Difficulty determines the electric cost per bitcoin. Electricity is a large part of the cost of good sold. This has been the rule for most of the last four years.
The USD trade has dropped with the US hashrate. Coincidence?
The Bitcoin protocol is finished thanks to the great effort of the talented developers we have, but a few million dollars investment in a breakthrough disruptive technology is barely a start. It will take decades of man hours of software development to make the protocol user friendly. Either we pay programmers now or educate future generations to continue development in their spare time.
Isn't it more the price that determines difficulty? You could replace the hashrate of GPUs with ASICs and wouldn't the cost per bitcoin in electricity go down with the same difficulty? When price goes up mining is more profitable and more miners enter the game, then the difficulty rises due to this not the other way around. We are supposed to get an approximately flat rate of coin generation regardless of difficulty.
Do you have evidence of the correlation of US hashrate and USD trade? I have no idea if this is coincidence or not as I haven't tracked both closely.
I agree with your last part that it will take considerable development to make the protocol user friendly. I think development will continue to increase as wider and wider adoption and knowledge is spread. It looks like more startups are focusing around bitcoins now than in the past. Of course we all want more money and work put in to make things happen faster.
The globe on blockchain.info shows that the USA has quickly diminishing hashrate in relation to the global participation. The fact that this occured as the hashrate in China boomed leaves little doubt that GPU miners in the West are shutting down and China has new ASIC miners. Price is dropping as GPU miners drop out and hashrate continues to climb.
Maybe if price drops far enough and difficulty goes high enough, we'll start seeing more ASICs in the West, after the profitability of ASICs in down.
Do you have a theory on why price would correct to difficulty? Logically it makes sense to me that when price rises it becomes more profitable to mine, then more miners are turned on and difficulty goes up following price. When profitability goes down due to lower price then some miners turn off and difficulty drops, again following price. There is probably more to the story than just that but an explanation why you think price would correct to difficulty might help me understand your point of view.
Yes, profitability is the incentive for turning on miners except when we have game changers like ASICS. The difficulty jumps these days are an order of magnitude higher than a year ago. Profit margins for GPU mining are so small that only when there are speculation driven price spikes does it pay to run GPUs. Still, that's a good reason to hang onto them as reserve miners.
I also think increased adoption and utility could be somewhat decoupled from more hashrate since it's likely a different class of users will be attracted into the future. Less technically savvy users will also start mining in much lower ratios to number adopted when measured against early adopters in the past.
As far as US hashrate falling vs China (and elsewhere) and a corresponding drop in BTC price, if we assume the two are correlated then my only theory there would be that possibly US miners had more disposable income and the larger percentage of coins mined outside the US now have a larger portion being sold back on the market as soon as they are mined. Is this your thinking as well?
I don't think it is necessarily a disposable income issue as much as the market freedom of countries. Competition amongst exchanges will provide liquidity. When the world has easy access to Bitcoins, volatility will diminish and Bitcoin price will grow steadily with market confidence and utility. Until then we will see bubbles, slow access to ASICs, and media FUD.
Thanks.
