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This is what people don't seem to understand about BitCoin. It is cashflow negative, Money has to keep coming in to keep the price up due to paying miners. It i

This is what people don't seem to understand about BitCoin. It is cashflow negative, Money has to keep coming in to keep the price up due to paying miners. It is totally fine if you think BTC is better than the USD or Gold for whatever reason. But Bitcoin is still cashflow negative. You have to keep pumping money into it to keep up its value. Where is that money going to come from? Is it coming from Tether? Is it coming from people looking to make quick money? And when BTC hits 1M/coin, then what? You still need more money coming in to keep it above 1M.

MetaWhirledPeas 5y ago
I must admit I don't understand why it is "cashflow negative". I'm not invested in any crypto, but I have thought about it, and my casual thoughts have come to the opposite conclusion. The higher the price of a cryptocurrency, the greater the interest in mining and investing. It seems like a positive feedback loop to me. Why is it not?
- thelamest 5y ago
  Where’s the value added coming from though, and how far are you from there? If crypto enables someone to dodge taxes, sell drugs, or wire remittances with less overhead, that’s a potential value add [arguably, with externalities]. For how many of such activities do we need byzantine consensus, i.e. can they stay competitive in the long term with solutions built on tradfi & SQL? How much of these gains can be captured from sidelines by, essentially, exchange rate traders? Positive feedback loops without a sustainable value proposition will pop sooner or later.
- WJW 5y ago
  For Proof-of-Work coins, the miners need significant amounts of electricity. Electricity is not free, so maintaining the network costs a significant amount of money. This money is "reimbursed" to them through mining rewards, but since electricity companies typically can't be paid in cryptocurrencies the miners will need to sell (a part of) their mining reward to pay the power bill. This means that there is always a money outflow proportional to the hashrate, which somehow has to be made up from money inflows from users. A cryptocurrency without users putting in "new" money will slowly bleed out through electricity costs. This will become even more "fun" in the future as all coins will eventually be mined and the ginormous electricity bill will need to be paid through transaction fees alone. This is one of the main reasons Proof-of-Stake is getting so much research btw, since it should use way less electricity. (The above is true for most currencies btw, even dollars and euros bleed out money because they have to pay mints and central bankers. The difference with those is that there will always be demand for (say) dollars because US citizens MUST pay their taxes in dollars. If they don't, a number of measures up to and including prison can be taken against them. Bitcoin has no such backstop since nobody ever NEEDS a bitcoin to pay off someone. Ransomware is a rare exception)
  - freeone3000 5y ago
    Is ransomware that rare an occurrence? I could see ransomware being the taxes of web3.
    - WJW 5y ago
      If ransomware ever becomes big enough to rival the cumulative tax bill of a nation state, you can bet that combating it would get a lot more priority. Spec ops teams raiding office buildings in foreign nations type priority. Countries are very protective of their cash flows.
- gitfan86 5y ago
  Imagine if you had the option of buying a piece of gold or a piece of land with good irrigation and good soil. You can plant vegetables on the land and sell those vegetables for other people to eat. Therefor your investment is generating profit and "cashflow". Gold on the other hand just sits there, and you may want to keep it in a safe at a bank and the bank will charge you a fee for storage making it negative cashflow. The price of gold or land or BTC can go UP or Down, but that depends on market demand of that asset. The nice thing about owning the farm is that even if the value of land goes down you can still sell your vegetables or eat them to stay alive.
  - MetaWhirledPeas 5y ago
    Your gold analogy might actually help me make my point. When the California gold rush was happening people went nuts trying to mine for it. Eventually the mining slowed, presumably because the cost to mine it started to exceed the value of it. Bitcoin claims to be this way (you may have known this; I had to look it up), stating that mining will halt at 21 million Bitcoins. But didn't Bitcoin already fork in the past? And won't there always be a new cryptocurrency to fall in love with? Unlike gold, when Bitcoin mining wanes someone can just invent "gold plus" with a few keystrokes and then here we go again. The feedback loop may not be confined to a single cryptocurrency but I still don't understand how it will ever end.
    - gitfan86 5y ago
      Yes, I agree, this can go on forever. "DeFi", "web3", and then something else
  - jkhdigital 5y ago
    > Imagine if you had the option of buying a piece of gold or a piece of land with good irrigation and good soil. Why imagine? Both of these things can be purchased in the real world. And yet we see that some people purchase farmland, and others purchase bars of gold. Why is that? Turns out, people called economists have been pondering such questions for hundreds of years and have developed quite sophisticated and nuanced theories about how humans create, assign, and transact value. Anyways, thanks for the lesson on “cashflow” but you might want to pick up an economics textbook, you might learn something.
DaltonCoffee 5y ago
This negates the idea that bitcoin or it's ilk could replace USD. Crypto technologies are interesting to me because of their great potential for good (defi) and bad (dystopian black mirror gold farms, dyson sphere fueling crpto mine, etc).
- post_from_work 5y ago
  Someone building a Dyson Sphere just to power a crypto mining rig is an awesome concept for a short story or sci-fi RPG adventure (such as Traveller).
jonathan-adly 5y ago
> This is what people don't seem to understand about BitCoin. It is cashflow negative, Money has to keep coming in Pretty sure a sizable portion of Bitcoin holders understand and know that. They don't hold Bitcoin as a form of bespoke investment to be exchanged for money at some point in the future. They hold it because they believe it is sound and incorruptible money. And as long as they (not any additional people!) continue to believe that, it will hold value. It is to be seen if they are right or wrong, but they know how cash flow works.
- gitfan86 5y ago
  Is this Peter Pan? If you just believe in the power of BTC it will never go down in value?
  - contravariant 5y ago
    I don't think Bitcoin is doing particularly well as a currency, but can you name one currency that will not go down in value if people stop believing in it?
  - che_shirecat 5y ago
    that's a strawman of the parent comment's argument. and yes, if enough people believe something, it takes on real significance. e.g. enough people believe in the full faith and credit of the US Gov that backs their printed paper with numbers on it, so it takes on real significance.
  - TimJRobinson 5y ago
    Yes. The key realization is all forms of wealth preservation are the same. We value things because other people value them (once we have our basic needs met).
anonporridge 5y ago
Isn't the same true of gold? The gold supply is inflating at about the same rate as bitcoin right now, but has enough incoming cash flows to keep the priced propped up enough to maintain a $10 trillion market cap. Obviously some of that incoming cash flow is for actually generative industrial use cases, but it's a minority, https://www.statista.com/statistics/299609/gold-demand-by-industry-sector-share/ https://www.statista.com/statistics/299609/gold-demand-by-in.... The lion's share of incoming money flow is for jewelry, long term savings/investment, and central bank holdings, and you could argue that most of the jewelry use case only exists because it's a good store of value, since we can easily make jewelry that looks as pretty for much cheaper than the real thing. So, since most of the cashflows into gold are just people holding long term with the expectation that there will still be people wanting to buy it for investment purposes in the future, and this scheme has worked incredibly well for 5000 years, why couldn't the same be true of bitcoin?
- whatshisface 5y ago
  Bitcoin is unlikely to have a 5,000 year lifespan because unlike gold it can be obsoleted.
  - webinvest 5y ago
    It’s likely after some number of years, most people will have lost their Bitcoins and there won’t be many left in circulation.
    - crabmusket 5y ago
      I think that would be a very amusing outcome. the rate of accidents can't be held at 0 so the supply of Bitcoin can only decrease in the long term. However, is there any reason the network couldn't decide to, say, subdivide Satoshis even further to allow the remaining supply to become more tradeable? If the changes are slow enough over time it doesn't seem like there's a limit to how far that could go.
  - anonporridge 5y ago
    Gold has already been obsoleted by fiat money because it's too expensive and slow to transact with in the modern world. Bitcoin won't necessarily have the same problem, because it's an information protocol. Protocols can be updated and improved. Even if the main chain ossifies and can't be improved, bitcoin tokens are already being moved to alternative blockchains (sidechains) via 2 way pegs.
Animats 5y ago
Bitcoin has a use case for money laundering, tax evasion, evading China's exchange controls, and drugs. That market turned out to be larger than expected.
- Jerrrry 5y ago
  This is the only correct answer.
- prepend 5y ago
  Interesting it’s like meta money laundering. It allows regular folks to make money off the illegal economy. In some ways this was the extra profits banks made off illegal activities but that was largely held within the bank, not available to normies.
  - oblio 5y ago
    Is it regular folks, though? I imagine it's mostly big whales who are probably also doing shady stuff, too. We're talking about people doing money laundering, so financially savvy. Few outside people get rich off the mafia.
    - prepend 5y ago
      My random lawyer is buying crypto. So they get to have their value increase as all the shenanigans goes on.
- digitailor 5y ago
  - kibwen 5y ago
    If your argument hinges on the premise that being either a police officer or a politician makes someone either a paragon of morality or wholly incapable of committing crimes, then I'm afraid I have some bad news for you.
nightski 5y ago
You aren't talking about the intrinsic value of Bitcoin. You are talking about it's value relative to USD. These are completely different things. Bitcoin has intrinsic value outside of the fiat system. It can be used entirely independent of fiat. Whether that will become common is another matter, but the value of Bitcoin does not have to depend solely on it's value relative to USD.
- WJW 5y ago
  As long as miners can't pay the power company with their mining rewards, bitcoin can't exist outside the fiat system. The mining reward denominated in the currency the miner has to pay their electricity bill in MUST be higher than the electricity cost to mine the reward, otherwise the miners go bankrupt.
  - nightski 5y ago
    From my understanding that's not exactly how Bitcoin mining works. It scales based on the amount of miners. So if the situation is as you described (value relative to USD tanks - which I find very unlikely due to inflationary nature of fiat) people would stop mining which would decrease the difficulty of mining causing it to use less electricity. There are however miners using nearly free sources of electricity such as flared gas wells, solar, etc... If Tesla accepts Bitcoin/Doge for solar panels then you may have a system independent of fiat. I'm just saying it's possible, not that I think it will necessarily happen. Like I mentioned I think BTC's value relative to USD will increase over time due to fiat's inflationary nature (Fed is targeting 2-3% inflation).
    - WJW 5y ago
      > people would stop mining which would decrease the difficulty of mining causing it to use less electricity. This is true, but then you have a bunch of costly mining ASICs sitting idle. The bitcoin network does not pay miners out of the goodness of its heart but because it needs a very high hash rate to defend against double spend attacks. Guess what those unused ASICs might be very effective at? A prolonged fall in mining power caused by a falling BTC price is a death sentence for bitcoin as it would lead to massive attacks by opportunists renting hashing power to double spend their coins. You can already see this in many smaller coins. > nearly free sources of electricity such as flared gas wells, solar, etc Those may be cheaper than regular power, but they are not free. Taking solar as an example, you need to invest capital to buy the solar panels and they have a finite lifespan. Cost divided by lifespan gives you the running cost in $/year. Similar things are true for flared gas wells; you still need to capture the energy somehow and generators are not free. > If Tesla accepts Bitcoin/Doge for solar panels then you may have a system independent of fiat. This just moves the problem by one degree of separation. Unless Tesla can buy solar panels for bitcoin, they will need to sell crypto for fiat to buy their inputs. This goes all the way down the supply chain down to the real-world miners who dig up the ores for the solar panels and even they will need to pay their taxes, which you cannot do in bitcoin. > I think BTC's value relative to USD will increase over time due to fiat's inflationary nature (Fed is targeting 2-3% inflation). Perhaps. I suppose that this will depend on how much the maintenance costs in electricity and miner ASIC replacement costs as a percentage of total bitcoin market cap per year. If these costs are higher than 2-3% per year, bitcoin will see a net outflow of fiat as running costs and can only rise in price if new users continuously flow in (and of course, only ~7 billion potential users exist). Also, it might be interesting to read up on why central banks universally target a low but nonzero inflation. There is a ton of established theory about why this is desirable and none of it is based on "let's screw taxpayers". Throwing that away will basically guarantee that crypto will never be very useful to pay your bills with.
wyager 5y ago
> Money has to keep coming in to keep the price up due to paying miners This is incoherent. It's hard to refute this because it's not even on the right page. Demand for Bitcoin comes from demand for money (to transact, to store wealth, etc.). It sounds like you're trying to model it using some idea of how equity pricing works - is that accurate?
- gitfan86 5y ago
  All assets ( BTC, Stocks, Gold ) are priced on supply and demand. If demand goes down for BTC the price will go down. It doesn't matter if the fed prints money or not BTC needs a constant infusion of new investment to keep the price up. Unlike a company with positive cash flow who could buyback shares and never get any new investors and still keep the price up.
  - wyager 5y ago
    > If demand goes down for BTC the price will go down. Indeed. What may be missing from your model is that demand for BTC comes not just from people buying it, but from people holding it. > BTC needs a constant infusion of new investment to keep the price up. No it doesn't. Why do you say this? Where the market clears has essentially nothing to do with "new investment".
    - gitfan86 5y ago
      Stop and think about what you are saying. If everyone in the world stopped buying TVs and instead held onto their current TVs the demand for TVs would go to zero. What would the market price of TVs be when there is zero demand? How do you think BTC miners pay for the graphics cards and electricity? NVIDIA doesn't take BTC as a form of payment. So money is constantly leaving the BTC network to pay for electricity and graphics cards. The only way that happens is if money is also coming into the BTC network
      - wyager 5y ago
        Every sale is also a purchase. The market price of something is precisely the equilibrium price at which inflows and outflow are matched. Think hard about this.
shazzdeeds 5y ago
This is addressed in the original white paper. In a world where BTC is valued at 1M USD/coin you’d also expect a decent amount of day to day usage. Miners could still make decent profits based on transaction fees just from confirming blocks even once the Coinbase rewards stop. I’m not saying that’s currently the case, but that is the design. Also if miners are making a profit off let’s say $40k/coin and the price goes down to 30, yet there’s still a profit for some miners, how exactly does that become unsustainable?
- gitfan86 5y ago
  Miners could make a profit at $1/coin. The issue is that profit comes from somewhere. And that somewhere is new money being put into BTC. Hence, BTC is negative cashflow.
  - shazzdeeds 5y ago
    Profit comes when their operating costs are less than the take home from any transaction fees and Coinbase rewards they’ve collected in the same period. It’s not a direct function of liquidity entering the system. It’s true that rising prices from new cash flow means more profit for miners, but that doesn’t imply the opposite. The price could stay constant for the next 100 years and miners that have found a way to remain profitable within that price point would be fine.
    - gitfan86 5y ago
      If the price stays constant for 100 years where is the money coming from to pay for those NVIDIA cards that the miners are using?
    - petmon 5y ago
      Miners have real expenses: electricity, depreciation, etc. Miners also generarte revenue, $45 million per day is a reasonable estimate [1]. This revenue is extracted from the Bitcoin system through both transaction fees and inflation (creating new Bitcoins), but these are sold in portion to pay real expenses, with presumably some profit. We can estimate 300k transactions per day, which implies about $150 revenue per transaction. Miner revenue is your cost: it is what they extract from the Bitcoin system. One Bitcoin transaction costs on the order of $150. It's really expensive. 1: https://www.blockchain.com/charts/miners-revenue https://www.blockchain.com/charts/miners-revenue
toomanydoubts 5y ago
How is that different at all from fiat currencies? Every electronic transaction you make, like credit card or money transfers, has fees. Central banks have to keep pumping money into the economy so we can have the same nominal amount of cash in the system(albeit with lower value, because inflation). So, my question is, is fiat currency cashflow positive? How?
- mrgordon 5y ago
  I use ACH and Venmo all the time for no fees. Do you mean the tiny electricity fee that they pay on my behalf of maybe $0.01? Sure seems like a great deal compared to the multiple dollars (sometimes over $50) charged by Bitcoin and friends
- gitfan86 5y ago
  No money doesn't have positive cashflow, that is why it is a stupid investment.
- imtringued 5y ago
  We devalue currency by 2% per year so people have an incentive to work = keep pumping. That work creates goods and services in the process. The problem with Bitcoin is that if it goes up in value the additional time spent mining is ultimately a waste of time.
  - toomanydoubts 5y ago
    I live brazil and earn in BRL. In the USD/BRL pair, the dollar price keeps increasing when you look at the historical data. Does that mean that holding USD is enough and investing these dollars to make more dollars is ultimately a waste of time?
charlieyu1 5y ago
Just about every project is cashflow negative. Most projects start Worthing $0 and rises to another number later on

MetaWhirledPeas 5y ago

I must admit I don't understand why it is "cashflow negative". I'm not invested in any crypto, but I have thought about it, and my casual thoughts have come to the opposite conclusion. The higher the price of a cryptocurrency, the greater the interest in mining and investing. It seems like a positive feedback loop to me. Why is it not?

thelamest 5y ago
Where’s the value added coming from though, and how far are you from there? If crypto enables someone to dodge taxes, sell drugs, or wire remittances with less overhead, that’s a potential value add [arguably, with externalities]. For how many of such activities do we need byzantine consensus, i.e. can they stay competitive in the long term with solutions built on tradfi & SQL? How much of these gains can be captured from sidelines by, essentially, exchange rate traders? Positive feedback loops without a sustainable value proposition will pop sooner or later.
WJW 5y ago
For Proof-of-Work coins, the miners need significant amounts of electricity. Electricity is not free, so maintaining the network costs a significant amount of money. This money is "reimbursed" to them through mining rewards, but since electricity companies typically can't be paid in cryptocurrencies the miners will need to sell (a part of) their mining reward to pay the power bill. This means that there is always a money outflow proportional to the hashrate, which somehow has to be made up from money inflows from users. A cryptocurrency without users putting in "new" money will slowly bleed out through electricity costs. This will become even more "fun" in the future as all coins will eventually be mined and the ginormous electricity bill will need to be paid through transaction fees alone. This is one of the main reasons Proof-of-Stake is getting so much research btw, since it should use way less electricity. (The above is true for most currencies btw, even dollars and euros bleed out money because they have to pay mints and central bankers. The difference with those is that there will always be demand for (say) dollars because US citizens MUST pay their taxes in dollars. If they don't, a number of measures up to and including prison can be taken against them. Bitcoin has no such backstop since nobody ever NEEDS a bitcoin to pay off someone. Ransomware is a rare exception)
- freeone3000 5y ago
  Is ransomware that rare an occurrence? I could see ransomware being the taxes of web3.
  - WJW 5y ago
    If ransomware ever becomes big enough to rival the cumulative tax bill of a nation state, you can bet that combating it would get a lot more priority. Spec ops teams raiding office buildings in foreign nations type priority. Countries are very protective of their cash flows.
gitfan86 5y ago
Imagine if you had the option of buying a piece of gold or a piece of land with good irrigation and good soil. You can plant vegetables on the land and sell those vegetables for other people to eat. Therefor your investment is generating profit and "cashflow". Gold on the other hand just sits there, and you may want to keep it in a safe at a bank and the bank will charge you a fee for storage making it negative cashflow. The price of gold or land or BTC can go UP or Down, but that depends on market demand of that asset. The nice thing about owning the farm is that even if the value of land goes down you can still sell your vegetables or eat them to stay alive.
- MetaWhirledPeas 5y ago
  Your gold analogy might actually help me make my point. When the California gold rush was happening people went nuts trying to mine for it. Eventually the mining slowed, presumably because the cost to mine it started to exceed the value of it. Bitcoin claims to be this way (you may have known this; I had to look it up), stating that mining will halt at 21 million Bitcoins. But didn't Bitcoin already fork in the past? And won't there always be a new cryptocurrency to fall in love with? Unlike gold, when Bitcoin mining wanes someone can just invent "gold plus" with a few keystrokes and then here we go again. The feedback loop may not be confined to a single cryptocurrency but I still don't understand how it will ever end.
  - gitfan86 5y ago
    Yes, I agree, this can go on forever. "DeFi", "web3", and then something else
- jkhdigital 5y ago
  > Imagine if you had the option of buying a piece of gold or a piece of land with good irrigation and good soil. Why imagine? Both of these things can be purchased in the real world. And yet we see that some people purchase farmland, and others purchase bars of gold. Why is that? Turns out, people called economists have been pondering such questions for hundreds of years and have developed quite sophisticated and nuanced theories about how humans create, assign, and transact value. Anyways, thanks for the lesson on “cashflow” but you might want to pick up an economics textbook, you might learn something.

DaltonCoffee 5y ago

This negates the idea that bitcoin or it's ilk could replace USD. Crypto technologies are interesting to me because of their great potential for good (defi) and bad (dystopian black mirror gold farms, dyson sphere fueling crpto mine, etc).

post_from_work 5y ago
Someone building a Dyson Sphere just to power a crypto mining rig is an awesome concept for a short story or sci-fi RPG adventure (such as Traveller).

jonathan-adly 5y ago

> This is what people don't seem to understand about BitCoin. It is cashflow negative, Money has to keep coming in Pretty sure a sizable portion of Bitcoin holders understand and know that. They don't hold Bitcoin as a form of bespoke investment to be exchanged for money at some point in the future. They hold it because they believe it is sound and incorruptible money. And as long as they (not any additional people!) continue to believe that, it will hold value. It is to be seen if they are right or wrong, but they know how cash flow works.

gitfan86 5y ago
Is this Peter Pan? If you just believe in the power of BTC it will never go down in value?
- contravariant 5y ago
  I don't think Bitcoin is doing particularly well as a currency, but can you name one currency that will not go down in value if people stop believing in it?
- che_shirecat 5y ago
  that's a strawman of the parent comment's argument. and yes, if enough people believe something, it takes on real significance. e.g. enough people believe in the full faith and credit of the US Gov that backs their printed paper with numbers on it, so it takes on real significance.
- TimJRobinson 5y ago
  Yes. The key realization is all forms of wealth preservation are the same. We value things because other people value them (once we have our basic needs met).

anonporridge 5y ago

Isn't the same true of gold? The gold supply is inflating at about the same rate as bitcoin right now, but has enough incoming cash flows to keep the priced propped up enough to maintain a $10 trillion market cap. Obviously some of that incoming cash flow is for actually generative industrial use cases, but it's a minority, https://www.statista.com/statistics/299609/gold-demand-by-industry-sector-share/ https://www.statista.com/statistics/299609/gold-demand-by-in.... The lion's share of incoming money flow is for jewelry, long term savings/investment, and central bank holdings, and you could argue that most of the jewelry use case only exists because it's a good store of value, since we can easily make jewelry that looks as pretty for much cheaper than the real thing. So, since most of the cashflows into gold are just people holding long term with the expectation that there will still be people wanting to buy it for investment purposes in the future, and this scheme has worked incredibly well for 5000 years, why couldn't the same be true of bitcoin?

whatshisface 5y ago
Bitcoin is unlikely to have a 5,000 year lifespan because unlike gold it can be obsoleted.
- webinvest 5y ago
  It’s likely after some number of years, most people will have lost their Bitcoins and there won’t be many left in circulation.
  - crabmusket 5y ago
    I think that would be a very amusing outcome. the rate of accidents can't be held at 0 so the supply of Bitcoin can only decrease in the long term. However, is there any reason the network couldn't decide to, say, subdivide Satoshis even further to allow the remaining supply to become more tradeable? If the changes are slow enough over time it doesn't seem like there's a limit to how far that could go.
- anonporridge 5y ago
  Gold has already been obsoleted by fiat money because it's too expensive and slow to transact with in the modern world. Bitcoin won't necessarily have the same problem, because it's an information protocol. Protocols can be updated and improved. Even if the main chain ossifies and can't be improved, bitcoin tokens are already being moved to alternative blockchains (sidechains) via 2 way pegs.

Animats 5y ago

Bitcoin has a use case for money laundering, tax evasion, evading China's exchange controls, and drugs. That market turned out to be larger than expected.

Jerrrry 5y ago
This is the only correct answer.
prepend 5y ago
Interesting it’s like meta money laundering. It allows regular folks to make money off the illegal economy. In some ways this was the extra profits banks made off illegal activities but that was largely held within the bank, not available to normies.
- oblio 5y ago
  Is it regular folks, though? I imagine it's mostly big whales who are probably also doing shady stuff, too. We're talking about people doing money laundering, so financially savvy. Few outside people get rich off the mafia.
  - prepend 5y ago
    My random lawyer is buying crypto. So they get to have their value increase as all the shenanigans goes on.
digitailor 5y ago
- kibwen 5y ago
  If your argument hinges on the premise that being either a police officer or a politician makes someone either a paragon of morality or wholly incapable of committing crimes, then I'm afraid I have some bad news for you.

nightski 5y ago

You aren't talking about the intrinsic value of Bitcoin. You are talking about it's value relative to USD. These are completely different things. Bitcoin has intrinsic value outside of the fiat system. It can be used entirely independent of fiat. Whether that will become common is another matter, but the value of Bitcoin does not have to depend solely on it's value relative to USD.

WJW 5y ago
As long as miners can't pay the power company with their mining rewards, bitcoin can't exist outside the fiat system. The mining reward denominated in the currency the miner has to pay their electricity bill in MUST be higher than the electricity cost to mine the reward, otherwise the miners go bankrupt.
- nightski 5y ago
  From my understanding that's not exactly how Bitcoin mining works. It scales based on the amount of miners. So if the situation is as you described (value relative to USD tanks - which I find very unlikely due to inflationary nature of fiat) people would stop mining which would decrease the difficulty of mining causing it to use less electricity. There are however miners using nearly free sources of electricity such as flared gas wells, solar, etc... If Tesla accepts Bitcoin/Doge for solar panels then you may have a system independent of fiat. I'm just saying it's possible, not that I think it will necessarily happen. Like I mentioned I think BTC's value relative to USD will increase over time due to fiat's inflationary nature (Fed is targeting 2-3% inflation).
  - WJW 5y ago
    > people would stop mining which would decrease the difficulty of mining causing it to use less electricity. This is true, but then you have a bunch of costly mining ASICs sitting idle. The bitcoin network does not pay miners out of the goodness of its heart but because it needs a very high hash rate to defend against double spend attacks. Guess what those unused ASICs might be very effective at? A prolonged fall in mining power caused by a falling BTC price is a death sentence for bitcoin as it would lead to massive attacks by opportunists renting hashing power to double spend their coins. You can already see this in many smaller coins. > nearly free sources of electricity such as flared gas wells, solar, etc Those may be cheaper than regular power, but they are not free. Taking solar as an example, you need to invest capital to buy the solar panels and they have a finite lifespan. Cost divided by lifespan gives you the running cost in $/year. Similar things are true for flared gas wells; you still need to capture the energy somehow and generators are not free. > If Tesla accepts Bitcoin/Doge for solar panels then you may have a system independent of fiat. This just moves the problem by one degree of separation. Unless Tesla can buy solar panels for bitcoin, they will need to sell crypto for fiat to buy their inputs. This goes all the way down the supply chain down to the real-world miners who dig up the ores for the solar panels and even they will need to pay their taxes, which you cannot do in bitcoin. > I think BTC's value relative to USD will increase over time due to fiat's inflationary nature (Fed is targeting 2-3% inflation). Perhaps. I suppose that this will depend on how much the maintenance costs in electricity and miner ASIC replacement costs as a percentage of total bitcoin market cap per year. If these costs are higher than 2-3% per year, bitcoin will see a net outflow of fiat as running costs and can only rise in price if new users continuously flow in (and of course, only ~7 billion potential users exist). Also, it might be interesting to read up on why central banks universally target a low but nonzero inflation. There is a ton of established theory about why this is desirable and none of it is based on "let's screw taxpayers". Throwing that away will basically guarantee that crypto will never be very useful to pay your bills with.

wyager 5y ago

> Money has to keep coming in to keep the price up due to paying miners This is incoherent. It's hard to refute this because it's not even on the right page. Demand for Bitcoin comes from demand for money (to transact, to store wealth, etc.). It sounds like you're trying to model it using some idea of how equity pricing works - is that accurate?

gitfan86 5y ago
All assets ( BTC, Stocks, Gold ) are priced on supply and demand. If demand goes down for BTC the price will go down. It doesn't matter if the fed prints money or not BTC needs a constant infusion of new investment to keep the price up. Unlike a company with positive cash flow who could buyback shares and never get any new investors and still keep the price up.
- wyager 5y ago
  > If demand goes down for BTC the price will go down. Indeed. What may be missing from your model is that demand for BTC comes not just from people buying it, but from people holding it. > BTC needs a constant infusion of new investment to keep the price up. No it doesn't. Why do you say this? Where the market clears has essentially nothing to do with "new investment".
  - gitfan86 5y ago
    Stop and think about what you are saying. If everyone in the world stopped buying TVs and instead held onto their current TVs the demand for TVs would go to zero. What would the market price of TVs be when there is zero demand? How do you think BTC miners pay for the graphics cards and electricity? NVIDIA doesn't take BTC as a form of payment. So money is constantly leaving the BTC network to pay for electricity and graphics cards. The only way that happens is if money is also coming into the BTC network
    - wyager 5y ago
      Every sale is also a purchase. The market price of something is precisely the equilibrium price at which inflows and outflow are matched. Think hard about this.

shazzdeeds 5y ago

This is addressed in the original white paper. In a world where BTC is valued at 1M USD/coin you’d also expect a decent amount of day to day usage. Miners could still make decent profits based on transaction fees just from confirming blocks even once the Coinbase rewards stop. I’m not saying that’s currently the case, but that is the design. Also if miners are making a profit off let’s say $40k/coin and the price goes down to 30, yet there’s still a profit for some miners, how exactly does that become unsustainable?

gitfan86 5y ago
Miners could make a profit at $1/coin. The issue is that profit comes from somewhere. And that somewhere is new money being put into BTC. Hence, BTC is negative cashflow.
- shazzdeeds 5y ago
  Profit comes when their operating costs are less than the take home from any transaction fees and Coinbase rewards they’ve collected in the same period. It’s not a direct function of liquidity entering the system. It’s true that rising prices from new cash flow means more profit for miners, but that doesn’t imply the opposite. The price could stay constant for the next 100 years and miners that have found a way to remain profitable within that price point would be fine.
  - gitfan86 5y ago
    If the price stays constant for 100 years where is the money coming from to pay for those NVIDIA cards that the miners are using?
  - petmon 5y ago
    Miners have real expenses: electricity, depreciation, etc. Miners also generarte revenue, $45 million per day is a reasonable estimate [1]. This revenue is extracted from the Bitcoin system through both transaction fees and inflation (creating new Bitcoins), but these are sold in portion to pay real expenses, with presumably some profit. We can estimate 300k transactions per day, which implies about $150 revenue per transaction. Miner revenue is your cost: it is what they extract from the Bitcoin system. One Bitcoin transaction costs on the order of $150. It's really expensive. 1: https://www.blockchain.com/charts/miners-revenue https://www.blockchain.com/charts/miners-revenue

toomanydoubts 5y ago

How is that different at all from fiat currencies? Every electronic transaction you make, like credit card or money transfers, has fees. Central banks have to keep pumping money into the economy so we can have the same nominal amount of cash in the system(albeit with lower value, because inflation). So, my question is, is fiat currency cashflow positive? How?

mrgordon 5y ago
I use ACH and Venmo all the time for no fees. Do you mean the tiny electricity fee that they pay on my behalf of maybe $0.01? Sure seems like a great deal compared to the multiple dollars (sometimes over $50) charged by Bitcoin and friends
gitfan86 5y ago
No money doesn't have positive cashflow, that is why it is a stupid investment.
imtringued 5y ago
We devalue currency by 2% per year so people have an incentive to work = keep pumping. That work creates goods and services in the process. The problem with Bitcoin is that if it goes up in value the additional time spent mining is ultimately a waste of time.
- toomanydoubts 5y ago
  I live brazil and earn in BRL. In the USD/BRL pair, the dollar price keeps increasing when you look at the historical data. Does that mean that holding USD is enough and investing these dollars to make more dollars is ultimately a waste of time?

charlieyu1 5y ago

Just about every project is cashflow negative. Most projects start Worthing $0 and rises to another number later on