Yes it does. Bitcoin needs up to 3.6 million dollars of fresh new suckers daily, for the price of Bitcoin to remain the same. Why is this so? Because miners have real costs that have to be paid in non-Bitcoin currencies, so they have to sell some on the exchanges.
Why 3.6 million, or perhaps a large chunk of that? Because, mining is basically a perfect competition situation, nobody can stop new miners from joining, and new miners will stop coming only when the cost of one Bitcoin more than the price on the exchange. This guarantees that mining will be a low profit business, and most of the value will be lost to electricity.
Who pays for that (large chunk) of 3.6 million daily? New suckers.
Argument that "paying taxes" gives currencies value is bullshit. It only shows that governments are ubiquitous, and nothing about currencies.
Nobody pays taxes with dollars in Europe, yet dollars have value in Europe, and I see no problems if they were used as a currency in Europe, in an emergency or war or something.
And believe me, if it comes to it, governments would start accepting other currencies as taxes as well. They are not magical currency value giving entities as that first argument would say. They are just a group of people, just as anyone else. And they are greedy just as anyone else is.
What gives a currency value is people accepting it, being government or not.
So, you are expecting a business with such a low barrier of entry to be highly profitable? That's absurd.
You just have to understand two simple facts and some basic logic:
-Anybody can mine, very low barrier of entry (In fact, I really can't think of any other business with such a low barrier. Buy some hardware, plug it in. No customers, no marketing).
-Once you have your hardware running, you don't turn it off until it costs you more than one BTC to mine one BTC.
From those two it follows that no miner will be hugely profitable for a long time, and that there will always be some who are borderline profitable.
"I believe new blocks are created every 10 minutes. Each block assigns 12.5 new bitcoins into the system. So every day there is 144 new bitcoins mined. At about $90/bitcoin, this is about $13k USD. Meaning that the the about $13k USD should be purchased in bitcoin every day."
And you create an error for about each 10 words you write:
-It is 25, not 12.5 -It is 3600 every day, not 144 -That makes the total $324000, and probably not all will end up on the exchanges.
The price of bitcoins is determined by the things that end up on the exchange.
(Ok, some things on this list are duplicate, sorry about that)
So, things that do not (or should not) directly effect the price, simply because no exchange is needed: -transactions inside the bitcoin economy. -roundtripping: buyer buys bitcoins, buys items from seller, seller sells the same amount of bitcoins.
Things that indirectly effect the price: -more vendors accept BTC (more people will speculate and buy bitcoins for future use or speculative profits)
Things that directly effect the price: -buying bitcoins -selling coins -mining*
Mining is creating a constant supply, simply because they have high costs, and this supply, while being constant in BTC, increases with the rise of BTC price. This will always keep the price of BTC in check, at least while block awards are high.
So, the point is, speculators will come, speculators will go, but the miners will always sell.
Yes, I had written is wrong. Not total energy, but total cost of energy spent on mining is a simple function of Bitcoin price and total awards. It tends to some number close to those two multiplied together (price * total awards)
Bitcoin will surely come down from current levels. That's because, there is a constant downward pressure on price, due to mining.
Energy spent on mining is probably the biggest part of total costs of running Bitcoin network. Also, this energy is easy to predict, because energy spent on mining is a simple function of Bitcoin price and average total block awards. This is because mining has very low barrier of entry, and this ensures that as long as it is profitable, new miners will join, until the most inefficient miners are at the break-even point. And the most profitable miners will try to expand their operation.
This makes it that each block costs somewhere around (0.5 * block award * price) to (0.75 * block award * price). And since awards are paid in Bitcoins and electricity is paid in local currencies, this makes the situation that all mining costs hit the exchanges every day, and push the price down.
This can currently be estimated to be $150.000 to $250.000 each day (using price of $90), and this amount of fresh money must enter the exchanges every day, or the price will go down. Currently, this money comes in from "suckers".
At this point we have a temporary delay in the "mining difficulty follows price" process , because of the change in technology and delays in deliveries of ASIC miners, so mining is very profitable at this point, and this reduces the selling pressure on exchanges. This, plus block award halving is why we have this current Bitcoin bubble.
And this bubble will end soon, because of the process described above.
Slashdot Mirror
Yes it does. Bitcoin needs up to 3.6 million dollars of fresh new suckers daily, for the price of Bitcoin to remain the same. Why is this so? Because miners have real costs that have to be paid in non-Bitcoin currencies, so they have to sell some on the exchanges.
Why 3.6 million, or perhaps a large chunk of that? Because, mining is basically a perfect competition situation, nobody can stop new miners from joining, and new miners will stop coming only when the cost of one Bitcoin more than the price on the exchange. This guarantees that mining will be a low profit business, and most of the value will be lost to electricity.
Who pays for that (large chunk) of 3.6 million daily? New suckers.
Show us those formulas, and specifically where they say the Earth is in the center.
It math works, that's enough.
It's promising in the first 25 minutes but then he wedges in "remote viewing" as a fact, and then it all falls apart.
Nothing later explains the world better, no predictions from his model where he puts consciousness into single atoms and similar bullshit.
"...water causes fire..."
Those firemen bastards!
"Iran is now 22nd among the top 25 places of origin for international students."
Yes, yes, but how high is it among the top 100?
" It's true that an adult eardrum can't really hear over 20Khz, but that doesn't mean that the ear can't sense over 20Khz."
No, it means exactly that.
100 W processor will always be faster than 10 W processor. So, no, phones will never replace desktops.
"Why all the interest in bitcoin all of a relative sudden after decades of ignoring all the trade in other virtual currencies?"
You are on Slashdot, and you don't understand the resiliency of a P2P network?
Napster - gone.
E-mule - still here.
What, an article about a copier that changes numbers, yet no picture zoomed on the before/after numbers? WTF?
This was before the exchanges existed.
And who said that it was a pyramid scheme?
Thanks for explaining it. For some reason, bitcoiners miss this fact again and again.
During the first year, core duo would mine about $200.000 worth (if sold today) per day.
Godwin's Law is a new Hitler.
Argument that "paying taxes" gives currencies value is bullshit. It only shows that governments are ubiquitous, and nothing about currencies.
Nobody pays taxes with dollars in Europe, yet dollars have value in Europe, and I see no problems if they were used as a currency in Europe, in an emergency or war or something.
And believe me, if it comes to it, governments would start accepting other currencies as taxes as well. They are not magical currency value giving entities as that first argument would say. They are just a group of people, just as anyone else. And they are greedy just as anyone else is.
What gives a currency value is people accepting it, being government or not.
So, you are expecting a business with such a low barrier of entry to be highly profitable? That's absurd.
You just have to understand two simple facts and some basic logic:
-Anybody can mine, very low barrier of entry (In fact, I really can't think of any other business with such a low barrier. Buy some hardware, plug it in. No customers, no marketing).
-Once you have your hardware running, you don't turn it off until it costs you more than one BTC to mine one BTC.
From those two it follows that no miner will be hugely profitable for a long time, and that there will always be some who are borderline profitable.
When the price drops bellow the cost to mine, they do not stop selling, they stop mining.
And the cost of mining creates no such floor in price, because, when you sell your coins, nobody cares how much it costed you to create them.
"After the introduction of ASIC chips for mining, the barrier of entry has gotten significantly higher."
Not true. Before, any idiot could buy a $150 GPU and mine in his basement. Now, any idiot can buy a $150 ASIC card and mine in his basement.
If you want to see an example of a high barrier of entry, consider starting a gold mine.
"they only need to sell a fraction of the income to pay for electricity."
Until others join and that fraction becomes a significant part.
Where were your big BTC holders in this period?
http://bitcoincharts.com/charts/mtgoxUSD#czsg2011-05-31zeg2011-11-01ztgSzm1g10zm2g25zi1gVolzv
Speculators will come, speculators will go, however, mining pressure will always be there, day after day.
See how your instrument without any yields or dividends does after 8 years of constant selling.
"I believe new blocks are created every 10 minutes. Each block assigns 12.5 new bitcoins into the system. So every day there is 144 new bitcoins mined. At about $90/bitcoin, this is about $13k USD. Meaning that the the about $13k USD should be purchased in bitcoin every day."
And you create an error for about each 10 words you write:
-It is 25, not 12.5
-It is 3600 every day, not 144
-That makes the total $324000, and probably not all will end up on the exchanges.
Look at this chart:
http://bitcoincharts.com/charts/mtgoxUSD#igWeeklyztgSzm1g10zm2g25zi1gVolzv
Right after the start of trading, volume went to 50k per week, and never went below. 50k per week was the old block award per week total.
Look at the period from July 2011 to December 2011. Constant downward pressure.
January 2013, block award halved, this current bitcoin bubble started.
I agree with everything you wrote.
The price of bitcoins is determined by the things that end up on the exchange.
(Ok, some things on this list are duplicate, sorry about that)
So, things that do not (or should not) directly effect the price, simply because no exchange is needed:
-transactions inside the bitcoin economy.
-roundtripping: buyer buys bitcoins, buys items from seller, seller sells the same amount of bitcoins.
Things that indirectly effect the price:
-more vendors accept BTC (more people will speculate and buy bitcoins for future use or speculative profits)
Things that directly effect the price:
-buying bitcoins
-selling coins
-mining*
Mining is creating a constant supply, simply because they have high costs, and this supply, while being constant in BTC, increases with the rise of BTC price. This will always keep the price of BTC in check, at least while block awards are high.
So, the point is, speculators will come, speculators will go, but the miners will always sell.
Yes, I had written is wrong. Not total energy, but total cost of energy spent on mining is a simple function of Bitcoin price and total awards. It tends to some number close to those two multiplied together (price * total awards)
Bitcoin will surely come down from current levels. That's because, there is a constant downward pressure on price, due to mining.
Energy spent on mining is probably the biggest part of total costs of running Bitcoin network. Also, this energy is easy to predict, because energy spent on mining is a simple function of Bitcoin price and average total block awards. This is because mining has very low barrier of entry, and this ensures that as long as it is profitable, new miners will join, until the most inefficient miners are at the break-even point. And the most profitable miners will try to expand their operation.
This makes it that each block costs somewhere around (0.5 * block award * price) to (0.75 * block award * price). And since awards are paid in Bitcoins and electricity is paid in local currencies, this makes the situation that all mining costs hit the exchanges every day, and push the price down.
This can currently be estimated to be $150.000 to $250.000 each day (using price of $90), and this amount of fresh money must enter the exchanges every day, or the price will go down. Currently, this money comes in from "suckers".
At this point we have a temporary delay in the "mining difficulty follows price" process , because of the change in technology and delays in deliveries of ASIC miners, so mining is very profitable at this point, and this reduces the selling pressure on exchanges. This, plus block award halving is why we have this current Bitcoin bubble.
And this bubble will end soon, because of the process described above.
"This issue of "the mob will occasionally decide that some of your money doesnt exist" seems to be problematic."
Your normal transactions will be in both blocks anyway, so, nothing is lost.
Miners will have some of their computed blocks orphaned, but that's just the normal part of risk of mining.
"Currencies when not controlled by the state have always ended up being controlled by the oligarcy; the invested minority."
Especially those that were implemented with peer to peer open source software.