, but it would also ensure that everyone ever would have absurd amounts of bitcoins, which would devalue the currency just the same. The only other alternative would be direct and heavy government regulation (price fixing, government controlled power companies, etc), which would still probably require some modification to the core of bitcoin. Basically, in order to make it work, you have to make it less like it is, and more like what we already have.
My gist of the entire exchange is that cattimiptwax believes in the labor theory of value, where things are priced based on how much work you put into it, instead of being freely exchanged on the market based on supply/demand. It seems this whole claim is based on the idea that as bitcoin costs more to make, electric companies will demand higher price for bitcoin, and thus bitcoin value will go up. Maybe I misread it, but it was rather difficult to follow at times.
I did some kind of roughly estimation before, with 1/10 of world's power supply to mine coins, one bitcoin will worth a bit more than one million dollars
But as D&T mentioned, the daily coin supply is getting halved every 4 years, after the coin supply approach zero, it will be only transaction fees that require power consumption. With 1MB block size, 6 coin transaction fee per block is possible
https://bitcointalksearch.org/topic/m.3048862
But as D&T mentioned, the daily coin supply is getting halved every 4 years, after the coin supply approach zero, it will be only transaction fees that require power consumption. With 1MB block size, 6 coin transaction fee per block is possible
https://bitcointalksearch.org/topic/m.3048862
1/10 of the world´s power supply ? my thinking was that if bitcoin will go mainstream what would be the limit on the price ? 1/10 of world´s energy supply - now that would be a limit. bitcoin opponents will not let that happen, all this global warming for some crypto-ponzi ? the environmentalists will hate it and fight it. governments will be forced to act. i guess we should start developing heating systems for houses based on hashing. it could be argued that mining is only the by-product of those fancy new radiators. after all, that´s what miners are...
Actually I think the energy cost is also very high for mining of the gold under a gold standard monetary system. Should be higher than bitcoin since you also need energy to transfer the physical gold
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