What I find interesting, in addition to your description of the price elasticity being at issue, is precisely _what_ a bitcoin represents.
In fact, what _all_ cryptocurrency represent, to my knowledge...and that is, some increasingly unbreakable cryptographical mechanism by which information may be passed at ever more secret rates.
The question I have is: precisely who is in the market for such things, and are they not, in fact, what is holding these currencies together?
It also begs the question: if the person who can afford to 'buy' the cryptographical information is the one "funding" the market, are we not at the beck and call of the deepest pockets in terms of securing what may ultimately be state-secret level data?
I recall reading some article about how, when mining for bitcoin (for example), what was really being mined are progressively larger prime numbers, or scientific data, or some such data requiring lots of computation.
Isn't there something of real value being mined? If not, what is being done when people _mine_ bitcoins?
Having a large amount of work required is what prevents a malicious actor from tampering with the chain, since doing so requires doing as much work as all the other miners together.
You're most likely thinking about Primecoin[0].
> Isn't there something of real value being mined? If not, what is being done when people _mine_ bitcoins?
"Real value" in a computational sense is difficult to articulate. Making a calculation part of a mining algorithm that ultimately results in _new_ information is challenging because it, by definition, requires a lot of effort to not just calculate, but verify. Folding proteins, searching SETI datasets, etc. presumably require the same amount of effort to verify as they do to solve in the first place. The way that cryptocurrencies that use a "proof of work" ("PoW") are typically set up is to make it very difficult to solve a computation, but very easy for others to verify that the solution is correct. The other component of PoW that makes it beneficial as a verification tool is the ability to increase or decrease the difficulty of solving the calculations required by the network. Without the concept of adjustable "difficulty," a network could not adapt or grow as more (or less) computational power is brought online. This difficulty of computation is a core component of the decentralized, distributed nature of blockchains.
If you'd like to learn more about it, here are a couple of resources to get you started:
- "Proof of Work" (Wikipedia)[1]
- "Is there a way to set up proof-of-work systems so they would be even more useful?" (StackExchange, orig. asked in Sept. 2011, updated Dec. 2017)[2]
- "The Fair Cost of Bitcoin Proof of Work" (Tomaso Aste, University College London, 2016)[3]
- "FoldingCoin" (HN discussion, Jan. 2015)[4]
Bitcoin's hashing scheme's "value" is in its ability to make it computationally difficult (and of significant real cost) to attempt to cheat the network.
Simplifying a very complex discussion, you can consider it, in a limited sense, analogous to the different ways that the World's governments and assorted financial institutions spend untold billions of USD, EUR, RMB, YEN, etc. every year to secure, confirm, compensate, and extend the underlying infrastructures that support global financial exchange.
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[1] https://en.wikipedia.org/wiki/Proof-of-work_system
[2] https://bitcoin.stackexchange.com/questions/331/is-there-a-w...
[3] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2801048 (Note: A subscription to Elsevier is not required to view or download this research paper)
I'd say what the asset is, but I can't because if literally only one other person reading this decided to buy some then I effectively wouldn't have the option to buy more of it.
This is how markets work.
Both have a 1000 in circulation.
Both are worth $10 each.
Both have a market cap of $10,000 US Dollars.
But the market for AlphaCoins is "thin" (small changes in supply and demand make for really big price swings).
There's a run on the market and everybody wants to sell off their coins.
After a day's trading:
AlphaCoins price is $3 / coin.
BetaCoins price is $9 / coin.
For goods and services you'd call this the price elasticity of demand (You can change the price of medicine and people will keep paying it b/c without it they'd die - it's inelastic - the same can't be said for a snack bag of cheetos).
To me, this is the article's argument. That while these terms describe the same things across markets there are some big differences not captured in simple "market cap" comparisons.
Maybe a better analogy is two all you can eat restaurants (identical, yadda yadda) but at one you can use your full set of dining implements and at the other you can only use a fragile toothpick to eat your food with - and all anyone can write about is how the quantity of food in both places is the same.