Topic: rpietila Altcoin Observer - page 95. (Read 387491 times)

I do not believe that assumptions of rationality are needed here, nor is "the long run" needed. My comments about displaced demand are supportive of the model. That is, an attempt to explain a possible mechanism behind what is ultimately a structural model, not a behavioral one. Perhaps my attempt fell short, but if that mechanism is incorrect, then there must be another one, possibly unidentified.

I do agree that if mining serves to attract participants that can have the secondary effect of popularizing the coin, creating promoters, etc. which then can have a feedback effect of increasing demand.

But in reality, in most cases today, I just don't believe many miners behave as you describe any more, getting attached to coins and such (though they used to, with DOGE probably being the peak of this). I see most miners today just jumping to whatever is profitable, not really knowing or caring what it is, and then leaving when most of the hash rate gets taken over by pros. Look at XCN now, and its only been a week. The top 3 miners on 1GH (the only pool) have 50% of the total hash rate. I'm too lazy to add up the top 10 but that must be a huge percentage. Many of the early miners have already moved on to something else.

In the long run, they would balance, if everyone were a rational actor, I agree.  I also think the assumptions of that model are false.  Non-rational motives and time and liquidity preferences create feedback loops.

Miners are not generally rational actors until and unless they operate at industrial scale.  A miner has sunk costs, which leads to sunk cost fallacy disproportionately, for example.  They also tend to avoid sinking those costs.  Persistent miners tend to be strongly biased to accumulate the coin which they are mining, or they would switch to another coin.  

Since willingness to lock up capital in mining is typically low when it is unprofitable, they accumulate simultaneously with mining.  This has the opposite effect from the balancing effect you observe.  The price and difficulty act more like a quasiperiodic linked pendulum system than like a balance.  A price spike will create a rush to sink costs.  The subsequent decline will not cause liquidation of capital plant.  Neither will it cause a decline in demand while mining and holding.  The holding miner is intent on accumulation, and continues to buy coins.  The funds spent on mining hardware are more like funds spent on coke and hookers than they are like a productive asset at this point.

Anyone have thoughts on this new BCN development?

https://bitcointalk.org/index.php?topic=512747.3520

Rising price reduces demand in consumption markets, but investment markets I believe exhibit the opposite effect. Perhaps I didn't understand your point?

It is very interesting for me to note that you see mining as an orthogonal activity. I want to say more about that, but now is not the right time.

I would love to see this!

In response to both aminorex and AntonyMint, the problem with the argument of mining driving up price is that it also withholds demand. A miner who is willing to hold a coin (or even willing to mine given the realistic possibility of holding the coin) someone who values the coin enough to have otherwise bought it given frictionless exchange. But having mined it, the miner need not do so (or need only buy less), thereby reducing demand (i.e. downward pressure on price).

Equations can probably show that these two effects exactly balance in the presence of constant supply difficulty retargeting, in fact I'm fairly sure of it, but I hate math now, so I won't be one to write them down.

We are running out of time. Hopefully we can get our efforts aligned and cooperate.

As a miner, I will not sell at a loss.  My withholding of supply reduces supply and thus affects price.  You can call it reserve demand if you wish.  If empirical data says otherwise, then it is misinterpreted.  In addition to being a simple logical necessity, awareness of this dynamic has demonstrated, to my own satisfaction and gratification, pragmatic value in estimating resistance levels, air gaps in the supply which require momentum to overcome.

This is probably true for all the existing crypto-currencies, and if true, I posit this is because users are not mining with their sunk costs. Thus investors who don't mine are in dominant control of the price. Unfortunately I posit that this appears to cause suboptimal adoption rate and future, e.g. log-logistic.

Whereas, if the users of the coin are mining with sunk costs, I expect the price of the coin wouldn't factor as much in their decision to mine or not. And then there is fact that people who mine coins professionally are unlikely to sell them for less than their cost of mining. Thus the more you drive the hashrate up by popularizing mining, the higher the ask price of the coin. Then the investors who don't mine are no longer the only factor modulating the price.


Unfortunately you are correct that all existing crypto-currencies don't have the requisite synergy with mining. Bitcoin may have had it early on which resulted in a rocket shot logistic adoption curve (using price as a proxy). But this fell to log-logistic as the mining synergy was lost with GPU mining and then more so with ASICs mining.

Thus I am of the opinion that so far all we have are investment pump assets, not currencies.

Innovators are going to reap rewards from speculators, no doubt about that. Coming out with a new solution to a mostly solved problem(anonymity) every week is a profitable enterprise, as we can see . But real people using the currency(i.e. Bitcoin) is more important in the long run I think. Your post earlier which linked to Peter R's post inspired me to write an article about why I think it's more important to focus development and community on user accessibility and ease of use rather than cutting-edge features that appeal to the altcoin markets.

I know your stance and the problems that you feel need to be solved. And Bitmark doesn't solve the scaling problem or the transaction fee issue(yet anyway). But I honestly feel that focusing on getting average people to use crypto, even if you have to backdoor them into using it through easy to use webapps, is the best approach.

You added support to my point, but apparently you didn't realize it. I want people to mine who want the coin using their sunk costs (their home PC), not investors mining who have taken on debt (or short-term expectations) and have to worry about near-term profitability and cash flow.

Even if those home miners spend, at least they are spending it on merchants which drives network effects and not dumping coins in bulk to whales in pre-arranged buys (see our whale Risto offering to buy $10,000+ lots of Monero).

The more it moves as a currency (the velocity of money), the higher the value before it gets aggregated and dumped on an exchange to the whales (and yes I like whales).

Related yes, but causality only runs in one direction and it is toward mining not away from it. Empirical evidence (which is hiding on this forum somewhere unless the author deleted it, which I doubt, but I can't find it) is that mining is driven by price, not the other way around. That is to say, you get the mining demanded by those who compete to hold the coin by driving up the price; you don't get the price driven higher by more mining. This also follows logically from the one-way function of static output difficulty retargeting, which confuses intuition because there are few if any non-virtual markets with similar structure. You could probably get a different result with different retargeting though.

This doesn't answer the question of what does create and drive demand for the coin, just what doesn't (mining).

Somewhat tangential, but when I commented on crypto-to-crypto exchange being frictionless the context was not multiple competing currencies,  it was people wanting the coin buying it instead of mining. To replace LTC you need only address the market of crypto owners (95%+ BTC), who can and will simply buy it, leaving the necessary job of mining to the experts and most efficient operators. Specialization reigns.

Beyond the scale of replacing LTC the situation changes certainly. I didn't address that at all.

The need for anonymity may scale faster than the float in Monero can accommodate.

The daily float of the physical gold market is $800 million. LTC is 1/100th of that.

If everyone wants to hide capital and there is no usership that wants to spend, then it is a one-way street (investment pump) and can't scale. Gold will go skyhigh for this reason, but it will be very difficult to sell it for anything (without adhering to the capital controls you were trying to avoid) because it isn't a currency.

This is a dysfunctional plan.


Yup. That is why I wrote about the urgency. Gold is the current alternative and it can't be a currency (can't aid the Knowledge Age because it is physically transacted).


Copycats don't win in innovation markets, because the innovation is ongoing and driven by the team who had the insight to innovate. Thus the herd moves in to support the innovator. Rather Monero's developers would be wise to jump in to contribute if something else is racing ahead rather than fighting the trend and being always one step behind the innovations.

Thought a lot about mining lately and realized it matters much less than I thought it did.  The ones who win are the ones who pick a winning coin.  The most profitable mining generally happens during unprofitable times.

In other words - it's unprofitable to mine a coin and sell it (or barely profitable) - later the coin is worth more.  Picking the winner matters even for legitimate miners.  Botnets maybe another issue.  But if they dump onto the market - then I buy - then coin goes up later it's all the same. 

I do wish one primary secondary coin that serves as the crypto backup coin (by having the 2nd largest market cap / consensus) would emerge in the short term.  Whatever coin overtakes litecoin (which I feel will happen) I feel will be well established.  All indicators seem to point to an anon coin that at least doesn't screw up the mining.  Still not sure it's emerged, or at least become popular yet

Upthread we disagree on their effect early on (which I posit impacts the long-term), but at least we appear to agree they are less relevant once the coin has scaled to broad distribution, if the coin can do so.


We agree at least that miners matter less as the annual percentage debasement rate declines. Where we may disagree is I posit that the price of the coin is related to the cost of the mining investment in it annually, modulated by the percentage of the float added each year by mining.

Thus I posit that if you want to drive the price of the coin skyhigh, you need everyone who uses the coin to mine with their sunk costs. And then you need to scale usership to millions or billions. The other route is to allow centralization and sell out to the powers-that-be as I posit Bitcoin has done (and Ethereum also), who then drive the investment in mining higher in an investor pump with their mass media and Congressional hearings, etc.. I posit the latter is log-logistic (did a rough curve fit as mentioned) and the former is logistic (refer to our discussions in the Monero economy thread on the adoption rates of technologies that were not centralized).

As to whether higher prices (i.e. via usership demand) drive more investment in mining, I posit that network effects and the Metcalf law correlation that Peter R showed are driven more by the investment in mining, than vice versa, at least while debasement rates are high early on. Those with the most investment also invest the most (time, effort, and capital) to drive adoption, so when the investors are not also the miners early on then there is a loss of synergy (as you say below many miners just dump the coins to a whale and don't even spend them into the ecosystem to drive network effects such as more merchants).

Thus despite sharing some facets of agreement, yes we appear to disagree fundamentally on how crucial mining and breadth of distribution are.


Agreed but that says nothing about why one coin is demanded more than another.


Agreed the maximum division-of-labor and the 51% Rule of Decentralized Consensus are fundamental.

However, assets can be specialized but currency can not be. Just because we can trade between crypto-currency assets, doesn't mean all of them are currencies.

Why? Even if you ignore the round-trip costs of spread, the fundamental problem is that when people use one currency as their unit-of-account, then all timing-dependent exchange rate risks disappear.

And this is why Moldberg is correct "there can only be one", and why either we "aim big or go home".

Yeah we could make an anonymous crypto-currency asset that we can use to protect capital in the coming chaos, but if it is not a currency then we will have to trade out to the majority's currency in order to spend this asset. And this is where the powers-that-be have us cornered. When they require everything to be computerized, even including real estate purchases and rentals, then where we will spend our anonymous crypto-asset without being forced to reveal our private keys and the entire trail of ownership??

Open Question: could we end up with two economies?

One the official government edict digital fiat and another the underground economy that goes anonymous because the government becomes unreasonable (as socialism always does at the end stage mega-death mode). I wrote my logic for why I think this is likely and the underground economy could be largely virtual digital works.

Thus perhaps Moldberg is correct and the government's edict fiat is the one that is dying with the dying Industrial Age and the rise of the virtual Knowledge Age means the winning one could be the decentralized crypto-currency after a battle of chaos interim.

I'd like to try for that goal. Succeed or fail, is it not worthy?

With such a goal, there is enough prosperity to share with everyone. So we should cooperate.


I would like to make mining unprofitable for investors by making it profitable only to those who mine with sunk costs.

---

P.S. In a follow up email, I expressed my opinion that it is very unlikely the world proceeds into total collapse 2016ish. Post 2015, I rather place a high probability on an acceleration of:

* economic hardship
* reduction of personal freedom
* loss of private property rights
* war and riots (reduction of personal security)
* disease and pestilence

Those Christians who would urge we do nothing to try to aid prosperity (e.g. with crypto-currency) because as believers they feel they have nothing to fear, appears to me to be the epitome of the laziness that was reprimanded in the Parable of the Talents. Since no one can predict the exact time and extent, we must continue to be productive until the time.

I'm tired of the salesmanship from XC that just sounds like this - https://www.youtube.com/watch?v=p-3e0EkvIEM

Do you realize how desperate you guys sound?  I'll tell you why ... because you invented the features you thought would take you to the moon.  And it didn't.

Please tell us something about XCurrency and why it's better than Monroe.  This is one of the few threads I read that is interesting and Monroe seems to be the latest convo of discussion.  Why is your privacy better?  What is your user adoption comparatively?  What's the user adoption rate?

(Edit:  Something besides blockchain size ... I already know that.  And secure chat.  Know about that too.)

Run for the hills!!

Looks like CLOAK is cheap down here. I'd run there (recommendation to RW-Stott).

Sorry, did you want to say something about XC? It's a premine you know, get out whilst you still can!

This post sucked.

XCurrency