Before you start mining, you need to do some research. It isn't as simple as you think.

Recently, someone demonstrated that they could crack the security of a Casascius coin. The risk is very low now, but at some point, provenance (authentication through a documented chain of ownership) will become necessary for earlier coins.

You are both right. Difficulty adjustments always lag the actual network hash rate. If the hash rate increases, blocks will be found more quickly until the difficulty adjusts enough to match the new hash rate. The rate at which blocks are found depends on the ratio of the hash rate to the difficulty, not just one or the other.


This is a myth. Price does not depend on difficulty. Instead, difficulty depends on price. Looking at your graph, I don't see a lot of correlation, except that both price and difficulty are rising, ...

... and that bump in June 2011. Notice that the difficulty lags the price at that bump. This lag indicates that difficulty depends on price and not the other way around.

Currently, the difficulty is going through the roof while the price has been very flat, contradicting "price grows as difficulty grows". At some point in the next year, the energy costs of mining will put a ceiling on the difficulty that will follow the price, just as it did in June 2011.


Things have changed in the last 3 years. The contribution of the block reward to the bitcoin money supply is getting smaller. The amount of the block reward is less than 5% of the total volume on the currency exchanges. Miners no longer have a significant effect on the price of bitcoin.

I mentioned this to burnside before and he explained that the "pending" disappears automatically after 3 confirmations, but the money isn't credited until a cron job is run.

Mining is not for newbies.

Successful and profitable mining takes experience, capital, and a solid understanding of the economics of mining.

On the other hand if you don't mind spending a lot more time and money to mine bitcoins than it would cost to just buy them outright, then go for it!

Rannasha,
I agree with most of what you wrote, but I disagree with these:


Price certainly does equal value. Price expresses the value that the market participants give it. If it did not, then the participants would trade until it did. This assumes that the price also reflects transaction costs and liquidity.


There is no "right" price. The value you are describing is the present value of all the anticipated dividend payments. That is an excellent way to assign a value, but it is not the only way. Please note that you are forgetting to specify a discount rate. Your discount rate is what might cause your valuation to be very different from other valuations.

Now, this value is not the only thing that affects the price. Competing opportunities such as the price of a block eruptor blade certainly can have an effect on the price of DMS.MINING. If the alternative is cheaper, then people will switch, and then the demand for DMS.MINING will drop and so will the price.

I agree. Bitcoin is totally mainstream now. Bitcoin has been around so long that even my grandmother has a wallet. Bitcoin is so last decade.

Well, seeing how it is right outside of a church, my guess is that it is a naked altar boy running for his life after the priest has done God-knows-what to him.

Actually, in the U.S. it is 3 - 5 years (depending on the state), but the money goes to the state.



edit: added link

This already exists. Take a look at the Mining Contract and Revenue Sharing sections here: https://btct.co/security. Also, google "perpetual mining bond".  A warning: people that invest in these rarely make a profit because they don't know how to determine the value and they pay too much.

I'm curious what actions you think burnside should take.

I don't believe that more information is a bad thing. I believe that requiring more information is a bad thing. In my opinion, regulations should only be applied as a last resort because they generally cause more problems than they solve. Regulations are certainly the worst response to problems like this that are not well-defined.

I strongly disagree. There is no need for this. If you don't trust an issuer or you don't like the lack of financial information, then don't buy the shares.

I sell a lot of bitcoins on LocalBitcoins. Most of my buyers are first-time buyers or BitInstant refugees. LocalBitcoins is the best method if you don't intend to buy regularly, or if you just don't know where to start.

My repeat buyers generally come back for many different reasons: it is convenient, they don't have a bank account, they don't trust the exchanges, they don't trust the banks, they don't trust the government, anonymity, etc.

Hmm, I think you are right. The more someone plays, the closer they get to the expected value. That will narrow the distribution, putting more people on the losing side.

It got Satoshi's name wrong both times (and different each time):

"Created anonymously by the pseudonym Shinto Nakamoto in 2008, ..."

"Shatoshi Nakamoto (Bitcoin’s anonymous creator) argues that ..."

Here is the link:  http://www.marketwatch.com/story/most-secure-bitcoin-wallet-armory-raises-600k-led-by-trace-mayer-2013-09-16

A truly representative poll will show that, of the people that have played, slightly more than 50% have lost and slightly less then 50% have won.
There is no such thing as a "winning strategy", and you can only "stop while you are ahead" if you stop gambling forever.

LOL. You are implying that buying a PMB requires no knowledge or skill -- and that is completely wrong. Most people investing in mining are losing tons of money because they are not doing the necessary research and are generally ignorant of the economics of mining.

By "trollish", I assume you mean posts that say that there is no problem, but other than the posts claiming that lost coins create uncertainty, nobody has yet even stated what the problem is.

Now, regarding the uncertainty argument. I'm not convinced that the uncertainty is really a problem. Knowing the size of the money supply is important to those who manage the money supply, but nobody manages the bitcoin money supply, so the importance of knowing its true value is low.

The scenario where someone discovers/recovers the key to a huge number of bitcoins is possible, but it is extremely remote. It is interesting to note that the plundering of the gold in the Americas by Spain had major economic effects on Europe. The effect would be similar in this scenario.

Also, I want to to clarify that the uncertainty is not caused by lost coins. It is caused by the inability to determine which coins are lost. A fixed block reward does not remove or lessen this uncertainty.

Since it cannot be determined which coins are actually lost, the only way to eliminate the uncertainty of lost coins is to declare that certain coins are lost (whether they are or not), and then make them permanently and explicitly unspendable. The problem becomes one of how to decide which coins should be declared lost.