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Currency in itself can never "produce" anything or generate GDP. It is a tool to facilitate transactions. Mining is just a way to generate and at the same time

Currency in itself can never "produce" anything or generate GDP. It is a tool to facilitate transactions. Mining is just a way to generate and at the same time limit the supply of money. When miners mine, they inflate the money supply by taking value away from others who own bitcoins. Instead the activity of Mining should be thought of as minting new coins and miners are people trying to get lucky; similar to how someone mining for gold. Remember even the worthless paper dollar needed to start somewhere.

exelius 13y ago
Currency doesn't produce anything. Currency represents production without actually consuming an equal amount of resources to create. In a system like the US, you want your monetary supply to grow at roughly the same rate as economic production. The fed continually adjusts the currency supply through a number of levers to ensure that the value of the currency in circulation tracks inflation (or long-term economic growth.) Without this ability to adjust on-the-fly, the exchange rate of Bitcoin will continue to be very volatile. There's a reason we don't use gold as the basis of our currency anymore: every time the value of gold rose, waves of people went out looking to dig it out of the ground. They were successful, and suddenly there's a lot more money floating around. But not any more bread, oil or cloth, so a loaf of bread that used to cost $1 now costs $2. With a fiat currency, you have a store of value that is created by decree, not by the efforts of any individual in the system. So now, if there's an gold rush, the value of gold (denominated in dollars) will rise. People will probably go mine more gold and the value of gold will decrease again, but the value of wheat (as denominated in dollars) will stay more of less stable. If you can take $1 million worth of servers, electricity, etc. and are able to mine $5 million worth of Bitcoin, you get the same effect.

exelius 13y ago

Currency doesn't produce anything. Currency represents production without actually consuming an equal amount of resources to create. In a system like the US, you want your monetary supply to grow at roughly the same rate as economic production. The fed continually adjusts the currency supply through a number of levers to ensure that the value of the currency in circulation tracks inflation (or long-term economic growth.) Without this ability to adjust on-the-fly, the exchange rate of Bitcoin will continue to be very volatile. There's a reason we don't use gold as the basis of our currency anymore: every time the value of gold rose, waves of people went out looking to dig it out of the ground. They were successful, and suddenly there's a lot more money floating around. But not any more bread, oil or cloth, so a loaf of bread that used to cost $1 now costs $2. With a fiat currency, you have a store of value that is created by decree, not by the efforts of any individual in the system. So now, if there's an gold rush, the value of gold (denominated in dollars) will rise. People will probably go mine more gold and the value of gold will decrease again, but the value of wheat (as denominated in dollars) will stay more of less stable. If you can take $1 million worth of servers, electricity, etc. and are able to mine $5 million worth of Bitcoin, you get the same effect.