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1421  Local / Altcoins (criptomonedas alternativas) / Re: [Giveaway] Preminecoin - Moneda 100% preminada y 100% repartida gratis on: January 27, 2014, 01:16:31 AM
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1422  Alternate cryptocurrencies / Announcements (Altcoins) / Re: [GIVEAWAY]*NOBLECOIN* - 2000 NOBLE EACH + POST BONUSES on: January 25, 2014, 08:54:26 PM
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1423  Alternate cryptocurrencies / Altcoin Discussion / Re: [GIVEAWAY][CACH] Free Cachecoin Giveaway: let them stake and see yor wallet grow on: January 25, 2014, 08:46:18 PM
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1424  Economy / Economics / Re: [CHART] Correlation Between Bitcoin Price and Difficulty on: January 24, 2014, 06:37:03 PM
Difficulty is more than just a number, it's a part of the very mechanism that allows bitcoins any value at all.   How can you suggest difficulty may not affect price when the existence of price or value at all is dependent upon the mining process which is governed, in part, by the difficulty algorithm?  


I can give you a direct example of how difficulty does not cause price.

People mine with GPUs and price of Bitcoin is $30.  Suddenly a magical being switches everyone GPU that was used for mining into an ASIC card, that has the same power usage, just 100 times more hashing power.  This magical being also switches the difficulty to be 100 times bigger on the exact last block where difficulty usually adjusts, so no 2016 block adjustment period is observed.

Miners who were not paying attention for the next couple of months would not see any difference, their costs are still the same, their share, and thus the number of Bitcoins is still the same.  Nothing changed for them.   Exchanges would not see any difference, still the same number of coins is being produced each two weeks, so supply from miners would be the same.  People who trade Bitcoins and did not pay attention (and did not look at the difficulty numbers) would also see nothing has changed.

So, we would see the difficulty increase 100 times, yet no 100 tomes increase or decrease in price.  Tell me again why should difficulty changes cause changes in the price?

OK, some people may think, like you, that increase in difficulty should increase the price, and if enough people think that, the price will indeed rise with the difficulty.  But this is all in the perceptions, and hard to model.  The price will rise, even if enough people think that it will rise, no need to involve difficulty at all.

As for it being a part of Bitcoin that gives it value:  every part of Bitcoin works together, you can't take out anything and still have it work.  Difficulty is definitely not *the key* part that gives it value, I would say the key part is how it all works without central authority, all all parts together enable that property. 

I have a feeling that you are actually thinking of hashing when you say that it is the key part.  But, again, even hashing is just a way to get unchangeable history, and sure this is a key part of Bitcoin, but, again, all other parts work together, you can't just name one part and say that it is the part that gives bitcoin value.



All it takes is one person who says "I altered my investment strategy due to changes in difficulty," whether that means the person bought in, withdrew, bought/sold a miner, etc., and you can establish that difficulty effects causal changes on price. 

I am one of those people, therefore difficulty affects price.
1425  Economy / Economics / Re: [CHART] Correlation Between Bitcoin Price and Difficulty on: January 24, 2014, 04:52:20 AM
Literally two posts before you, I gave an explanation that isn't among the two you listed.

Quote
Here's a knockdown, simple argument for difficulty affects price -- get rid of the difficulty adjustment algorithm altogether and watch what happens to the price.  If price isn't affected by difficulty, then it should be able to sustain itself in the total absence of difficulty adjustments.

Difficulty is more than just a number, it's a part of the very mechanism that allows bitcoins any value at all.   How can you suggest difficulty may not affect price when the existence of price or value at all is dependent upon the mining process which is governed, in part, by the difficulty algorithm?  This isn't Ripple.

Also, price isn't just determined by buyers and sellers; it's also determined by non-buyers and non-sellers, or non-players.  How many people do you think are out there that, if placed in a scenario with a profitable set of circumstances, would rather mine digital currency for profit rather than playing the markets?  I bet there are tons...millions.  How many of these people do you think are on the fringe of digital currencies, both tempted and hesitant to become users?  Probably a small fraction out of those millions, but that fraction is likely to grow over time.  But what if the difference that determines whether these would-be, could-be miners become market players at all is the difficulty as a psychological barrier to entry?

Just look, for example, at some of the comments from new users on this forum who state that they feel the price of a bitcoin is too high to invest, even though they could purchase fractions of BTC if they wanted to -- this is an example of a psychological barrier to entry, one that leaves an impression that bitcoins are less attainable than they once were, and so could be less attainable still in the future.  Difficulty can have similar impressions (e.g. I can't compete with the big miners; a high and increasing difficulty suggests more miners are entering the market, thus leaving a smaller remainder of potential miners, etc.).  So, difficulty affects --> users perceptions affect --> price.  And of course, price affects --> users perceptions affect --> difficulty.  Users are the dynamic middle-men in the relationship, and users causally affect both price and difficulty.

Edit:  Because users are in the middle, price can also affect price, and difficulty can affect difficulty.

None of what you wrote made any attempt to explain how difficulty affects price.  Honestly, none of it made any sense, either.

You don't think that enabling price is affecting it?

That was the first half of the argument.  The second half is basically saying you either have to assert price affects difficulty and vice-versa, or that neither affects the other because users directly cause both.  Difficulty and price aren't people that can go off and act on their own; users make that happen.  Users are influenced by both difficulty and price and effect changes in each.
1426  Economy / Economics / Re: [CHART] Correlation Between Bitcoin Price and Difficulty on: January 24, 2014, 04:04:17 AM
I think it is safe to say difficulty determines price and price determines difficulty. I think the argument is whether or when are they leading indicators or lagging indicators. What do I know though?

It is not safe to say that. The only mechanisms that I have seen thus far that attempt to explain how difficulty affects price are these:

1. If the difficulty rises, then miners will continue to mine at a loss, but hold their coins until they can sell at a profit, thus causing the price to rise due to lower supply.

I agree that this effect is possible, but even if 100% of the miners follow this rule (which I doubt is the case), newly mined coins are only a small part of the market and this will have only a small effect on the market at most.

2. If the difficulty rises and miners can't mine at a profit, then they will buy instead and and the increased demand will cause the price to rise.

I agree that this can also happen, but in this case, the cause is not the rise in difficulty. The increase in demand is due to more people wanting bitcoins, whether they mine them or not. The rising difficulty is due to more demand for bitcoins and not vice-versa.

Literally two posts before you, I gave an explanation that isn't among the two you listed.

Quote
Here's a knockdown, simple argument for difficulty affects price -- get rid of the difficulty adjustment algorithm altogether and watch what happens to the price.  If price isn't affected by difficulty, then it should be able to sustain itself in the total absence of difficulty adjustments.

Difficulty is more than just a number, it's a part of the very mechanism that allows bitcoins any value at all.   How can you suggest difficulty may not affect price when the existence of price or value at all is dependent upon the mining process which is governed, in part, by the difficulty algorithm?  This isn't Ripple.

Also, price isn't just determined by buyers and sellers; it's also determined by non-buyers and non-sellers, or non-players.  How many people do you think are out there that, if placed in a scenario with a profitable set of circumstances, would rather mine digital currency for profit rather than playing the markets?  I bet there are tons...millions.  How many of these people do you think are on the fringe of digital currencies, both tempted and hesitant to become users?  Probably a small fraction out of those millions, but that fraction is likely to grow over time.  But what if the difference that determines whether these would-be, could-be miners become market players at all is the difficulty as a psychological barrier to entry?

Just look, for example, at some of the comments from new users on this forum who state that they feel the price of a bitcoin is too high to invest, even though they could purchase fractions of BTC if they wanted to -- this is an example of a psychological barrier to entry, one that leaves an impression that bitcoins are less attainable than they once were, and so could be less attainable still in the future.  Difficulty can have similar impressions (e.g. I can't compete with the big miners; a high and increasing difficulty suggests more miners are entering the market, thus leaving a smaller remainder of potential miners, etc.).  So, difficulty affects --> users perceptions affect --> price.  And of course, price affects --> users perceptions affect --> difficulty.  Users are the dynamic middle-men in the relationship, and users causally affect both price and difficulty.

Edit:  Because users are in the middle, price can also affect price, and difficulty can affect difficulty.
1427  Economy / Economics / Re: [CHART] Correlation Between Bitcoin Price and Difficulty on: January 23, 2014, 08:03:14 PM
Are people really still suggesting that price affects difficulty but not vice versa?  

The argument that price causes difficulty is a simple one:  Look, price went up, mining is profitable now, let's mine.

I don't know of such a simple argument for the other direction, that is also not an argument for "price increase causes more price increases".


It's pretty absurd -- difficulty affects our perceptions about how rare or valuable a coin is.  All it takes is one case of somebody saying something like "difficulty is skyrocketing, I better hold onto my coins" to demonstrate that difficulty affects price (in this case, by increasing demand).

(Your example actually shows decreasing supply, but that's close enough.) 

Also, this argument can also be used in the case of "price is skyrocketing, I better hold onto my coins", which becomes self referential argument, and is the main reason why bubbles form, and also why investment scams and ponzi schemes exist.

So I can't really say that this backward looking (difficulty causes price), or self-referential logic (price causes price) doesn't work.  It works for some time, until it stops working.



Okay, let's set BTC difficulty = 1 and see what happens to the price.

If someone makes the argument that difficulty doesn't (or hardly) affect price, then we should be able to set the difficulty to whatever we want and it won't make much of any difference whatsoever.

Here's a knockdown, simple argument for difficulty affects price -- get rid of the difficulty adjustment algorithm altogether and watch what happens to the price.  If price isn't affected by difficulty, then it should be able to sustain itself in the total absence of difficulty adjustments.
1428  Economy / Economics / Re: [CHART] Correlation Between Bitcoin Price and Difficulty on: January 23, 2014, 07:48:36 PM
Are people really still suggesting that price affects difficulty but not vice versa?  It's pretty absurd -- difficulty affects our perceptions about how rare or valuable a coin is.

Only miners care about difficulty, so if you are a miner then you might care, but nobody else does. Besides, difficulty does not affect the total number of bitcoins or the number of new bitcoins, so there is no reason why it would affect the perception of rarity or value.

Difficulty may have some small effect on the market supply because miners may react as group in response to the difficulty. However, contrast the number of new bitcoins to the volumes on exchanges and you will see that miners must only be a small portion of the market.


If you aren't a miner but invest in BTC and don't care about difficulty, then you might want to reconsider your investment strategy.  Non-miners should absolutely care about difficulty, for many reasons (e.g. Network security, indicators of community interest and market sentiment, etc.).

1429  Economy / Economics / Re: [CHART] Correlation Between Bitcoin Price and Difficulty on: January 23, 2014, 05:17:10 PM
Are people really still suggesting that price affects difficulty but not vice versa?  It's pretty absurd -- difficulty affects our perceptions about how rare or valuable a coin is.  All it takes is one case of somebody saying something like "difficulty is skyrocketing, I better hold onto my coins" to demonstrate that difficulty affects price (in this case, by increasing demand).

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1431  Alternate cryptocurrencies / Altcoin Discussion / Re: The first ever MINEBIG GIveaway! TESLACOIN! 10,000 on: January 23, 2014, 05:08:36 AM
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1432  Alternate cryptocurrencies / Altcoin Discussion / Re: [ Giveaway ] { ASR } Astrocoin .001 on: January 23, 2014, 05:07:24 AM
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1433  Alternate cryptocurrencies / Altcoin Discussion / Re: [ALC] ALCOHOIN LAUNCH GIVEAWAY - 5000ALC to take on: January 23, 2014, 05:06:22 AM
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1434  Alternate cryptocurrencies / Altcoin Discussion / Re: [ANN] [PLT] PlayToken 100k Give-Away!! 1000 Per address on: January 22, 2014, 10:33:43 PM
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1436  Alternate cryptocurrencies / Altcoin Discussion / Re: 130,000 DOGE giveaway from Chunky Pools (today only) on: January 20, 2014, 04:04:47 PM
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1437  Alternate cryptocurrencies / Announcements (Altcoins) / Re: [ANN] ϟ The Tesla ϟ....IS COMING! [TES] on: January 19, 2014, 05:59:45 PM
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Thanks Wink
1438  Alternate cryptocurrencies / Announcements (Altcoins) / Re: [ANN] ϟ The Tesla ϟ....IS COMING! [TES] on: January 18, 2014, 04:30:14 AM
So why is it currently on block 26 according to the pool?
1439  Alternate cryptocurrencies / Altcoin Discussion / Re: Superb USDE Giveaway! FIRST 150 Come and Get 15,000 USDE Total!Dis Gon Be good.. on: January 13, 2014, 08:03:13 PM
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1440  Alternate cryptocurrencies / Altcoin Discussion / Re: 48 Hour Noblecoin giveaway 2000 coins per address (please post once only!) on: January 12, 2014, 10:37:37 PM
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