6 ms·

Estimated around the end of this year, the amount of Bitcoins mined per day will be halved according to the schedule. If I understand correctly, this means that

by relix 14y ago

Estimated around the end of this year, the amount of Bitcoins mined per day will be halved according to the schedule. If I understand correctly, this means that the cost to mine one BTC will double, roughly, if the mining capacity stays the same. On top of that, some companies are, or should be coming out with ASIC-based miners, which are orders of magnitude faster in mining bitcoins than GPU's, at lower energy usage, increasing the total mining capacity. Does the cost of mining one BTC influence the price of one BTC? Will these events have an influence on the price (if they were not already 'priced in')?

jamesaguilar 14y ago
I can answer the last question easily. If the supply of bitcoins rises faster than the real value of the debt they represent, their nominal value against the dollar will fall.
- maaku 14y ago
  Except that this generation rate halving in price is a predictable, known event, and therefore already factored into the price of BTC.
  - elemeno 14y ago
    I'd qualify as =might= be factored into the price of BTC. Whether it is or not depends in (large?) part on the financial acumen of people trading BTC and if they're bothering to model what the effects will be.
  - jamesaguilar 14y ago
    If you assume efficient markets, yes. Nothing I've seen about the bitcoin market so far would suggest that it's efficient. Low volume, ideological motivations, unstable technologies, few really safe places to store value, etc.
    - maaku 14y ago
      Oh, safely storing value isn't a problem: bitaddress.org. Safely storing value while keeping it liquid, there's a problem.
- SagelyGuru 14y ago
  This argument does not hold regarding the rate against the dollar. The rate of supply of dollars is massively outstripping the real value of the debt they represent.
  - jamesaguilar 14y ago
    Lol. Citation needed. Maybe a graph of inflation or of the dollar devaluing massively against other currencies.
- richcollins 14y ago
  How do bitcoins represent debt?
  - jamesaguilar 14y ago
    All money represents debt that your future payee "owes" you. It's basically a promise of future payment by "society" to you. There was a great Planet Money podcast about the origins of money, which was essentially promissory notes of farmers to provide X units of food in the future, but I'm having a hell of a time finding it now.
Devilboy 14y ago
> Does the cost of mining one BTC influence the price of one BTC? Difficulty adjusts automatically to match the total mining hashrate - there's always about 10 new blocks mined per hour. So if more people are mining the difficulty goes up. What is changing is the number of BTC you get for mining a block. Currently each block is worth 50 BTC. Soon that will drop to 25 BTC. If many people find mining to be uneconomical they will stop their mining rigs and the difficulty will drop. What will change is the influx of new bitcoin into the market, instead of 500BTC per hour we'll get 250BTC per hour (on average). Will that make the price go up? Maybe.
- mrb 14y ago
  The system targets 6 blocks per hour, not 10.
- nikcub 14y ago
  On that note, has anybody heard of any data or estimates on the proportion of Bitcoin mining that is done with botnets? I keep hearing that a large proportion of the bigger botnets in the world are being used to mine Bitcoins (when they aren't being leased out for DDoS attacks). That changes the economic dynamic since the cost of mining is the cost of assembling the botnet (ie. cheap)
pixie_ 14y ago
The cost of mining doesn't influence bitcoin price because creating 50 new bitcoins isn't going to inflate the currency by any perceptible amount. The price does influence those who might want to get into mining. Eventually no new bitcoins will be generated from mining. At that point miners will make money solely from transaction fees when creating a new blocks.
- oillio 14y ago
  50 new bitcoins are created every 10 minutes. That is 7200 coins a day, 2,628,000 a year. This is massive inflation and definitely has an effect on the currency. No one really knows what the effect of halving of the mining rate will be. The currency is young, relatively small, and not yet very efficient (from an economic standpoint). However, everyone know the event is coming up. It MAY already be priced in. We won't know until the end of the year. There is a small risk that this event may cause some disruptions in the underlying bitcoin infrastructure, however. The idea goes: Many miners are running full tilt going into the event. They know their income will half, so they want to get as much out of mining as possible before it happens. This drives up the difficultly level. After the event, many of these miners may drop off as their operations suddenly become unprofitable (they are already running at the edge of profitability by revenue per kilowatt hour metrics). When the miners drop off, it takes some time for the difficulty level to adjust (up to two weeks). Before the difficulty level adjusts, the time between transaction blocks will begin to grow, which slows down the confirmation of transactions. In a worse case scenario where a large volume of processing power leaves the network simultaneously, it could take several hours to get transactions confirmed for a few weeks after the event. Will this actually matter, or even be noticed? Again, noone knows for sure.
  - wmf 14y ago
    People will be replacing FPGAs with much faster ASICs around the same time that GPUs drop out due to the reward halving. Many people are predicting that difficulty will increase 10x, not decrease.
wmf 14y ago
Does the cost of mining one BTC influence the price of one BTC? The opposite. The exchange rate determines how many miners are willing to compete for each mined BTC. You can see that difficulty tends to increase a few weeks after the price increases (keep in mind that difficulty has a 1-2 week delay built in). http://bitcoinx.com/charts/chart_large_lin.png http://bitcoinx.com/charts/chart_large_lin.png

by relix 14y ago

jamesaguilar 14y ago

I can answer the last question easily. If the supply of bitcoins rises faster than the real value of the debt they represent, their nominal value against the dollar will fall.

maaku 14y ago
Except that this generation rate halving in price is a predictable, known event, and therefore already factored into the price of BTC.
- elemeno 14y ago
  I'd qualify as =might= be factored into the price of BTC. Whether it is or not depends in (large?) part on the financial acumen of people trading BTC and if they're bothering to model what the effects will be.
- jamesaguilar 14y ago
  If you assume efficient markets, yes. Nothing I've seen about the bitcoin market so far would suggest that it's efficient. Low volume, ideological motivations, unstable technologies, few really safe places to store value, etc.
  - maaku 14y ago
    Oh, safely storing value isn't a problem: bitaddress.org. Safely storing value while keeping it liquid, there's a problem.
SagelyGuru 14y ago
This argument does not hold regarding the rate against the dollar. The rate of supply of dollars is massively outstripping the real value of the debt they represent.
- jamesaguilar 14y ago
  Lol. Citation needed. Maybe a graph of inflation or of the dollar devaluing massively against other currencies.
richcollins 14y ago
How do bitcoins represent debt?
- jamesaguilar 14y ago
  All money represents debt that your future payee "owes" you. It's basically a promise of future payment by "society" to you. There was a great Planet Money podcast about the origins of money, which was essentially promissory notes of farmers to provide X units of food in the future, but I'm having a hell of a time finding it now.

Devilboy 14y ago

> Does the cost of mining one BTC influence the price of one BTC? Difficulty adjusts automatically to match the total mining hashrate - there's always about 10 new blocks mined per hour. So if more people are mining the difficulty goes up. What is changing is the number of BTC you get for mining a block. Currently each block is worth 50 BTC. Soon that will drop to 25 BTC. If many people find mining to be uneconomical they will stop their mining rigs and the difficulty will drop. What will change is the influx of new bitcoin into the market, instead of 500BTC per hour we'll get 250BTC per hour (on average). Will that make the price go up? Maybe.

mrb 14y ago
The system targets 6 blocks per hour, not 10.
nikcub 14y ago
On that note, has anybody heard of any data or estimates on the proportion of Bitcoin mining that is done with botnets? I keep hearing that a large proportion of the bigger botnets in the world are being used to mine Bitcoins (when they aren't being leased out for DDoS attacks). That changes the economic dynamic since the cost of mining is the cost of assembling the botnet (ie. cheap)

pixie_ 14y ago

The cost of mining doesn't influence bitcoin price because creating 50 new bitcoins isn't going to inflate the currency by any perceptible amount. The price does influence those who might want to get into mining. Eventually no new bitcoins will be generated from mining. At that point miners will make money solely from transaction fees when creating a new blocks.

oillio 14y ago
50 new bitcoins are created every 10 minutes. That is 7200 coins a day, 2,628,000 a year. This is massive inflation and definitely has an effect on the currency. No one really knows what the effect of halving of the mining rate will be. The currency is young, relatively small, and not yet very efficient (from an economic standpoint). However, everyone know the event is coming up. It MAY already be priced in. We won't know until the end of the year. There is a small risk that this event may cause some disruptions in the underlying bitcoin infrastructure, however. The idea goes: Many miners are running full tilt going into the event. They know their income will half, so they want to get as much out of mining as possible before it happens. This drives up the difficultly level. After the event, many of these miners may drop off as their operations suddenly become unprofitable (they are already running at the edge of profitability by revenue per kilowatt hour metrics). When the miners drop off, it takes some time for the difficulty level to adjust (up to two weeks). Before the difficulty level adjusts, the time between transaction blocks will begin to grow, which slows down the confirmation of transactions. In a worse case scenario where a large volume of processing power leaves the network simultaneously, it could take several hours to get transactions confirmed for a few weeks after the event. Will this actually matter, or even be noticed? Again, noone knows for sure.
- wmf 14y ago
  People will be replacing FPGAs with much faster ASICs around the same time that GPUs drop out due to the reward halving. Many people are predicting that difficulty will increase 10x, not decrease.

wmf 14y ago

Does the cost of mining one BTC influence the price of one BTC? The opposite. The exchange rate determines how many miners are willing to compete for each mined BTC. You can see that difficulty tends to increase a few weeks after the price increases (keep in mind that difficulty has a 1-2 week delay built in). http://bitcoinx.com/charts/chart_large_lin.png http://bitcoinx.com/charts/chart_large_lin.png