4 ms·

> the value of bitcoin is defined by the cost of the energy dissipated to mine it Other way around. Bitcoin is valued according to the market. Mining is rewa

> the value of bitcoin is defined by the cost of the energy dissipated to mine it Other way around. Bitcoin is valued according to the market. Mining is rewarded two ways: The inflationary (and reducing) coinbase reward for coin issuance, and transaction (txn) fees. The value of mining a block depends on these two factors, which both depend on the price of Bitcoin. So long as the marginal cost of increasing hash rate is lower than the marginal gain of Bitcoins mined, hash rate will increase. When hash rates increase, mining difficulty is adjusted by the network to keep average block times near a 10 minute target. With these costs and rewards, Bitcoin mining costs will reach an equilibrium near the value of mined Bitcoins, with two caveats: * Risk from price variability and capital investment. Mining infrastructure takes time to deploy, so there is considerable lag between price and mining costs. And capital expenditures have opportunity costs, so deployed resources will reliably reflect predicted returns less these opportunity costs. * Profit. The mining market will not mine Bitcoins for no profit (excepting brief periods, potentially) as there is no point to do so. > it's a thousand times more expensive than conventional money This is a comparison based on transactions, but why is that a suitable comparison? Money is both a medium of exchange and a store of value. It's also absurd to consider that the costs of the US dollar are in printing alone; the value of US currency is underpinned by the entire US government. If they US did not have a powerful military, trade agreements reflecting that military, taxes that must be paid in dollars, etc., then dollars would not have the value they do. The global monetary system - banks, sovereign nations, etc. - is extraordinarily expensive. But Bitcoin is a global currency, so this is the suitable comparison, even if it is very young and tremendously inflationary at the moment.

perl4ever 7y ago
Most of the additional costs associating with the banking system would still have to be paid if bitcoin were to provide the same services. But also, there's no reason that they should account for exactly 1000 times the cost of printing the money. I think you can expect you've gone down the wrong track when you believe numbers are exactly what is necessary to justify your argument for no particular external reason. The only costs that are reasonable and appropriate to include, it seems to me, in an apples-to-apples comparison, are the costs of actually creating the money and regulating the supply. So, ok, over and above the negligible amount to create money, it's plausible to include the cost of the Federal Reserve system, since that is what keeps the money supply stable, analogous to the mining algorithm. The M2 money supply (a bit arbitrary, but for this comparison it's somewhat generous to the opposing view and anyway, I guess they don't publish M3 any more) is something like $14.5 trillion. The cost of the Federal Reserve is something like $5 billion[1] So the "maintenance" cost for a dollar is something like 3 cents every hundred years. To me, that seems de minimus and it also seems a person with some common sense would expect that without doing an analysis. If you want to be obstinate about this, I suspect you will argue that bitcoin as it currently exists provides the facility to do transactions which I am not including the cost of with dollars, and my response is that the throughput of bitcoin is negligible and therefore not appropriate to equate with the capacity of the real financial system. [1]https://www.federalreserve.gov/publications/2017-ar-federal-system-budgets.htm https://www.federalreserve.gov/publications/2017-ar-federal-...

perl4ever 7y ago

Most of the additional costs associating with the banking system would still have to be paid if bitcoin were to provide the same services. But also, there's no reason that they should account for exactly 1000 times the cost of printing the money. I think you can expect you've gone down the wrong track when you believe numbers are exactly what is necessary to justify your argument for no particular external reason. The only costs that are reasonable and appropriate to include, it seems to me, in an apples-to-apples comparison, are the costs of actually creating the money and regulating the supply. So, ok, over and above the negligible amount to create money, it's plausible to include the cost of the Federal Reserve system, since that is what keeps the money supply stable, analogous to the mining algorithm. The M2 money supply (a bit arbitrary, but for this comparison it's somewhat generous to the opposing view and anyway, I guess they don't publish M3 any more) is something like $14.5 trillion. The cost of the Federal Reserve is something like $5 billion[1] So the "maintenance" cost for a dollar is something like 3 cents every hundred years. To me, that seems de minimus and it also seems a person with some common sense would expect that without doing an analysis. If you want to be obstinate about this, I suspect you will argue that bitcoin as it currently exists provides the facility to do transactions which I am not including the cost of with dollars, and my response is that the throughput of bitcoin is negligible and therefore not appropriate to equate with the capacity of the real financial system. [1]https://www.federalreserve.gov/publications/2017-ar-federal-system-budgets.htm https://www.federalreserve.gov/publications/2017-ar-federal-...