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You hit the nail on the head, the challenge with Blockchain and Bitcoin is that it did two things, which together were supposed to tackle the original problem,
by raiyu 9y ago
You hit the nail on the head, the challenge with Blockchain and Bitcoin is that it did two things, which together were supposed to tackle the original problem, peer to peer monetary exchange without a trusted intermediary.
So for that the blockchain provides the trust mechanism which is useful. However, the blockchain is just the channel, it needed a medium of exchange, you couldn't very well use USD because then you are back in the banking system.
Here, BitCoin is introduced.
However, the problem with BitCoin is that it initially has no value. So if I bought a nice coffee mug for $10, and I wanted to give it to you for BitCoin, well your BitCoin is currently worth nothing, so we can't have an exchange.
This is where the scarcity argument for BitCoin comes in, which is supposed to inflate the value of the currency, because it is limited. You can also see by the amount of BitCoin initially envisioned the scale of how large the peer to peer exchange network was supposed to be.
We are used to paying $1 for coffee, but are you used to paying 0.0000000001 BitCoin for a coffee?
Now absent speculation, the price of BitCoin would be reasonable, and determined by the effort of the miners, since they are exchanging their fiat currency for computers and energy, and that creates a stable layer for the price.
It would also stand to reason that until all of the Bitcoin are mined the price would continue to increase, because the amount of energy used to mine them increased, while the supply was limited.
If instead an equal output of energy produced and equal output of BitCoin, then BitCoin would have a stable price, that would track energy prices globally, and then the coin would have value because it would still take work to produce it, or you can simply purchase one if you don't want to waste the time mining it yourself.
And you can pay a premium for that already mined coin because it's more convenient.
It's also important to note that the system was already incentivized for miners because they are the ones processing transactions and they collect a fee. So if mining produced a 1:1 BitCoin exchange for fiat currency based on energy usage they would still make a profit from transaction fees like VISA, or for selling the BitCoin for a slight profit because some people wouldn't want to setup a miner themselves, or wait for their coins to be minted.
Speculation occurred because of the limited supply and the increasing difficulty of mining, absent those two things, the value of BitCoin once established would actually be very stable and could in essence become a medium of exchange.
- RealityVoid 9y ago> Now absent speculation, the price of BitCoin would be reasonable, and determined by the effort of the miners, since they are exchanging their fiat currency for computers and energy, and that creates a stable layer for the price. You've got it backwards. The effort by the miners is determined by the price of Bitcoin, not viceversa. Also, I think requiring what you suggest is a fallacy, since I, as a user of some tech, don't care about how hard it is to maintain that tech, I only care for its utility to me. If that utility is lower than the cost, I won't pay for it, even though the creator might have poured more effort.
- raiyu 9y agoThat would imply that Miners need an incentive in order to mine bitcoin, which would make sense. However, don't forget that there are also transaction fees that they get. So technically when mining is finished they will be making a return on their investment from transaction fees alone. I'm simply saying that the value of Bitcoin has outpaced what is it's potential intrinsic value through the above mentioned exchange of value. If you removed the limit on the number of bitcoins and rearranged mining so that difficulty would increase more in parallel with the increase in performance of computers, then you would end up with a stable currency that would have the potential to achieve the original vision of the white paper.
- RealityVoid 9y agoThe proof of work is destructive and it does not imbue some sort of magical value to bitcoin. The value of bitcoin should not come from the energy wasted in mining it but in its utility of moving value in a trustless medium. It's like saying a hammer is more valuable the more glass panes it shattered. Mining is wasteful but the main thesis of BTC is that waste is less than the current monetary system maintenance waste. I think it might just be right but can't tell right now. If some sort of working secure alternative to POW comes up we should seize it, seeing as it would reduce the cost of transaction ans would make a currency more appealing and useful (the less a transaction costs, the more the currency can be used for smaller payments). > If you removed the limit on the number of bitcoins and rearranged mining so that difficulty would increase more in parallel with the increase in performance of computers But the mining difficulty _does_ increase in parallel with the computing performance. That is the beauty of it. People can say all they want about cryptocurrency and greed and politics, but I think Satoshi was a fucking genius. I think he was a true visionary and I was stunned the clarity with witch he could see problems arising and the fixes and incentives for the actors in the system.