11 ms·
Bitcoin is close to becoming worthless?
- ForHackernews 8y ago> In that respect, it is more like gold, in that its value is driven to some extent by its desirability and potential uses, but mostly by its cost of mining This is not how prices work: https://en.wikipedia.org/wiki/Labor_theory_of_value https://en.wikipedia.org/wiki/Labor_theory_of_value What matters is how much somebody will pay for an asset (supply and demand) not how much it cost to produce that asset to begin with.
- wongarsu 8y agoEven more so in the case of Bitcoin, where the cost of mining is always slowly converging towards the market price (if cost of mining is higher than market price some people stop, difficulty drops and mining becomes cheaper; if cost of mining is lower than market price more people start mining).
- kingo55 8y agoAnd if mining slows too much where there's not enough block space for transactions, the fee market will pep up and make it profitable eventually too.
- atq2119 8y agoIt's actually not that simple, and strangely one of those areas where economics has had a blind spot for a long time. Lots of businesses use cost-plus pricing, which contradicts the econ 101 assumption that you're repeating. Now, one might naively argue that even with cost-plus pricing, the outcome is still the same because businesses who set their price too high will be either outcompeted or just find no demand either way and disappear from the market. However, this assumes that the buyer-side utility functions and price expectations are somehow exogenous, and come from outside the entire market system. But that's obviously not true: people form their expectations of how much things are supposed to cost, and even what the value of goods are (see Giffen goods for an extreme case) by looking at the de facto prices of goods -- and those are usually set by the suppliers, using cost-plus pricing. The bottom line is that utility functions and price expectations are really endogenous, which radically breaks the econ 101 model of supply and demand. I've heard of economists making various attempts to fix their models to account for this, but I'm not aware that a consensus on how to fix this has emerged.
- ForHackernews 8y agoYou're talking about products, not commodities. What's the consumer utility function look like for gold ore or bitcoin?
- atq2119 8y agoThat's specifically why I mentioned price expectations.
- ckastner 8y agoThe key argument seems to be: > Third, the futures markets have changed the game, enabling miners to estimate their mining losses and profits at the outset — if you can buy in a futures market at a price below my mining costs, why mine for a sure loss?
- 21 8y agoThere is only so much you can buy in a futures market before it starts pulling the spot market up.
- moomin 8y agoYou might be interested to learn this is a point of some contention. There have been real markets with utterly wild and out of control futures markets where the spot seems to have happily trundled along with the fundamentals.
- 21 8y agoLike? If true it means that either the futures market are tiny or that there is a barrier to efficient arbitrage.
- moomin 8y agoChinese commodity markets have been known to be hugely volatile with huge volumes. The actual producers react by pulling out of the futures market. Which I guess might qualify as a trading strategy.
- vbezhenar 8y agoThis is wrong argument. Mining costs are different for different miners. Someone has cheap electricity, someone has cheap electronics. If mining is not profitable for some part of miners, they'll stop mining and difficulty of mining will decrease, making mining more profitable again. It's a self-regulating mechanism.
- 21 8y ago> As I argued, once Bitcoin’s price falls below its cost of mining, the incentive to mine will deteriorate, thrusting bitcoin into a death spiral. When bitcoin appeared it's price was zero, yet people still mined it despite being a clear "worthless" activity.
- konschubert 8y agoBecause the cost of mining adjusts depending on how many people are mining. It goes down when the hash rate goes down.
- yen223 8y agoBack then, Bitcoin was full of possibilities. Right now, it seems Bitcoin's utility was, let's just say perhaps exaggerated.
- joering2 8y agoThe complexity back then was much simpler; you could mine more with less equipment in less time. So you made more “money”. Heck I mined my first 100 coins on AMD Frozer card in one week time.
- raducu 8y agoThe only problem is if the hashrate keeps dropping, it will be much easier for some disenfranchise individual/group to just hire the excessive hashrate for just enough time to do a 51% attack and completely destry bitcoin's credibility.
- m-i-l 8y ago> When bitcoin appeared it's price was zero, yet people still mined it despite being a clear "worthless" activity. It was as simple as pressing a button, labelled "Generate" on the original Bitcoin client if I recall, which used your CPU to mine a block of 50 BTC. The button was removed after it started taking more than the time between blocks (10 mins) to mine a block on an average CPU. Interesting concept that you could simply press a button to generate something that was worth at its peak a few years later US$1M. If you think that sounds like it comes from an old episode of The Twilight Zone you may be thinking of https://en.wikipedia.org/wiki/Button,_Button_(The_Twilight_Zone) https://en.wikipedia.org/wiki/Button,_Button_(The_Twilight_Z... : "One day they receive a mysterious locked box with a button atop it ... a smartly dressed stranger ... [gives them] the key to the box and explains that if they press the button then two things will happen: they will receive $200,000..."
- wongarsu 8y agoBitcoin's price drop might look bad enought to warrant sensational articles, but if you take any bitcoin price chart over the last years (like [1]) and switch it to logarithmic price, it doesn't appear exceptional. The same thing happened in 2013. 1: https://coinmarketcap.com/currencies/bitcoin/#charts https://coinmarketcap.com/currencies/bitcoin/#charts
- xyzzyz 8y agoIf you take any time series asset of the price of any asset, and switch it to logarithmic, none of the drops will appear exceptional either. That’s what logarithmic scale does.
- ucha 8y agoThat's plain false.
- wongarsu 8y agoIf you assume something grows exponentially (which is roughly how bitcoin behaves), then looking at a linear chart doesn't lead to useful conclusions. Alternatively you can look at [1] which uses linear scale, but as you look at different parts of the timeline it rescales the chart. Sure, the recent drop looks dramatic. But it looks less dramatic than when in 2011 the price rose from $0.80 all the way to $30 and fell back to $2.20. Or the 2013 event where the price rose from $15 to $100 to $1000 in the span of a few months, only to crash down to a devastating $230. 1: https://99bitcoins.com/price-chart-history/ https://99bitcoins.com/price-chart-history/
- fabizeid 8y agoIn 2013 most people didn't know about bitcoin. A big part of the spike in 2017 was from people who never heard about it before. Today everyone knows about bitcoin.
- gammateam 8y agoPeople said the same thing in 2014
- konschubert 8y agoThe article is misinformed: I am the first one to jump on Bitcoin's flaws, but this here just reeks of somebody not understanding the protocol: > As I argued, once Bitcoin’s price falls below its cost of mining, the incentive to mine will deteriorate, thrusting bitcoin into a death spiral. The cost of mining adjusts depending on the hash rate, so if nobody is mining the cost of mining goes down until people start mining again. EDIT: The mining difficulty gets adjusted only every 2013 blocks, so it might be that mining activity drops so low that the block chain starves out before the difficulty can be adjusted down. Is this what the article is trying to say?
- ekianjo 8y agoExactly. I don't understand how the article can miss such a fundamental aspect of Bitcoin's design. What this means is that the cost of mining will go down and adjust accordingly.
- rhn_mk1 8y agoThis has been addressed in the article: > So, it appears bitcoin is now entering a death spiral: If the price continues to drop and the cost of mining does not fall correspondingly (the cost of mining will algorithmically decrease, but not necessarily to same extent as the decline in prices), bitcoin will quickly go to zero.
- ekianjo 8y agoWhy would the cost of mining not fall correspondingly? It will adjust until it becomes profitable again, nobody is going to run mining farms if they are clearly losing money every single day.
- ForHackernews 8y agoThe way the bitcoin protocol is designed, the mining difficulty and rewards only adjust after N blocks have been mined. It doesn't respond in real time to the hash rate on the network.
- 8y ago
- kingo55 8y ago> governments might start issuing cryptocurrencies. Great idea... we can go back to the old model of trusting third parties to print our money for us.
- ykevinator 8y agoHa, right
- almostdigital 8y agohttps://99bitcoins.com/bitcoinobituaries/ https://99bitcoins.com/bitcoinobituaries/
- swalsh 8y agoI haven't bought bitcoin since it was sitting at $8 a coin... but hey, Buy when there's blood on the streets. I don't think bitcoin is nearly as important as many of people who invest in it believe. But it does seem to be a thing that will be around for a while. I view it as digital gold, and not necessarily a currency. Unless you're buying during one of the large speculative bubbles (which come every few years) it's not a TERRIBLE store of value... though it wouldn't be my first choice, it is an option. I think it has some more life in it.
- wyldfire 8y agoDon't feed the trolls.
- mcv 8y agoI may still have some bitcoin, but I certainly hope it becomes worthless. It's turned out to be ridiculously energy-consuming, and it seems to be used mostly for speculation rather than payment. Transactions have become too slow and expensive to be efficient for a payment system. It's entirely possible that cryptocurrencies will be the future, but it won't be bitcoin. It needs to be more efficient and more scalable than that.
- deif 8y agoSounds like someone hasn't been keeping up with recent bitcoin tech and is merely repeating lines from Dec 2017.
- mcv 8y agoHas there been some revolution in bitcoin tech since Dec 2017? Is it not based on wasting as much energy as possible anymore? Is it suddenly being used for far more transactions than before?
- Tepix 8y agoNote Martijn was specificially talking about Bitcoin. Bitcoin is still based on proof-of-work and i don't see it changing any time soon. In fact, any change in bitcoin is unlikely as all parties are hopelessly at odds with each other.
- mcv 8y agoExactly. If a cryptocurrency has some stable basis that's more efficient than proof-of-work (== wasting energy for its own sake), and has cheaper, faster, more efficient transactions so it can actually be used for small purchases, then I totally think that currency could conquer the world. Bitcoin itself is just too limited. Great idea, but too many problems.
- niahmiah 8y agoBuy signal
- edoo 8y agoBitcoins' value is in its utility at the moment. Until it stabilizes it is poor as a money (a store of value) while still quite handy as a currency (exchange of value). If it becomes a more stable store of value than competing fiat currencies it will have even more value added.
- lokedhs 8y agoHow would it ever stabilise? There is a hard limit to the number of coins issued, and unless the market is static, the value of bitcoin has to go up. I haven't seen a good explanation to that problem.
- edoo 8y agoStabilize as in not so volatile. You could have a 1% deflation rate per year and that would be much more stable than the USD.
- gammateam 8y agoGreat observations, Odd conclusions Miners will mine at a loss for a limited time. Difficulty adjusts lower and price will reach a level where there is demand Permenantly drop to zero? And nobody here would buy it? Okay
- TekMol 8y agoMining can only become unprofitable for a while: Until the difficulty is adjusted. There is a whole industry depending on Bitcoin. If mining becomes unprofitable, there will be players that pay for the mining to continue until the difficulty adjusts. To keep their companies alive. There is also another counterargument. One that does not only apply to the problem of mining but to any problem with Bitcoin in general: If a hard problem occurs, it is very likely that the industry would collectively switch to a fork. For me, the value of Bitcoin is mainly rooted in that fact. Bitcoin is widely spread. So it will probably be the seed for future currencies that one day will be more valuable then the original.
- granaldo 8y agoBitcoin price in the past 30 days Chart https://www.coingecko.com/en/coins/bitcoin https://www.coingecko.com/en/coins/bitcoin has been on a pressure And that's look mainly driven by market, miners will shake up and driven to mine what's most profitable and they have option to point to Bitcoin Cash and Bitcoin SV for ASICs
- magnamerc 8y agoI remember these same articles in 2013
- Felz 8y ago> And it looks as though the Blockchain economy is here to stay, where many of our transactions will be processed on the blockchain and use cryptocurrency for daily transactions. Indeed, while the world maybe forever be indebted to Satoshi Nakamoto for giving us a viable cryptocurrency, bitcoin may cease to exist. Huh? Does anyone seriously use cryptocurrencies for daily purchases right now? It seems to me like cryptocurrencies are entirely useless (except maybe for illegal things and ransomware) and the entire space will be dead after it's done crashing. Ultimately, Satoshi Nakamoto may have accomplished nothing but caused untold misery for thousands of bankrupted people, redistributed money like a lottery, and burned the rest in electricity.
- MR4D 8y agoSo, if enough miners drop out, wouldn’t that encourage some nefarious group to try and hijack Bitcoin by having more than 50% of the miners? In an odd way, it seems that possible situation might keep the number of miners higher than it would otherwise be.
- starchild_3001 8y agoLol, first going to infinity, now going to zero. This is the typical overshoot/undershoot behavior. When everybody starts believing something is going to zero, it bounces back and vice versa.
- decentralised 8y agoCounterargument: actors aren't rational and will continue mining at a loss because of the sunken cost fallacy. Mining will always continue because it's what keeps the current canonical ledger safe so if nothing else the exchanges and market makers are still economically incentivised to mine.
- prostoalex 8y agoCan't that sunken cost be repurposed to mine Monero / ETH / ZCash / whatever else is in vogue nowadays?
- decentralised 8y agoSome of it yes. ASICs usually can only do one mining algorithm (nakamoto, hashimoto, etc) and can't easily upgrade their firmware.
- arcaster 8y agoThis is so fucking hilarious.