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900 Bitcoin are mined each day. If we make two assumptions we can get an estimate of how much fiat enters the markets each day: * Bitcoin mining is an efficien

by graeme 5y ago

900 Bitcoin are mined each day. If we make two assumptions we can get an estimate of how much fiat enters the markets each day: * Bitcoin mining is an efficient market and there are no profits * Bitcoin miners sell all of the bitcoin they mine These assumptions aren't exactly realistic but over the long run they should actually be close enough to the truth. Given those assumptions, at current market rates then an extra $41,121,180 has to enter the markets each day to keep prices stable, assuming buy/sell demand is otherwise equal. More than that wanting to enter, prices go up, less, prices go down. Leaving aside price manipulation by Tether, Binance etc (THIS is a big assumption, but the exercise is still valuable I think). So, the fine is only 2.5x the daily excess needed to keep prices stable. Shouldn't have a giant effect. (You may wonder, if no profits, what are the miners doing? Essential the bitcoin network is an organized effort to take capital, acquire coal, and burn it. Contrary to "store of value" claims, literally all money invested into bitcoin either gets burned up, or goes to pay someone who entered bitcoin previously. It's an entirely negative sum game, with guaranteed capital losses in aggregate. However, this added $100 million is not a meaningful amount in view of the actual scale of energy burnt each year to run the network. It might be a meaningful amount of Bitmex's capital, but likely this won't wreck them on its own.)

mdoms 5y ago
Your post assumes that there's no manipulation of the market occurring, an assumption we know to be false.
- csomar 5y ago
  I don’t think the miners can manipulate their energy bill, salaries, rent, hardware costs, etc…
  - Clewza313 5y ago
    The OP's assumption was that $42M in fiat has to enter every day to keep prices stable. Manipulation can definitely keep prices stable without a net fiat inflow... until one day it can't, because as you note the bills have to be paid in fiat, not Tether etc.
    - graeme 5y ago
      I should be clear that I actually agree with this. The sketch I laid out above would be what is required for long run stability. I’m in fact more inclined to the view that prices aren’t sustainable and will collapse and fraud has propped it up. You still need a $42 million a day outflow to satisfy miners if they are all selling. But this money could be coming from balances on exchanges etc rather than new entrants. So yes, seems stable until suddenly it becomes clear the reserves aren’t there and money people believed is real, isn’t. There is, for example, a vast gulf between the amount of money people think they have on Binance and the amount of money that actually exists on Binance. One of these days they’ll to Mt. Gox…
    - jkhdigital 5y ago
      Yeah man, just sprinkle a little magic manipulation dust on that market and watch it go NUTS! Attributing a phenomenon to some high-level concept with no attempt to explain how the observed characteristics of said phenomenon can be causally linked to a concrete, specific instantiation of said high-level concept is, depending on the context, more commonly called a "superstition" or a "conspiracy theory".
      - Clewza313 5y ago
        Seriously? The specific instantiation of the high-level concept is the proliferation of stablecoins, most notably Tether, which has printed $62 billion and counting. It doesn't require a conspiracy theory to note that being able to literally print money would be incredibly lucrative for everybody involved, and many concerns have been raised about the extent to which these coins are backed by fiat, since if they aren't, that would hugely inflate crypto valuations.
        jkhdigital 5y ago
        I’m well acquainted with the shady dealings of Tether and Bitfinex, but that is still not a concrete, causal explanation for an observed phenomenon.
  - nikanj 5y ago
    Sure they can, stealing electricity has been one of the tools of trade for mining operations
- graeme 5y ago
  I did mention that and said it was a stretch to assume. The exercise is nonetheless useful, I think, just to get a base idea of what numbers would have to be IF markets were working normally. It's also probably a maximum on net new money entering the market with stable prices, come to think of it. Though I'm inclined to agree with your view that actually the markets are net negative, being held aloft by Tether/exchanges, and will be vulnerable to a swift collapse when the money runs out. I'm just not sure $100 million is the amount to do it.
542458 5y ago
Can you clarify “ Contrary to "store of value" claims, literally all money invested into bitcoin either gets burned up, or goes to pay someone who entered bitcoin previously.”? I think I get what you’re saying, but I’m not confident in my interpretation and I’d like to get your take if that’s possible.
- graeme 5y ago
  What I mean it this: 1. If you buy a bitcoin, and sell it, the money can only come from a new purchaser. Bitcoin generates no yield on its own 2. However, the network costs a fair bit to administer and this scales with price. At $40,000 per bitcoin this costs $40,000 * 900 * 365 = $13.14 billion per year. You can imagine a simple thought experiment. Suppose miners sell all 900 coins a day, and there are 100 trades happening apart from the miners. (This is NOT accurate, but the idea doesn’t change if there were 1,000,000 trades) * The 100 non miner trades simply trade $40,000 for a bitcoin, back and forth, ad infinitum. You can see there is no wealth generated, it is merely a shuffling of wealth. This is the purported “store” aspect. As long as people want in, you may find someone to trade. * Meanwhile, 900 people come up to the miners with $40,000 each. Each person hands the miner $40,000. With that, each miner goes to the open market, purchases coal, and burns it in a fire pit. I think when people think of bitcoin as a store of value they think somehow capital has entered into the market. But it hasn’t. 100% of entering capital is immediately used to burn coal. Anyone who wants out has to compete for the limited supply of new money entering. Could an individual cash out their bitcoin for millions? Absolutely, there’s enough new money entering to allow for them to swap places with someone. Could Satoshi cash out billions and billions in bitcoin? No, absolutely not. There isn’t the requisite amount of new money entering, and the miners need most of it to burn coal. This is obviously a simplification but I think it is instructive.
  - 542458 5y ago
    Thank you! I appreciate the clarification.
- ItsMonkk 5y ago
  In a friendly Poker game, everyone comes in with some amount of money, and by the end of the night the money changes hands. Some are winners, some are losers. That's a zero-sum game. When you go to a casino to play Poker, as condition to play you must pay chips every hand called a "rake". When you and everyone else walks out of the casino while there may still be winners there will likely be more losers, and the total is negative. The casino has some of your money. That's a negative sum game. With mining bitcoin is equivalent to the casino scenario. Except instead of the casino keeping the money as profit, it's using that money to buy energy. Then you add onto that the exchanges taking a fee on top of that.
jkhdigital 5y ago
It’s the cost of trustless decentralized transaction settlement. Yes, it’s expensive. Very few transactions truly merit that level of security. But the only comparable alternative is basically physical gold, which is probably even more wasteful for settling transactions.
imtringued 5y ago
One of the weirdest things about Bitcoin mining is that it literally is a criticism of Bitcoin and fiat currency. Bitcoin/gold bugs want their currency to be scare. They want there to be a shortage of money because that makes it "sound". Yet people work for currency and if there isn't enough of it around they don't work. Bitcoin is fully dependent on money creation to convince miners to join the effort. Of course if money creation cures unemployment even in the most extreme hoarding environments then unemployment is no longer the failure of the worker. It proves that there must be someone out there that wants this worker to be unemployed. Bitcoin is short term capitalism driven to extremes. People are worshipping money because it earns a return in the financial world. When money earns a return in itself people will "quit" the real world to live in the financial world. They will even destroy the real world through mining if that is what it takes to be accepted into the financial utopia. The store of value story doesn't hold up for me though. Fiat is actually a better store of value (this isn't necessarily a good thing by the way) because debts and tax obligations force people to both accept it as income and use it for spending. If we assumed 0% inflation then acquisition of money is basically the same as indebting someone else, forcing them to work for your benefit. If billionaires were immortal it would not be unimaginable that they could withhold their money for entire lifetimes forcing people to be unemployed for their entire life and yet the obligation to work for the money would persist long after the death of the worker. How could this possibly make sense? A store of value is effectively a promise that someone else will give you your money (or good or service) back in the future plus compensation for the costs of parting with the money (inflation, opportunity cost, friction, a desire to make a living). We already have these and we call them bonds. The difference is that you aren't forced to accept bonds as legal tender. The reason why this system is fair is that it is voluntary. Nobody has to buy government bonds if they don't want to. It feels to me that Bitcoin isn't an alternative to the current system. It is an extremely overexaggerated parody of our current system. Consider that there have been thousands of "tokens" and the vast majority of them don't even share a tiny bit of similarity with the hundreds of complementary currencies that were created during the great depression. Those complementary currencies were specifically designed to avoid recessions and poverty within regional communities.

by graeme 5y ago

mdoms 5y ago

Your post assumes that there's no manipulation of the market occurring, an assumption we know to be false.

csomar 5y ago
I don’t think the miners can manipulate their energy bill, salaries, rent, hardware costs, etc…
- Clewza313 5y ago
  The OP's assumption was that $42M in fiat has to enter every day to keep prices stable. Manipulation can definitely keep prices stable without a net fiat inflow... until one day it can't, because as you note the bills have to be paid in fiat, not Tether etc.
  - graeme 5y ago
    I should be clear that I actually agree with this. The sketch I laid out above would be what is required for long run stability. I’m in fact more inclined to the view that prices aren’t sustainable and will collapse and fraud has propped it up. You still need a $42 million a day outflow to satisfy miners if they are all selling. But this money could be coming from balances on exchanges etc rather than new entrants. So yes, seems stable until suddenly it becomes clear the reserves aren’t there and money people believed is real, isn’t. There is, for example, a vast gulf between the amount of money people think they have on Binance and the amount of money that actually exists on Binance. One of these days they’ll to Mt. Gox…
  - jkhdigital 5y ago
    Yeah man, just sprinkle a little magic manipulation dust on that market and watch it go NUTS! Attributing a phenomenon to some high-level concept with no attempt to explain how the observed characteristics of said phenomenon can be causally linked to a concrete, specific instantiation of said high-level concept is, depending on the context, more commonly called a "superstition" or a "conspiracy theory".
    - Clewza313 5y ago
      Seriously? The specific instantiation of the high-level concept is the proliferation of stablecoins, most notably Tether, which has printed $62 billion and counting. It doesn't require a conspiracy theory to note that being able to literally print money would be incredibly lucrative for everybody involved, and many concerns have been raised about the extent to which these coins are backed by fiat, since if they aren't, that would hugely inflate crypto valuations.
      - jkhdigital 5y ago
        I’m well acquainted with the shady dealings of Tether and Bitfinex, but that is still not a concrete, causal explanation for an observed phenomenon.
- nikanj 5y ago
  Sure they can, stealing electricity has been one of the tools of trade for mining operations
graeme 5y ago
I did mention that and said it was a stretch to assume. The exercise is nonetheless useful, I think, just to get a base idea of what numbers would have to be IF markets were working normally. It's also probably a maximum on net new money entering the market with stable prices, come to think of it. Though I'm inclined to agree with your view that actually the markets are net negative, being held aloft by Tether/exchanges, and will be vulnerable to a swift collapse when the money runs out. I'm just not sure $100 million is the amount to do it.

542458 5y ago

Can you clarify “ Contrary to "store of value" claims, literally all money invested into bitcoin either gets burned up, or goes to pay someone who entered bitcoin previously.”? I think I get what you’re saying, but I’m not confident in my interpretation and I’d like to get your take if that’s possible.

graeme 5y ago
What I mean it this: 1. If you buy a bitcoin, and sell it, the money can only come from a new purchaser. Bitcoin generates no yield on its own 2. However, the network costs a fair bit to administer and this scales with price. At $40,000 per bitcoin this costs $40,000 * 900 * 365 = $13.14 billion per year. You can imagine a simple thought experiment. Suppose miners sell all 900 coins a day, and there are 100 trades happening apart from the miners. (This is NOT accurate, but the idea doesn’t change if there were 1,000,000 trades) * The 100 non miner trades simply trade $40,000 for a bitcoin, back and forth, ad infinitum. You can see there is no wealth generated, it is merely a shuffling of wealth. This is the purported “store” aspect. As long as people want in, you may find someone to trade. * Meanwhile, 900 people come up to the miners with $40,000 each. Each person hands the miner $40,000. With that, each miner goes to the open market, purchases coal, and burns it in a fire pit. I think when people think of bitcoin as a store of value they think somehow capital has entered into the market. But it hasn’t. 100% of entering capital is immediately used to burn coal. Anyone who wants out has to compete for the limited supply of new money entering. Could an individual cash out their bitcoin for millions? Absolutely, there’s enough new money entering to allow for them to swap places with someone. Could Satoshi cash out billions and billions in bitcoin? No, absolutely not. There isn’t the requisite amount of new money entering, and the miners need most of it to burn coal. This is obviously a simplification but I think it is instructive.
- 542458 5y ago
  Thank you! I appreciate the clarification.
ItsMonkk 5y ago
In a friendly Poker game, everyone comes in with some amount of money, and by the end of the night the money changes hands. Some are winners, some are losers. That's a zero-sum game. When you go to a casino to play Poker, as condition to play you must pay chips every hand called a "rake". When you and everyone else walks out of the casino while there may still be winners there will likely be more losers, and the total is negative. The casino has some of your money. That's a negative sum game. With mining bitcoin is equivalent to the casino scenario. Except instead of the casino keeping the money as profit, it's using that money to buy energy. Then you add onto that the exchanges taking a fee on top of that.

jkhdigital 5y ago

It’s the cost of trustless decentralized transaction settlement. Yes, it’s expensive. Very few transactions truly merit that level of security. But the only comparable alternative is basically physical gold, which is probably even more wasteful for settling transactions.

imtringued 5y ago

One of the weirdest things about Bitcoin mining is that it literally is a criticism of Bitcoin and fiat currency. Bitcoin/gold bugs want their currency to be scare. They want there to be a shortage of money because that makes it "sound". Yet people work for currency and if there isn't enough of it around they don't work. Bitcoin is fully dependent on money creation to convince miners to join the effort. Of course if money creation cures unemployment even in the most extreme hoarding environments then unemployment is no longer the failure of the worker. It proves that there must be someone out there that wants this worker to be unemployed. Bitcoin is short term capitalism driven to extremes. People are worshipping money because it earns a return in the financial world. When money earns a return in itself people will "quit" the real world to live in the financial world. They will even destroy the real world through mining if that is what it takes to be accepted into the financial utopia. The store of value story doesn't hold up for me though. Fiat is actually a better store of value (this isn't necessarily a good thing by the way) because debts and tax obligations force people to both accept it as income and use it for spending. If we assumed 0% inflation then acquisition of money is basically the same as indebting someone else, forcing them to work for your benefit. If billionaires were immortal it would not be unimaginable that they could withhold their money for entire lifetimes forcing people to be unemployed for their entire life and yet the obligation to work for the money would persist long after the death of the worker. How could this possibly make sense? A store of value is effectively a promise that someone else will give you your money (or good or service) back in the future plus compensation for the costs of parting with the money (inflation, opportunity cost, friction, a desire to make a living). We already have these and we call them bonds. The difference is that you aren't forced to accept bonds as legal tender. The reason why this system is fair is that it is voluntary. Nobody has to buy government bonds if they don't want to. It feels to me that Bitcoin isn't an alternative to the current system. It is an extremely overexaggerated parody of our current system. Consider that there have been thousands of "tokens" and the vast majority of them don't even share a tiny bit of similarity with the hundreds of complementary currencies that were created during the great depression. Those complementary currencies were specifically designed to avoid recessions and poverty within regional communities.