Topic: Before the next big rise, I just wanted to get my two cents in - page 3. (Read 6361 times)

Bingo.

Mining, and mining difficulty, is an unfortunate distraction for many people when discussing Bitcoin. Mining will always tend toward zero-profitability, because whenever it is profitable, new people will start mining. It's an asymptotic relationship toward zero-profit.

The Bitcoin price is not determined in any way by the difficulty of mining. The relationship is opposite, and thus no observance of mining trends will predict prices with the exception that miners are also speculators like everyone else, and if they believe the price will rise they may start mining before the price rises - thus making it appear as though mining difficulty caused the price increase, but it's a deception.

So, some of the OP's points on the mining/price relationship are odd and problematic. However, very well written and well presented! And, to be sure, much of the geopolitical arguments are correct. Yet, I don't believe any Governments will ever embrace bitcoin, because it prevents their ability to deficit spend. See Alan Greenspan's 1968 article "Gold and Economic Freedom" for the most revealing discussion of this you may ever read.

Thanks for the post OP, and I'll be buying alongside you all the way up and down the next bubbles as well

Very excellent post.  No sane person wants any more war.

There's a fundamental flaw I think in supposing that difficulty dictates price. I'd take it the other way: price determines difficulty. If the price goes up to $5, then the difficulty can go up to around 2.5 million and still have miners make a small profit. If the price is $10, then difficulty should be at around 5 million. Right now the 1.1 million difficulty is low enough to support a price of around $2.20, but that difficulty actually came because of the price. We were up to almost 2 million on the difficulty when the bubble was in effect, and every time a new difficulty came out we had a substantial jump: http://btcserv.net/bitcoin/history/

Now that pricing has dropped to "sustainable levels", difficulty is backing down in response. The question thus remains what happens to pricing; if it starts another bubble, we'll see a bubble in difficulty as well as miners attempt to cash in.

You're confusing productivity (the P in GDP) with currency. The two can't be compared like that.

There are currently 980 billion USD in circulation. Suppose the BTC economy is 1% of the US economy, then each BTC equals roughly $1000 USD.

Theymos:
7200 BTC/day is only $21,600 at current prices.

Do you think $21,600 is enough to cover the expenses (daily power + amortized video card or FPGA costs) of everyone mining today?

Cause if it is not, they are accumulating or turning off their miners. We have evidence that some people turned of their miners, because the difficulty has declined, but the difficulty at this $3 is quite significantly different from the difficulty at the $3 valuation last Spring.

3600 BTC/day is only $10,800 at current prices. A year from now are they going to be accumulating?

It seems to me that if you actually believe Bitcoin is the most secure transactional system contrived, it will one day handle a significant fraction of the world's economic activity. So the question more precisely comes down to whether or not every one of the 21 million Bitcoins is worth $3 supposing Bitcoin makes up 1% of the world's economic activity. Eventually we might go past 1%, but let's keep our expectations low for now.

With a world GDP of $48 trillion, the price of a single Bitcoin -- supposing it made up only 1% of the world's economy -- would be $22,857. I think Bitcoin could be one day be worth 1% of the world's economy. And my guess is that with the financial turmoil today, there are some enterprises willing to look into ASIC and FPGA investments for that eventual 1% as well.

Bitcoin isn't easy for them to understand, but if it works and smart people trust it, they can sell that to the public. They need us because we know how the solution works. They won't come to us out of greed, but out of fear for what will happen if they don't adapt.

  About midway through paragraph two under 'My Advice' he suggest just that. That popularity will soar due to parties with no reason to seek out alternatives or little incentive to do so, will be looking for greener pasteurs. If I followed it correctly, that is.

Why do you care about difficulty? ~7200 BTC is put into the economy each day regardless of difficulty. I don't believe that difficulty affects prices in any significant way.

I haven't seen any changes in fundamentals. Unless popularity soars for some reason, I expect the price to go very steadily downward due to inflation until perhaps three months before the subsidy adjustment.

  I agree with almost everything..

  I'm more than happy to embrace politicians, bankers and financiers. As long as we are confident that doing so does not embrace the same faults that plague the current systems.

  Fractional lending. no thanks. The problem is obvious. Collecting interest, income or other debt in excess of what was created to lend only works while you keep creating new money to pay for it with. This can't possibly keep working forever. For as soon as the flow of new money is halted in any form, unless the collectors are halted equally allows the existing money to deplete real quick!....
  Credit swapping....
  Self appointed, unregulated, created from nothing financial instrutments....
 
 Paid for political decisions. save it for their bunker space. I'd be happy to see them left to the Russian ground forces that will eat their fucking throats out if things keep going the direction they are geo-politicaly
  
 Conflict of interest heads of any department, facility or advisement board in any capicity to formulate the governance of said bodies should never, ever be the ex ceo, chairman, owner, etc, etc of any entity that said department, facility, or governing agencies policies could give benefit to.. EVER.

  I realise it's not all like that otherwise we'd all be dead already. But am confident that those that would seek to corrupt our systems as they exist today will strive to do so with any system they are burdened to.
  

please step away from the kool-aid and keep your hands in plain sight!


jk, hope you are right.

thanks for sharing your thoughts.

i agree with most everything.

Excellent post,

I pretty much agree with everything you just said.

All the tax evader, anti-government Bitcoiners do not share the same values as me, and (I THINK) the majority of the people here in the Bitcoin community.

It was good that you brought up the point that we should be open, transparent, and willing to help the existing system climb out of the hole that "we" put ourselves in...

Last time we went from $.65 to $33 I didn't say anything so I am choosing to now during the month before what I hope to see as "stable growth".

My History

I'm a former small-time day and currency trader who stopped around 2006 after securing a full-time job and started investing heavily into commodities. I suppose a number of folks would just say I'm lucky, but it was my on-again, off-again successes in day trading that really gave me the experience and inclination to look at larger and longer trends. It quickly became evident to me that geo-political issues were far more of an impact on prices, stocks, and commodities, so that's why I started reading up about the "incoming bust" in housing and etc. In fact, as I continued to make money into 2009 and 2010 I ended up finding about Bitcoin, and being a techie myself, read the whitepaper.

Now, in 2009, when I first used the client, I was a moron who saw we were generating essentially fake "credits", and realized I was devoting considerable CPU cycle and power to generate these credits that were going nowhere and meaning nothing (it didn't matter to me how secure they were, if they meant nothing to no one else, they meant nothing to me). There was all this talk about how they could be used to replace currency, but frankly, since no one was even buying them, I didn't see it as being fruitful at all.

I know for sure that I mined at least 100 coin at the time, but then stopped and later reformatted that computer. I'll forever have to live with the fact that I essentially destroyed 100 BTC.

That said, I continued to do very well in commodities and reinvested in Bitcoin again in early 2011 at $.85, $1.85, $4.35 and etc. I wasn't just buying a few coins, either, I was (and still am) buying hundreds. I continued to buy and sell on the way up. I even let Bitcoin consume so much of my life that I left my sister's wedding reception early to go home and buy Bitcoin on a Saturday night when it fell from $20ish to $10-11 overnight, then flipping it and selling at $18 the next day.

My advice

We're starting to see the difficulty be supported at these levels. This means it is profitable for present miners to mine. When it is profitable for current miners to continue mining (I have a small operation with myself and friends presently going) you will see them buy instead of mine at prices below that profitably. I think we've fallen to a point where the average Bitcoin miner is making a profit again, and the ones that did not have the ability to do so have sold out their equipment to those of us that can.

So what does this mean? Well, I suspect that we have maybe a month of small but positive increases in difficulty coming up. I also suspect that the price will stablize during this time. However, I am certain there will start to be exponential increases again in both price and difficulty as the geo-political climate destabilizes. The US and Europe, where a significant number of Bitcoiners reside, are having continued problems financially, and media and political attention will be turning to Bitcoin. This next "bubble" will not be merely geek, techie, or gamer interest, it will be interest by financiers, lawyers, politicians, and even laymen. It also will be far more prolonged, and difficulty will never again drop to the levels it is at today. There may be some points along the way where several hundred percent increases happen, and the people that buy during these times may have to wait upwards of several months before they see a return on their investments. It is important that we base future price on healthy and stable difficulty increases this time around. Your technical and financial expertise is going to rest entirely on how objective you are regarding the price and difficulty relationship.

I realize there is a conspiratorial belief among many on this site that "the government will never let Bitcoin happen" (often said without specifying which one, meaning mostly US posters like myself). On the contrary, though, the governments need Bitcoin to happen. This is where you come in. We need to be as open and as straightforward and as willing to help as we possibly can be to those in our government, financial, and other institutions as possible. I know this runs contrary to what many of you want, but ultimately the more dire their circumstances become the more they are going to need Bitcoin to stabilize the economy, the more they will need technologists that the people they serve respect. As early adopters we have both the geo-political knowledge, technical expertise, and (I'm hoping) civic duty to provide our fellow countrymen and the world with a stable currency.

You can do this in a number of ways, whether it be providing advice on how to convert their money into coin via an exchange, or providing advice on how to convert their money into coin by funding FPGA development, running a data center, or etc. Don't worry, they are going to soon becoming to you, not vice-versa. I know there are some sites focusing on getting the consumers and retailers to adopt Bitcoin, but frankly, we should probably be matching big financial powerhouses with Bitcoin technologists as well. And we should have been doing it yesterday.

Further reading and final warning
There was a technocracy movement in the US (and partially Germany, which was having financial problems of its own) that was going to be based on joules of energy, perhaps ironically an "alpha" of Bitcoin. It failed for a number of reasons. The article seems to focus on the stabilized US currency from New Deal actions, but I would argue the New Deal failed to actually pull the US out of depression, instead, the economy was resolved by having oil alone become more important than currency (or power) in the form of World War II and the decades since.

I am worried the geo-political environment is quickly approaching another pre-war state, which is why I am making this plea now that we work with our governments to help them move to Bitcoin in an efficient manner. This is the future of our world we're talking about, and frankly, I'm not willing to gamble that our leaders are sane enough to leave their squabbles at just petty bickering.

TLDR; Despite our inherent distrust in many of large bankers and politicians, we should be cordial with them and show them how they can get involved with Bitcoin, because the alternative is not good at all.

EDIT: I put this in "Speculation" because I figured it made the most sense since I am speculating about both Bitcoin and the geopolitical climate. Maybe it belongs better in "Economics", though.