Centralization, the intended vs realized nature of the network, these are certainly factors that will influence the acceptance/adoption/future of Bitcoin.
I still get the feeling that (myself included) everyone is focused on the short term, where everything is mining reward centric. Granted, this makes sense for anyone with money at stake, it is the short term that is making or breaking our investments.
But I am curious about the long game here. Lot's of folks talk about "to the moon" and "Bitcoin can change the world". From a financial perspective, some seem to feel like selling bitcoins at any price that is foreseeable in the near future would be foolish, because it is bound to appreciate greatly as the network grows and becomes more heavily utilized by the general population. I am interested in a technical analysis of mining from that perspective, one whose primary source of revenue stems from transaction fees, not mining rewards.
Certainly, price increases will prolong the effective relevance of mining reward revenue. But eventually, it will be transaction volume/fee percentage that caps mining revenue. If we ever get to that point, a point of widespread adoption, I think it is a reasonable assumption that price will have had to come to some level of stability. I doubt merchants will accept bitcoin on a globally significant scale without price stability, barring some instant, free/low cost, exchange mechanism for converting BTC to fiat.
So with the assumption that you reach a point where the price ceases to increase drastically. And also assuming that by that time, the network has shifted to operate on the lowest cost power available, you are left with two basic variables. Revenue from network usage vs Cost of operating the network at a given hash-rate. This is obviously an oversimplification, as the hash rate will probably influence the confidence in the network, and hence tie back into its usage/overall revenue.
One of these evenings maybe I will do some research and try to come up with some data based numbers, but basically:
1) Assume Bitcoin grows to handle some X % of global economic transactions (X needs to be derived from some realistic source)
2) Define some upper limit Y of % Fee that miners can expect to be paid for handling the transactions (compared against current fees for other payment methods)
3) Assume power costs are condensed down to some minimum, perhaps we call it $0.01/kWh
4) Assume we start coming up against some asymptotic efficiency limit of silicon/efficiency (this number would probably overestimate efficiency, but that leads to a more conservative model)
It should be possible to come up with some model that gives upper and lower bounds to theoretically profitable network hash rate, given a total $ amount of network usage.
If this model was put into some sort of iterative simulation, it might even be fun to integrate other factors in adjusting the bounds.
For example, if globally the network has a total potential hash rate of 10 Exa, but only 4 Exa is predicted to be viable, the existence of the remaining 6 Exa powered down represents a security risk, and potentially negative impact on network usage.
Long winded, but I am just really interested in the long term aspects of mining. I have my $5k tied up in my little apartment experiment, and it may or may not ROI. But whats really interesting to me is if the mining sector is really aligned with the future of Bitcoin, or if mining is simply a gold rush right now, with near sighted goals neglecting to account for the long term viability of the network.
I think you are missing the critical point. Being that Bitcoin is a
decentralized p2p digital currency, that means there is no central authority.
Next point, how is the price determined and who determines it?
Answer: The market determines it.
Question: How is the price determined?
Answer: The price is basically a mesh of the 4-5 highest liquidity exchanges, personally I used a
blended price that averages them all
Question: Do miners control the price of Bitcoin?
Answer: No
Question: Did the miners ever control the price of Bitcoin?
Answer: Not fully but at a time when there were many more Bitcoins to be mined and the price was much higher than the cost of production, the miners had GREAT influence on the price.
Why?: Because they could
CHOOSE to hold back supply and pay bills from past earnings and that would
LIMIT supply and that tends to raise prices.
What does that mean?: It means that because the prices are basically marginal (break-even) on the most efficient miners, miners that are not paying for expenses from sources outside of their earnings and are forced to sell Bitcoins as soon as they can and that puts constant downward pressure on the price (not good for miners). Also there is really nothing that would
FORCE the Bitcoin exchange market to play nice so we could get into a situation where the market could get upside down and the miners would just have to take it.
Conclusion: Satoshi was a great visionary that we owe a great debt to, but he had one flaw in his project. The flaw was
securing a trust network with human greed. This will likely get consensus as time goes on. I know its the hard truth but it needs to be said. I hope for the best but plan for the worse.