Topic: Someone help me understand the economics of bitcoin right now please? (Read 1357 times)

ASIC mining equipment is currently the only high value items that are sold for bitcoins. Therefore a mass payment of a batch of asics can make a dent in the bitcoin price. Long time, there is no influence. The mining cost is decided by the bitcoin value. The mining cost does not influence the bitcoin price.

Many miners spent many bitcoins pre-ordering with on BFL, BitASIC (now defunct) and other mining promises.

But then the "halving" event occurred in November, 2012 and many miners realized they had fewer coins than they had hoped to at the time and no hardware generating any more at a reasonable rate. So they then bought from the market (my belief, based on anecdotal evidence that I observed).

So they bought and the exchange rate went up, .. from $12-ish to $20-ish, and it kept going doubling a couple more times.

Then ASIC hardware started shipping and existing miners (and new prospective miner) converted their acquired coins into more ASIC pre-orders and/or bought shares (e.g., ASICMINER).  Most of those coins received by the ASIC manufacturers are presumably converted to fiat, and many of the dividends and stock price gains from shares sold get cashed out as well -- furthering the transfer of value to fiat.

However, ... what is unknown is the future difficulty.

If it again rises such that those miners who weren't first in line or those who bought additional capacity end up discovering that their ASICs won't be earning their bitcoins back fast enough, they'll return to the markets to pick up some more.

There's 11.3 million BTC so far, out of the 15.75 million that will have been issued by November 2016.  i.e., there could be a rush to restock the coffers should difficulty cause BTC production from ASICs to slow to just a trickle.

But that's the thing about speculation.   Nobody knows the future.

[Edit: Incidentally, you asked about the economics of bitcoin, but only discussed mining.  Mining is (should be) just a miniature fraction of the economic factors to consider.]

How did I prove myself wrong?

I said game theory is decision science citing wikipedia's article regarding it, wherein it states that, game theory is "an umbrella term for the logical side of decision science", contradicting your claim that game theory is "the business of figuring out actions without a lot proof".

Apparently you don't like wikipedia so I will cite a few more which still contradicts your definition of what game theory is:



Neither of which says that game theory is "the business of figuring out actions without a lot proof" as most science's are not.

so you just proved yourself wrong?  it is not cognitive science...  it is modeling interactions between competitve and cooperative environments

since all you can do is quote wikipedia (which is a salad of whatever people expect something to be) and not speak on this from any experience I am not sure why I am wasting my time

http://en.m.wikipedia.org/wiki/Game_theory

sure bud..  sure

what? game theory is the exact oposite of that, it is based on cognitive science.

game theory is the business of figuring out actions without a lot proof


you can wait until you get proof, lose out, and thus prove the theory.. (since most won't wait, and act since that is in their control) 

capiche?

and this has been proven? where?, please show citations.

prisoner's dilemma

what makes you believe that miners immediatley sell?

So here are the facts that I have and I think they are all right:

1) More and more ASIC miners are coming online and the hash rate is increasing
2) The network difficulty is increasing more and more
3) The network difficulty adjusts itself such that the number of coins produced per day remains relatively the same.

Here are my psuedo-facts that may or may not be right:

4) Most of the current ASIC miners that are coming online are mining and immediately selling generated coins--that is they are not holding onto them like some previous miners were
4a) This means that the supply of bitcoins is increasing (supply here taken to mean bitcoins available for purchase, not total bitcoins in circulation)


So my initial thinking was that we have so much more hash power(1), and that would mean we generate coins faster but someone pointed out that that's not true because the number of coins generated is a fixed rate (3).  Obviously this line of thinking was wrong.

So, with economic theory, what is the correct prediction to the price of bitcoin (I know what it's currently doing but I want to know what we would expect)

A) If we look at (2), then we would hypothesize that because the commodity is harder to come by, people would charge more for it.
B) However, if we look at (3) we can see that (A) my not actually be correct.  The gold is still coming off of the mountain at the same rate, but now instead of 5 companies bringing it out, we have 500, so each company earns less, but people aren't willing to pay more for it because there's still just as much available.  While companies may try to charge a bit more, they won't be able to charge too much more because they know their competitors will just undersell them.
C) If we look at (4a) then we can tell that if more people are selling, there is actually more available and therefore the price will drop
D) But if the price drops too much and the ROI becomes too long, miners may sell off quicker, or they may hold onto their coins to try and cause supply to dwindle again.

Are any of my thoughts right?  And if so, which ones are right and of those, which ones are the prevailing factors?

Theory time!