I follow your point in seeing that the already Bitcoin-rich might want to to protect their investment by mining and keeping as high a proportion of daily-mined BTC for themselves as possible to prevent them from ending up on the exchanges and devaluing BTC.  However, I agree with you in seeing this as a high risky strategy and I think therefore for every one who decides to go with this there may be another or more who will not.  I don't see this particular strategy having a great influence either way.

That's the dynamic I think is the more likely outcome, as I described above.  Although the proportion of miners to Bitcoin users may decline if we're talking about a huge number of additional users, only a small proportion are required to be interested for the actual overall number of miners to increase.

I'm not sure that 'we all know'.  I tend to agree with you but I'm also listening to the opposing argument.

You are right in that by limiting my consideration to the direct correlation with gold mining, I was failing to take into consideration that a huge number of industries are dependent on raw materials, the supply of which means businesses in that industry are vulnerable to what the competition is doing.

However, I still believe my overall point stands because there is nothing else I can think of which is vulnerable in the sense of your output being entirely dependent on the number of others in the game.  If overnight the total hashing power doubles your production halves.

That's absolutely not true. First and foremost for VCs is risk of losing their investment.  ROI comes second and the higher the risk the higher the ROI and the quicker the breakeven point needs to be for it to be considered.

I would agree if those with serious bucks had good reason when it hit 10000USBTC to believe that it was actually going to stay there and that there wasn't a serious risk of so many others coming also coming into the game that their production would diminish to virtually nothing.

VCs who know what they're doing are looking for something - whether it be a patent, usp, anything to prevent competition from spoiling the party - before they part with their dollar.  As far as I can see, with the exception of the successful monopoly of efficient mining equipment (which I'll get to) Bitcoin mining has none of these.

This is a totally different situation where location, deals (honest and corrupt) with authorities, speculative land grabs and loads of other factors closing out potential competition are what holds fort.  There is no parallel with Bitcoin mining unless, we're talking about someone patenting knockout mining technology.

This brings up some really interesting points.  First what do I mean by 'massive'?  I think I mean whatever's 'massive' to the ASIC gear investor.  I was actually thinking a few tens of thousands but as you say, that's not what counts.  What does count is more than the investor can afford to lose.  And I fear some with successful GPU farms may have a false sense of security about this.  Because whatever it was that was being earned before, nobody really knows how fast or how far the initial difficulty hike will go nor where it will level out.  I happen to think other than for those with a guarantee of getting a significant proportion of their gear very early we really don't know how profitable mining will be.

As for efficiency and overheads.  It is true that your ASICs will cost a fraction of the amount to run per Mhash.  But the point is it's not very different for the person who has just the one Mini Single SC.  Neither when looking at gear nor at power consumption does the bulk buyer have a significant advantage.  It is not in the ASIC sellers' interest to give significant discounts to bulk buyers because every one out of the door is devaluing the next.  They need to extract as much as possible per unit.

My point is that these are not any more barriers to entry for the little guy as they are to the big guy.  It's about as level a playing field as you'll find anywhere.

Maybe you and I are meaning something different by our concept of centralisation.  The two considerations I mentioned in the first post (and above) are i) the proportion of Bitcoiners who mine and ii) the total number of mining operations.  I foresee the proportion going down due to mining on anything other than specialist gear becoming impractical and due to a higher proportion of Bitcoin users only interested in using the currency because it's useful and efficient and have no interest in the 'big picture'.  But as I've also said, if the numbers of users increases enormously not many need to buy something to plug in to mine - just out of novelty - for the actual number of mining outfits to increase.

On the other hand it's proportion of hashing capacity in a smaller number of hands that you appear to be talking about.  That is of interest because if too small a number get close to the 50% mark, as has been mentioned, Bitcoin is potentially in trouble.  I would be interested if there are historic figures on this too so we can see if this phenomenon is increasing, decreasing or fairly stable.  But even then, we'll need to look anew once the initial ASIC rush is over.

My conclusion is the opposite still.
As far as I can see it what someone was doing prior to now has very little to do with what's going to happen next.  As you say, a current GPU/FPGA farmer investing $40,000 has a slight advantage in terms of capital outlay than someone coming into the game for the first time spending that amount.  However that difference will be dwarfed by the unpredictability of what the proportion of the total hashing power that $40,000 will represent and when they'll get to plug them in relative to everyone else.

We simply don't know how many people are going to be buying how much in the next 6 months or year.  These $40,000 rigs may turn out to be immensely profitable with an impressive ROI and short breakeven.  But as many have pointed out, it will won't be far off the same for someone who has just bought a Jalapeno.

Unless the next generation of ASICs comes along quickly and has a similar increase in power/efficiency or the price comes down a lot I can't see why you should need to face a 'go-big or go-home' decision unless you're counting the time you need to dedicate to maintaining your rig.  That's the only reason I can see whilst it remains profitable that you'd want to go home.  Because whatever scale you're at if isn't profitable at that scale buying more isn't going to make it more profitable.  Regardless of where you are between the biggest and smallest your profitability is not going to be far off everyone else's.



OK, so let's address the monopoly thing.  From what I understand it is unlikely the next generation of ASICs and the generation after will have anything as near as the jump we're getting now.  So if there was an incentive to mine with the gear and not sell it it is now.  They do have the advantage that they will have paid for it all already by sales and can therefore afford to have a massive farm without having to repay.  But they're still having to pay the same electricity as everyone else.  Monopolists need a way of: i) preventing others entering the field (which they're not doing); ii) weakening the competition so they can take them over or; iii) put their competition out of business.

Once they've put a huge number of the same gear as they've got (or gear not quite as efficient) out there I can't see how they're going to accomplish any of this.  And...

How on earth is this rational?  Why will the demand have dried up other than because difficulty has got so high that there's not much to be made from that gear any more so nobody wants to buy it?  In which case do you think they're going to rub their hands in glee and start mining with it themselves at that point??!

I don't think data of what has been so far, not for this discussion nor for many others relating to the future of Bitcoin in forthcoming months, can tell us much because what was until now is pretty much all being thrown into the air and we won't know until it all comes back down how the landscape lies.  It's all theorising and conjecture so as much as I might talk like I'm convinced I'm right it will come as no surprise to me if I'm totally wrong!  However, it's fun for me at least being part of the process of thinking our way through the factors involved and coming to our respective conclusions.

So thanks all

I know in the UK if property is seized as evidence then charges dropped you have a certain time within which you may reclaim them - otherwise they are destroyed.  With all the additional protections of freedoms provided by the US constitution I can't see that the rights of the wrongly accused in this respect would be less than here.

Thanks for the clarification cunicula.  I stand corrected regarding the economics definition.  I guess without looking into the mathematical differences it is not possible to understand properly what the difference is?

The problem I have is with this matter of 'intrinsic value' or 'utility'.  Bitcoin is useful, not in industry but as an extremely efficient medium of exchange.  Gold has 'utility' in industry but I was persuaded by an argument I read recently that its value grew (prior to its use as a medium of exchange) largely because it's pretty.  Also that its value grew as a medium of exchange (by some orders of magnitude) because it is soft and easily divisible.  In other words it wouldn't be considered as having anywhere near the 'intrinsic value' it does today were it not for its utility as a medium of exchange.  In common with gold, Bitcoin derives some of its own value for being mathematically 'pretty'. People really appreciate the beauty in its design and because some people become involved for that reason it forms part of the reason it is valued.  It is also, as we all know, easily divisible and for that and other advantages it has over gold, as I said, is a fantastic medium of exchange.  The only thing it's missing is the 'industry' bit.  But I can't see why that disqualifies it.

Maybe the 'intrinsic value' bit comes less out of satisfying certain (possibly arbitrary) conditions and more out of an acceptance of value across the board which enabled it to be used to back paper money?  But I'm afraid I am failing to see the critical distinction between Bitcoin and Gold just because a very small proportion of gold is used to do something that allows it to be classified it as a 'commodity' whereas Bitcoin doesn't.  I certainly can't yet see it as belonging in the same classification as a piece of paper that only has value because someone decided to print something on it and give it an arbitrary denomination.


I think you are being a tad unfair here.  Going to the derivation of a word, to its original meaning and/or using definitions from respected dictionaries is hardly 'randomly revis[ing] language'.  Whilst I am trying to get to the bottom of how economists justify their use of the word I still don't think it's helpful for advocates of either side to be making the other side out to be stupid.  I'm not trying to say economists 'should' see it the same way as I do.  I'm just trying to understand why economists use it as they do.  I had a theory (the corollary one) which now looks likely not to hold so I'd like a better idea.

I'll restate again, what matters most is that people understand that there are two distinct meanings so they know they need to work out, before disputing or agreeing with what somebody wrote, which meaning they had intended.

I agree with all of that.  For the reasons you say I don't think 'fiat' could be defined in relation to whether or not it's 'backed' because it simply doesn't hold water once you start digging (if you'll excuse the mixed metaphor!).  I was responding to istar's 'usual meaning' comment to point out that outside of these circles the 'usual meaning' isn't what most of us here tend to think of it as.  I would not be surprised, should Bitcoin become established enough to be included in economics curricula, that this use of 'fiat' would fade away because in the light of Bitcoin it simply doesn't make sense.

In the meantime I think it's a good idea that we who use it as one thing know that others using the same word (or reading what we have written) may take it to mean something else.  It matters less to me who is 'right' or 'wrong' in this than that we are aware of both usages.

Thanks DobZombie.  It did feel at times when writing it that I was having to go round the houses to avoid using technical terms but I stuck to my original brief and think at least one post here on this topic that contains no technical terms might be useful to some.  I hope it reads a bit better now after the heavy editing than it did when you read it.

http://mbdonationfund.com/images/documents/search_warrant.pdf

Page 6, (Attachment B, 1. n.)

Edit:  Sorry, I didn't spot the irony - but I'll leave my response here for anyone who had missed the bit about the warrant actually specifying Bitcoin addresses (possibly a first).

Thanks for being a good sport, cunicula   Incidentally I was only saying you were insulting because of the specific, though novel, insult ('asshats') you used.  'Lofty' and 'disparaging' (and insulting) were what I've picked up elsewhere on the boards in my short few weeks here - and from talking to an economics teacher friend.

I agree with you (and odolvlobo) that its use in an introductory statement is not helpful.

The penny has now dropped for me that the OP had been edited before I saw it to take out the original statement referring to 'fiat' as recommended by odolvlobo so apologies to you odolvlobo for implying (by my expressed amusement) that you were being off topic in 'raising' the term.

Thanks all,

I'm going to take some time absorbing your points before deciding if it changes my position and how.  I'll let you know

'Usual meaning' is potentially problematic.  There appears to me to be two distinct commonly used meanings for the term 'fiat currency', one of which is the 'normal' meaning for economists who use it to mean an 'unbacked currency'; the other is 'currency used by decree'.  Depending on which you mean, Bitcoin is or isn't fiat.

This does not seem to be an issue upon which people are happy to agree to disagree.  Among forum users here it is generally the latter meaning ('by decree) that is meant when used to distinguish Bitcoin from currencies issued by governments.  This meaning is defended passionately by those looking to dictionary definitions and the derivation of the word.

Then there are those who use the term in its more common usage outside of the Bitcoin community, which I'd guess is also overall the most common (or technically, 'usual') meaning.  I would guess it is for historic reasons that this usage has become commonpace because prior to Bitcoin the only 'unbacked' currencies that could survive were those whose use was by government decree.  They were, and some would argue, still are corollaries.  One could safely use 'fiat' to mean 'unbacked' because all surviving unbacked currencies were also 'fiat' in the stricter sense of 'by decree'.

So whilst those who use it as 'by decree' tend to think it outrageous someone could use it to mean 'unbacked' because it tarnishes the 'purity of Bitcoin' with the same brush as government issued money, those who use it in the more common (arguably sloppy) use in economist circles tend to be a bit lofty, disparaging and even insulting (see above) of those who use it as 'by decree'.

Sorry the whole of this post has been off topic.  I'm just following through from the multiple 'fiat' commentary which is actually quite funny seeing as you didn't use the term 'fiat' in your introduction in the first place.  It only came about in the form of advice not to use it!  Then everybody (including me) stuck our oar in.


***WARNING*** Alarm bells should be ringing when you read or write something like this.  You can not be sure Bitcoin will hold their value simply because scarcity is only one factor of many that determine value (whether you mean in realtion to other currencies or to goods/services).  The scarcity element means it is not prone to the same inflationary pressures as fiat currency but be very wary of believing, let alone claiming, that this necessarily means it will hold its value.

@ nFast,  I am also a newbie so please don't take anything I have to suggest as having any authority.  I am quoting the above back at you because that's where I suggest you put your focus then keep it there for some time.  You have correctly identified that ascertaining the figures for the future is the weakest point of your (and everybody else's) models.  Even the soundest of guestimates may be out by an order of magnitude and the difference this make to the potential profitability of your proposed venture is immense.

Remember that the starting point with anything to do with Bitcoin is that it is not impossible that the exchange rate could drop to the floor tomorrow and take years to recover.  It is not improbable that it could do something like halve and hover there for a while before going...(?).  So if you're buying your gear with fiat money that needs to be taken into consideration.  I happen to believe Bitcoin's utility is such that it will continue to rise overall for some time.  But having that belief is a different kettle of fish to using it as an assumption upon which to make any investment that risks more than I can easily afford to lose.

So to put some of your money into Bitcoin with your belief of what the market is or isn't going to do is fine if you acknowledge there is a risk involved.

To put all your own money into Bitcoin would be even more risky.

To put all your own money into Bitcoin mining gear at any time is riskier still.

To put all your own money into Bitcoin mining gear right now with all the unknown variables is riskier still.

To put all your own money into pre-orders of Bitcoin mining gear where you don't know when in relation to everybody else's you'll be able to plug it in, that's assuming the company won't run away with your money is riskier still!

It is my opinion that multiplying each of these risks gets us to the stage where even attempting calculations about return on a serious fiat investment is a waste of time.

There are many threads and huge numbers of posts with back-of-the-envelope calculations on them.  Some people such as yourself are wise enough to know the assumptions upon which the numbers you start with are sketchy at best.  The problem I see is that once we put our beliefs into a formula and explain it all in this great newly-learned terminology of gigahashrates and difficulties I think we're making it very difficult to keep ourselves focused on how unreliable any results we are likely to come up with are¹.  'It's a number that comes after the equals sign.  Of course its the right answer!'

I don't want to be one of the doom-and-gloomers saying it's all finished and not to bother.

But as humans it is far too easy for us to blind ourselves with the $$ signs and refuse to let go of our belief that what we want to see happen in the future is quite likely not to happen.  It's the same reason 9 out of 10 businesses fail.  Most don't even look at the possibility of failure other than as a precursory exercise to put in the 'business plan' and of those who do look at it more seriously many still fail to allow the reality of the risk being taken to take its appropriate place in considerations of whether to proceed.  Optimism and a preparedness to continue in the face of adversity are great entrepreneurial traits.  But they go against us when we're trying to be realistic about risk.

If you've got some money of your own, would like to be part of this and acknowledge the significant risk you might have lost it forever then why not join the party as I'm doing myself

But I get shivers when I see happy hopefuls talking about borrowing money or getting investors involved in mining operations.  Of course if it's a bank you're borrowing from, ifyou have other means of repaying and or you were honest about what you were borrowing for then go bust it's their lookout.  In a way if it's investors it is their risk to take but your responsibility, as you rightly pointed out, to give them a realistic idea of what they can expect.  The problem is I don't think you or anyone else here who has really thought this through and taken all factors into consideration can give ourselves let alone investors an honestly 'realistic' idea right now.  I would highly recommend you don't risk the friendship you have with your potential investors and at least wait until things settle down in six months or so when calculations might give you some useful figures before involving anybody else.

All the best with your decision making

¹ It is one of the reasons I attempted to write a piece explaining mining dynamics with no terminology or calculations.  Don't get lost in the detail.  Make sure you thoroughly understand and accept the reality of the big picture before making decisions that involve any more than money you can afford to lose.  I also look at it from a different angle when asking whether mining will become more or less centralised

I'm seeing divided opinions on the boards on this one.  The argument that it will become more concentrated in fewer 'farms' seems to come from the likelihood that after the introduction of ASIC technology only those prepared to buy dedicated hardware will be mining with any chance of profitability.  The argument that it will become less concentrated seems to be that with the difference in hashrate/$ being so little regardless of how much you're buying there is not much to be gained in economies of scale.

I'm tending to go with the latter but would be interested in the factors you envisage having an influence and why you think they will push the tendency in the direction you believe it will go.

I'll present the rationale behind my own thinking.

Bitcoin mining will never attract the kind of level of serious industrial investment as something such as gold mining, apart from anything else because the amount of gold a company can extract is totally independent from the volume of gold others are extracting¹.  Buying Bitcoin mining gear for farming on the other hand is more like an auction (closer to a blind auction right now²).  This is because assuming everybody gets the gear they ordered the size of the slice of the available-mined-coin pie they end up with is only relative to what everyone else is also spending on mining gear.

So those spending massive money on ASICs i) accept it's a high risk strategy and are 'taking a punt'; ii) understand this better than I do and have reasons to be confident in their ROI calcs over quite some time; iii) have some inside knowledge or real good estimates on how much hashing power is going to come on line and when; iv) are being blinded by $ signs and may be in for a shock³!

It has been pointed out (can't remember the thread or poster sorry) that someone 'farming' in a dedicated facility has overheads that most hobbyists don't have.  If they don't have fantastic deals on energy (or build a facility with its own PVAs/wind/hydro turbines etc.) I can't see that there is a big advantage to be had from mining on a larger scale.  The bottom line is I can't see how breakeven point for a 'farmer', can be that much sooner than someone buying a hobby piece of kit.  Unlike real farming where a bigger more efficient tractor can cover vast acerage on a large farm for the same cost as a homesteader ploughs his little plot, with Bitcoin mining they really don't have an advantage.

Getting back to the question of whether it will become 'more or less centralised' this is also relative.  Because I'd guess right now (on as blunt an instrument as my impression of threads on this forum) there's a reasonable proportion of Bitcoiners who also mine.  So if a fair chunk of these switched off and didn't upgrade to ASICs whilst others go massive then it is more centralised.  However this only remains the case if the total number of Bitcoiners remains near what it is now.  If the proportion of Bitcoiners who mine dropped significantly whilst the total number of Bitcoiners increases we could still see a larger number (i.e. more distributed mining base) in absolute terms.

Thoughts?

¹ Of course the market will affect profitability but that's a separate issue.  I'm talking about a comparison of the actual 'stuff' mined in the case of gold v. Bitcoin.

² Edit:  Thinking about it, it's not like a blind auction at all!  In a blind auction you know how much you have bid and know what you are getting should you win.  You just don't how you bid in relation to others and you don't have an opportunity to re-evaluate and re-bid.  With pre-paid ASIC gear all you know is what you have paid.  How much others are buying and over what period is guesswork which means what one will receive in terms of the size of the slice pie is an unknown.

³ For this reason I really hope there aren't many who are borrowing to buy lots of ASIC kit.  Because what's happening now is a really good example of a time when one shouldn't invest more than one can afford to lose.  And by my book, borrowing heavily on such a high-risk strategy is bonkers!

Thank you DobZombie   I see a respectful reader-count though there is no guarantees that any of those got beyond the first few sentences!  For that reason I have edited for clarity so much it could be called a re-write.  I find writing such that something is clear on paper also 'tidies up' the concepts in my mind so it's always a useful exercise.

In the meantime it's good to know i) that you read it all and ii) that it seems reasonable to you.

Cheers for letting me know,

tf

Having read up about mining on this forum and elsewhere I am here attempting to sum up without using Bitcoin terminology what the bigger picture looks like.  I've gone further and explained also how I've used this understanding to make my decisions with regards mining myself and how I'm looking at what I've spent.  If you spot something I've missed that invalidates my analogy (especially if it is an elephant!) please do tell me.

Overview

The Bitcoin algorithm is such that only so many Bitcoin may be mined every day¹

The total number of Bitcoin mined every day could be seen as a pie sliced to represent the reward going to each miner.  Although the size of the pie (the total Bitcoin mined per day) fluctuates, it will by design always tend towards remaining the same size².

It is the power of a rig³ as a proportion of the total power of all working rigs that determines the size of the slice of the pie it represents.

Someone increasing the power of their own rig by adding more hardware increases the size of their own slice of the pie by indirectly causing a reduction the size of everybody else's. (Bigger slice leads to bigger pie which leads to the pie shrinking which reduces everybody's slice).

In other words the overall cost of getting a bigger slice of the pie is the cost of the hardware for the individual and for everybody a decrease in reward per unit of hardware owned which is also a decrease in reward per Joule of electricity used.

The new powerful technology

A significant number of people bringing immensely more powerful kit into play⁴ may in the very short term substantially increase the size of the pie but in due course the pie-size will self-correct.  This is because whilst one person's brand new rig may be immensely more powerful than what it replaces - so is everyone else's and again, it's the proportion of the total of everybody's rigs that determines the size of the slice.

For those who pay normal rates for their electricity, assuming conversion rates to fiat remain as they are⁵ the reward coming from the greatly reduced slice of pie is likely to be such that it's cheaper to turn them off.

For anyone to retain the size of the slice of pie currently being enjoyed requires buying enough of the new powerful kit so that the proportion of total power remains as it was⁶.  The amount needing to be spent to retain the current slice-size may be more than can be justified based on reward⁷.

Kit-purchasing considerations

To buy old-technology kit now is either to gamble that new-technology is not forthcoming or to accept that the size of one's slice may very soon become so small it's less than bite-sized!

New-technology kit is not yet available.

To pre-order new-technology kit⁷ or to buy as soon as it is proven to work is to take a gamble on the slice-size being sufficient to justify the outlay on the kit⁸.  This gamble will pay only if mining starts before the pie-size self-corrects, if the eventual 'settled' slice-size brings in a reasonable amount or a combination of the two.

It appears to me there is not a big advantage in terms of power-per-buck to be had from buying big rigs so whilst increasing the size of order will of course increase in size of the slice the risk of return per buck is pretty much the same as for those buying smaller rigs.  Also, if everybody bought massive rigs the only beneficiaries would be the rig sellers because it makes no difference to the size of the pie!

My strategy

I like the idea of mining - of having even a tiny amount of Bitcoin available to spend or to save coming in on a regular basis and of knowing my mining activity is participating in making Bitcoin transactions work.

Buying old-technology kit is not attractive to me so I've gambled on a pre-order for new-technology.  Given that there is proportionally little to gain by buying loads I've gone for a small rig but not one for which I'll need to start opening up the PC it will be running off.

There is a chance I may mine more than what I spent on the kit - sooner if I happen to get my kit up and running whilst silly rewards are still around, much later if when everything settles down the reward from my slice in relation to the relative price of Bitcoin to fiat is good enough.  However I acknowledge and happily accept this is a long shot on so many counts.

The way I have decide therefore to look at the cost of purchasing my mining rig is not as an 'investment'; rather I have 'written it off' by adding it to and considering it as another cost that went towards the purchase of the all the Bitcoin I have bought to date.  To illustrate how this has greatly increased how much I have paid for each Bitcoin let's say I paid $1000 for 100 BTC including transfer costs etc. then spent another $1000 on kit I'd be looking at having paid $20/BTC.  

So with that as my baseline:  (i) If I buy more Bitcoin for less than my all-inclusive current price the price I have paid per Bitcoin will come down;  (ii) If and when I start mining and the overall number of Bitcoin I have acquired increases the price I paid per Bitcoin will come down; (iii) If either of these happens and/or if the Bitcoin price on the exchanges goes up then the difference between market value and what I paid will become less.  

The fun comes from not really having a clue as to whether any of this will come to be.  I am happy to concede that many here know much more than me about the technology and mechanics of Bitcoin and mining but I also have a suspicion that many of those shouting loudest here about what's going to happen have about as much of an idea as I do.  At the risk of sounding holier-than-thou the difference is that I would  rather not cheat myself (nor mislead anyone else) by convincing myself that I do know.  In the meantime, what an experiment

Thank you for listening

**************************************

Additional points:

¹ I acknowledge this is not strictly true.  The mechanism that controls the number available to be mined is reactive to the number of coins recently mined and will therefore fluctuate.

² For the purposes of the explanation the periodic reduction in reward is not considered.

³ By 'power' here I am referring not to its actual power consumption but how rapidly it can perform the calculations for mining.

⁴ I am of course referring to the forthcoming (if rumours turn out to be true) introduction of ASIC technology.

⁵  I have heard many apparently reasoned but conflicting assessments of the likely affect of forthcoming changes on exchange rates with fiat and have concluded I have no idea whatsoever what will happen over the next few months!

⁶ This is of course hypothetical.  I haven't heard of anyone who is deciding how much new-tech kit they're buying based on a guestimated calculation with the intention keeping their reward the same as they're currently receiving.

⁷ Terms like 'justify outlay' and 'ROI' are of course only relevant to those who look at their operation as a commercial venture.

⁸ An added factor is that the operations taking pre-order money may also, maliciously or through incompetence and irresponsibility, end up not being able to (or simply not) fulfilling the order so the gamble may be lost even before the kit turns up!

***Edited to improve clarity***

I think we both understand what time is and the way it works with division of labour and specialisation.  My point is that what you are referring to is, as you used it here, 'your' time.  It just another way of saying is 'your'  labour.  Of course 'your (or anyone's) time' is interchangeable with the 'your (or anyone's) labour' because you are referring to the same thing.  And if we're are talking about labour it is one of the three classical economic classifications as previously mentioned: land, capital and labour, each of which have their own charecteristics withenough distinguishing features not to be able to use them indiscriminately interchangeably without losing meaning.

What I still really don't get I'm afraid is how your comparison of time with land gives us anything of use in this discussion.  But I'm happy to leave that one 'un-got' for now

Surely not?  Time, unless it is in reference to someone's or something is worth nothing.  The sensible reply to the question 'How much would you charge me for an hour?' is 'An hour of what?'  I can't just buy an hour from you.

Appreciated

It was indeed profitable but I didn't mention it because it's where the analogy with land falls down.  You can't grow produce on Bitcoin and you can't mine more land!

I would again beg to differ.  Is it not someone's time that's for sale or time as a measure of how long something is hired you're talking about here?

It appears to me that in this respect there's an inverse relationship between bitcoin and land in that in the early days there would have been very little incentive to do nothing with land and the benefits of doing so have grown exponentially ever since.  In contrast, the best time to do nothing with Bitcoin (assuming somebody else would in order that it becomes popular) was right at the outset*.  As time passes and more can be done with it the incentive to use it productively will increase.

But unless the time comes when we treat land differently than capital I can't see that anything is going to change as the curve grows ever steeper (booms & busts accepted) and associated problems and wasted economic opportunity will get so exacerbated that they become more and more difficult to deny.

Anyway, I don't think I'm going to be convincing you on the merits of the 'Location Levy' any time soon so if you don't mind we'll agree to disagree.  I am not saying I'm right and you're wrong but in enjoying reading through the earlier part of the thread when I saw your analogy between land and Bitcoin I wanted to add my take on it to the discussion and I appreciate your indulging me in so doing.

Best,

tf


*I acknowledge in some people's eyes we are still at 'the outset'.

@ myrkul

Apologies for the tone of that footnote.  I read it again this morning and appreciate that you did not take it as condescending which you justifiably could have.

I will admit it does seem counterintuitive that it wouldn't and I did take the claim with a pinch of salt the first few times I came across it.  It was an economics teacher drawing those diagrams on the back of an envelope in the pub accompanied by his explanation that convinced me.  The downside of that is I can't hyperlink my resource   I've done a quick search this morning to no avail and will look further when I have time (it would be good for me to go through it again too) but I am given to understand variations of those graphs form part of classic economics primer courses.

I don't think I did miss your point.  I understand, as illustrated by my homestead example, the positive benefit to all from productive investment.  But I remain convinced, unless you can show me otherwise, that the direct correlation you're trying to make undermines rather than supports your argument.  I might be more inclined to accept the claimed parallel if you could give me one example of how an early adopter using Bitcoin for investment could have done so phenomenally well that it would have given them a higher return than had they just sat on it and accumulated it without spend for the first 18 months or so.  Even if you count trading on the exchanges as 'investing' (which to me is speculation) someone would have needed to be both extremely smart and extremely lucky to have made money repeatedly selling bitcoin just prior to occasional downs AND buying it back again just as the price was returning to growth.

This is why the parallel with Bitcoin better illustrates the problem with land speculation for me.  Because (more so now than in homesteading days) the economic principles you're talking about which work so elegantly in the homesteading and early economy circumstance become virtually insignificant when the wisest thing for virtually anybody with capital to do in any city worldwide at virtually any time* is to invest a small proportion of it in productive economic activity whilst having the rest of it sitting in land driving up the price at which everybody else who would like to do anything (from having somewhere to live to setting up a factory to creating a trading floor) to contribute to the economy themselves.  Because there's nothing anybody can do - even just standing somewhere - that does not require land.

And what has surprised me the more I've looked into this is the number of names I know of from history who have recognised land as needing to be treated differently to labour and capital - including capitalist heroes such as Adam Smith and Thomas Payne, the latter for whom, as I recollect, was quite passionate about the rights of man

I'm not saying I have all the answers nor, as I admitted, am I quite ready yet to let go of my deeply entrenched view that land I consider to be my (or my family's) property is owned by us and not subject to the whim of the majority.  But I'm having to acknowledge this is not a position that I can justify with argument.


Tf

* Occasional downward blips occur in any economy, exacerbated by occasional speculation bubbles when they eventually burst - but I am not counting cities here where the political situations such as war or extreme governmental fiscal irresponsibility takes them outside of the normal dynamic.

Sorry for bumping this but I wanted to comment particularly on one post.


I think the comparison of land to Bitcoin can be a useful one, both in recognising similarities and differences.  But the way I'm seeing it doesn't support your argument.

Those who will have gained the most from being an 'early adopter' of Bitcoin are those who will have mined them then sat on them, keeping hold of them and doing nothing with them other than accumulating more as fast as they can.  If everyone had done likewise everyone's Bitcoin would still be worth nothing.  Fortunately for the rest of us some others, including those who you say 'managed their investment poorly' put their Bitcoin into play and sowed the seeds of it taking off as it has.  It is not an exact analogy with land because as you point out, in the age of homesteading, those who managed most efficiently in terms of maximum returns from crops from their land were able to buy out those who were not doing so well, maybe employing them and with the acquired plots with the better efficiency now producing more food, reducing the cost of everybody's living   There is no parallel with Bitcoin in this respect.

But what if the early adopters had another means of living and were not interested in doing anything with the land?  What if they also had the fortune of being in a location where a city would be built up around their plots? Then it's just like the early Bitcoin hoarder situation because the increase in the value of their land has nothing to do with 'managing the investment' and everything to do with benefiting without having lifted a finger from the creativity, the productivity, the efficiency and hard work of those who created the city around them.

With Bitcoin, the finite-number-of-Bitcoins feature is essential for it to work and whilst the inactive hoarder's massive gain does not sit comfortably with me it is as far as I can tell the inevitable other-side-of-the-coin of Bitcoin's built-in scarcity without which I can't see how it could succeed.  The primary difference to me between the Bitcoin and land situations is that however much Bitcoin is being hoarded, whilst it reduces the amount available and has an affect on price, it does not reduce in any way what can be done with the remaining Bitcoin for those who are using it.  Not so with land.  Having a very reduced land supply available to the same number of people means although the proportion of the available land is the same, as it is with Bitcoin, for land the square footage or acerage owned is a fraction of what it would otherwise be and you simply can't do with smaller area of land what you would with a bigger area.

But I'm not ready quite yet to let go of the idea if I've bought a property it is mine.  Maybe it's something as simple as the similarity between the words 'common' and 'commune'?  The idea of someone telling me land I bought belongs to the 'commons' is unnerving.  Yet there seems to be a justice in recognising the difference between an increase in the value of property arising out of something the owner has done to it (which is rightfully his) and an increase in value arising out of things others have done, whether privately by neighbours or things like train stations built with public funding.  It seems crazy to me that the efficiency of commerce and employment should be severely hampered by taxation when there's a means of tapping the unearned wealth of increased land value at virtually no cost.*  I actually prefer the term 'Location Levy'** than land tax because tax to me is taking from me something I earned.  I'm finding it more difficult to remain persuaded that the increase in value of my land at the hands of others' efforts is mine by right.

But how attractive to Bitcoiners is the following potential gain to be had by switching from today's system, replacing all other forms of taxation with the Location Levy?  The only thing that the government would need to know in order ascertain the amount of the Levy due would be what my land is worth.  This means they no longer need to know how much I earn, how and on what I spend my money, how wealthy I am, whether my investment is in business, commodities or whatever I fancy - and they don't need to care what currency I choose to trade in INCLUDING BITCOIN - and in this situation, there's no reason that they shouldn't also accept the Levy in Bitcoin!  This truly has the potential to free us up economically providing we're prepared to take that leap of a paradigm shift and accept that the increase in the value of the land beneath us that was not as a direct consequence of something we did - IS NOT OURS BY RIGHT!  It is to me a high price to pay in terms of letting go of a formerly deeply entrenched principle of property ownership - but right now I'm thinking it might be worth it.

Tf

* myrkul, Please don't try and argue against this particular point again (land tax not having an affect rent and the sale price of the lands's produce).  I know the way you put it sounds plausible and seems self-evident to you and you say you don't understand the graphs Explodicle presented but if you did take the time to understand them or asked any economist, irrespective of their support of land tax or lack thereof, they will tell you that taxation of land has has next to zero effect on rent.  It's just the way it is.  Only those who don't understand argue that point.  There are plenty other arguments to be made on this issue but you won't win that one against anybody who understands.  I won't have that argument with you because i) a number here have tried to explain it to you already and you won't accept it and ii) you seem to me to be quite capable of doing the research and study required to understand it for yourself should you so choose.

** This is Tony Vickers's term (author of Location Matters:Recycling Britain's Wealth)

OK, thanks all.

I've got to a stage now where I'd like to rewrite the OP from scratch utilising where we've got to so far and move this whole thread to a more permanent home (maybe to the general 'Bitcoin Discussion'?)

However, I'd like to give myself some time to do this right and I simply haven't got the time now so I'll need to leave it a few weeks.

Thanks again to all who added to this discussion to date.

Tf

OK, I'm liking that.  It alludes to exponentiation whilst being different enough (both from 'mathematically correct' exponentiation and from a simple decimal) to be immediately recognisable.  As the 'native' way of writing power bitcoin I think this could work.

There's a disadvantage in that it's not as simple to do with a keyboard as just typing a character but my first impression is the advantages outweigh that.  We'd also need a way of verbalising it and of communicating ^btc numbers in plain text for instance for use in SMS where ^sup is not an option.  And maybe this same plain text representation would be usable in a spreadsheet in such a way that that a formula can separate out the elements to do calculations then express the result back in the plain text representation.  Ideas anyone?

In bitcoin wallets and on web pages with ^btc functionality there could be two textboxes with relative font sizes and positioning to reflect this visually so in order to type in ²¹1 one would just type in '211' with the cursor simply moving to the significand textbox after the first two typed digits.  Where a single digit exponent was required '01' could be used or just '1' then Tab to the next box.  I can see this working.