In that case, a DIY physical bitcoin is just a holder for a paper wallet. You don't really need the hologram -- any tape will do. I know that is sufficient for many people, but I was hoping for more. That's all.

Miners will compete with each other to mine the limited number of bitcoins available to them. As long as the cost of mining is below the price of the mined bitcoins, they will devote more resources to mining more bitcoins. The result is that the cost of production as a whole will rise to the value of the mined bitcoins. In other words, it will never cost only $1 to mine $200 worth of bitcoins because somebody will be willing to pay $2 to mine those bitcoins.

Furthermore, newly mined bitcoins are only a small part of the market. The market behavior of miners will have only a small effect on the price of bitcoins. Even if miners gave away there 3600 BTC/day for free, it will have little effect on the the price of the remaining 200,000 BTC/day.

I trust bhCoins somewhat, but with DIY coins I also need to trust all the previous owners.

That is a good point. That is basically how it must work.

Do we assemble our own coins? That would affect the resale value. How do we know that any particular coin actually has a private key, or that the original owner no longer has a copy of the private key?

Agora Marketplace holds your bitcoins. The only way to recover them is by regaining access to your account.

If you accept only coins that are not tainted in any way, then you will find that you can no longer accept any coins because all coins become tainted eventually.

Your paper states that value (as defined by you) affects price, but you still have not described how. What is the mechanism?

Generally, a change in the cost of production affects the price because it shifts the supply curve. Is this your line of reasoning? Bitcoin production is different because the cost of production has no effect on the supply curve.

In the Bitcoin industry, increased efficiency does not lower the cost of production because competition causes the difficulty (and thus the cost of production) to rise. Miners with higher efficiency will increase their hash power, which results in a higher difficulty and a higher cost of production. Miners effectively bid for a fixed quantity of bitcoins. The factor that limits their bids is the price of the bitcoins they produce.

Producing bitcoins is not like producing any other commodity. Name another commodity in which the total production quantity is fixed regardless of production cost.

Sorry. I wasn't clear, or perhaps my point is subtle. You claim that the value depends on the cost of production. I disagree -- the cost of production depends on the value. You claim that as the efficiency rises, the price will fall. I claim that as the efficiency rises, the difficulty rises and the cost of production is unaffected (assuming the price is constant).

I read your paper. It is concise and well-written. You do a good job of describing the economics of mining.


You claim that the intrinsic value of bitcoin depends on the production cost, but nowhere in the paper do you actually present any arguments to support your claim.


These are interesting statements because they contradict your claim that the intrinsic value is the marginal cost. You imply here that if the cost rises beyond the break-even value, then the miner should stop mining (because it exceeds the value of the product), yet if the value rises to equal the cost (as you claim), then there would be no reason to stop.

It is very simple. Bitcoins are just a bunch of numbers, and as numbers they would be inherently worthless, but the ability to use bitcoins gives them value. If you were not able to use bitcoins, then they would be worthless.

The key is that when people use bitcoins, they become more usable for more people. The more usable bitcoins are, the more valuable they become. If you hold bitcoins, the best thing you can do is to use them and buy more. If you are going to pay for something, don't use cash and don't use a credit card. Use bitcoins. There is no reason why people can't hold bitcoins and use them at the same time.

Bitcoins are produced at a fixed rate and are not consumed. The cost of production has no effect on their supply or demand, so it has no effect on their value.

Take a look at Stellar, NXT, and Mastercoin. These three coins have the 2^nd, 5^th, and 8^th highest market caps, and yet their production costs are 0.

It would probably be better to write it like this since M is "fixed":

P = MV/Q

If holding bitcoins supports it, then spending the held bitcoins hurts it. Since nobody holds bitcoins forever (unless they lose or destroy them), the net benefit of holding is 0.

I don't agree with 12345mm, but holding bitcoins is not supporting it. Using bitcoins is supporting it.

While I agree with your first statement that no "rational" miner will sabotage Bitcoin for a short term gain, I don't agree that such an event will necessarily sabotage Bitcoin. After all, only the victim loses. Nobody else is materially affected, and most people won't even notice.

Anyway, back to the original thesis:

Yes, 6 confirmations is not necessarily enough. The number of confirmations depends on the amount of the transaction (or the amount of the fee in your specific attack). 6 confirmations has always been just a rule of thumb.

I don't have a moral objection to people "investing" in bitcoins, but it is not beneficial to Bitcoin. Ultimately, using (or destroying) bitcoins is the only action that increases their value.

Bitcoins only have measurable value when they are used. Bitcoins that are held have potential value, but no actual value. People that hold bitcoins rely on the people that use bitcoins to give their bitcoins value. If everyone held their bitcoins and never used them, then bitcoins would be worthless because they have no use.

People that say "I will never spend my bitcoins!" are lying. If they really intended to never spend their bitcoins, they would destroy them. People "investing" in bitcoins cause the price to rise only temporarily. The fall in the price of bitcoin has been a result of people that bought bitcoins as an investment now cashing in their investment. The price of bitcoin will continue to fall until the level of usage rises to support it, or until another bubble forms.

If you want to invest in bitcoins and also contribute to the increase in their value, then I suggest you do the following:

Despite what you have heard, localbitcoins is generally safe for the buyer.

1. Go with a reputable seller and follow the instructions in the ad exactly.
2. Never cancel the transaction after sending the money.
3. Don't store your bitcoins on the site.

I have never used moneygram so I can't give you more specific information about using it.

Here is more information: https://localbitcoins.com/guides/how-to-buy-bitcoins

In summary, it is better to use a new address every time you receive bitcoins, but it is not required, and sometimes it is not convenient. The biggest reason is privacy.

Blockchain.info lets you create new addresses manually, but most wallets create them for you automatically.