Pretty humorous how monetary cranks rant nonstop about the fed printing money being theft and about how we're turning into Zimbabwe and then goddarn it Paul Krugman was right and there's no hyperinflation and to top it all off your Ayn Rand bucks start suffering "downward pressure" due to all the Ayn Rand buck printing...

Krugman was right, but I remember during the Bush years, he was predicting inflation caused by the deficits that Bush created. He's a really smart guy but can be pretty partisan.

That said, at least he adjusted his opinion in the face of evidence -- Econ 101 says we should be seeing inflation and instead we're seeing near-deflation while the Fed is literally printing as much money as they can politically get away with. The monetary cranks keep telling us we're going to see it 'any minute now', because they can't abandon their theories in the face of evidence -- and yes, eventually some inflation will happen at some point, but it's hard to say that'll have made the cranks correct.

I'm not here to canonize Krugman, in fact I'll link the sort of article you're referring to:

http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wre...

I will say that deficits increasing interest rates in a time of expansion and deficits and QE not increasing interest rates during a recession when the taylor rule is at -5% or so[1] are not exactly the same thing.

[1] http://www.newyorkfed.org/newsevents/speeches/2012/dud0524_1...

That's exactly the column I was thinking of, I specifically remember the mortgage reference. Thanks.

And I agree on your distinction there, and the historical record bears it out, with inflation rising from 2003-2007 and then near-deflation from 2008 onwards. Thank god we didn't listen to the fiscal hawks in 2009, most of whom were just trying to score political points and make things harder for Obama anyways. Could have been a deflationary spiral similar to what happened to 2000s Japan or 1930s US.

Hm, I think I just bumped Krugman up another notch in my head -- that 2003 article looks a lot less partisan if you look at it in the context of 2003-2008 rather than 2008-2014.

And that, to me, is the strangest thing about Bitcoin:

https://blockchain.info/charts/hash-rate

The miners, never, stop. Completely disconnected from the market pricing.

You assume they're all paying for the power. Once you remove that assumption, it makes more sense.

The reason is much more Machiavellian, namely if you keep the price of entry high and you loose money to mine for 80% of the time then the 20% of the time that it's extremely profitable you have a bigger multiple since the competition is weaker then it would've been otherwise.

is mining competitive, though?

Absolutely. A fixed reward (25 BTC) is rewarded each time a block is mined. Each block is based on the prior blocks in the chain, so when one miner mines a block, all the other miners must start over. Blocks are mined on average once every ten minutes, so basically, a random miner is selected approximately once every ten minutes to receive a reward.

Saying they have to start over is implying that you're somehow making progress. The only progress your are making is just ruling out a few inputs from a massive search space. You don't really lose any work when it resets because the work you've done is useless.

I understand the semantic difference, but I'm not sure the distinction matters in any way. The implication that there is progress is tenuous at best.

Of course they lose work. They have to pay the set-up cost of bundling a new set of transactions for the next block.

They will only stop once the electricity is more expensive than the mined bitcoins. We're not there yet.

Many won't even stop then because of the belief that the price can/will return to previous levels if not higher. Quite the interesting dynamic.

but that is effectively irrational isn't it?

if mining 1 bitcoin costs you 500 dollars and they are sold on the market at 400 why don't you switch off your gear for a while and just buy them ?

Maybe the point is people are merge-mining multiple bitcoins, or the electricity bill for them is way lower than we think it is.

There's also the question of how much of the electricity is paid for. E.g. how many miners are mining on "free" electricity at their parents house, or have access to rack space with "free" electricity (our racks at work come with a certain amount of power, for example; someone putting a Bitcoin mining rig in there would not increase our costs as long as the power doesn't exceed certain limits), or has a miner in a quiet corner at work or similar?

Or any number of other ways of getting free / outright stealing electricity.

maybe they don't have the money to buy them because it's been all spent for mining gear?

Then how can they afford the electricity?

They will earn more coins by paying the electricity and using the already bought mining gear, than if they stop paying for the electricity and use that money to buy coins.

Not if buying the coins is cheaper than mining them, which is what the GP is saying.

that would require a $500 dollar cost of electricity per coin, however in reality the $500 is made up of the investment in the hardware and electricity. You could not just switch off the machine and have $500 to spend on coins, you would need to sell the hardware. of course in most cases selling the hardware for USD and spedning it on BTC will generate more BTC than the hardware will mine.

Currently, mining is still profitable so it wouldn't make sense for them to stop yet. Once Bitcoin dips below a certain value (around $100 I believe?) then we will have to watch for the drop off.