Topic: [Discussion]How to decentralize the price of the bitcoin? Self-moderated. - page 2. (Read 941 times)

It actually works the other way around. The price of Bitcoin decides how much it costs to mine. When the cost of mining is lower than the current market price everyone goes crazy buying more equipment and the push they network difficulty up. When the price falls, unprofitable miners stop and the network difficulty goes down.

Supply and demand is what drives the whole thing, not mining.

---

When the price is 20x what it is now it will take 20x as much money to move the price as well. It will naturally become less volatile as it matures and has a higher value.

Would high volatility also be a problem if the high volatility is heavily skewed to the upside? You can´t
underestimate the importance of the continuous block reward halvings. These events should always put upward
pressure on the BTC price and therefore in the long-term Bitcoin should always go up.
Other developments like the continuous loss of BTC that are lost/inaccessible forever, also
decreases the available supply even further.

I concede that high volatility is probably bad for BTC adoption, because it scares many people and
not everyone is comfortable with investing a decent percentage of their net worth into an asset like this.
But at a certain price point (e.g. when BTC goes up another 20x from here) people will be forced
to reconsider their fear of a volatile asset out of simple self-interest. You can´t ignore it when
all your peers are getting more wealthy due to BTC forever.

The possibility of "crazy gains", "easy Lambo", "moon", is just a bait to get people into Bitcoin
if you ask me. Many people initially buy their first BTC for exactly these objectionable reasons,
but later realize that it actually works pretty well and ideally they also get more interested in the technology
and the economics of Bitcoin as a result.

Yep, that's what I meant - LN is very much experimental, not to talk about channel factories ...

I think it would be better to base the scalability solution on many pillars, not only on LN. LN is definitively a cool technology, but a LN transaction hasn't all properties of an on-chain transaction. Sidechain transactions are closer to mainchain transactions. Ideally, they could be used for larger tx and LN for micropayments, being the main chain reserved for the really big and settlement operations.

The good thing, however, is that if the sidechain tech/MimbleWimble works, then nobody can hinder people to use it. However, if we concentrate too much on LN, and a critical vulnerability or limitation appears, this could seriously affect Bitcoin's value proposal. Most hodlers have big hopes on LN - me included - but if we had some serious research on other, competing technologies then in the case of failure we always have a fallback. If not, then Bitcoin would be viewed only as "digital gold", and I have problems with this vision, because I think a digital gold will be extremely volatile forever.

DEX are a nice technology to prevent price manipulation - here I fully agree. The missing piece being a "stable" currency which could be bought at such an exchange, to be able to move to it in volatile times.

This is not particularly true. While not practical, anyone or any organization that is in control of a large amount of Bitcoin can create a sell wall on multiple large exchanges (or a single large exchange) with more volume than all the current sell orders that are at a higher cost. If they continue to do this, they effectively "controlled" the cost of Bitcion, albeit temporarily until the price can neutralize itself according to supply and demand.

A classic example of this is back in May when the Mt. Gox trustees (irresponsibly) sold off 8,000 bitcoin on live exchanges (like idiots), which is suspected to have dumped the overall price of Bitcoin (from over $9,200 to less than $8,500 within hours), as you can see in the historical data below:



I just wanted to address the misconception that the price of Bitcoin cannot be influenced by a single entity, because it absolutely can.

Trades don't control the cost of bitcoin; individuals do. A trade is only a facilitator for the purchasing and offering of bitcoin. You can't make the cost mirroring the assets expected to mine or to help the system. How might you do it when we have an alternate power cost around the world; distinctive machines and even machines with similar specs at an alternate cost?

I agree. The problem being that if Bitcoin was used massively for "circulation" in the current development state, transaction fees would skyrocket again. The only exception being to use centralized exchanges/trading even more. Then we had more money for "price discovery", but also more risky deposits at centralized "single points of failure".

And I will always sustain the opinion that for true price discovery Bitcoin must be traded more against goods and services, not only against other (fiat and crypto-) currencies. A factor contributing to the stability of fiat currencies is that people associate products with concrete prices. For example, if we reached the point that "a bread must cost between 0.0001 and 0.0002 BTC and a car between 1 and 3 BTC" then we'd done a step ahead in this sense.

But first we probably need a scalability solution, like LN or (or better: and) sidechains.

I assume that you included the large investors that use a custodial solution like
Coinbase Custody or Xapo in the bolded category as well?

The coins that are stored by these custodial services are also not available for the price discovery.
Obviously, these services also store a much bigger BTC amount than the casual holders. According to
this Bloomberg article Xapo alone is storing nearly the BTC equivalent of 10 billion $ for their clients.

Probably there are also a non-negligible amount of BTC in time-locked transactions, which
can´t be sold even if the market drops 95 % tomorrow.

The exchanges cannot control the price of bitcoin; in fact; nobody can. Mining bitcoin is expensive and its hashrate is increasing day by day. Hardware prices and electricity costs vary from country to country. Demand and supply will always affect the price of bitcoin. This has been the case for all assets.

The Satoshi's vision to create Bitcoin as a currency is a valid argument. He didn't create a cryptocurrency to become an asset. This is valid for Bitcoin but not only, for all the previous digital currencies created before Bitcoin

Of course, we don't deny you can save/hold some coins like we do with a saving account in fiat but there is a difference between HODL 100% of your income and using your paycheck or coins for your daily needs and save what you can save at the end of the month.

If people are hoping to get a cryptocurrency and its advantages to be able to use it in their investment portfolio and don't really care about the purpose of it then it's not going to work as it's supposed to be


"I don't like to eat a fish from the ocean I prefer to eat a fish from the sea, but I have no problem to take a fish from the ocean and throw it away in the sea to it later"
 

That's different, you use your "paper currency" /which is a big part digital now/ for the day-life expenses.
You have savings for sure, like the saving account, pension fond etc., but all those money are in circulation too, they are not stored somewhere for a long period/of course if you don't keep them in the "jar bank" under your bed/. 

We are talking about banks now. The money in your "saving account" are not actually there, if you go one day and withdraw all the money, it's OK, the bank can handle it, but if all the customers will withdraw their money at once, the bank most likely will be bankrupted, because all those money they have on paper are not actually there, they are in circulation, the bank operate with them, even if you think they are there.

Now back to Bitcoin. If everyone is HODLing for the Moon, when the "currency" is not globally accepted yet, and we have a certain supply + you cannot "print" more just for the obvious reason, then the currency here becomes more an asset.

At the moment the global vision on bitcoin is just a tool to make you rich if you can HODL it long enough.
There always will be whales trying to crash the price to buy more and sell later so huge part of the current supply of bitcoin is blocked due to different reasons.
the main two /three/ are:
- The HODLers /including me/
- LOST keys/passwords
- Satoshi's stash /can belong to both above/

The rest in circulation is just a tiny amount of the total supply. The miners are the ones that are keeping the market alive, paying for new hardware, electricity, loans etc.

I think we have to find a way to change this trend, put a stick in the wheel to escape this closed circle.

I plan on writing more on topic about this, but to anyone that argues that Satoshi's vision was to create Bitcoin to be a currency and not an asset... Sorry, but that's not a valid argument to use to implicate that Bitcoin should be used solely as a currency.

Take actual fiat currency, for example. It's made (literally) as a currency. Does that mean I need to spend it all and not hold any in savings, stocks, bonds, 401k, etc.? Just because Satoshi's vision of Bitcoin was intended to operate as a currency doesn't mean that we can't HODL, and I think it's about time everyone stopped using this as an argument as to what's slowing down Bitcoin's progress.

We can't blame people if why they are doing the HODL scheme. It is because of the loopholes that the current bitcoin system have even if it is giving benefits to most of the users.

I may agree that the percentage of bitcoin being used in illegal activities are much lesser than before, yet I am still pretty sure that the black market might be using other cryptocurrencies.



It is actually possible as long as the developers can make something to solve this equation. Mind that all the transactions are being calculated and by collecting all the data we can actually measure the costs of every mining operations. Then possibly the devs could create a system for it. Tho this idea is like digging a hole on the rocks using your hands.

Never heard that one before, but it does seem to be an interesting theory, even though I don't agree with it.

The thing with Bitcoin as speculative asset, which it still is today, is that the majority of the investors don't invest in Bitcoin with the network in mind or whatever else is going on in the background. If a large investor or an old hand wants to cash out and dump the market to $5000 to fully liquidate their position, they certainly will do so.

The only thing we don't know is how many hidden orders are there that will front run that dump and try to catch it on the lower side of the chart. It happens on Bitfinex quite regularly and likely happens on other exchanges as well, but then in a less obvious form. Exchanges are rigged to the core so we have to assume that it's happening everywhere.

Also, the cost of mining 1BTC is far too speculative. It depends on so many variables that we can't just point out one single price for the whole industry. Smaller miners are probably closer to ~$7000 per minted Bitcoin, while the larger farms frequently scooping up blocks only have $4000'ish actual cost per minted Bitcoin.

Yes that's very true however before merchants will accept Bitcoin we need the price to stabilize a bit. That's probably the biggest problem for adoption right now. Merchants can't accept Bitcoin if they don't know what the value will be from month to month...one month it's $20k, a few months later it's $6k. That's no way to run a business. If Bitcoin were to ever become like gold in the sense that price fluctuations are more steady then we'd see more merchants accepting it because they'll know approximately what the value will be 6 months later.

I think this is a strategy to introduce bitcoin throughout the world. this is the key, if bitcoin is only used as a digital payment tool it will not be as famous as it is today. in this world there are more than 200 crypto exchanges (see icorating exchange) while companies that want to accept bitcoin as payment instruments are still low.

in the future, I agree with you. that the price of bitcoin must be determined. but liquidity does not want it all.
the only thing that can control the price of bitcoin is the central bank's monetary system, the central bank is able to create, attract, and even hold virtual money including cryptocurrency so that bitcoin can function like dollars and euros.

No. That just sounds like some Marxist planned economy where everything has some fixed value and supply and demand are ignored.


Speculative value is the real value, because value itself is just a sum of personal feelings and opinions of all the people that participate in the market.


It absolutely should, because there's no other way for it to function. Bitcoin's price is a very important part of the protocol, because it determines how much PoW can be allocated to the network. If this mechanism gets disrupted, 51% attacks can become possible. Recently there were double-spend attacks successfully executed against some altcoins, which happened because their hashrate was too low to support the price, making the attack profitable.

Also, your idea might be just impossible to achieve, because decentralization is possible thanks to trustlesness. So, to make your system work, you somehow have to find a way to trustlessly measure all the costs of Bitcoin mining operations.

Absolutely correct! Bitcoin has become an investment asset now than a currency system. So we have long diverted from the original thought of becoming a de-centralized p2p currency free of regulations and middle man. That's where we have precisely became a part of the speculation game. I am not denying the fact that I also have bitcoins in my cold storage with the similar hope, but I also don't have any space where I can use my bitcoins to purchase anything from any merchant, at least in my country!

To be able to spend bitcoins as a currency system to purchase goods or services, we need merchants to accept it as a payment option. This is largely missing in today's scenario. Everytime I want to purchase something, I have to convert the required amount of bitcoin into fiat and then I use it for the purchase. That's why it is not helping the crypto economy because we have very very limited options to use cryptos directly. To change this mindset, we need merchants to will accept bitcoin for everyday goods.



Secondly to the OP's point, it is only possible if the miners come together and decide that they will not sell off their bitcoins under a certain price. But it is very easy to say but very difficult to execute! To reach a global consensus of this level is not easy at all! The big exchanges can help with this decision but it will slump their business down, so they will not help either. The only choice left is the free market decision and that's what exactly we are following now!

I would love to see if anyone can suggest a revolutionary way to balance the price based on the production cost and stabilize it. As of now, I don't see any alternate route than to follow the free market dynamics which is somewhat influenced by the whales. As a small trader, our influence power is next to zero and we can only submit ourselves to the current market dynamics. Absolutely helpless here!

I say that BTC was actually invented by electricity companies, lets face it the whole time that BTC has been around more than 70 to 80% of the cost of mining has been eaten up by electricity cost. Some might think that this is a conspiracy theory, funny thing is any time BTC get to a level were mining it makes no sense the price goes up. At the moment it costs around $6,500 to mine 1 BTC.  I bet BTC does not go below this cost base.

Not that it just isn't that easy to calculate the costs, you would have to prevent rich people from trying to get more rich.

Since money rules the world, the price ($ value) will always be dictated by the supply and demand on exchanges. It is basically just an object being traded. In the end it all comes down to the supply and demand on the exchanges it is traded on.

IMO the correct way would not be to stabilize the price, but to increase adoption which will in return decrease the volatility itself.
There is a lot of interesting development ongoing with bitcoin. With more and more new bitcoin user (not hodler) the coins will gradually get more evenly distributed. This actually will decentralize the price, or at least the power to change the price.
But this does of course require merchant and customer to be ready to accept/pay with bitcoin in their daily life.

It took me 5 minutes of reading before getting to your sounds-right point. I don't think we can decentralize bitcoin's price in a few words. Even in trillion dollar-worth markets such as stock or gold market, organizations still can use money to manipulate stock's price or gold's price. If cryptocurrency's market cap reaches the same level, I think bitcoin's price maybe less manipulated somehow.