Bitcoin Forum

The reason I ask is because I'm wondering how close we are to a legitimate value of BTC.  Obviously there's the electrical/time cost of producing BTC, and there is an economy (kind of) behind it, but to what extent is it truly growing?  This would be valuable knowledge to have while trading and considering future BTC value.  How is the economy doing?

BitBrew sales are definitely better each month than the month before. Looks like September will be up about 400% over August, but I really spent a lot on advertising over the same period.

Question: do you keep your sales in BTC or do you convert them to cash?

I would guess bitcoin value today is 99% speculation and 1% trade. There are a few sites that do actual trade, the alpaca socks, bitbrew and a few others, but if you compare that with the valuation of all bitcoins of $35M that has to be (no offense guys) peanuts. 
For now at least, the real question is perhaps how much trade is happening on Silk Road. I have no clue, but its likely more substantial but probably still no where near enough to explain the current valuation.

BTW, the cost of mining has nothing to do with it. THe cost is variable and adjusts to the price of bitcoin.

I keep as much as possible in BTC but do have to occasionally exchange some for USD in order to cover expenses. Unfortunately, I don't make enough at my "day job" to keep BitBrew going out of my own pocket and FedEx doesn't accept bitcoins, yet.

I wish I had a regular rate at which I exchange to report, but I really only trade BTC when I'm so short on cash that it becomes necessary, so it's erratic, at best. I do support other bitcoin merchants when I can, too.

True, Silk Road helps.

I would argue though that the cost of mining has a psychological impact on the value of BTC.  You have the direct electrical cost, the cost of time, and the cost of hardware.  If the cost of mining had nothing to do with it, then the $/mhash ratio wouldn't mean a thing.

Not even that. The cost of mining is not a factor, its a direct result of the price of bitcoins.
Assuming miners act rationally, the total hashrate will level out at a point where mining is marginally cost efficient. Cost being determined by electricity and costs hardware per MH,  and revenue the value those 300 bitcoins /hr are worth. There is no effect the other way round.

Mining precludes BTC generation and its value.  Without mining, there is no potential for BTC to have any value whatsoever because you wouldn't have BTC.

If BTC was valued at zero, nobody would mine.  People mine because they assume the product of the work will be valuable.

I don't believe it's a 1-way street.

Thats nonsense, think about it, when "all BTC are mined", you say BTC value will be zero?


Obviously true. Doesnt prove that mining influences price, its the other way around.


Rational miners mine because the product of their work is at least marginally more valuable than their cost. Which is the case now, and which will on average always be the case, no matter if bitcoins are worth $0.01 or $10.000. All that will change is the number of miners distributing those 300BTC/hour.

Mining influences price simply because mining generates BTC.  Before any BTC were created, someone had to mine them to create them which gives rise to them having value.  To say mining doesn't influence BTC value is wrong because you can't even have BTC were it not for the first miners.  Additionally, mining influences price because of the total amount of BTC available.  That's what fuels the inflation we're seeing right now.  Miners generate more BTC but the economy is not growing as quick as the supply of BTC.  

Your last point seems to concede to the point I was trying to make?  Miners mine because the product of their work has value.  Why did Satoshi mine the genesis block?  There was no reason to mine the genesis block if value only influences mining and not vice versa.  The value of BTC at this point was zero.  He mined the genesis block because mining led to something of value.

Edit:  To put it another way, if mining gives rise to BTC which gives rise to BTC's value, then it's axiomatic that if you take all miners away , Bitcoin's won't have value.  This can be shown to be the case since you need network confirmations to approve transactions, and you cant confirm these transactions if it weren't for miners solving blocks.  If there were 0 miners, BTC value would be 0 because you can't use them...they lose all utility.

I think that trade has a little more than 1% value: You assume less than 350.000$ of trade value, and considering a velocity of 1 and calculating that all the trades was made in the last 5 month that's 1600$/day of trades. There are over 350 web sites that accept bitcoins for almost every thing plus some physical shop/restaurant. That's makes some 4$/day for shop. I think that with this numbers we are at least 5-10% of value for trade and 85-90% for speculation.
Silk Road had probably a lot of high value trades (100's or 1000's of BTC) due to the nature of their products.

Speculations are still to high in bitcoins but things are moving (slowly) toward trades.

Digging gold requires pickaxes. That doesnt mean pickaxes have an influence on the price of gold.
Unless pick axes would be so expensive that it would influence how much gold is being dug up, but there is no such analogy for bitcoin, as no matter the amount miners or their hashrate, the creation rate remains the same. Mining is a zero sum game.


Thats where you are wrong. No matter if I mine alone or 1 billion people mine with 6990s, there is only 50 BTC produced per 10 minutes.



But it doesnt matter how many ppl mine. The creation rate is constant.


Yes,clearly, that doesnt mean it influences the price of bitcoins. Its the opposite, with simple math you can calculate approximately how many miners, or more correctly, how many MH/s  there will be for a given BTC value (and a given electricity/hardware cost per MH). In the other direction there is no relationship. None.


Now you confuse mining for the  creation of coins and mining to confirm transactions. Can we agree today no one is mining for the transactions fees? Im only talking about mining for those blocks of 50 BTC, and even if no one did that, BTC wouldnt lose its value. THe opposite is true, if BTC loses its value, no one would mine. It is a direct but one directional relationship that I can put in a simple formula.

The whole point you are missing that renders all of your points invalid is because were not talking about 1 miner vs. 1,000,000 miners...it's about 0 miners vs. any # of miners.  It addresses each of your points except the first in the following ways:

(The first point you mentioned about pickaxes is irrelevant.  There is only one way to produce Bitcoins, and that's cpu/gpu mining.  Not only are there multiple ways of getting gold without pick axes, but the gold is already there.  There's no 'creation' involved, only gathering.  Gold is like oil wells that haven't been drilled yet. That oil has value because it can be recovered and used.  Without ANY miners mining Bitcoins, no quantity is produced).

1.)  There are no 50 BTC created every 10 minutes if there are 0 miners.  (Not an issue of 1 or 1 billion as you suggested).
2.)  The creation rate is 0 if there are no miners.
3.)  0 miners ever = 0 BTC = no value..................any # of miners = some # of BTC = value

Miners give RISE to value. 

Thats just a stupid argument using hypotheticals while not distinguishing between mining for coins and mining for transactions. The latter is all thats needed for bitcoin to operate., the former is the only reason people today mine and neither has an effect on BTC value. The latter has an effect on BTC transaction costs, but just like mining, in reality the relationship is inverse and ultimately the amount of miners will be a result of the amount of BTC transactions. If no transactions are done, no one will mine. If BTC becomes more popular than Paypal, people will mine to earn those transaction fees. None of this proves your point that mining influences BTC price, it simply does not.

This is not a hypothetical in the sense that the whole argument is based upon that situation.  The question is whether miners influence BTC value.  Take away ALL miners, and see what happens to the value.

Even if it is a case of 1 vs. 1,000,000 the distribution of BTC among those people matters.  You're the one talking about hypotheticals -- "If the price is 'x' there will be 'y' # of miners."  That is a hypothetical proposition.  And the nature of the proposition matters because you are essentially arguing that in the case of 1 vs. 1,000,000 miners, the distribution of BTC among those miners is irrelevant, and it's simply not.  Let's say the price is $4.86, which it is.  Now, lets say you solve the block solo (despite there being 1,000,000 other miners) and you get all 50 BTC.  Let's also say you think the price will continue to decline.  Which would you be more apt to sell?  50 BTC that you got in a down market, or .02 BTC that you got from your pool?  The distribution matters because the amount of BTC in someone's wallet has psychological effects on trading.  Trading influences price.  There are many reasons why miners influence price and there is absolutely zero evidence to suggest a 1 way function here.  This applies in the case of 1 vs. 1,000,000 miners and in 0 vs. any # of miners.

Edit:  Consider this example.
Scenario 1.  You have 1 person with 20,000,000 BTC and 999,999 people splitting the remaining 1,000,000.  This suggests 1 person mining all by himself for a long time and the other 999,999 joining in much later.
Scenario 2.  1,000,000 all have 21 BTC.  All 1,000,000 mine together at same rate starting at the same time.

Do you think the value of BTC will be the same in each case?

YOU ARE WRONG. P4MAN IS RIGHT. STOP ARGUING.

I'm not one for ad homs, but you're an idiot.

Think for yourself.

Edit:  By the way.  It has a psychological effect on me.  And 1 person is all it takes to prove you wrong.  I mine, I influence the price because I trade.  My trades depended on what I had in my wallet, and once it crossed a threshold (my threshold is 1 BTC) then I sold.  If I continued to mine but didn't acquire 1 BTC, I wouldn'tve sold.  But, I mined and it did cross 1 BTC many times, so I sold.  I affected the price.  Hence, miners affect price.

Again, idiot.

heh, I had the very same argument with p4man in another thread and he wouldn't budge. I was being highly sarcastic for his benefit.

By that logic, the sun and the rotation speed of the earth influences BTC price. Take away either  and see what happens to its value.

On average, this is simply not true.  Each 0.02 BTC a miner earns on a block could push his wallet over whatever psychological barrier. And if there are less miners earning more BTCs each, dont forget this implies BTCs are worth less, otherwise there would not be fewer miners. The only reason this would not be true is if miners act irrationally and they are behaving like speculators,  investing dollars or euro's in mining with the expectation of increasing prices. Incidentally such or other speculation is about the only thing defining BTC prices today. The networks global hashrate is a result of this price, its not a factor determining it.

First of all, besides changing the context entirely, what you said about the sun and speed of earth rotation does nothing to disprove what I said.  If anything, you're pointing out another valid example where removal of a cause axiomatically removes its effect. 

Second, I never argued that price doesn't influence the number of miners.  I'm arguing for reciprocal influence.

It's not either/or, it's both.

Christ people, are you realy that dumb and blind?

It . Is . A . Feedback . Loop .

Miners influence price and price influences miners and then miners influence the price etc etc etc..
You guys are trying way to hard to fit this process into a hirarchical control structure.
In fact it is a symbiosis.
No value without market, no coins without miners, both needed to have coins with value.

You really didnt think this through did you? You're basically selling every BTC you earn (BTW, you pay transaction fees on each and every coin, WTF?).
Assume everyone is like you, if there where 1/10th the number miners, each with 10x more hashing power then you, each earning 10x more BTCs each, what do you think would happen? On average, not a bloody thing.  If those 10x less miners only had the same hashing power as  you, what would happen? Not a bloody thing, besides difficulty becoming 1/10th.
In each case the same amount of bitcoins would be mined, the same amount would be sold everyday on average. The only thing you could argue is miners keeping their BTCs for speculation, but thats not different than buying BTCs for speculation. All thats different is that you pay with electricity rather than dollars.

The amount of miners doesnt affect price. Global hashrate doesnt affect price. Global hashrate however, is a direct result of the price.

@Etlase2
Yes, we had the same discussion, except you didnt even realize the amount of miners or hashrate has no effect on the amount of bitcoins mined. Doh.

let's pretend there are not people with hundreds of thousands of bitcoins lurking in the shadows.

Example A:
There are 10 miners who are using their average GPUs to mine a total of 10 coins an hour.
They spend $2 each in electricity to mine those 10 coins an hour.
They all are only doing this to sell their coins and make a small profit.

When they go to sell their coins, they must sell for at least $2 per coin to recover the cost of electricity. (I will ignore the cost of GPUs or what have you for these examples.)
Since they used up time and energy that could have been spent doing something else, they want to earn a profit as well.
So each of these miners wants to sell their coins for $3.

10 coins an hour are added to the market with a sell price of $3.

Example B:
Now imagine there are 20 miners with their average GPUs mining 10 coins an hour.
They each spend $2 in electricity.

Everything else being the same, they only earn 0.5 coins, so their 0.5 coin is worth that same $3.

10 coins an hour are added to the market with a sell price of $6.


The number of miners affects the price. Yes, the price also affects the number of miners. But the number of miners is a baseline to go by, ignoring supply or demand of the people who aren't mining.

Since miners make up 60,000 people, you should be awfully careful when saying what they do has no affect on the price of a bitcoin. Not to mention any NEW currency all comes from them, whereas the rest is money that is tossed around by the same people over and over.

If half the miners decide bitcoin is stupid and drop out, the price of mining for coins has just gone down and the price of buying bitcoins on the market will follow.

You still dont get it. The global hashrate adjusts to fit the cost per MH and the value of bitcoin. There isnt going to be a 2x difference from that, or people would lose money for every hour that they mine. If your point is that some might do that anyway hoping the price would go up later, then please pretty please consider anyone who is not braindamaged will still turn his rig off, and use the money saved on electricity to buy bitcoins to speculate on future price rise.


Its not a "baseline"? Its a function of the price (and cost per MH). Go check the charts, have you not seen how global hashrate exploded together with the price, and how its slowly dropping now along with the price ? Sure, there is some delay, bringing rigs online or getting them sold or making the decision to pull the plug takes some time, but the correlation is nearly perfect. It should be. And always will be.


Miners mine because it makes money. They quit when it doesnt make money. Yes I am assuming on average rational behavior, then its all rather predictable. What you cant predict are the people who can change their minds and suddenly "think its stupid". Those are the speculators, they could dump half their ownings on the market, or double their positions in a whim. Those are driving the price. The miners, they follow.

If you want to argue that miners are also speculators, speculating with the few bitcoins they mine, which they  could sell or keep, then fine. But as such they are first and foremost speculators, the mining aspect is not relevant. Buying coins with dollars or electricity amounts to the same thing.

Ding ding ding.  We have a winner!  What do we have for him today, Johnny?

P4man, the gentleman at the top of this 2nd page did a brilliant job of simply putting it.  It's a symbiotic loop.

Whether you care or not, right now is the present moment, and the present moment in BTC-land contains BTC price and miners.  The present would not be the present that it is were it not for absolutely every single thing that is right now.

Miners are completely entwined with price.

Nothing is absolutely independent of anything else (that's why it's a relationship; even relationships of absolute independence are included within the medium of interdependence).

End of story.

Can we all agree that when the price goes up, miners come online, and when the price goes down, miners turn off? I think we can all agree there's a pretty strong correlation from price -> miners.

Let's try to walk through the reverse. Assume 25% more miners come online. All miners start putting in sell orders at 25% higher prices. But those sell orders only go through when someone shows up to buy those coins at the inflated price. Miners can't make that happen. Miners cannot create buyers. So there's only a weak correlation from miners -> price.

There's causation from miners --> price

Syke, there is no point arguing. Some people just cant seem to distinguish between miners and speculators. Or rather between mining for profit and speculating. Let them believe in the positive feedback loop and wonder how come prices arent spiraling out of control in either direction.

You're fantastic at analyzing things in isolation.

That method doesn't apply well here.

People are not simply categorized as Miners OR Speculators.

Sometimes they are one, sometimes they are the other, sometimes they are both, sometimes they are neither.

Sometimes they are all of these things simultaneously.  Sometimes they are none.  Sometimes they are both all and none at the same time, and sometimes they are neither all nor none.

Regardless, systems are not the systems they are without their inclusive parts.  In a system that encompasses miners, speculators, and price, all are entwined, and all are interdependent.

Me typing this post influences price.

You breathing influences price.

A man coughing on a goat hair in China influences price.

This is because the Bitcoin system is involved in larger systems.

Isolation will get you nowhere.

Anyone with an IQ bigger than his shoe size would assume in the context of this discussion "miners" means people mining for the revenue of mining. Not people speculating who also happen to run a mining rig.   You butterfly causing a hurricane argument is neither original, meaningful or relevant, but Ill grant you it perfectly fits your "argument". What are you, 12 ?

My shoe size is 200.

And it's not my fault that people assume miners/traders/speculators are mutually exclusive in a value context.

When you isolate a specific context, you may find "oh look, miners don't seem to do much for the value."

Good job.  Now, if the context you considered is 'x,' all you need to do is consider (infinite - x) other contexts or "assumptions."

Edit:  My point:  There are infinite variables/factors that affect the miner/price relationship.  You are aware of a couple of these.  You are largely unaware of most.  You have absolutely no idea about the relationship between miners and price.  All I know is that there is one, and it's extremely intricate.

I would say the largest market where bitcoins are traded for goods or services is Silk Road.