4 ms·

All of these affect one another but there isn’t clear and strict causal relationship or ordering. Value follows difficulty but also difficulty follows value.

gridlockd 7y ago
Value doesn't follow difficulty. That's the "labor theory of value" fallacy. On the average, higher difficulty doesn't lower new Bitcoin supply, because difficulty adjusts to maintain steady supply. Difficulty is affected by price of Bitcoin and cost of production. Difficulty can still rise if Bitcoin price development is steady or negative, due to newer mining hardware that is more efficient, or due to new sources of energy that are cheaper.
- keymone 7y ago
  Value follows difficulty because difficulty is valuable in itself - it is a measure of security of bitcoin ledger.
  - gridlockd 7y ago
    Okay, I can see that argument, however I don't think it has much of an impact on price, certainly not to the point of "value follows difficulty". You can arbitrarily decide what a "secured" transaction is by requiring a certain amount of prior blocks. There is no extra value in security beyond "secure for all intents and purposes". I guess you could say higher difficulty equals fewer minimum prior blocks and therefore better performance for the system, but in practice the common minimum block requirement isn't going to fall below two and that's what many sites have been using even at far lower difficulty levels than today.
    - keymone 7y ago
      You’re right that number of blocks until transaction is considered safe is arbitrary but you can’t just arbitrarily raise this number to compensate for lower difficulty because interval between blocks is 10 minutes and so in effect you’re reducing usefulness (and value) of the whole transaction system. High difficulty is certainly non trivial value proposition of bitcoin, among many others.
      - gridlockd 7y ago
        > You’re right that number of blocks until transaction is considered safe is arbitrary but you can’t just arbitrarily raise this number to compensate for lower difficulty because interval between blocks is 10 minutes and so in effect you’re reducing usefulness (and value) of the whole transaction system. Yes, I admitted as much, but it's not a linear value relationship. There's a point where difficulty that is "too low" makes the system unacceptably vulnerable, but at that point the coin must be almost worthless and the incentive to be a malicious actor is equally low. There's another point where difficulty is high enough that for all practical purposes, a malicious actor has no chance of turning a profit. No further increase in difficulty beyond that point adds any value. Bitcoin is well past that point. I wouldn't rule out that the belief that "more difficulty = more security" may cause certain people to go bullish and buy, therefore driving the price, but it's not such a direct relationship as price vs. cost of mining.

gridlockd 7y ago

Value doesn't follow difficulty. That's the "labor theory of value" fallacy. On the average, higher difficulty doesn't lower new Bitcoin supply, because difficulty adjusts to maintain steady supply. Difficulty is affected by price of Bitcoin and cost of production. Difficulty can still rise if Bitcoin price development is steady or negative, due to newer mining hardware that is more efficient, or due to new sources of energy that are cheaper.

keymone 7y ago
Value follows difficulty because difficulty is valuable in itself - it is a measure of security of bitcoin ledger.
- gridlockd 7y ago
  Okay, I can see that argument, however I don't think it has much of an impact on price, certainly not to the point of "value follows difficulty". You can arbitrarily decide what a "secured" transaction is by requiring a certain amount of prior blocks. There is no extra value in security beyond "secure for all intents and purposes". I guess you could say higher difficulty equals fewer minimum prior blocks and therefore better performance for the system, but in practice the common minimum block requirement isn't going to fall below two and that's what many sites have been using even at far lower difficulty levels than today.
  - keymone 7y ago
    You’re right that number of blocks until transaction is considered safe is arbitrary but you can’t just arbitrarily raise this number to compensate for lower difficulty because interval between blocks is 10 minutes and so in effect you’re reducing usefulness (and value) of the whole transaction system. High difficulty is certainly non trivial value proposition of bitcoin, among many others.
    - gridlockd 7y ago
      > You’re right that number of blocks until transaction is considered safe is arbitrary but you can’t just arbitrarily raise this number to compensate for lower difficulty because interval between blocks is 10 minutes and so in effect you’re reducing usefulness (and value) of the whole transaction system. Yes, I admitted as much, but it's not a linear value relationship. There's a point where difficulty that is "too low" makes the system unacceptably vulnerable, but at that point the coin must be almost worthless and the incentive to be a malicious actor is equally low. There's another point where difficulty is high enough that for all practical purposes, a malicious actor has no chance of turning a profit. No further increase in difficulty beyond that point adds any value. Bitcoin is well past that point. I wouldn't rule out that the belief that "more difficulty = more security" may cause certain people to go bullish and buy, therefore driving the price, but it's not such a direct relationship as price vs. cost of mining.