Bitcoin Forum

Nature abhors a vacuum

Economics abhors a magic machine that prints money.

Here's what the network will look like at the end of 2013.  Here's what the exchange rate will be set (forced) to by ASICminer and the few others fighting over ASICminer's scraps dumping their coins desperately trying to claw their way to make ROI

Incoming hashrates:

ASICminer = 800 - 1000 TH
Avalon Chips = 300 TH
Avalon Batch 2 = 30 TH
KNCMiner=  200 - 400 TH
BFL = 100 - 1000 TH

Hash rate : 1430 TH/sec - 2730 TH/sec

Difficulty : 203396803 - 388302987


If ROI is fast (i.e. meets 100% ROI in less than a year) because exchange rate is good, difficulty will go up to compensate as people want to buy magic money making machines

if exchange rate is sane, difficulty will not go up because ROI is normal, i.e. one year.  This is what is happening now.  This is what will continue to happen.  So let's see what the exchange rate will be to make ROI sane @ 1 year


Marginal rate for plebs to buy hardware (KNC miner) : 17,500$ per TH/sec.

Price of BTC if set by plebs

Low diff: 49$
Max diff: 93$

Marginal rate for ASICminer to buy hardware : <10,000$ per TH/sec.  We'll be conservative and use 10,000$.  In reality it's probably closer to 5,000$, which means halve these numbers.

Price of BTC when set by ASICminer

Low diff: 11$
Max diff: 21$


Asicminer controls the price of bitcoin.  They are the reason the price has dropped.  It is impossible for anyone to get ANYWHERE near their level of efficiency except the ASIC designers themselves.  All of who currently charge an order of magnitude more for their chips than they actually pay for them.  ASICminer can get their chips for pennies on the dollar compared to you, and pays next to nothing for their industrial electricity.

There is nowhere near enough demand to buy coins to make up for the massive amount mined and dumped on a constant basis.  The exchange rate will continue to plummet until the value of dumped coins actually meets the amount of money flowing in for goods and services (practically non-existant at this time.)

And as the price drops nobody who isn't an idiot will consider holding coins as an investment

TL;DR - Unless YOU are ASICMiner, or you got an ASIC already (Avalon Batch #1) - You are screwed.  No, don't buy coins either, the price is going to keep dropping.

Oh, bonus points.  They EASILY have enough hardware to 51% the network.  They could break 75%.

reserved

Not sure where you're getting these numbers from but the hash rate will be much higher than that considering that 400 TH is only 1k jupiters, and knc probably has atleast 1k jupiters and 1k saturns on order and then some.

What is the supply of new bitcoins created each day/month/year?

Can you compare this with the amount of coins traded each day/month/year?

How do the numbers compare with grant of stock options and insider selling on 'stocks'?

Yes, only the avalon chips are really easy to predict (since you can see all the BTC that went to the address) so the rest is kind of a guessing game which creates a large range

however as you can see, with the insanely cheap marginal cost that ASICminer has, the $/BTC range drops

25 coins per block, 6 blocks per hour, 24 hours per day = 3600 coins per day

3600 coins per day * 70$/coin = $252,000 of inflation (printed money) per day at the current exchange rates

The market couldn't bear the 100$+ exchange rate (aka $360,000+ per day) so it is readjusting to account for it.


I don't have the numbers offhand, but trading volume has fallen dramatically with MtGox troubles and elsewhere.

The bigger problem  is this : the vast majority of people bought BTC because they thought it would go up, that it was an investment.  As the price drops, that becomes less and less true.

Asics are no Asics, always 3600 coins a day, until the next halfing...

People liquidiated tens of milions of $ to buy asics.  They need that money back.  

GPU miners actually held coins, and they were fighting the price of electricity which placed a cap on difficulty.  GPU miners on several occasions turned off their gpus because the price fell and it cost them money to mine

ASICs being so much insanely efficient, even at the max difficulty, electricity costs are only a few % of revenue.

ASICs never turn off.  The difficulty would have to be 100x higher for electricity costs to be more than revenue.  or the exchange rate would have to be insanely low -- like single digits.

The issue is that ASICminer is a company designed to make $, they don't care about bitcoin, they don't want to hold it.  and they can easily muscle everyone else out, and unless they stop selling, $:btc will not go up.  They are fighting a war on the marginal costs and benefits versus everyone else, and nobody can compete.

What do you think would have happened if every single coin that was mined over the last 6 months was sold?  Price would have never exceeded 50$ or so.

Remember when people said that rise in hashrate caused a rise in price?

Now everyone is saying the opposite.

The reality is the hashrate has no effect on price whatsoever!!

You assume all miners have the same intention of coins.

GPU miners held coins.

ASIC miners sell coins.

The market is so small that the 3600 coins per day mined has a massive effect on it.

Also the whole "hashrate vs price" argument only applies when it was straight GPU miners.  That was a completely different ballgame, since

1. costs to entry were an order of magnitude lower (if not outright FREE)
2. cost of electricity was very, very significant.
3. marginal costs of hardware were the same for EVERYONE.  
(It was an even playing ground, since AMD was the one who made the chips and charged an equal middle-man fee to everyone.)

About 2.3 million coins were traded in the last 30 days if my calculations are correct (as per Bitcoin Charts).

3,600 x 30 = 108K new coins.

So,

2,300,000 vs 180,000

Much less than 10%. It's not insignificant, but only one factor in the decline. Not all new coins will get traded either.

Traded for USD?  I'm not talking about BTC<->BTC.  We're talking about people buying coins with $.  It sounds like 2.3M were the number of transactions on the blockchain, which is a meaningless number.

and even USD -> BTC doesn't mean much if you can just reverse it. What we need is the amount of $ flowing in, but nobody knows that except Gox

^ Volume #s estimated from here:

http://bitcoincharts.com/markets/

I would not be at all suprirsed to find out that the majority of USD going into BTC was just to purchase ASICs (Avalon chips, Avalon Batches, their assembly, etc).

Since the market is so grim, nobody wants to buy those anymore.  The transient money flowing in (just to buy miners) stops, and $:BTC falls because it was artifically high due to the few select vendors (Avalon, etc) only accepting bitcoins

this is also why asicminer requires BTC to buy his hardware.

It forces you to buy his coins at a higher price, and then he sends you hardware.. which is less and less of a good idea as the exchange rate falls when nobody is buying mining hardware

tl;dr - bitcoin only used to buy bitcoin miners.  vicious circle

ASICs are made & bought with one goal in mind: Profit.  If those rigs are profitable in dollars, it's stupid for the manufacturers to sell them.  If you have something guaranteed to make you 2 dollars by tomorrow, you don't sell it for a dollar today.  Not unless you're strung & need a fix.  So, unless ASIC manufacturers are junkies or fools, they're selling their rigs because:
A.  They know the rigs won't recoup their cost in BTCBTCBTC with the number of them on the market & accompanying growth in difficulty.
B.  They know the rigs will recoup their cost in BTCBTCBTC, but by that time the value of BTCBTCBTC will fall, so the $$$ cost won't be recouped.

Not sure what the other alternatives are, considering no one seems to need a fix. ???

You're forgetting that selling hardware is legally, financially, and technically much, much dimplier than operating a miner which could conceivably by an international money transmitter, have to go through AML laws, all that bullshit.

Selling chips is a significantly safer, simplier and better way to make money.  And FAR less risk, even just economically speaking.  Avalon makes >1000% profit on every chip they sell

Also, they'd have to compete with ASICminer, who has 1000 TH/sec coming online by the end of 2013.  Not easy to do.

Very interesting thread.  Makes me wonder why people, other than those who have sunk thousands into mining rigs, hold tight to the whole mining process at all.  Premine -> Consensus -> Problem solved.

Are you suggesting there's a better method than mining?  It's like democracy, it's the best of all available options, even if it's shit.

I'd argue the only better way is to use an algorithm that would somehow be inherently low barrier to entry and harder to centralize, maybe like scrypt, but preferably CPU only or something

I thought Asicminer was mining online already -- so the expertise & legal liability's there already, scaling doesn't seem to be much of a problem (if you're printing $$$, you're f8cked about the same if you're busted for 100,000 or 100 mil.)
 

True, once the r&D & tooling up's done, it's all profit.  I think you've missed my point.  Maybe not.


Thought they were already up & mining?

There's always a better way.  Eliminate mining altogether.  The only purpose is to prevent double spending and that can be achieved via consensus as Ripple is doing.  The obvious downside is how to fairly distribute the currency.  A challenge yes, but one that is easier to solve than the compounding mining problems, that will ultimately destroy the currency anyway.  At least, that's how I'm reading your posts.  I could be way off on my understanding though.

they are, they operate out of china i believe, and are trying to set up off-shore operations because they're worried about the authorities

indeed, governments are a risk to ASICminer.  But bribes can work well in this regard

IMHO these ASIC-folk have ultra-incentive to purchase loads of another pumpable coin w/ same hardware (thinking PPC, as ltc is asic resistant atm) before a 51-atk on BTC... Lots of USD to be made doing that...

Has anyone thought of this? What are the protections?

How do you do it without centralization?

How can you make this generalization?

Why would ASIC miners sell their coins more than GPU miners?

Remember that BFL customers bought their 60GH/s miners for just $1299 (including shipping!). That's the same price as a pretty decent GPU mining setup. The Jalapenos were roughly 1/10th that price.

Avalon batch 1 paid about that much too. Avalon batch 2 was just a little more expensive depending on when you bought.

Why would these miners be more despearte to sell their coins?

I mine with ASICs (my first Avalon arrives on Monday) and I have no intention of selling off my coins, at least not for while.

1.  Figure out how to fairly distribute all the limited currency
2.  Make it open source

I'm not saying 1. is easy, but with all these smart people there's certainly a way...one that would be far easier to solve than all of this mining nonsense.

How do you do the "consensus" that ripple does without centralizing it i mean.

Bitcoin/*coin does the consensus by mining power.  But without block or transaction fees, there's no incentive to run the mining network. 

1. is impossible so please stop this ripple propaganda here. nobody wants it.

I think were just seeing the deflation of the bubble as hype has died down the amount of dollars offered on exchanges to buy coins has declined precipitously.  This graph is the single most important graph for understanding BTC.

http://www.bitcoinx.com/charts1/depth_mtgox.png

The value of BTC is almost always equal to the dollar depth divided by the coin depth, as coin depth increases or dollar depth declines then the exchange rate will fall.  Dollar depth peeked in mid May and has been on a steady decline punctuated by some sharp drops and then a temporary bulge during the Gox withdraw black-out.  Coin depth was in decline right up to the day of the peak and has been rising steadily since late May.

In the end the value of BTC is determined by the daily flow of dollars willing to invest permanently in BTC.  At the start of the year before the latest bubble that figure was around $100,000 and maintained a price of ~$15.  The sustainable price is directly proportional to the sustained investment rate divided by coins offered, but it is very likely that only a tiny fractions of new coins are being offered for sale and virtually no old coins.  Their could be some effect if ASIC miners are more or less inclined to sell their coins then GPU miners but if anything I suspect GPU miners had to sell more due to their high marginal electricity costs and the primary driver of current exchange rate declines are on the demand side.

This is a question that is amenable to study, just identify coins mined by ASIC miner and compare how many of them have passed through an exchange vs the remaining miners.

So thinking about it the real issue is that the middle man markup on ASICs from TSMC, as well as the massive economies of scale on PCB assemblies, means it's exceptionally difficult if not impossible to come anywhere near AM on hardware.

That's not even to get into their electricity, so they currently have ~110nm asics which are less efficient than the 65/28nm that should be hitting the market, but i bet they pay ~0.03c/kWh which pretty much evens the playing field.

If they go to 65nm or lower, it will probably be to make their $ / TH/sec cheaper.

It isn't obvious that mining is a fair way to do it, or that fairness is even a problem. You can't continue to sell something for more than it's worth.

Thanks for the original post - I was wondering why is the price going down for some time...

As I read through the whole thread - would not the solution to this problem be if we changed the alghorithm behind Bitcoin so those ASIC can't mine it and everyone had to downgrade to the CPU or at best GPU level?

I thought that this is built-in procedure if anything goes wrong (ie. 51% attack, some vulnerability found etc..) and OP says ASIC is waaaaay over the 51% atm so it might be a good idea to put ASICs out of the game.

See this thread:

defending ahead the p2p nature of bitcoin - blending hashcash & scrypt (https://bitcointalk.org/index.php?topic=180020.0)

There's no need to push out the ASICs, just to make sure Bitcoin stays distributed, instead of serving the interests of a small group. The existence of ASICs isn't inherently bad, they can prevent other forms of misbehaviour, such as a voting-based Bitcoin that imposes taxes.

I'm so sick of these "price is dropping because of X" bullshit threads. Price is dropping because it had no business being $150+ in the first place. It's way too early for that kind of valuation compared to actual current use as currency. It was a BUBBLE, and bubbles always pop.

It's my understanding that centralization only occurs if the network is closed source.  The only trick - and granted its a big one - is how to fairly distribute all the currency.  


Exactly and as soon as it's no longer profitable to mine, people will stop mining and the network will collapse. Remove the need for mining and you remove all the negatives that go along with that.  Consensus in Ripple's case (which just happens to be the only one to reference to) is done through the nodes on the network being in agreement of the ledger, thus mining is no longer necessary.I'm not saying that the answers are all figured out.  I'm simply saying there are always better ways to achieve a goal and conceding to mining as if there is no other way, defies ones belief in human ingenuity.  

Thank you for posting the link to that discussion - I read through the topic and I understood some of it (it's far too crypto-technical for me even thought I'd say I'm a power user).

If I understood it correctly there is intention to do a split so two alghorithms are used at once at rate of 50:50? It might not be that bad idea, right?

If you are sick of it then why are you here reading it?

What is in your opinion fair market price then?

Edit: Btw. unless I hear from you a reasonable reply you go to my special list.

It sounds like a good idea to me, though it is too early to tell whether it will be necessary. Right now it's probably not a viable option, because most Bitcoin users would prefer not to have a fork and because the fact that it isn't self-evidently necessary would likely cause a fork.

Changing the protocol isn't an option, that just kills the coin entirely. 

I'm sick of the "Price had no business being 150+" threads. What would be a fair price for a random unit of a currency backed by ... nothing?  No economy, no product, no army?  This is so frickin' arbitrary.

There WAS a psuedo-floor to the price with GPUs, namely that many miners would not mine if the cost of electricity was more than the current market value of the coins they would get.

this did not set the exchange rate, but it did have a massive influence on people buying hardware, if not outright operating it.  people buy miners when ROI looks good, and GPU miners they would turn off if price was too low.

but ASICs are so power efficient, that this "price too low" is like, 3$/coin.  so the psuedo-floor has fallen dramatically.

So basically, if the price fell below price of electricty, people had to buy coins, they couldn't mine.  But why were they buying coins?  #1 - Because they were buying BTC Asics, #2 - investment, price going up.

Since ASICs basically will never turn off, anyone with them will keep them on all the time.  If you have an asic, you won't buy coins.  but the bigger problem is with the void of people no longer buying BTC for miners (or anything else) the exchange rate is going back to normal.  which only further puts pressure on people to sell coins to meet ROI

How is that a pseudo-floor? The causality appears to run in the wrong direction for that.

It's a psuedo floor in the sense that if you have a GPU, and it costs you 300$ to mine 200$ worth of BTC, economics dictates that instead of doing that, you'll buy 200$ worth of BTC and save the 100$.

But it's unclear how this will work with ASICs since so few people have them compared to GPUs, and for probably several years they will always make more $ than they cost in electricity.

The central bank create the fiat money and lend them out, those money will finance different project to create job/product/service and improve the economy

But as central banks in bitcoin economy(miner), they create the money but sell them in exchange for some other foreign currencies, because currently the bitcoin's value is too low

FED print 2.8 Billion new USD each day but bitcoin generate only 3600 new coins, how could this amount of coin drive any significant economy activity?

Because USD has orders of magnitude larger trade volume and use than BTC, i wonder what it looks like if you compare the 2.8 B USD to the total amount of USD in existence/circulation, and the 3600 coins compared to the total amount in existence/circulation

Throw a paper BTC wallet worth $1000 USD on the ground in any country and then throw a $100 USD bill on the ground next to it and see which one people "kill" each other to get to.

When the day comes that they go for the paper wallet, you can start comparing BTC to USD.  When the day comes that you can put a $100 wallet next to $100 bill and they go for the wallet, BTC will have won.  

Until then, King Dollar reigns supreme.   8)

angry gpu miner confirmed.

Basically what OP is pointing towards despite his strange numbers, is over saturation. Anyone that has played an MMO and knows how a virtual economy works this is the same exact thing. More coins and not as much demand equals low value. As demand rises and coins disperse amongst the market, price goes up (Difficulty is the big player despite what people think). However the key factor is demand, if there is no demand/trade. There is no value, thus it continues to fall. This is parallel to the market I have projected towards BTC. Problem is, this is the key part and if it goes wrong. My whole idea is out the window.

Rigggght so all that asset protection literature no longer exists and now it's only miners that set price. You think those goldbugs have just disappeared from the planet and now they invest in stocks and bonds. Its not like anyone with money won't be interested in something finite and easily transportable. And a 10 million investment in ASIC, isn't that 1 dollar rise, so if a billion was invested in ASIC that'd explain the 100 dollar valuation!

price dropping is shaking out weak asic
holders as people hold longer and hash rices so will price. As asics get cheaper the incentive to hold will be higher so we are finding the equilibrium between cheap
btc and cheap asics through market price discovery. I already predicted all of this to happen so lets see how it keeps playing out.

It is this simple, and there is no need to make overly complex assumptions. Roughly 3,600 new coins are created every day. There must be demand for 3,600 new coins every day for price to stay steady. We just fell off a period of massive amounts of panic buying. Most panic buyers have sold out at this point. However, for price to rise again, we're going to have to wait for more infrastructure and useful functions to come out of bitcoin. And they are coming. Patience is a virtue.

http://thegenesisblock.com/significant-merchant-improvements-planned-for-bitcoin-v0-9/

Heheh.

Not true, it will only dissuade those who were looking for a quick buck. If you believe BTC will be very valuable ten years from now, or at least has a decent chance of being very valuable, then lower prices may in fact lead you to spend more fiat money on buying BTC than you might otherwise have.

Agreed, and thanks for the link!

+1

& approx 3600 BTC / day is one of the fundamental. It was the case when there was only CPU mining or GPU mining and it will be the case when there will be just ASIC miners. I understand ppl are upset because they don't have the same income what they had earlier. It is an evolution, be part of it or... Just use your hard earned coins (trade, purchase, hold-on, etc.) and see where the price will go...

Don't forget you joined to this club because you believe in it (not the price but the idea). If you lost your faith you can leave at any time.

I'm not arguing from a fundamental value perspective, sorry if my original wording was a bit harsh. What I mean is that from a technical perspective, seeing how quickly the price rose from say $30 to $150+, it was pretty clear from day one that this was a bubble. At least clear to me, been watching other markets for a few years and I've seen this movie before. Exponential rises never end well in the short term.

So from that technical perspective it's "natural" that we deflate back to eg. $30-$50 for a while, it doesn't need any external explanation. It also isn't necessarily bearish long term for Bitcoin.

My prediction is that price will continue to drop until the market will be overwhelmed with asic meaning everyone could buy them without waiting in line for preoder. The difficulty would sky rocket and price would increase once more.

I mostly agree with you, and sorry for the flip reply (my fail attempt at humor), but what i honestly don't get is why why valuing Bitcoin @ $30-$50 is any more realistic.  Regardless of how i feel about SR, it's Bitcoin's single "revolutionary" product  -- the only business for which Bitcoin is essential, the closest thing to an underlying economy.  There's simply no other metric i can think of with at least a veneer of credibility.  The rest, like ASIC-driven & speculation economies, are nothing more than turtles all the way down. :(

Sorry, but the whole " backed by ... " discussion is such bullshit.  The only reason something needs backing, is if it is inherently crap to start with.  Fiat notes needed backing with gold because otherwise people that were used to using gold or silver as money before wouldn't have trusted them, as they would have been perceived as the Monopoly money that they are.  Infinitely printable Zimbabwe notes....
On the other hand, gold, silver and bitcoins are valued based on their properties, and how well they can serve as money or a store of value compared to the alternatives (+the non-monetary uses for silver and gold of course).

Fiat money is not backed by gold, that's how it differs from representative money.  Folks trust it just fine -- all the money in the world, including Bitcoin, is fiat.  With Bitcoin value halving in the past month, it may be unwise to draw attention to another dead currency.


In other words, during the last month Bitcoin's ability to store value & its usefulness for commerce has HALVED?  Not sure if that's what i'd call a great store of value   :-\

Ok, I meant to say that currencies that are now fiat used to be backed by gold or silver.  Do you know of any fiat currency that did not have to go through the representative money stage first (or evolved from another fiat currency that had to do that first, like with the euro)?  I am honestly asking, but my guess is there are few examples.
If something is "just fine", then why back it up in the first place?


No, that's just price discovery going on.  Perhaps I should have said " gold, silver and bitcoin are valuable because of ...".

Well, for currencies which didn't start out on gold standard the euro comes to mind.  If you feel the euro evolved from other currencies, which in turn were once on gold standard, i doubt i'll find better examples.  Even if we assumed that all fiat was once representative, establishing lineage is no more than saying that all electronics once ran on vacuum tubes -- that's what was around at the time, now toobz are pretty much displaced by silicon chippery (or MOS or whatever), and thoughts of bringing toobz back are romantic but impractical.  

But that's cutting too wide a swath for representative money.  Kubla Khan* issued pure fiat paper money way back when.  It was backed by Kubla Khan.  It worked.


The problem with "price discovery" of a currency is no one knows when it's over.  Unlike haggling & auctions, there is never a point at which a price is established & transaction made.  Currencies forever remain in their "price discovery" phase, which makes them sort-a junky if the price fluctuates wildly.

*In Xanadu did Kubla Khan
 A stately pleasure-dome decree :
 Where Alph, the sacred river, ran
 Through caverns measureless to man
 Down to a sunless sea.  ==That Kubla Khan. Coleridge shopped on SR & wrote all about it :)

Exactly. I dont see what the fuss is about. ::)

I would argue that bitcoin is definitely not fiat money. While government law and regulation does influence bitcoin's value and circulation, it does not create bitcoin's value.


Gold's value dropped roughly 33% in the past year. But it's still an excellent store of value. The purpose of a store of value is not typically to be held for a couple of months to make a profit. It is to hedge against inflation. $44 would buy you 1.00 ounce of gold 30 years ago. Those same $44 will now buy you less than 0.04 ounce of gold, even after a massive price drop. At minimum, a 5 year chart should be used to see if something is a good store of value. Bitcoin hasn't even existed for 5 years.

Fiat means simply "decree."  Fiat money differs from representational money by the simple fact that it is backed by nothing but fiat -- decree. 
Real currencies are issued by states, but if you & Fred agree that a shiny piece of tinfoil is worth one toy balloon, you have created a fiat currency.  Congratulations.


I'm afraid that's not quite right.  Gold turned out to be an *awful* store of value, as in "lost 33% in one year" awful.  If you invested in the oft-maligned US Dollar, you would have been 33% richer right now.  Don't repeat foolish things others have said.


No, that's a purpose of an *investment* at best, but given your time frame of a "couple of month," i'd say "scam" is more likely.


An ounce of gold was worth exactly  $416.25 exactly 30 years ago, move your decimal point, you're confusing people.


I think you've been lied to, i'm sorry.  Your gold numbers are off by a factor of ~100.  One frickin' hundred. Two decimal places.  Not in your favor.  Good morning!


Then how could it be a great store of value?@!

Apparently people view "store of value" differently.
Some appear to look at it as "low volatility".
I think it means " the expected value after a long period of time is not lower than the current value".

I think we might have had this discussion before. 

If gold had been discovered 4 years ago, you would say that it didn't have the properties to serve as a store of value?  (or whatever else you believe is a store of value, since you don't seem to think gold functions as one)

You're not seeing the whole picture.  You missed this part of the post i was replying to:

By his own measure, Bitcoin is a nonstarter. :)

Edit:  And sure, if gold was found 4 years ago it would be a godawful store of value.  Worse than it is today.
What do *you* consider a good store of value, so we can start somewhere? Honest question.

Yeah, I totally disagree with the newfound gold thing, but whatever.

What I find a good store of value?  Well, I guess a perfect store of value doesn't exist, people can always want or not want certain stuff in the future, production processes can always suddenly become a lot more efficient etc. .  Honestly, if bitcoin works out and there is no competitor to replace it, I would say it is has the properties to be the best store of value so far, although we are far too early for it perform that function reliable. The best ones I can think of now are gold, oil/gasoline, silver, alcohol, wood, base metals, tobacco, salt ....

What is your definition/example of a store of value?

crumbs,

I was using gold prices from 1972 and blurted that out quickly this morning without proofing. Replace the 30 years with 40 years and the rest is valid. So, you're right, people have different ideas of what a store of value is. And everything has to exist for less than 5 years before it can exist for 5 years. So, how is bitcoin a non-starter? Edit: Even if you look at the past four years, from inception until now, bitcoin has absolutely been an excellent store of value. Maybe we can just agree to disagree.

I'm pretty much with you on the store of value, all of the things you listed (i have problems with gold, i believe most of its value is simply convention, and a dying one at that, now that no one is using the gold standard).  I would just like to point out that the whole concept of "store of value" is flawed -- it implies taking money out of the economy, where it does absolutely no good.  This is a problem with non-inflationary currencies -- there is less incentive to use them -- your money will still be worth as much if you just locked it away in a safe.  Inflation?  Use it or lose it, buddy.  Curbs the hoarding instinct.  Something like that.  As a selfish guy, i don't want there to be a great "store of value," i don't like hoarders :)

Agreed.  Though ASICMINER probably sells most of its coins, not all ASIC miners do that.  Smaller operators who own 1 device are probably not in such a hurry to sell like GPU miners.  The problem is that ASICMINER is controlling too much of the hashrate and makers of ASICS for everyone else just have not delivered enough volume.

At its inception, the value of 1 BTC = 0, so if Bitcoin today was worth only $0.01, it still would be a great investment.  It would be a lousy investment if, after buying it at today's price, it crashed to $0.01, though.  The problem is there's no guarantee that Bitcoin's value will keep going up, or even that it will stay the same.  
I can point to many stocks, let's say AAPL, that turned out to be great investments if you bought at the right time.  Does it follow that I should invest in AAPL now?  
I'm not saying "Bitcoin is worthless" -- it's an exceptional thing.  It's both brilliant & audacious, but so were many things that failed.  Let's hope i'm wrong -- i do.

Wait, are you suggesting that influx of newcomers, combined with irrationality of old school miners, is the reason the price dropped 30% over a few days?  RLY?

I expect difficulty to skyrocket exponentially. We should prepare for this and invest appropriately. PPcoin for instance.

Another very informative post. Thank you so much Impaler.

IMO, Bitcoin is like a living ecosystem.. it is so complex and interconnected that it is very difficult to make the correct analysis on any observation.. difficulty is probably correlated to price somehow, but I'm not impressed by any explanations I've read here as to why (mean that in a nice way, idk either!). I mean think about how much worthless analysis was done on flowers and bees before people understood their underlying connection.

Also I'd like to toss an idea out there: Shouldn't Bitcoin create a "backwards" moral hazard? Bitcoin users may act in ways that are not immediately as advantageous but long term help build bitcoin and thus insure the value and future worth of their holdings? Like pools purposely not hitting 51% because it would devalue bitcoin as a whole.. Maybe Mining manufactures are keeping the majority of their profits in bitcoin instead of converting to usd.. Thats what Yifu (Avalon) said in San Jose. That would mean the 10s of millions $ worth of bitcoin flowing into mining equipment hasn't left the system (yet?) What that means long term I have no idea.