http://en.wikipedia.org/wiki/Straw_manPS - if you actually read the proposal, you will see that there is no built-in "pump'n'dump" scheme. (which of course since it has been done with forks of bitcoin, you can draw the parallel that it is also possible with bitcoin itself) EnCoin is not a fork of BitCoin.
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Production price measures nothing but the investment itself and ROI part. It DOES NOT settle any final price, final price is settled by how scarce or abundant a good is compared to its demand and use.
Production price does not include ROI. The ROI is theoretically what every coin should be able to make, were they able to be sold for today's prices. Scarcity or abundancy is controlled by people with coins. 2-4 CPUs worth mined 1.6 million coins. Whether or not you believe Satoshi is a "rational actor," (I will ignore bringing up the fact that he disappeared -- oh wait) why would you want to place that much trust in him? This starts to look like "the desperate miners section"! Too bad many didn't took to account that their hardware wouldn't be keeping up with the constantly growing btc network hashrate demand.
http://en.wikipedia.org/wiki/Straw_man |
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I have updated the proposal to revision 2.1. It puts a more proper order to the information, and I have completely revised the section on BitCoin. Since it is such a hot topic of discussion in this thread, I will quote the relevant parts here: Businesses commonly make use of a simple calculation called Return On Investment (ROI). If we assume that there was a linear increase of the price to produce 1 BTC (highly unlikely, but simplifies calculations greatly), we come to a figure of $1.80 worth of electricity to produce an average coin. For the sake of including all factors, I will make a gross guestimate that with all of the computer hardware purchased for BitCoins, the average coin has cost $2.50 to produce. This is heavily, heavily weighted on later coins as initial coins were CPU mined, not expensively GPU mined.
ROI is calculated as (Gain - Cost) / Cost. ($4.80 - $2.50) / $2.50. We get a figure of 92%. The average BitCoin sees a 92% ROI at a trade price of $4.80 (as of 2011/09/20, the current trading price is closer to $6). 92% ROI, almost a guaranteed double-your-investment, by turning on a computer and making it do stuff.
Common sense would argue that this is not a sustainable economy. In fact, if we use that $0.70 figure for cost of hardware and add it to the current $3.60 price to produce, we are dangerously close to the $4.80 sell mark.
Couple this with the fact that BitCoins are about to become more scarce when the block award drops to 25 BTC at the 210,000th block, the security of BitCoin may even be at risk. BitCoins will either immediately cost $7.20 to produce, or half of the mining network must stop (and that half of the network might just decide to turn against BitCoin), or some point inbetween. BitCoin proponents are hoping the renewed scarcity will cause the price to increase and that they will continue to see exorbitant ROIs.
None of this has even taken into account that the market exchanges offer a very small percentage of the total BitCoins in existence for sale. The total value of the BitCoin network is commonly quoted as being the sell price multiplied by the total number of coins. If that is the case, then the BitCoin network was once worth $30x6.3 million but is now worth $5x7.3 million. Where did that $150,000,000 go? Where is the evidence that it can’t or won’t happen again? 1.6 million coins alone were mined for a total cost of $584. Will a market price of $5 really bear any small percentage of those coins being suddenly added to circulation?
have at my logic |
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That's not enough. You need to have every feature proposed and put it into one really good cryptocurrency for it to be a real replacement.
Well, I proposed what I proposed. I wouldn't expect the system to work as I describe unless everything was there. I'm not the type to go half-way, it's all in or get out. A single tweak alone, especially some money thing is lacking.
What do you mean? I am open to suggestions. I intended to start a discussion on EnCoin, not BitCoin, after all. The profit margin will still be there. The security will be enhanced. The utility will be enhanced. It has a voting system. It does not require pools. It has the ability to change for the future instead of being stuck with one paradigm. Demand is still created by destroying currency. The price of EnCoin will increase as fiat currency inflates. I thought I had most of it covered, but as I said, I am open to suggestions. Do you think 2x/1.75/1.5/1.25 award would be the extra push? I'm thinking over a 2 year timeframe. |
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Another coin system based around price. This is the wrong way to do it because it won't work and won't affect the price.
It's not based around price, it's based around a consistent value to produce. Supply and demand will still affect the price like BitCoin. Proposal for possible successor to BitCoin -- EnCoin
You just started with both wrong feet on the title, no need to read more. Move along, one solidcoin was enough.
To quote the proposal: "So what is the incentive to switch from the proven BitCoin? Well, it is relatively simple to connect the two networks so that anyone using EnCoin software will earn both EnCoins and BitCoins. This has been looked at in depth on the message boards and will not be rehashed here, but suffice it to say that it is possible. Instead of the cheap coin bootstrapping process employed by BitCoin, EnCoin will simply award BitCoins at the same rate as usual while also awarding EnCoins. " It's not as if I said, "THIS WILL CRUSH BITCOIN, SWITCH NOW." I am offering an alternative to move away from the dangerous volatility of BitCoin. The market has already shown what happens when small percentages of the overall coins hit a hoarding-inflated exchange. A 420% average coin ROI is not going to last. And 420% is about what it takes for the late-comers to make a profit. You guys can keep putting your heads in the sand, or you can start considering viable, less controllable alternatives. Not to mention all of the other features of EnCoin, not one of which has been brought up in this thread. |
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It seems you're basing the 'value' off of the cost to produce. This is where I disagree. There are other things which give Bitcoin value apart from the electricity invested.
Edit: I'll add, that the 'worst case scenarios' described are at a value of 1:1. This will only happen if the other aspects of BTC cease to appeal to anyone.
In those scenario's described above (where BTC is 320 each), there's a huge value to being able to send value instantly, pseudo-anonymously, globally, without oversight, cheaply. Add that value on top of the 1:1 energy/BTC ratio, and the figures change a bit.
This same value is added to an alternative type of coin that isn't based on scarcity. So all other things being equal, the threat of losing massive amounts of value exists with BitCoin whereas it does not with EnCoin. This "worst case scenario" 1:1 value is a simplistic look. The real, true value of a single BitCoin today is $1.80+ROI. That ROI can be high because of the high initial investment (computers, video cards, etc.) and slow rate of return, as well as the utility of BitCoin. But the return, in general, should be spread to everyone, not more and more early-heavy. It is not a matter of jealousy, it is a matter of economics. BitCoin needs to expand to be secure and to increase in value. Early coins will drag down the value of later coins as they trickle or torrent back into the economy, and it will disincentivize new people from supporting the network. I skimmed this thread... to me, the cost of mining is going to be irrelevant as I believe that more and more, mining will be performed covertly on the computers of the unsuspecting, who don't know they're paying the bill for it. This really doesn't matter as the value is still added, regardless of how. |
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Yes, I am using the bottom-end cost to produce value rather than a hoarding-inflated trade value which is unpredictable and represents a very small portion of the market. Unfortunately I mix the two terms together.
Even so, the point stands. Multi-million % returns on early bitcoins, thousands of % returns on middle bitcoins, hundred % returns on late bitcoins is not a sustainable economy. It requires suckers, and those suckers will eventually dry up.
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At no profit margin, BTC are going for $320 each. 15M coins mined if the reward is 12.5. That's a 4.8 billion dollar market.
24k coins is .16% of 15m
I don't think a 0.16% is going to make that much of a difference? Am I missing something?
Yes, you are reiterating one of the follies of BitCoin. The value of the total BitCoins is not 15Mx$320. That is what this whole fricken issue is about. If we again use the same assumptions as my proposal (which are certainly incorrect, it is unlikely that there is a linear progression of bitcoin value--it is more likely than not bottom heavy, but this would require a detailed analysis of the difficulty levels and so on), the total cost to produce the current amount bitcoins is 7.3Mx$1.80, or about $13M. If we use a linear progression from $3.60 to $320 from 7.3 to 15M, we get $161.80x7.7M or 1.245B. A total of 1.258B (with the first half costing 1% of the price to produce, and the second half costing 99%). 26% of what you estimate the value to be. I don't know how many coins are for sale right now within a reasonable market range, but let's just say it's 100k. That means 1.4% of the market total volume is for sale. With the incentive for hoarding in BitCoin, this should come as no surprise. At 15M, it is not a stretch to use that same 1.4% figure, as coins are much more difficult to acquire, so many more people will be selling, but they will be for much smaller amounts. We can essentially just double it as the number of coins has about doubled, so roughly 200k coins will be for sale at any given time. 25k@$1.80 plus 200k@$320 = $285 (simplistic). Every coin's theoretical value just lost $35. You can't use the price on an exchange to determine the value of the coins. So many are hoarded. If they all went on sale at once, assuming there was enough demand, they would roughly be worth $1.80. 1.258B/15M = $84 while costing $320 to produce NEW coins. So BitCoin value relies on the fact that people will keep hoarding. At some point, greed is going to take over. People are not going to hoard forever. Or hell, maybe a big wallet gets hacked. Either way, someone is going to try to make money, and to do that lots of people are going to lose value. I believe it will eventually cause the collapse of the network. It is an ingenious and neat system, but it is not a proper medium of exchange. Why not promote a system that promotes spending and trade, which actually does create value. Read up on GDP. |
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I suspect that the effect of said sell-off will largely depend on market environment. Funnily enough, I don't. It's not as if this has never happened before. BitCoins were worth $30 at one point, you know. You seem to imply that price of coins shall not rise proportionally (at least) upon subsidy reduction for miners. Yes, that would be a catastrophic scenario (with or withou sell-off), but I find no rational argument can be made for or against it  Should the coin price actually rise, the sell-off's devastation potential shall not be that high (and it seems to me that a significant portion of first-adopters have already cashed out). The price will likely rise, I wholeheartedly agree. It is the intention of the design of BitCoin that the price will rise. But you are wrong about the sell-off's devastation not being high. The price has absolutely nowhere to go but down in a sell-off. If you take my (not so extremely unlikely) example of 1 million people mining 12.5 BTC, you will see that an average person "earns" 0.054 BTC per month at a cost of $17.28 (200Wh x 24 x 30 x 0.12/kWh). This means the cost to produce 1 BTC is $320. Since 54k BTC are produced a month at this point, a 25k sell-off is the equivalent of 333 MILLION BTC-hours of effort. What took 1 million people two weeks to produce was conjured out of thin air by one person. Assuming no profit margin, 8 MILLION DOLLARS of demand was just eliminated from the economy. It is hard to say how the price will be affected, but it certainly won't be in a positive direction. How many times will it take for people to get burned before they stop mining is the question. And once that happens, the security and value of BitCoin goes out the window. |
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Why would the danger of "original coin sell-off" be greater if price of a single coin increases ("people keep buying in") ? Also, "first adopter problem" is people just being sore lol :sigh: I really don't want to turn this into an early adopter debate. The danger of an original coin sell off is greater as the cost to produce a single coin increases because that means it takes more effort to produce a single coin. As it takes more and more effort to produce a single coin, the effect of effortless coins flooding the market is greater. When those coins hit the market, who will want to produce new coins any more? If BitCoins are so popular that 1 million people are mining in the future for 12.5 BTC per block (0.0000125 BTC per person per block), the effect of 25k original coins hitting the market will be, in essence, as if 2 billion coins just hit the market. The market will crash, and 25k is a small percentage of the original amount of coins. In EnCoin, the cost to produce coins will remain stable and the threat of this is non-existent. |
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Wait, weren't people mining before bitcoin got big at a loss? Yes, but to be frank, that small group of people that gradually got larger were getting in at the top of the "pyramid." The only possible loss was a few dollars of electricity here and there. Now that there are 60k people, 60k x a few dollars of electricity is a very large sum of money. I think people will continue to mine -regardless- of the ROI due to some of the (currently) unique properties of Bitcoin. And that's outside the speculative investment of mining.
Some people will, for sure. But to expect the current 60k miners to keep on truckin when the BTC award halves is folly. I believe that EnCoin can piggy-back on the popularity of BitCoin though to provide an actual medium of exchange rather than a speculative investment. BitCoin has exploded in popularity, but no businesses are buying in except (semi-)illicit ones, or ones that provide services to the BitCoin network only. I am not against starting EnCoin with some specific award modifiers such as 2x, 1.5x, and so on for the first X blocks to garner additional interest. These extra coins will reward early adopters, but will not give them the catastrophic power to control the network that BitCoin has endowed its early adopters. The impact of those coins will be reduced across the network as a whole as it gets more popular, whereas the reverse is true for BitCoin. |
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Ahh, I see. You're forgetting the mining rewards drop off. So the ROI naturally curves itself.
I don't understand what you mean. When the mining rewards drop off, the cost to produce new bitcoins increases. This means once it hits 25 BTC per block, you are going to have to convince people it is worth mining bitcoins at $7.20 a pop when they were just selling for $5 a month or two ago, and perhaps still. Every time the cost to produce new BTC increases, those with existing BTC benefit because exchanges make no distinction between a BTC mined for $0.00016 or a BTC mined for $7.20. People mining BTC for $7.20 are going to start looking pretty stupid unless people keep buying in to BTC. And if that happens, the danger of small, original coin sell-offs keeps increasing because they will have a larger impact as the ROI on those coins is even higher. |
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Wouldn't it go
High ROI -> More Miners -> Higher difficulty secures blockchain -> Bitcoin is 'safer' -> More people use it -> price goes up -> Rinse/repeat?
At what point do you think a ROI is sustainable? It wasn't at $30, a 1,560% ROI, it wasn't at $15, a 733% ROI; what makes you think it will be at 178% ROI? If the amount of people mining today were to suddenly double, a bitcoin would cost $7.20 to produce. At a "reasonable" and immediate 33% ROI, coins would sell for about $9.50, or a 420% ROI for the "average" bitcoin's cost to produce. How many people do you think can be duped into this system? Typical businesses attain 5-10% ROIs, so I don't know how long you can get people to believe that this is possible. We're going to see it in action as soon as the BTC award halves and half the mining network drops out (or the price suddenly doubles, which do you think is more likely), making the network half as secure. Instills a lot of confidence in the network, imo. |
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This idea is just nonsense.
There is no other cost for bitcoin that one which it is traded for *right now*. There is no "intrinsic" value, nor are there any difference between bitcoins in different wallets.
Did you miss the whole "cost to produce" section? I should have said that in the future they will "cost" not "be worth" $30 or $100 to produce. If you go by my assumptions, the average bitcoin has cost $1.80 to produce. The average bitcoin is selling for $5. 178% ROI. Not. Sustainable. This gap is only set to widen due to the nature of bitcoin. When bitcoins reach equilibrium and sell for about $2, do you think anyone will want to mine anymore when they cost $3.60 to sell for $2? Or are we going to continue to believe that the only price that matters is what it sells for, not how much it cost to make? |
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This was designed from input with several members of this forum. If you think you can help, please email me at the address in the proposal. It addresses early adopter, 51% attack, double spends, trust, transaction times, and various other issues. It is a work in progress and is only a design document without much hard data to back it up. However, I believe everything discussed in the proposal is possible. The bootstrapping process hopes to succeed by awarding both EnCoins and BitCoins for the same work. Link to the document: http://www.mediafire.com/file/kpe2fibudg8yfrr/EnCoin%20Proposal%202.3.docHTTP link (does not format well in IE): http://pastebin.com/czquukGXSome talking points: * EnCoin is based around a constant cost to produce, approximately 10kWh of electricity. In contrast, a BTC's cost to produce has increased by a factor of 2,250 from the 1st to the 7.3 millionth. * Transaction fees that destroy currency create new demand on existing coins, rather than an ever increasing cost to produce. The fees are required, and they do not go back into the mining pool. * Supply and demand determine the final sell price, but the network is designed so that it will always be moving back towards an equilibrium where a sell price is the cost to produce plus a reasonable profit margin. As fiat currency inflates, so will the value of EnCoins, so it is a "safe" hedge against inflation. This happens because producing new EnCoins will cost more because 10kWh of electricity is more expensive. * Initially, EnCoin will award both EnCoins and BitCoins for performing work on the network. It is possible to piggy-back on the BC network, and EnCoin will do so until some time down the road. * In lieu of dangerous pools, EnCoin has smaller "Network Trusts" that are formed. These Trusts mint coins non-competitively. They agree on what has happened to the network once a day. Agreement is not based on computational power, but by a system of trust. * Transactions are able to be approved and re-spent in under 1 minute. More likely than not the network will support 15-30 second transactions. * Only the most recent block in the block chain is required for a client to be up to date. EnCoin stores the balance of every account in each block. While this may sound like a lot of data, it is much more efficient than storing the entire history of every divisible piece of coin that has ever been used. (My gross estimate is about 10MB for every 500,000 accounts--updated once per day.) 2011/09/21 V2.2 UPDATE: Added more technical details and potential issues. 2011/09/23 V2.3 UPDATE: Moved some of the technical details into the main proposal. Network Trusts, Transactions, The System of Trust, Anonymity, and Why EnCoin have been updated. IRC: irc.freenode.net #encoin |
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You get pretty angry when people threaten the value of your bitcoins, vlad.
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I only meant to point out that while some people are calling bitcoin a pyramid scheme, it's actually the US dollar that much closer resembles a real pyramid scheme, and bitcoin is actually much more solid, in relation to the US dollar.
If you say it, it must be true. |
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Doesn't look that "fine". It's a deflationary currency so we should expect an upward trend and its clearly flatlined (slightly down even) for a while now. Could argue Feb-Apr was similar, but I think we're seeing a downward trend right now.
Not really accurate, now is it? Bitcoin is deflationary in the long run, but at the moment there are thousands of new bitcoins mined every day... The current period in the bitcoin cycle is remarkably INFLATIONARY, and yet the currency manages to somewhat hold its value... Not bad, eh? I'm sure that has nothing to do with 50,000 people vying for 50 btc every 10 minutes vs. 5 people vying for 50 btc every 10 minutes. |
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oh hey look, relegated to a forum no one visits
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My posting privileges were revoked (and posts deleted) simply because I spoke eloquently and vehemently against bitcoin, so really you can't expect too much around here.
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