That's not how it works. If you spent $100 in electricity and you have an asset that's worth $50, you can either sell it for $50 and only be down $50 on your electricity, or you can not sell it at all and be down $100 on your electricity.
Electricity cost of mining does not set a price floor. The price floor is 0.
Obivously, the meaning of the original sentence is that miners will turn off the mining equipment when they decide that it's more profitable to leave it off than leave it on.
> …you can either sell it for $50 and only be down $50 on your electricity, or you can not sell it at all and be down $100 on your electricity.
This is a false dilemma, the question is not just whether you sell the coins, but also how many, with what timing, on what markets, and in exchange for what. The “either sell it and make some money back, or don’t sell it and eat the loss” is only true if you are paying for your electricity in Bitcoin to begin with, or if you know that the asset you have will only depreciate in value. If I spent $10,000 on a car that I don’t need, selling it for $8,000 might be a good deal because if I wait I will only get less. For Bitcoin, the exchange rate fluctuates, and you can divide it and sell parts at different times.
> …you can either sell it for $50 and only be down $50 on your electricity, or you can not sell it at all and be down $100 on your electricity.
This is what I disagree with.
This doesn't cause a price floor either as fewer miners does not correspond to a drop in supply. The cost for miners has no causal effect on the price of Bitcoin because the new supply of Bitcoin is constant.
Note that this is somewhat counterintuitive compared to "physical" mining (of gold, copper, oil, etc), where fewer miners correspond to less supply (which usually causes an increase in price).
TLDR: there is no price floor for Bitcoin based on the mining price
In the same way if all the buyer wants to pay is 50% of what the seller is quoting, and there are no other buyers around or they too want it for a 50% discount, 50% discounted price is what the price is.
> In the same way if all the buyer wants to pay is 50% of what the seller is quoting, and there are no other buyers around or they too want it for a 50% discount, 50% discounted price is what the price is.
Let's say I want to sell for $10 but you're the only "buyer" and you only want to pay $5.
You are saying that the actual price is $5... this is not true. There is no actual price, because there is no transaction. I am not a seller, because I haven't sold anything (I've only offered to sell). You're not a buyer, because you haven't bought anything (you've only offered to buy). The "bid price" is $5 and the "ask price" is $10. The "actual price" does not exist until there is an actual transaction.
Well, it all depends on price of electricity in your region. If you mine for almost free using solar/other renewable energy/your energy is subsidized by government then you will still make profit while miners in high cost electricity regions will stop mining. If they stop mining difficulty will drop, which means you will get more money for mining.
This is self regulating mechanism, as long as bitcoin will have value it will be profitable to mine for someone.
Even with renewable energy there's an opportunity cost - you can sell it back to the grid. Plus the fixed costs of buying the solar panels and mining equipment in the first place.
In many cases this doesn't matter, as it 's being paid by someone else. Millions of teenagers mining crypto on their GPUs, their parents pay for electricity, what about enthusiasts? They will mine even if price is higher than the value of the bitcoin, there are bitcoin mines that steal electricity from the grid etc.
And as I wrote before, this is self regulating mechanism, difficulty is adjusted every 2016 blocks. Less miners? then less power needed to mine the block, which means less resources/money needed to mine the block. Price of electricity dosen't matter.
You see similar economics when farmers sell crops at a net loss.
And the comment you replied to did not even mention the other marginal costs that Bitcoin faces (employee costs, land rental, networking costs, etc).
Hell, the entire economy makes no guarantees at being sustainable in the long run. The unsustainability period just shows all indications of being longer than a human lifespan, thereby making it easy for people to write off as not their problem.
Assuming you can only either sell or loose the money fails to take temporal effects into account, ie the fact that there is such a thing as time progressing that changes variables.
It is not the deflationary policy that makes bitcoin less adoptable: being deflationary predictably is better than unpredictably inflationary. Specially in this day and age, where bitcoin prices can be tracked to the second and prices changed accordingly across the board. Its interesting to see there's research talking about how the ability to price things faster has changed the effect of monetary policy on prices at all.
The rest, I agree. It has a very speculative value, and its best usecase is pass-through. But pass through is still a good use-case. Argentina, 3 years ago, would pay up to 5% of funds to transfer money in-out of the country: bitcoin would have been easier and cheaper. And its still used as a way to evade controls. The use of bitcoin can severely reduce the government's capacity to levy taxes, as it is way harder to track down than bank/card transfers. Whether that's moral or good will be secondary to the fact that it can do that. If its use case is to sell drug money and reduce taxes, it will have value.
This is only very appealing if:
- It is never necessary to change monetary policy.
- The same monetary policy is appropriate for all nations.
- The monetary policy that was chosen by the bitcoin dev team is exactly the right one.
you're conflating. the concept of nation has nothing to do with the concept of money.
Generally speaking libertarian idealism is unthinkable until we have had at least 50 years with no war. It won't work in a violent, power-hungry world ruled by warlords and sociopaths. Getting rid of our warlords sounds great until you realize there are others.
This point is so true and so important it deserves special emphasis. If you imagine two societies at war, one with currency and other without, who wins? Clearly, the one with currency, because you can collaborate far better than the other, and war is won primarily by scale, which money can maintain.
And as for those that want to abolish currency, or nation-states, this is naive idealism: anyone who demolishes their nation-state will just get invaded and absorbed into one of the remaining nation-states. Peace lovers would do better to plot a course for peaceful subsuming of states into a larger entity, something like the EU model.
this is a weird hypothetical. i can't imagine a nation-state without currency and i don't think you can either. so how is it clear who wins?
i highly doubt isolated regime can somehow improve it's sustainability simply by manipulating money. Venezuela just had a massive devaluation - did it make Venezuela richer? did it improve it's economy or GDP? no, it's still the same corrupt country on a brink of collapse.
Basically, V can't fight a war until they get their money situation in order.
i don't see the word "nation" in here. do you?
i don't care about empires losing their weapons. i would very much invite such an event and would do everything in my power to enable it.
Only multilateral disarmament works for game theoretic reasons. I don't think soft disarmament in areas like aggressive monetary policy can be done until hard disarmament happens, so I write that stuff off until we've had at least 50 years with no major war anywhere on Earth. (Most smaller wars are proxy wars between major powers.)
Like most major innovations Bitcoin is ahead of its time. Maybe on Mars...
the difference here is that cryptocurrencies undermine isolated regimes even more than they do developed economies. being able to own something a government can't debase or manipulate is extremely useful for everybody.
Right?
Unpredictable deflation is what bitcoin does, and with a fixed policy it can never do anything else. The amount of wealth generated by an economy grows in an unpredictable manner, and fixed monetary policy translates that fluctuation directly into the value of the currency. We learned this with metal currency. It didn’t go well.
I'm not sure if there's a direct equivalent for Bitcoin. My first thought is that there are probably a few large stashes of coins that the market assumes are "out of circulation" and priced accordingly.
Im unaware of big crisis stemming from that inflation, although I find it very amusing when Adam Smith or Ricardo talk about it without having the word in their arsenal. I loved knowing they were trying to define inflation without knowing what it was.
isn't this true for all currencies, virtual or not?
There you go. All the benefits of Bitcoin replicated in the USD, which is a far more widespread and versatile currency?
So why doesn't the Fed do it? Because it really is a terrible idea. It's like pegging your currency to gold, which was a terrible idea (although good for its time) and the delay in moving away from it probably cost tons of money and lives.
Easily said. Not so easily verified. Verifiable emission remains a big advantage of cryptocurrencies.
Consensus is difficult and slow, but when it comes to the world economy, that's probably the least-bad solution.
People can fork bitcoin with a different monetary policy. I, and many others will continue to support the monetary policy as set out in the original white paper. Not much in bitcoin is sacrosanct, but 21 million coins is what makes it bitcoin for me.
Due to difficulty adjustment, they also have no ability to change the overall level of production. They can choose not to sell immediately, but for most large miners their costs prevent them from waiting too long. But since they're only 0.4% of overall daily sales, it won't matter to the price either way.
No that's not how markets work.
Miners will sell at the best prive they can get. If they cannot cover their costs, they'll stop mining and the difficulty will drop until mining is profitable again.
The resulting mining rate may be too low though to secure the network, bug that's a different topic.
There is one group of miners for whom electricity costs and Bitcoin price don't really matter much: home miners in cold regions whose homes used electrical resistance heating. Almost all of the energy consumed by a computer ends up as heat released directly into the room. A computer is, for most practical purposes, an electrical space heater that is as efficient as a "real" space heater [1]. It's just more complicated and the power consumption (and hence heat output) tends to vary a lot depending on what computation it is doing.
I wonder if this will result in mining eventually becoming mostly a home activity again, as it was when Bitcoin was starting out?
[1] https://www.pugetsystems.com/labs/articles/Gaming-PC-vs-Spac...
...which is why I specifically talked about people "whose homes used electrical resistance heating". Many areas do not have gas available by pipe, and having it delivered by truck in liquid form is often expensive. People living in rental units may not be allowed to install a heat pump, and heat pumps have a high up front cost that keeps out many people who aren't blocked by any other restrictions.
Also, even people with other, more efficient, heat sources might have situations where electrical resistance heat makes sense. For example, it may save money at night to turn down a whole house heat pump to a level that would be uncomfortably cold, and use an electrical space heater to just keep your bedroom warmer.
Obviously bitcoin is not the primary currency for any economy, so the feedback effect isn't a concern, but the deflationary pressure is (per TFA) reducing actual economic activity denominated in bitcoin.
Sure they will. They’ll have to if there are more sellers than buyers. Sellers are poor things at creating “floors” unless they’re in collusion. Bitcoin is famously decentralized so good luck with that.
...except that bitcoin has been adopted, just not widely. Your basic premise is false.
The basic premise of Bitcoin as a currency has always been questionable. With each passing year the premise has become more questionable -- there is the extreme volatility, the enormous energy tax, the inability of anyone to respond to liquidity or credit crunches (and the deflationary nature that encourages such problems) and the ever unclear driver of BTC demand (why would I want a BTC payment, especially when I need to make certain legally-mandated payments that are only payable in my nation's fiat currency?).
Except for the fact that it is currently, and always has been, inflationary.
You need to learn more about economics.
Inflation/Deflation is a separate phenomenon than rising/falling value — though they are sometimes related.
Sometimes I feel that criticising Bitcoin for it's failures is like criticising Edison based on his first attempt at inventing the light bulb!
So to the original comment I think the poster means it’s like MS-DOS, but Windows or some such will come next and bring it to the mainstream.
For example, a fixed reward split between a growing group of miners will also cause a rising price floor. The miners will not sell for less than their electricity costs, which makes the smaller piece of the block reward they receive have a higher price.
So you have this asset you call a currency but it is always deflationary. No one will set prices in that. Think of it in terms of setting a salary. One month you are paying the equivalent of 1000 dollars, the next you are paying 2000. Since this has no way of stabilizing it will never become a true base currency.
Instead, at best, it serves as a pass through to a fiat currency. So it is acting as a payment processor but very inefficiently. Slow transaction speeds, expensive, difficult to acquire.
The price is driven by speculative demand. It honestly is more like a digital collectible than a currency (sign up to receive one of 21 million e coins, be part of history).