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The problem is that, if the allegations are correct, Tether was used to inflate Bitcoin's price just in time for the miners to stay profitable after the 'halvin

by mckirk 6y ago

The problem is that, if the allegations are correct, Tether was used to inflate Bitcoin's price just in time for the miners to stay profitable after the 'halving' of the mining reward. Should Tether be revealed as a fraud and the price collapse below that level again as a result, I'm not sure if there'd still be enough miners to keep the show going.

alexmingoia 6y ago
The cost to mine adjusts to ensure blocks are mined. Bitcoin does not depend on a specific dollar value to ensure nodes add blocks. Nodes that add new blocks earn both new Bitcoin rewards (until ~21 million bitcoins are created) and transaction fees. If hash power drops from miners going out of business, then difficulty adjusts and competition for fees is reduced, reducing the cost of mining until there are miners again. When all Bitcoins are mined, nodes that add blocks are still compensated from transaction fees. They compete for transactions by offering lower fees, and in this way the transaction fee is determined by the market for Bitcoin transactions.
- mckirk 6y ago
  You are correct, I hadn't taken the difficulty-adjustment into account. So that means a lower Bitcoin price does force miners out of the market, but after at most 14 days, the difficulty would adjust to stabilize at 10 minutes/block. That might still create a period of instability where the network lacks hashing power, but it's not nearly as bad as I thought. And since the same number of transactions would be achieved with less hashing power, I guess the environment would gladly see Tether collapse :P
- garaetjjte 6y ago
  There's some speculation that bitcoin will be unstable without block rewards, though. https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf https://www.cs.princeton.edu/~arvindn/publications/mining_CC...
spiralx 6y ago
Look at how much the price changes based on a small number of trades - sometimes even from a single large trade - to see how little money is really in the BTC ecosystem. The whole idea of the Tether fraud is to pump the price of BTC higher and higher in order to capture an ever smaller and smaller amount of new dollars entering the ecosystem.

by mckirk 6y ago

alexmingoia 6y ago

The cost to mine adjusts to ensure blocks are mined. Bitcoin does not depend on a specific dollar value to ensure nodes add blocks. Nodes that add new blocks earn both new Bitcoin rewards (until ~21 million bitcoins are created) and transaction fees. If hash power drops from miners going out of business, then difficulty adjusts and competition for fees is reduced, reducing the cost of mining until there are miners again. When all Bitcoins are mined, nodes that add blocks are still compensated from transaction fees. They compete for transactions by offering lower fees, and in this way the transaction fee is determined by the market for Bitcoin transactions.

mckirk 6y ago
You are correct, I hadn't taken the difficulty-adjustment into account. So that means a lower Bitcoin price does force miners out of the market, but after at most 14 days, the difficulty would adjust to stabilize at 10 minutes/block. That might still create a period of instability where the network lacks hashing power, but it's not nearly as bad as I thought. And since the same number of transactions would be achieved with less hashing power, I guess the environment would gladly see Tether collapse :P
garaetjjte 6y ago
There's some speculation that bitcoin will be unstable without block rewards, though. https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf https://www.cs.princeton.edu/~arvindn/publications/mining_CC...

spiralx 6y ago

Look at how much the price changes based on a small number of trades - sometimes even from a single large trade - to see how little money is really in the BTC ecosystem. The whole idea of the Tether fraud is to pump the price of BTC higher and higher in order to capture an ever smaller and smaller amount of new dollars entering the ecosystem.