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Bitcoin’s price is backed by the sunk cost of energy used to mine it. If any critical mass of miners began using cheap or free renewable energy, the price of BT
by jasonlaramburu 6y ago
Bitcoin’s price is backed by the sunk cost of energy used to mine it. If any critical mass of miners began using cheap or free renewable energy, the price of BTC would fall precipitously.
Miners have, in the past, resisted improvements to the network that would reduce their profits so this all seems pretty unlikely as well.
- mode80 6y agoThis is false. Bitcoin’s value is “backed” by the expectation that it will be valuable tomorrow — nothing more. It’s the same with gold. Gold’s value has nothing to do with the cost of mining it out of the ground. Rather the cost of mining it is justified on the basis of its expected value.
- jasonlaramburu 6y agoIts price certainly can appreciate for many reasons but that’s not my point. The price of BTC price is backstopped by the sunk cost of mining. Every time the price has fallen below the cost of production miners deactivate and the price stabilizes. If a miner’s opex goes to zero (due to cheap or free renewable energy) in the future there will be no incentive to stop mining during a crash and prices will go to $0.
- deleted 6y ago[deleted]
- toss1 6y agoThen it is not the sunk cost of the mining that drives it in your model, but the cost of new mining. (the sunk cost is mere history). Also, it is not clear that having more or fewer miners on the network drives prices - it seems more likely that more miners reduce transaction/confirmation times, improving service levels and increasing value (to the extent that actual transactions drive value or price).
- jasonlaramburu 6y ago> Also, it is not clear that having more or fewer miners on the network drives prices Of course it is. If it costs a miner $10k in electricity, rent etc to mine 1 BTC, they will need to sell at least $10k worth of BTC to cover their cost. If they stop mining, they will have less pressure to sell. Miners hold over 2mm BTC so hard to see how their actions have no direct impact on price. My point, is that when electricity costs approach zero, more people will mine which will impact prices.
- toss1 6y agoSure, miners as holders of BTC can affect prices. But it seems that the cost of electricity can drive down prices, not only up. You said that price of electricity 'backstops' prices, and that miner spending $10K on electricity will need to sell that much BTC. Seems more like an inverse relationship. They need to sell $10K whether the price is $100/BTC or $100K/BTC, so lower BTC value makes more selling. Similarly, higher elec costs increase ready supply of BTC on sale, more supply lower prices. On the other side, lower elec costs, mean more hoarding by miners, reducing sell-side pressure/supply This would seem to make elec costs inversely related to BTC dollar value, not supporting it - so an effect, but in the other direction?
- Sebb767 6y agoBitcoins price is basically unrelated to the energy used. Right now, it is an independent currency at best and a speculation object at worst. Energy spent is only useful in so far as that no single entity can take over the network; for all other purposes, bitcoin could run on a single 10 year old GPU.
- lottin 6y agoAn entity could launch a coordinated air strike on well-known mining locations and take over the network at anytime.