Indeed.  At a certain point, most coins should become "liquid" again.  A store of value which is never claimed doesn't make sense.
Everybody storing value for a purpose, needs to use that value some day, otherwise it doesn't make sense.
Keeping forever is the same as loosing the stored value.  It would be equivalent to "hide" gold on the bottom of the Atlantic ocean by throwing it overboard, by burning fiat, or by erasing your private keys.

The point is the price.  You want the highest hash rate for the lowest price, and then, if mining makes, say, $5 billion a day (total fiat in bitcoin and one halving, so after 2017 and before 2021), you are going to spend say $ 4 billion a day on hardware and on power, to put $1 billion in your pocket.

No matter what technology, you are going to put those $4 billion a day into the highest hash producing combination of hardware and power.

If new technology is cranking out more hash rate for the same buck, that is not going to change anything: the difficulty will simply go higher, and you are still going to spend $ 4 billion on hardware.  The only thing that matters, is the price of hardware versus the price of consumption of that hardware.  If hardware is going to be very expensive and consume not much at all, that may be a solution, on the condition that that very expensive hardware is going to punch out much much more hash power than the same amount of money spent on less expensive hardware.

A miner will optimize the combination of highest hash rate per bitcoin (or per $ if you want), and will then spend $4 billion a day on that.

So if there is equipment with a hashrate of X for $1000.- and consumption of 1 KW
and there is equipment with hashrate of 100 X for $1 000 and consumption of 1 KW

this will make no difference.

What will make a difference is if there is equipment with hashrate of 100 X for $ 1000 and a consumption of only 10 W

What counts is the price of the equipment over the power consumption.

As long as a $1000.- equipment will consume about a KW, no matter its technology and produced hash rate, nothing will change in the amount of power consumed.


Why not ?  On the contrary !  If that billion chips costs, say, $ 1 billion (prices of today), and you expect to mine for $ 10 million of coins a day (that is to say, you have 0.2% of the mining market share, which cranks out $ 5 billion a day - there are about 500 miners like you),
and leasing the power plant comes to $ 1 billion a year (which is a lot, given the price of a plant), then you spend $ 2 billion, and you will mine for $ 3.6 billion.  Your business is going to crank out $ 1.6 billion a year pure profit.

 

Technology may change the balance in hardware cost/power consumption cost somewhat.

I have the impression that at this moment, the hardware cost in $ and the power consumption in Watt are comparable numbers, which means that, at a price of $0.15 W per KWhr, the price of the consumed power and the price of the hardware is equal after 7 000 hours, which is about a year.
This means that at current technology, if you change your equipment once a year, the cost division between hardware and power is indeed 50-50.  If you change it faster, say, every 6 months, then the ratio becomes rather 66-33, and if you change it every 3 months, it is 75-25.

Now, of course technology advances can be such that the hardware is consuming less power.  However, if you are marginally optimizing your installation, you are not going to buy *expensive* hardware just to consume less.  If you change your hardware every 6 months, say, it doesn't pay to buy hardware that consumes half of the power if it costs 50% more.
On the contrary.  You will go for cheap hardware, even if it consumes more, if the ratio is already 66-33.

Then I misunderstood what you meant with "mainstream adoption of payments and remittance".


If you can Peta hash with a solar panel, then why not Exahash with 1000 solar panels, or Zettahash with a million solar panels, or Yottahash with a billion panels ?

Of course the other factor is the price of the hardware.  I was grossly assuming 50-50 division between hardware cost and power cost.

Indeed.  What bitcoin now needs, is more stability, not more volatility.  And honestly, I think that that is what is going to happen, with all the trading tools around.  No trader is going to let the price surge to astronomical heights without cashing in seriously on that - which will dampen the rise.  In the same way, no trader will let the price drop to terrible depths, without cashing in on that through shorting.  Of course, short-term manipulations, cornering markets, pump and dump and all that will continue to exist.  But the army of traders around the world will actually stabilize prices, and reduce volatility in my opinion - so that only slower motions are thinkable.

If bitcoin is going to pretend to be a reliable store of value, and currency, then volatility needs to go down.  In fact, the price doesn't matter for currency.  It is better to have low and less volatile prices, rather than jumps to $3000.- followed by crashes to $50.-.  That can be fun for traders, but that's no fun if you want to use it as a currency, or as a store of value.  In fact, my opinion is that this would be so much fun for traders, that they will trade it away.

And then, the price will follow the market offer and demand.

I think bitcoin would become much more accepted as a currency if it were less volatile.  And I think that's what's going to happen.

What remains for fiat if all payments are done in bitcoin ??


I already said this: the power consumption has nothing to do with technological advancement, but with the expected benefit from mining, and the price of power. 

You crank up the power consumption until it costs so much that there is no reasonable margin for profit anymore.  Because if you consume less (and have a higher profit margin potentially) your neighbor using the same technology, will crank up his consumption to hash you out of the market.  His profit margin will be lower, but he will win the blocks.
So you will spend more and more resources on power consumption, until almost no profit can be made.  What will stop you, is the price of power.

But if miners get the current value equivalent of $ 5 billion a day, they will be able to consume power for 1 or 2 billion $ a day (it will be paid in coins by then, but it is the current value equivalent).  Well, that's more than half the amount of electricity that is available today on our planet.

There's no reason for them not to go into competition to spend less on power.  No matter what advances in technology.

yes, you're right...

Well, you can define "intrinsic value" as the value an asset would have on the market, if it was only produced, traded and exchanged for the purpose of using it as a consumption good or as a capital good (capital as in production capital), and not as a store of value of any kind.

Bitcoin has no intrinsic value at all, and gold has only a very limited intrinsic value: to make jewelry (in as much as it is only used to be worn as jewelry, and not as an investment or store of value), and a few industrial uses.  Fiat has no intrinsic value either.

The total market value of an asset is the intrinsic value combined with its speculative value as a monetary asset.  For bitcoin and fiat, the total market value is entirely made up of the speculative value.  For gold, it is mainly made up of the speculative value.

But you could think that in primitive economies, cereals could be not only food, but also an intermediate exchange good (money).  As such, a certain quantity of cereals would then be held purely for monetary reasons, which would make their demand higher on the market than if it would only be demanded to make food.  The price increase due to the extra demand for monetary reasons, is the speculative monetary value ; the market price if the demand were only for making food, would be the intrinsic value.

It is a good thing that money has no intrinsic value ; because due to the monetary function, the market price is higher than the intrinsic value, which would damage the real use of the asset.  If cereals would have a very high monetary price, everybody would hoard them, and people would starve because cereals would become too expensive to make food of.

So you think the final S-curve adoption will happen 3 - 5 years from now ?  Will that essentially be 100% fiat replacement ?

Are we then on the two hypotheses:
- (multi-) S-curve adoption
- good money drives bad out (--> no stopping before almost 100% replacement)

What about my problem with power consumption then ?  5 billion dollar equivalent in mining every day...

Yes you're right if they switch off so fast (that is, within just a few periods) that difficulty is not adapted to their switching off.  Then indeed, to get to the difficulty-lowering with a PC, I would still be stuck for a while with a HUGE difficulty as you point out.  As I pointed out already, I was talking about evolutions much slower than the 2-week period of adaption.

We get here an extreme example of what I said, that during difficulty-decrease, somewhat less than 3600 coins are mined per day.  Here, the step in difficulty, if taken at once, is so huge, that this "somewhat less" changes into essentially 0.

I'm assuming all changes slowly as compared to the 2-week adjustments.


I thought it illustrated quite well what I wanted to say.  If difficulty goes down (for a long period), and you look what that means for someone who has been mining, it means that maybe some of them will mine more coins at same power, but at the expense of others who will mine less coins with less power, or some who will even stop mining.  Not all miners who were mining before, can mine more coins at same power !  If some mine more, others have to mine less.  If all of them do the same thing, then it simply means they all consume somewhat less (switching off part of their park) and will mine the same amount.

I was looking at the viewpoint of a random miner BEFORE difficulty went down, and how things happen to HIM. 

That is like looking at a random soldier before he goes to war, and look at what happens to him.  Some will die, other will become victorious.  Just picking out those that will become victorious, and saying that going to war renders you victorious, was in my eyes similar as saying that when you're a random miner, when difficulty goes down, you'll mine more coins.  No.  Some will (like some soldiers will survive and be victorious).  Others won't and will stop mining (like the soldiers who die).

Of course, *until* the next difficulty adjustment, you can mine somewhat more.  But only for 2 weeks.


yes, but that's on a small-time scale, of the order of one or two adjustments.  I admit that I was thinking on longer time scales where these small correction fluctuations are smoothed out.

I would guess that in general, as long as difficulty is for a long time rising, there is actually a little bit more mining (that is, somewhat more than 3600 coins per day), because when difficulty rises systematically, there is each time more than 3600 coins/day mined, and that's why difficulty is adjusted with a lag of 2 weeks.  On the other hand, if difficulty lowers systematically for a long period, there are somewhat less than 3600 coins mined per day, because that is what makes difficulty fall.

But I would expect these to be rather small effects.

I don't know.  If he buys ONE coin at $10 500.- on an exchange, isn't the price at that moment going to spike to $10 500,- for an instant ?
He didn't say HOW LONG the price had to remain above $10 000.-, did he ?  Is 10 milliseconds enough ?

After all, he will have to spend $ 10 500.-, but he will win the bet with 70 coins, which is good for 26 000.- at the current price, isn't it ?

Yes, that's obvious.
You could say that the mining units still running, will mine more coins, while they are consuming the same amount of power.  Only, there will be less units running.

If all miners in the world stop, and I keep my PC running, I mine all the coins in the world and my PC will even consume somewhat more (because I don't even run a mining software right now of course).

The important point is that in order for the difficulty to decrease, miners have to stop mining, or to decrease mining, and will hence consume also less or nothing any more.

My point was that if you considered the CHANGE for a given miner "before" and "after", you shouldn't subselect only the sample of those that kept mining.  The change for those that stopped mining was also a change: namely from mining (a lot) to mining less or nothing any more.

It would be like saying that soldiers become stronger and more victorious in war time.

No, soldiers that survive are maybe stronger and more victorious, but a lot of others died.  If you eliminate those that died, the balance of those surviving is not the "typical evolution" of a soldier in war time.  There are those that are victorious, but there are also those that die.  If you don't count them "because when they are dead, they are not an active soldier anymore", then of course war looks like a fun party for soldiers :-)

But I think we get each other's points.

This becomes nitpicking, but OK.

Consider the fixed group of people who will mine "before" and "after" the difficulty drop.  Let X be a randomly chosen miner in that group.

For some choice X (say, Alice), the production will maybe increase, but for another choice of X (say, Bob), the production has to decrease.  That was my point.  The extreme case is when Bob stops mining all together, and for that special case, you eliminate him from the group.  But it could just as well be that Bob switches off 90% of his mining equipment.  Then he's still mining, but much less.  The case "he switches off 100%" is simply an extreme case of "he switches off part of his mining equipment".

Somebody has to switch of mining equipment to have the difficulty go down, otherwise it wouldn't go down. 

Yes. 

I saw this as such:

10 miners mine 1/10 at an expense of 20 (each spends 2 and produces 1/10).

8 miners mine 1/8 and 2 miners mine 0 at an expense of 16 (lower difficulty).

Those 8 miners spend each still 2 of course, and they mine now 1/8 instead of 1/10, so they "spend the same and produce more", but 2 miners used to spend 2 and spend 0 now, and produce 0.  Those miners "spend less and produce less" (here radically 0).

The *average miner* now still mines 1/10 (8 at 1/8 and 2 at 0), but spends only 1.6 (8 at 2, and 2 at 0).

So the average miner mines the same, and spends less.

The total number of coins mined remains essentially unchanged if difficulty goes down.  
If, as miner A, you keep your machine running at the same power, you will of course mine more coins.
But that has to be compensated by another miner B who is mining LESS coins for the sum to remain the same, right ?
Now, with difficulty going down, that means that in order for miner B to mine less coins, he has to reduce power consumption, and more than proportional to the reduction of the amount of coins mined (as difficulty went down), right.

So yes, some miners, like miner A, will mine more coins at same power, but other miners, like miner B, will mine less coins at much less power.

So on average, your miners are going to mine the same amount of coins, and use less power.  That is exactly what difficulty expresses !

If all miners were to use the same power and mine more coins, difficulty would not go down.
The very fact that difficulty goes down means that power consumption (at equal technology) goes down.  As the total number of coins mined is a given, it means that a miner, on average, spends less power and mines the same number of coins.  Of course, some will mine more and other will mine less.

A good theory is time-invariant, or gives good reasons of why special times are special.
It means that if you have an explanation for something happening now, based upon observations of the past, there are two possibilities:
1) your explanation will be also valid tomorrow, with the data of tomorrow (which will be the result of your explanations today)
2) your explanation is unique and only valid today, not valid tomorrow, and you should have a good reason for that.  Indeed, the same reason that makes your explanation tomorrow invalid, could make it invalid already right away.

This is what I try to point out with the "to the moon" scenario, where people say that people buy bitcoin because the price will rise.  So the theory here is: "people buy bitcoin today, because they expect its price to be 10 times higher in 2 years from now".

That theory should then also be applied 2 years from now, where people will buy bitcoin at 10 times higher prices.  And again in 4 years, where it will be 100 times higher.  And so on. So obviously that theory will FAIL some day: when coins are at $ 3 million, they won't rise 10 times anymore !  So if that theory fails then, why doesn't it fail today !

Now, your theory is interesting, in that you say "there will be one more surge". 

Then 2 questions arise: 

1) why will your theory NOT hold after the next surge ?  What changes, that makes you think that there will still be another surge, that will change after that surge so that your theory "there will be one more surge" will NOT hold after that ?

2) If your theory does not hold after the next surge, then why doesn't that reason apply right now ?  That is, it already applies now, and we've had already the last surge ?

What makes this moment special with respect to the past (we're before the last surge) and makes this moment special with respect to the future (there won't be a surge anymore) ?

In other words, how do you know that there won't be any surges anymore after the next one, and why do you think there will still be one ?

You're right that the proof of the pudding is the eating :-)

Because there will be no "departure for the moon".  If the moon is reached, it will be slowly.


As far as I understand, the previous bubble was a scam from MtGox.  I won't think such a naive manipulation would be possible at such a scale, again.  People learn.


As I pointed out, that market adoption, which is a fundamental, will be obvious, slow, and through merchant adoption.  It won't happen overnight.  You don't wake up a sudden morning to realize that 1% of world economy has switched to bitcoin overnight.
You don't wake up a sudden morning to find out that 10% of the gold market switched to bitcoin the evening before.
This is for $30 000. - a coin.  A "rocket to the moon" to $30 000.- is hence not possible overnight. 
Which means that a surge to, say, $3000.- is not going to go much higher overnight.  You can really take your time to watch.  There's no FOMO.  If you are at $3000.- and you've not seen the gold market being taken over, you've not seen 1% of world economy taking on bitcoin, you know it won't rise a factor of 10.  So it is at the ceiling at $3000.- (hence no hurry) or it will go down (most probably).




The point is that the higher bubbles are, the more expensive they are.  And the money that is looking at bitcoin is also much less naive than before.
Bigger, smarter money won't get trapped so easily in a bot manipulation on an exchange.

It depends how $1000.- is reached.  If it is smoothly reached over a long period of steady rise, yes.  If it surges, no.

One already knows that a surge is not a departure for the moon, but will be followed by a prolonged period going down.
And now one can make profit with that , by shorting.  

If greed is the drive, then it would be based upon the "greater fool" hypothesis.  We all know how that ends.
Point is, the greater fool has already been tested last year.
The higher the price, the lower the expected remaining rise, so the less the greed motive works.

Point is: the ceiling of bitcoin is in sight.  The absolute maximum price of a coin is $3 million.  At that point, bitcoin took over all of fiat, and mining is going to consume all of electricity if it happens soon.

When bitcoin was $1.-, there was potentially a factor of 3 million to win.  That's a huge potential.  Even if bitcoin only takes 1% of that, you still have 30 000 as a gain.  Huge.
Now that bitcoin is some $300, the potential gain is 10 000.  Still huge, for full moon.  Even if bitcoin only reaches 1% of that, the gain is 100.  Not huge, but significant.

If bitcoin is $3000, the potential gain is 1000.  Very big.  If bitcoin only takes 1% of that, a factor of 10.  Well.  A factor of 10, that's not spectacular, is it.  It is a good investment.  Not more.  If you are sure.

1% of world economy, that's BIG.  So the 1% estimates are already very optimistic for the near future. 
This is why the potential for 'greater fool' falls rapidly when the price rises in the few $1000.-.

Bitcoin would then reach quite some maturity.  It is maybe already quite mature.