5 ms·

In some ways the price is tied to the cost of electricity needed to mine a coin. Granted, the mining "price" is usually about two weeks behind the actual price,

by jjcm 14y ago

In some ways the price is tied to the cost of electricity needed to mine a coin. Granted, the mining "price" is usually about two weeks behind the actual price, and the electricity required is variable based on the current sum of computational power being used by all the miners, so there's certainly some disconnect.

nwatson 14y ago
So if I shock a turd with a thousand dollars worth of electricity from my electric utility company, can I sell it for $1,000? Or add some non-intrinsic worth by calling it "art" and sell it for $2,000? Actually, make those figures $1,010 and $2,010 -- my turds also have intrinsic value.
- andrewcooke 14y ago
  no, because throwing electrons at turds doesn't generate currency. in contrast, throwing electrons at a chip does generate bitcoins. that's the relationship being alluded to: there's the possibility of arbitrage between electricity (compute cycles) and currency.
  - gph 14y ago
    You explained exactly what the intrinsic value of the currency is: the usefulness of the currency itself. BTCs have value over turds for use as a currency for many obvious reasons. The amount of electricity it takes to create that currency can perhaps be seen as a price floor, which is perhaps corollary to the intrinsic value, but is not the intrinsic value itself. So if something improbable or drastic happened tomorrow that made the currency not useful (e.g. governments outlawing it, a bug in the code) then the price would fall well below what it costs in electricity to mine it and the currency would become mostly defunct, i.e. it's intrinsic value plummeted because it's usefulness did. tl;dr the intrinsic value is the usefulness of the currency not how many electrons you pump into it (though there is likely some corollary between them)
    - dllthomas 14y ago
      > The amount of electricity it takes to create that currency can perhaps be seen as a price floor, which is perhaps corollary to the intrinsic value, but is not the intrinsic value itself. Cost of production should be a price ceiling, not floor: if I can make it for $X, why would I buy it for $Y >> $X? Edited: To hopefully head off further misunderstandings, by "should" here I mean "it makes the most sense to expect" - not any ethical imperative - and I'm speaking in broad terms, in the long run.
      - gph 14y ago
        Because not everyone is able to hit the same Cost of Production, or wants to put down the upfront investment in equipment, or has the technical know how, etc. If the cost of production was the price ceiling why would anyone start producing? They'd just break even at best. Besides people buy things for $Y >> $X everyday simply for convenience. You could go buy ingredients and make a sandwich for $X dollars, but instead you go to the food truck and buy one for $Y dollars because it's convenient. It's not like food truck guy is selling his product at cost.
        dllthomas 14y ago
        You read me as being more precise than I'd meant it. But it's basic economics that competition drives the cost down toward the cost of production (including labor cost and opportunity cost), and there's nothing in bitcoins that's preventing people from competing. And regardless, there's absolutely no conceptual reason cost of production would represent any kind of floor.
        gph 14y ago
        >And regardless, there's absolutely no conceptual reason cost of production would represent any kind of floor. Well no sane/rational entity would want to sell for less than cost of production because that would entail a loss (let's keep this simple and say there aren't any ulterior reasons one would receive gains/benefits from selling at below cost). Since competition drives the price towards the cost of production it's reasonable to consider it or a price just above it as the floor. Edit: I guess I should state, I'm not trying to say there is a 'hard' floor in which the price can't possibly drop below. I'm more saying it's a relative benchmark for where the lowest price would tend to settle given a healthy bitcoin market/environment.
- kragen 14y ago
  If you do this let me know. I want to buy tickets.
caf 14y ago
It's the other way around. The cost of electricity needed to mine a coin will tend towards the price that coin can be sold for. If the bitcoin price drops significantly, then the least efficient miners will become unprofitable and drop out, and the difficulty will reduce.

by jjcm 14y ago

nwatson 14y ago

So if I shock a turd with a thousand dollars worth of electricity from my electric utility company, can I sell it for $1,000? Or add some non-intrinsic worth by calling it "art" and sell it for $2,000? Actually, make those figures $1,010 and $2,010 -- my turds also have intrinsic value.

andrewcooke 14y ago
no, because throwing electrons at turds doesn't generate currency. in contrast, throwing electrons at a chip does generate bitcoins. that's the relationship being alluded to: there's the possibility of arbitrage between electricity (compute cycles) and currency.
- gph 14y ago
  You explained exactly what the intrinsic value of the currency is: the usefulness of the currency itself. BTCs have value over turds for use as a currency for many obvious reasons. The amount of electricity it takes to create that currency can perhaps be seen as a price floor, which is perhaps corollary to the intrinsic value, but is not the intrinsic value itself. So if something improbable or drastic happened tomorrow that made the currency not useful (e.g. governments outlawing it, a bug in the code) then the price would fall well below what it costs in electricity to mine it and the currency would become mostly defunct, i.e. it's intrinsic value plummeted because it's usefulness did. tl;dr the intrinsic value is the usefulness of the currency not how many electrons you pump into it (though there is likely some corollary between them)
  - dllthomas 14y ago
    > The amount of electricity it takes to create that currency can perhaps be seen as a price floor, which is perhaps corollary to the intrinsic value, but is not the intrinsic value itself. Cost of production should be a price ceiling, not floor: if I can make it for $X, why would I buy it for $Y >> $X? Edited: To hopefully head off further misunderstandings, by "should" here I mean "it makes the most sense to expect" - not any ethical imperative - and I'm speaking in broad terms, in the long run.
    - gph 14y ago
      Because not everyone is able to hit the same Cost of Production, or wants to put down the upfront investment in equipment, or has the technical know how, etc. If the cost of production was the price ceiling why would anyone start producing? They'd just break even at best. Besides people buy things for $Y >> $X everyday simply for convenience. You could go buy ingredients and make a sandwich for $X dollars, but instead you go to the food truck and buy one for $Y dollars because it's convenient. It's not like food truck guy is selling his product at cost.
      - dllthomas 14y ago
        You read me as being more precise than I'd meant it. But it's basic economics that competition drives the cost down toward the cost of production (including labor cost and opportunity cost), and there's nothing in bitcoins that's preventing people from competing. And regardless, there's absolutely no conceptual reason cost of production would represent any kind of floor.
        gph 14y ago
        >And regardless, there's absolutely no conceptual reason cost of production would represent any kind of floor. Well no sane/rational entity would want to sell for less than cost of production because that would entail a loss (let's keep this simple and say there aren't any ulterior reasons one would receive gains/benefits from selling at below cost). Since competition drives the price towards the cost of production it's reasonable to consider it or a price just above it as the floor. Edit: I guess I should state, I'm not trying to say there is a 'hard' floor in which the price can't possibly drop below. I'm more saying it's a relative benchmark for where the lowest price would tend to settle given a healthy bitcoin market/environment.
kragen 14y ago
If you do this let me know. I want to buy tickets.

caf 14y ago

It's the other way around. The cost of electricity needed to mine a coin will tend towards the price that coin can be sold for. If the bitcoin price drops significantly, then the least efficient miners will become unprofitable and drop out, and the difficulty will reduce.