Topic: Constant Downward Pressure Due To Miners? (Read 3633 times)

^There's no devil here.
ASIC manufacturers set ASIC prices.
Miners buy those ASICs & mine with them, increasing the hashrate.
The hashrate [and, thus, difficulty] grows to the point where the coins mined are worth less than the price of hosting [electricity etc.] to mine the coins.

It is the cost of mining that drives difficulty, not the other way around.

Devil is in the detail.

Difficulty sets the cost (in hashes per second) to keep the network running at the optimal speed.

The cost of those hashes, is a different thing.  The total network cost (monetary) is average cost (money) per hash per second across all miners multiplied by the target number of hashes specified by the diff.

The network cost to produce a block every ten minutes is controlled by the difficulty / target.

No.  ASIC manufacturers and electric companies set the cost of hashes per second.  Not difficulty.  What are you thinking?


If you are trolling, cudos, you got me.  If you're trying to make sense, re-read what you have typed and try to reshuffle the words until it makes sense.
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Difficulty determines the target hashrate to produce blocks at an average of 1 every 10 minutes.  It sets the cost in hashes per second to keep the network running.  If the difficulty goes up, the cost rises, if difficulty goes down, the cost lowers.

For every given combination of market price tag and transaction volume, there is a corresponding desired hashrate (and therefore difficulty) which keeps the network costs at a rough equilibrium.  If BTC goes up in price-tag, the hashrate and difficulty rise to find a new balance, conversely if price-tag lowers then hashrate and difficulty reduce to find a balance.

The difficulty/target is perhaps the most important metric in many respects.

I'm not sure how the difficulty figures into this.  Difficulty doesn't set the tx fees, miners (at least in theory) do.  It costs ~10%/yr to "keep the network secure" now.  This level of security will continue to cost 10% of Bitcoin's market cap, regardless of Bitcoin price or mining difficulty. 

Tangent:  It's hard to say the network is really secured when the majority of hashrate is controlled by a handful of people (megamines/pool operators).

Agreed. I have faith that the markets will find an equilibrium, transaction processing has a cost which can be approximated for the network at any point in time, and a diff that sets it, diff can lower or raise to change the cost of securing the network, since it's all variable, human forces will work to strike a balance over the very long time they have to do so

Let's not.  Blockchain.info tells me 219,555 BTC/day, so you're off by a factor of ~5
But wait, that's not all!  All transactions--including blockchain spam etc. are included here.  Spamming/advertising costs next to nothing, since tx fees are nominal now.  It's safe to assume these would not continue when tx fees become meaningful.

If we work on the 10% to secure basis: The average output volume per day is approaching 1,000,000 BTC per day, let's say 350 million per year.  Fees would need to be 1.4 million BTC per year to cover the 10% of CAP. Which works out to 0.4% transaction fee by todays values. 5-10x cheaper than paypal and visa, based on transaction fees only.  Obviously as usage increases (number of transactions and output volume per day) then that fee reduces accordingly.  With 10x the transactions and half the average value, then we get a 5 fold increase in volume and a 5 times reduction in required fees, under 0.1%. *

* This all depends on that 10% of CAP to secure number being correct.

Currently, Bitcoin's network security is costing over 10% of its market cap, yearly.
To maintain current level of security, 10% of Bitcoin's market cap would have to be spent yearly.*
When tx fees become miner's sole source of revenue, this will translate to tx fees being 10% of each transaction.
The most expensive way to do business ever

*Starting with the assumption that mining costs approach the price of the coins mined (according to Satoshi).  Bitcoin price going up or down doesn't affect this--if you buy a 1 dollar lock to protect $10, you should buy a $10 lock to protect $100.)

False.  Mining is the service which secures a block chain, proof of work is designed to be expensive, it's the monetary expense which keeps a chain secure.  Eventually fees will cover mining costs, until then currency supply is emitted over time to subsidise mining and distribute supply broadly.

ASICs are efficient transaction securing and processing machines, more efficient hardware is a good thing, the investment in mining hardware and the running costs are what keep the whole thing secure, and allow us to base an alternative monetary system on it.  Without these improvements and investment, chains will be insecure, and the system would have limited usage due to being insecure.  Those who treat mining as a service business and work to become more efficient are sensible, and those who secure our chains.

Coins which are tailored to preclude ASICs and focus on CPU and GPU may be fun or seem to give the little guys a chance, but really what they preclude is having a secure future.  Mining as a commercial service and commodity where it's possible to become more efficient over time adds longevity to a coin, and investment to an economy.  Mining on a whim with repurposed hardware does not bode well in terms of longevity.  If there's no real cost (investment/maintenance), and cost is that which secures a chain, we can conclude that costless chains will be insecure and have no real future.

Short term price reversals mean nothing.
If miners are still operating, it means their marginal costs are being covered.
Once the price increases, they will start reaping profits.

^ In short, every ASIC miner every created was simply to be a money printing machine... What makes you guys think they won't keep printing money, why would they keep digital coins when there bills are in fiat currency. Why would they keep having faith when the price drops 70% and now even miners are dropping out of bitcoin?
Who will run this "currency" system after more and more people drop out completely???

There is a little more to it.

The difficulty of a coin to mine sets the production cost, if the hashrate falls quickly due to a price drop, either:

A: the diff does not change quickly (btc/btm/ltc) and blocks are created much slower, emission of coin supply is slowed, which dampens the effect on the markets, allowing a new equilibrium to be found, or allowing demand to catch back up with supply. The less liquid the market, the more dramatic the effect, you can see a coins supply slowing to 1/50th of what it should be, which whilst a nuisance to transaction processing, is a saviour to the price-tag and value of the economy on the whole.

B: the diff changes quickly (perhaps KGW/DGW is used) and blocks are created "on time", emission of coin supply remains constant whilst production cost is lowered. Surplus supply is created, and production cost just keeps lowering to match the market price, driving the price in to the ground.  Transactions are processed quickly, but the economy collapses under the weight of the ever increasing supply of ever cheaper to produce coins, to literally 0.

More often than not, it is this factor which accelerates the death of an alt coin's price tag.

Remember that a large number of alt coins were created as money printing machines, some to benefit miners with legacy hardware which was inefficient on large cap coins against asics, so the business decision was made to keep printing "free money" at whatever price as long as there was any demand (buy orders) at all, this is where fast diff change and kgw/dgw came in, it allows production cost to fall as market price does, rather than putting miners back in the position of mining at a (perceived) loss.

In short, constant downwards pressure is not due to miners or traders (unless it's a scam coin), constant downwards pressure commonly is due to production cost constantly matching market price tag on down turns, rather than supply slowing / reducing when demand slows.

If you'd like to see the economics of this in action - as LTC and BTC have not shown case A as yet - then take a look at the all time chart on BTM with a moving average line over it, demand decreased and production decreased accordingly, price-tag has plateaued whilst we work to lift demand again, rather than price plummeting to zero with surplus supply.

After the next halving of the block reward, the downward pressure from miners will go down drastically.

Hence we will continue to go lower and lower and lower and lower and lower.......

yes inflation is too high and it affects the market in a very negative way. How long do you need to repeat dicussions on it? I do buy low inflation/ low volatility coins which are the solution while you are still analysing the problem.

Coins with lower inflation than bitcoin have a very bright future imo.

High inflation and miners selling causes speculators to sell causes miners to sell faster and everyone else to sell more - it's a negative feedback loop that is only accelarating itself.

yes it can.

Miners can get out of the mining business, but the price still can remain in a level that the profit for mining is low and most of BTC need to be sold in order to keep the mining.

Also if people think prices won't rise, they will dump the coin no matter the price.

There are many miners and their relative costs are rising. Only when the mining is so unprofitable for them that they have to stop their rigs, will they cease to dump. Right now, we are dumping miners, not bitcoin.

How many does it take to change it back? 42!

Q: How many ASIC miners does it take to change the block reward rate?

A: 42