So this doesn't look good?
I see several possible explanations: - After the 2011 bubble burst, a lot of disgruntled speculators ditched Bitcoin and sought refuge in the safety of leveraged AAPL ETFs instead.
 - 95% of the node activity was due to miners (who else keeps the software running 24-7, sheesh) and most of them gradually dropped out when they could no longer mine profitably at such high difficulty vs. price.
- The data is collected from an old version of the client, and most people have now upgraded and/or use e-wallets as suggested above.
You cover a lot material, BTC_Bear. Where do I start? Currently a very small amount of BTC, relatively, controls the market price.
What if each bitcoin were incredibly valuable? I get some grief because I would like to see the price between 1.7 to 3 USD. In the long run, I think this price point will help the spread of BTC but the 'market' (miners) don't like that point. Miners need to be-careful that they don't get what they wish for. Their fishing of Blue Fin Tuna might turn into Pogie Fishing.
Breathalyze Ben Bernanke and take away his helicopter keys? j/k In a normal market, the price is the point where the supply and demand curves meet. To achieve a lower price, you would have to: 1) make [whatever it is that you're talking about] seem crappier, less appealing, 2) increase supply, or 3) both 1 and 2. However, with Bitcoin the supply is extremely inelastic, which means (ignoring hoarding and other short-term manipulations for the moment) that the exchange rate is almost entirely controlled by the demand, or in other words: it's in the mind of the buyer. Have you considered that if the Bitcoin developers had decided to put the decimal point 1 digit further to the left, the price might still be $5 instead of $50? IMO it's bad enough with only 21 million coins, but with only 2.1 million coins to go round, why should anyone be $45 more serious about a toy currency like that? |
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Thank you very much for these calculations, I was wondering what the current inflation rate was.
YW  It might be down to ~34.5% by now. But I think you're making a mistake when you're equating inflation with rising prices. You correctly identified inflation as the growth of supply of bitcoins and what it's rate is but this is only one half of the supply/demand story that goes into the exchange rate with another currency/commodity price discovery.
Inflation != rising prices. Inflation can result in rising prices given the right conditions of supply/demand.
IMO what the current inflation rate of bitcoins really tells us is that the demand to hold bitcoins is greater than the growth of supply but it doesn't explain where this demand comes from. Is it new market participants coming in and shoring up their balance sheets? Is it the current market participants saving and increasing their balance sheets? Is it just miners saving? Who knows from who's balance sheet this demand really comes from and what Bitcoins "growth" rate actually is.
There was a lot of follow-up debate. As a quick recap: - Due to enthusiastic disagreements about definitions of inflation, I defined "inflation" for this thread as being "increase in the money supply", with no growth or price information included. I wanted to understand (and maybe help others understand) Bitcoin better, not a shouting match between proponents of Keynesian and Austrian economic theories.
- I was surprised that despite the high inflation (increase in money supply), the US dollar price wasn't falling. However, after considering that in this case the inflation has a mining cost, which reflects the price buyers are willing to pay, which reflects how much value they assign to bitcoins, it now makes more sense to me.
- Re: growth, I think the debate is wide open. The supply and price levels simply don't provide enough information about the size and qualities of the economy to be able to meaningfully discuss growth. Furthermore, any attempt to measure the growth would imply a set of arbitrary criteria that define growth.
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So much argument over nothing.
Firstly, where were you? You missed out on all the fun! And secondly, it's just Wikipedia - an eclectic mix of information and history, as written by the victors. I can provide a simple example to demonstrate that the Wikipedia definition doesn't even comply with the common-sense meaning of the word. You see a balloon that's attached to an air compressor, and it seems to be getting bigger. Would you say "look! The balloon is inflating!" ? No, it makes far more sense to say: "look! The balloon is getting inflated." It's because you know the inflation is the underlying process that causes the balloon to look bigger. It's the same with economics, but due to years of de-evolution, this: "Why are all the prices increasing?
"It's caused by inflation."has been corrupted to: "why r all da prices increasing?"
"its inflation yo." |
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If those NWO guys are for real, then fate is against them. The huge irony is that if it weren't for their outdated ideologies, the Bitcoin idea might never have been thought of in the first place. Unfortunately I can't support bitcoin as-is because it is a system very similar to what existed prior to the fed, and that didn't work either once a few people started amassing a large portion of the wealth. Bitcoin already has that built-in. Even without the early adopter boon, if bitcoin gets a substantial portion of world commerce, there will be entities that gain a large enough percentage of the total coins as to be able to move the market on their own. Namely, manipulate it for their own benefit. The money supply was so fragile prior to the fed and after the 2nd central bank that seasonal changes caused stock market problems--buying wheat after the harvest and such. The wealthy are able to pounce on these opportunities time and time again, if not create them in the first place. So, imnsho, bitcoin is just another variation on the broken system of money. And since it is not legal tender and likely never will be, any time one of these situations comes up, you are going to have people heading for the exits. Well I hope your fears are unfounded on this one! Unlike money systems that are based on precious metals, Bitcoin is not dictated by nature. If the Bitcoin "gold" becomes a total racket, people can arbitrarily ramp up the cost of various "Litecoin" alternatives, unlike silver/brass/copper/bronze/cigarettes etc., which are stuck with a natural level of scarcity. The never-ending risk of people freely moving to greener pastures seems like a natural restraint to prevent wealthy speculators from exerting too much influence. |
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The FED spent a whole century playing around with interest rates, creating boom and bust cycles. Why would they be scared now? I think they are being instructed to keep interest rates low as part of a plan to kill the dollar. You know, I just watched the documentary called "Thrive", and the first 30-45 minutes is a terrible thing to watch where the guy talks about energy and the torus shape and stuff, but after that he actually makes a pretty decent point. Part of that point is the whole end-game of control. I have a hard time believing that this is all a game designed to eventually have the NWO and whatever, but seeing the way things are playing out makes it more and more difficult to be skeptical. The end-game can't be just getting money, because really, how much money can the wealthy elite possibly want before money has no meaning. I think they have long surpassed that point. If those NWO guys are for real, then fate is against them. The huge irony is that if it weren't for their outdated ideologies, the Bitcoin idea might never have been thought of in the first place. I've heard lots of complaints that the fractional reserve system is a scam because the FED charges interest, and where is that additional currency going to come from, unless it's also printed in a never-ended spiral of inflation? However, I think the idea was originally to create an economic system that had a combination of easy money (lots of lending to spur economic growth) and would also provide competitive pressure to repay FED loans. The problem with thinking that the Fed may have ever had the best interest of the people at heart fails on a three simple facts: JP Morgan was heavily involved in its creation, it is privately run, and the great depression followed shortly after. Most likely testing the waters and screwed it up by going too far. The point was to make it not so obvious that the people of the world were being robbed blind. It was becoming more and more obvious after each banking panic prior to the fed when JP Morgan single-handedly revived the economy at the political cost (from the people's perspective) of acquiring mountains of wealth. Thus, the fed and controlled inflation to make that theft not so obvious. Was I being too generous? Even I sometimes have difficulty in thinking that it (the FED, fractional reserve banking, etc.) is a massive con, as long as there is some possibility of rationalising vindicating that system. Good intentions notwithstanding, the result is inevitable: the banks eventually confiscate a huge proportion of a country's total wealth. That process can always be fought against. For example, governments demand tax, or they re-nationalise important assets, but both methods tend to be a PR nightmare. The real problem is that the productive parts of society eventually dwindle, and huge banks are left squabbling over the remains of an ever-diminishing pool of wealth. (I loosely define "wealth" as = production and innovation in non-banking and non-government sectors.) |
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Transisto's point is spot on.
Inflation is taxation that is retroactive for the vast majority of people when it is done by purposely printing money.
e.g.
If last week you earned $100 dollars and saved $10, then inflation goes up. The money you saved is being 'taxed' in a way. The money you thought you already earned, you didn't. It is a pay cut with the numbers staying the same.
Not that inflation is bad or evil because as resources dwindle inflation is a natural process. What is bad, is when one purposely causes inflation by printing money.
People with resources will counteract the Quantitative Easing (printing money) by moving to commodities, equities, etc... but the guy with a savings account and no time or money to 'invest' or 'trade' gets screwed.
Lets just try to stick with a natural inflation rate rather than impose one on the people.
My guess is the FED is deathly scared of increased interest rates, so they will print more to buy their own bonds. Why? Because every 25 basis points increase, we owe $1 Trillion more in debt and we are already broke.
The FED spent a whole century playing around with interest rates, creating boom and bust cycles. Why would they be scared now? I think they are being instructed to keep interest rates low as part of a plan to kill the dollar. I've heard lots of complaints that the fractional reserve system is a scam because the FED charges interest, and where is that additional currency going to come from, unless it's also printed in a never-ended spiral of inflation? However, I think the idea was originally to create an economic system that had a combination of easy money (lots of lending to spur economic growth) and would also provide competitive pressure to repay FED loans. The best banks and corporations would last the longest, repaying the most interest, while weaker businesses would go bust and their bad debts would get deleted. Therefore, the FED wouldn't actually gain anything apart from a pat on the back from government. However, as you can probably imagine, there is a lot of potential for abusing that system, especially if it's not tightly regulated. The possibility of perpetually increasing the debt level is one obvious loophole to inflate the money supply, even though the system could theoretically be deflationary. Even without inflation, the banking hierarchy easily becomes a privileged group that never loses. They either collect debt or collateral from their customers, while passing the debt write-offs up the food chain. What about corporations that borrow money, have a good time on the FED's (i.e.: savers') books, then go bust? Wonder what the 'new' dollar will look like in the future. Bitcoin, bitches! (Borrowing a popular turn of phrase from Zero Hedge) The above is a guess, it is entirely possible we will pay back the currently $15 Trillion now, or the projected $21 Trillion before any savings could possible be put on a downward spiral to pay it off. Two questions: pay who? And why bother? It's just a social contract in the minds of the people. While I strongly support fiscal responsibility for individuals, this is different. To help reduce the national debt, would you want to declare bankruptcy and donate your belongings to a bank, just so they can write off a tiny fraction of that 15 trillion? But meh, the Aristocrats know what is best for you. No they don't. They're only human  |
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Sorry for being off-topic,
That's OK. The US dollar appears to have suddenly fallen against Bitcoin anyway. I kind of gave up when people started talking about EROEI and mysterious catalysts. But we have to prevent prices from decreasing due to productivity based price deflation... because of some strange reason that Keynesians are never able to explain! We promise to delete the excess cash during periods of economic decline*. * Government coffers and approved corporations excluded. |
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Bitcoins are completely durable. A fully anticipated decrease in supply of a durable good cannot cause price to increase any faster than the real interest rate (1-3% per annum). If not, then speculators would want to invest in the durable good now, store it, and sell it at a profit after the supply drop. Competition among speculators drives the expected price increase down to the real interest rate. Any price effect due to falling block reward is already loaded into the current market price.
If the supply decrease was unanticipated or bitcoins were not durable, then this would be a different story. It's not this simple, for one simple reason. Bitcoin market is so volatile for a large number of reasons that you can't look at this in a vacuum. If speculator x thinks the price might go down in the near future for a reason not related to this, he is not going to be buying now. I don't believe that this particular event is well priced in at this point. It will become priced in once this event is a bigger issue in people's minds. Right now it's still far away, so far in Bitcoin time that for all we know we might have a super bubble and a bust before it even happens. To hammer my point in clearer, it's easy to anticipate a resulting price increase because of the reward drop. But from where? From where it was before. Here is the problem, we don't really know if a price of $5 is high or low. Maybe we're at $3 in August, good luck for those who priced in the price increase now. Bitcoin is so full of questions that it would be sort of super bullish to price in the reward drop price increase at this point because it's not certain we're even this high in the months before the drop. So I'd say that people buying now are buying for a wide variety of reasons, this one in particular having little effect. In the months before the event, many will be buying solely for this reason. That is the difference. Congrats to cunicula for providing a serious reply. However, I'm not sure if his analysis is fully valid in this case. The supply can't be anticipated -- a large speculator could already be holding a large number of Bitcoins and refuse to tell anyone when (if ever) she'll sell them. His earlier point (about inertia) has merit because there could be lots of those speculators, and since each could be similarly unpredictable, the supply is likely to get averaged out anyway. Nonetheless, there is a difference between anticipating the creation of coins, versus anticipating the availability of said coins. |
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All anyone ever does in this Speculation sub-forum is shout "FUD FUD FUD!"... It's why I usually don't bother reading it.
Well it is a child forum. |
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Fear based thinking is characteristic of much of what I see pass for discourse on this forum. That's one reason why FUD is such an appealing concept to scared little sheep. Seriously kiddies, your life is as likely to be a fucked up disappointment that you will regret every day as it is to be anything else, and no matter that, you are likely to die painfully in complete hopelessness and slide down that long gray tunnel into forever darkness without ever knowing why. Oh, and you can't take it with you, even if it is a deflationary currency  So buck up, you sound like a bunch of little girls. Coach Satani signing out Jolly good to see that you're raising the standards by contributing to the substance of the debates instead of whinging! |
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I don't think there's any question that if the price does not double immediately after the reward drop, lots of miners are going to drop out. Whether somebody maliciously takes advantage of that, there's no way to know. With only more efficient miners left over, assuming the price doesn't jump up enough, then I suspect the price will continue downward as the more efficient miners can tolerate lower prices and remain profitable.
I think there's a good chance this scenario happens as people will probably price an increase in well before the reward change in anticipation of a possible price increase, thus there won't be a subsequent and sufficient price increase after the change.
Why should people feel the need to pay twice as much just because miners aren't earning as much? Halving the block reward doesn't make bitcoin twice as valuable, and nobody owes you free money for mining. Block reward halves, miners mining at a loss stop mining, difficulty drops. Simple. Ditto And they restart mining the next week when they realise the difficulty has dropped enough to make it profitable again? There are a few "what is the meaning of Value? 101" threads around the place. Cutting a very long story short: Bitcoin value for miners ~= Cost + small personal reward. Bitcoin value for everyone else ~= 1001 conveniences + psychological factors. In other words, price is very elastic. So if miners cut the supply, the users will go all ape-shit and pay more |
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He even wanted to be paid to answer questions. Too bad claiming you know it better won't just do it in forums. If you don't want to educate others without being paid for it you shouldn't be on such a forum.
I would gladly pay for some of his sage wisdom. Unfortunately, I'm kinda broke at the moment -- all my funds are tied up in a business venture, and in order to access them, he would need to send me a donation of sorts (see address below ) to cover the administrative costs of unwinding part of that venture prematurely. The thing is, difficulty lags behind the hash rate (correct me if I'm wrong). So at the very least it will introduce a jolt where new coins suddenly more expensive to produce, without a corresponding decrease in difficulty. That "while" might be a few days, or it might be several months. If one has a look at historical difficulty charts, to me it looks like the difficulty is still oscillating from last year's bubble.
I am not saying difficulty (hashing power) and price won't oscillate. They certainly will. I also think volatility (both in terms of hashing power and price) are likely to increase as we move through this "event". I am just saying even a change from 10TH/s to 5TH/s doesn't materially change the strength of Bitcoin. Fair enough. When it comes to leading vs lagging indicators, do you see any overt mechanism/cause for increased volatility leading up to the changeover? The only obvious thing I can see is the psychological uncertainty! |
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Worst case scenario (for hashing power) is reward is cut in half and price doesn't rise at all. If hashrate falls by half the remaining miners will be just as profitable as now. That puts a floor at ~5TH/s which isn't materially different than 5TH/s. It would take a drop of something like 95% or a rise of something like 5000% to materially change the strength of the network.
The thing is, difficulty lags behind the hash rate (correct me if I'm wrong). So at the very least it will introduce a jolt where new coins suddenly more expensive to produce, without a corresponding decrease in difficulty. That "while" might be a few days, or it might be several months. If one has a look at historical difficulty charts, to me it looks like the difficulty is still oscillating from last year's bubble. |
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It's impossible to know how the block reward drop will affect everything exactly but talking about "failing" is absolute FUD. Most likely the effect will be relatively small, in fact I would bet a lot of money that it will be relatively small. Any smart miner knows that Bitcoin price will rise significantly because of the reward drop (it rises because halving of the money supply inflation will raise confidence in Bitcoin's ability to retain value, thus it will lead to more buying). I'm not claiming that it will double but it will certainly compensate.
I don't think this is priced in yet but I would say that it will be priced in months before the reward drop actually happens. So this is also something that smart miners will take into account. Regardless, I'd say that the effect to network hashrate after the drop will be small. Miners will be taking everything into account way before the drop, when they consider investing in FPGA etc. So it's ridiculous to think that right after the drop there would be any significant effect. Most likely hash rate will adjust months before it happens, depending on the price at the time of course.
Let's have a look at a couple of different strategies to see what might happen: Mining Strategy 1) Avoid speculating. Simply mine and sell coins continuously. Given that the mining difficulty lags behind the mining "effort", halving of the reward rate is basically a doubling of costs. These miners would simply be forced to withhold their coins until they get bids that they're happy with. If they control a sufficiently large share of the total Bitcoin supply, this would force the price up by pushing the "ask wall" to the right and any serious bidder will simply have to cough up more if they want to get Bitcoins. Mining Strategy 2) Greed. Mine coins and hold onto them in anticipation of higher prices in the future, and only sell when there is a very good opportunity. These guys are more likely to be stacking months in advance, hoping for a large price increase. However, a sudden flooding of the market with cheap coins could prevent a price increase from occurring in the first place. Anticipating this, some may be thinking about taking profits early, "before the rush". The problem: if the miners are all equally greedy, how do they prevent a herd mentality from foiling their plan? Mining Strategy 3) Speculation. Similar to strategy 2, but the intention is to bankrupt the non-speculators, thus gaining a larger share of future mining rewards. This one is very risky because there are lots of unknowns: assumptions that there are some non-speculating miners, and assumptions that one's own position is sufficiently strong not to get forced out of the market by an even stronger player who might keep the price low even longer. Ironically, it seems the "dumb" miners (strategy 1) are the only ones actually making any regular returns, the greedy ones get frustrated, while the speculators end up subsidizing the Bitcoin economy and risk going bankrupt! In reality, the mining ecosystem probably has an eclectic mix of lots of different strategies (e.g.: mining and actually purchasing stuff with Bitcoin) so I agree that the actual effect of the reward halving will be unpredictable. My prediction is that there will be a spike in volatility that mostly lags behind the 50 to 25 coin reward change. I would say that it will be priced in months before the reward drop actually happens.
But how? What will they do? |
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What kind of Voodoo is this?  |
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For money to be "sound", there has to be a yardstick to ensure that there's some cost to obtain it.
[snip]
I think this is basically right, but not quite. For example, consider coins in 50 years. With no more coins issued, the yardstick isn't working. Or consider the cost to obtain the first few thousand coins, which is practically nil compared to the mining cost today. It is theoretically possible for a sound money system to exist under which there was no cost to produce the initial units. The part that makes it "sound" to me is that the money supply is publicly verifiable. I think you're onto something there. So a money's "soundness" is not necessarily a cost, but some sort of trustworthy assurance about its scarcity (e.g.: open source inflation scheme)... Nonetheless, in the scheme of things, the cost of ensuring that Bitcoin can't be counterfeited seems pretty cheap compared to routine costs that other forms of money might incur, e.g.: bomb-proof ATMs or fuel for transport. |
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Naked Mortal Kombat Bitcoy VS Mintchick -- Fight!!! Edit: who's good at making Youtube videos? me what do you have in mind? Bitcoy VS Mintchick -- Fight!!! k ill get started tomorrow Awesome! Can't wait! |
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No kidding! I humbly stand corrected! Damn. Based on this new-found revelation, I'll have to re-evaluate my sophisticated astrological forecasts. The Moon, and planets and stuff say: Rally! |
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