Is btc price sustainable with growing downward selling pressure of energy use?

[Eastwind]

Such question never be answered yet.
Maybe it hint that $10,000 can't be sustainable in the near feature, until the reward of every block reduce to a very little number, like 12.5 or 6.25?

Yes. The difficulty will track price. The cost of mining is determined by block reward.

[judypug1956]

That money just disappears and goes back into the fiat economy in this endless stream to pay for electricty.

Actually, it doesn't disappear.  It just changes hands from the miner to someone else that wants it.

The miner has bitcoins.  The electric company wants fiat.  Someone else (lets call him Bob) has fiat and wants bitcoins. The miner must exchange his bitcoins for Bob's fiat.  That way the miner can pay the electric company, but the bitcoins haven't disappeared, they've just gone to Bob that wants them.  The loop is closed.

I am posting with my none signature account.

 Just to:
 a) respect your legendary status
 b) to agree with this post

and to add the money and the btc are closed loop just like money and gold.

The biggest problem with BTC is it does not work as well for consumers as a CC does.
No chargeback.
No price protection
No extended warranty
No points earned for purchases
No free loans as many CC's give you a 1 to 2 year free balance transfer not interest no fees.

All of the above kills Joe consumer's interest in BTC.

This means:
 inflation hedging
Speculation
an escape fund that your current government can't touch

are good reasons to have btc.

This lack of demand drives prices downward.

efficiency- power cost- diff are all set in the loop.

  coin price   can go way up or way down outside of the loop of watt/power cost/difficulty.

Best way to look at it is 14 million coins at 225 usd = 3.15 billion usd

I am Bill Gates you are Warren Buffet  we make a bet lets see which one of us can own the most BTC the two of us can drive prices up to 2250 or 10x trying to win the bet .   This demand would make price high and sip the fuck out of the

watt/cost/difficulty triangle.

[notlist3d]

That money just disappears and goes back into the fiat economy in this endless stream to pay for electricty.

Actually, it doesn't disappear.  It just changes hands from the miner to someone else that wants it.

The miner has bitcoins.  The electric company wants fiat.  Someone else (lets call him Bob) has fiat and wants bitcoins. The miner must exchange his bitcoins for Bob's fiat.  That way the miner can pay the electric company, but the bitcoins haven't disappeared, they've just gone to Bob that wants them.  The loop is closed.

I am posting with my none signature account.

 Just to:
 a) respect your legendary status
 b) to agree with this post

and to add the money and the btc are closed loop just like money and gold.

The biggest problem with BTC is it does not work as well for consumers as a CC does.
No chargeback.
No price protection
No extended warranty
No points earned for purchases
No free loans as many CC's give you a 1 to 2 year free balance transfer not interest no fees.

...snip ....

BTC is making strides, soon I should have a card from Bit-X that will allow me to spend my BTC like fiat if i wanted via a card anywhere mastercard is accepted.  So BTC is becoming more for the everyday person not just techno people.

I do agree no chargeback, protection is a bummer with btc.  And it's something escrow can do, but it's no where near what a credit card does.  And extended warranty and other things the big card companies were able to get chances are BTC will never get.

[mrhelpful]

Its pretty basic, if the cost of day to day operations arent covered, you`ll be in the red.

The price should make up for those differences, but its a matter of waiting til it does or not and if you can even do that. The cheaper the elecricity the better off-set it will be, but like most there is none.

Unless its like a cheap foreign country.

[Billy Hlapinnio]

Its pretty basic, if the cost of day to day operations arent covered, you`ll be in the red.

The price should make up for those differences, but its a matter of waiting til it does or not and if you can even do that. The cheaper the elecricity the better off-set it will be, but like most there is none.

Unless its like a cheap foreign country.

Yes, perhaps if you are willing to move to some of those cheap countries that have cheaper electricity.

[noobtrader]

I am a firm believer that some day a single bitcoin will be worth over $10,000. But I can't wrap my wits around the math when it comes to the cost of electricity required to sustain that size of a market cap.

If there are 25 bitcoins created every 10 minutes, this means there are 150 bitcoins created every hour, and 3600 bitcoins created per day.

At today's prices of roughly $230 USD per bitcoin, 3600 bitcoins per day are valued at about $828,000 USD.

That means it costs roughly that much electricity per day to mine bitcoins and just to secure the network. (The total cost of mining will typically grow until it is close to the value of the coins being mined.)

That is $302,220,000 dollars per year at current prices. And this is only for a $230 bitcoin!

To sustain a $1000 USD bitcoin it will cost $1,314,000,000 USD ($1.3 billion per year in electricity costs)

To sustain a $10,000 USD bitcoin it would cost $13,140,000,000 USD ($13.1 billion per year in electricity costs)

That is a lot of money just to maintain the bitcoin value where it is. (When the block halving occurs, then this may drop in half.)

For bitcoin value to go higher, that electricity cost will increase. It seems that the bitcoin market value is being eaten in electricity, and electricity companies are the true ones to profit in the end.

I'm not starting this thread to invite suggestions as to alternate methods of proof of work (or proof of stake). I want to look at how our existing Bitcoin model works.

Can someone please show me that this isn't such a horrible looking math equation, and how this can realistically work in the long-run with a much higher value bitcoin?

Will a $10,000 bitcoin even be sustainable with such high electricity costs?

Is this just during the inflationary period of bitcoin? Once the block reward goes down to 12.5 and then down to 6.25, will things look brighter electricity-cost-wise?

the reward for mining is still high atm, so your calculation is correct. but after the reward halving in few years then you will find that the cost to sustain price will be lower too.

if we read https://en.bitcoin.it/wiki/Controlled_supply
currently btc inflation is around 9%, next year 4% then after 2021 just 1.7% inflation.

btw the electricity cost is irrelevant because difficulty adjust to the number of miner.

[Amph]

Its pretty basic, if the cost of day to day operations arent covered, you`ll be in the red.

The price should make up for those differences, but its a matter of waiting til it does or not and if you can even do that. The cheaper the elecricity the better off-set it will be, but like most there is none.

Unless its like a cheap foreign country.

Yes, perhaps if you are willing to move to some of those cheap countries that have cheaper electricity.

no need to do that, there are clouds service, they were born for that, to help those who have high electricity cost

or you can search for some good hosting facility, and send there your miners

[Eastwind]

the reward for mining is still high atm, so your calculation is correct. but after the reward halving in few years then you will find that the cost to sustain price will be lower too.

if we read https://en.bitcoin.it/wiki/Controlled_supply
currently btc inflation is around 9%, next year 4% then after 2021 just 1.7% inflation.

btw the electricity cost is irrelevant because difficulty adjust to the number of miner.

I agree with that and said similar earlier.

[philipma1957]

Demand for BTC  and price paid for the coin is what matters. The price is based on demand for the coin not cost to mine it.


Mining is always been tight and profit margins small most of the time.  I hit 2 runups the March- April of 2013 and the October-December runup of 2013  I have been mining since July 2012.

That is just under 35 months  so for 5 months out of 35 margins were loose and easy  for 30 months tight and difficult.

Miners live for the runups.  If you thread water until they come you make money.

[colinistheman]

I am a firm believer that some day a single bitcoin will be worth over $10,000. But I can't wrap my wits around the math when it comes to the cost of electricity required to sustain that size of a market cap.

If there are 25 bitcoins created every 10 minutes, this means there are 150 bitcoins created every hour, and 3600 bitcoins created per day.

At today's prices of roughly $230 USD per bitcoin, 3600 bitcoins per day are valued at about $828,000 USD.

That means it costs roughly that much electricity per day to mine bitcoins and just to secure the network. (The total cost of mining will typically grow until it is close to the value of the coins being mined.)

That is $302,220,000 dollars per year at current prices. And this is only for a $230 bitcoin!

To sustain a $1000 USD bitcoin it will cost $1,314,000,000 USD ($1.3 billion per year in electricity costs)

To sustain a $10,000 USD bitcoin it would cost $13,140,000,000 USD ($13.1 billion per year in electricity costs)

That is a lot of money just to maintain the bitcoin value where it is. (When the block halving occurs, then this may drop in half.)

For bitcoin value to go higher, that electricity cost will increase. It seems that the bitcoin market value is being eaten in electricity, and electricity companies are the true ones to profit in the end.

I'm not starting this thread to invite suggestions as to alternate methods of proof of work (or proof of stake). I want to look at how our existing Bitcoin model works.

Can someone please show me that this isn't such a horrible looking math equation, and how this can realistically work in the long-run with a much higher value bitcoin?

Will a $10,000 bitcoin even be sustainable with such high electricity costs?

Is this just during the inflationary period of bitcoin? Once the block reward goes down to 12.5 and then down to 6.25, will things look brighter electricity-cost-wise?

the reward for mining is still high atm, so your calculation is correct. but after the reward halving in few years then you will find that the cost to sustain price will be lower too.

if we read https://en.bitcoin.it/wiki/Controlled_supply
currently btc inflation is around 9%, next year 4% then after 2021 just 1.7% inflation.

btw the electricity cost is irrelevant because difficulty adjust to the number of miner.

I like your optimistic viewpoint of it. However, If we're going to factor in this halving then I feel that when the halving occurs the price of bitcoins will probably roughly double accordingly (because they are twice as scarce now. It may not be an immediate reaction. Probably a bit delayed, but I feel this will equal out), so while the number of bitcoins being sold to pay for mining and electricity costs will be half as many in quantity, the total value exiting the bitcoin ecosystem will be roughly the same. So, I don't see the halving as a saving grace to my concern of money exiting the bitcoin ecosystem.

I think the answer is that it does cost money to secure the network when it is based on a proof of work algorithm which expends energy as the proof that work was executed. If it were free to do the work, then there would be no stopping anyone from doing unlimited "proofs of work". But then it would be worthless.

With that being said, the reason I have a difficult time grappling with the workability of all the bitcoins being sold and the money exiting the system is best explained by doing a comparison: If you all of a sudden stopped mining gold, the value of gold would not go down. It would probably go up in fact (being scarce). But if you all of a sudden stopped mining bitcoin (pretend for sake of argument that the network still continued to confirm transactions so it actually had value to people), then the value of bitcoin would slowly drop lower and lower as the value of the entire network gradually leaves in the form of payments to electricity bills.

[colinistheman]

Demand for BTC  and price paid for the coin is what matters. The price is based on demand for the coin not cost to mine it.


Mining is always been tight and profit margins small most of the time.  I hit 2 runups the March- April of 2013 and the October-December runup of 2013  I have been mining since July 2012.

That is just under 35 months  so for 5 months out of 35 margins were loose and easy  for 30 months tight and difficult.

Miners live for the runups.  If you thread water until they come you make money.

Yes, it is true.

But it's been requiring almost a million dollars per day entering the bitcoin ecosystem just to maintain this $220~ value. I agree it has been working like this so far.

But if the money stopped entering the system, the value of bitcoins would actually drop continually until the value was worth closer and closer to $0 because all the money went out toward electricity bills. (again this is hypothetically if no new money was entering the bitcoin ecosystem).

Now contrast that to gold and if no new money was entering the gold ecosystem, does the value of gold go lower? No, it stays the same without some kind of daily cash inflow just to keep it at the same value.

So it seems bitcoin has an upkeep cost and gold does not, when it comes to maintaining the value the same. And if that upkeep cost isn't paid (in bitcoin's case) then you get a gradually eroding price.

And let it be known I own bitcoin and am a complete supporter. But I like to play devil's advocate when trying to understand something, and especially something as dear to me as bitcoin is.

[philipma1957]

Demand for BTC  and price paid for the coin... If you thread water until they come you make money.

Yes, it is true.

But it's been requiring almost a million dollars per day entering the bitcoin ecosystem just to maintain this $220~ value. I agree it has been working like this so far.

But if the money stopped entering the system, the value of bitcoins would actually drop continually until the value was worth closer and closer to $0 because all the money went out toward electricity bills. (again this is hypothetically if no new money was entering the bitcoin ecosystem).

Now contrast that to gold and if no new money was entering the gold ecosystem, does the value of gold go lower? No, it stays the same without some kind of daily cash inflow just to keep it at the same value.

So it seems bitcoin has an upkeep cost and gold does not, when it comes to maintaining the value the same. And if that upkeep cost isn't paid (in bitcoin's case) then you get a gradually eroding price.

And let it be known I own bitcoin and am a complete supporter. But I like to play devil's advocate when trying to understand something, and especially something as dear to me as bitcoin is.

well this is an interesting analogy. gold = btc   is part true .

but I can't send a piece of gold from Howell ,NJ, USA  to  Los Angles ,CA,USA for next to nothing.

So if you need the gold for a physical reason it transports at a very high cost.  Ie If I send 4 oz of gold to Los Angles CA

I need to send it registered US Mail to send it safely  cost is about 18 + 18 +6 = 42 usd

I would be lucky to get it to the buyer in 2 days  and 42/5000 = 0.84% delivery cost

If I send 20 btc to him cost is  0.0001 to 0.0005  for under 2 hours time.  So I guess there are differences in the analogy.

To me I dont see  enough consumer demand for BTC as the biggest problem.

  A consumer gets so much more using a cc  that BTC loses to that person. I almost never buy anything with BTC other then mining gear.

This leaves speculator's
Investers
People that want to run out of one country to another without any clue to authorities  that a stash of btc is waiting for them.

I feel this set of  factors will never let btc grow to 2k or 3k in price.

[DannyHamilton]

Now contrast that to gold and if no new money was entering the gold ecosystem, does the value of gold go lower? No, it stays the same without some kind of daily cash inflow just to keep it at the same value.

So it seems bitcoin has an upkeep cost and gold does not, when it comes to maintaining the value the same. And if that upkeep cost isn't paid (in bitcoin's case) then you get a gradually eroding price.

I think you are mistaken.

Mining gold also has costs.  The gold mining corporation must pay for these costs (equipment suppliers, employees, electricity, fuel, etc) with fiat currency.  This means that the gold mining corporation must dump their mined gold onto the market to cover their costs.  If this gold mining "upkeep cost" isn't paid with an equivalent amount of gold demand at the current gold exchange rate then gold gets a gradually eroding price.

This is simple economics.  It's true of gold, corn, pork, bitcoins, or any other valued commodity.  There is always a cost associated with producing the commodity.  If demand is higher than the supply, then the exchange rate increases.  If demand is lower than the supply, then the exchange rate decreases.

[philipma1957]

My premise for bitcoin price sustainability.  For a consumer.

Okay A simple example of a consumer purchase.

I purchased a wall oven with full install yesterday.

Went to Lowes. I used a cc to buy.

1100 price for oven Lowes had on sale for  890

I used a coupon 10% off so 801
Install is          200           

total cost = 1001

I get 2 % back on my cc = 20  so I drop to 981

I have 60 day price match +10%
I have 1 year warranty 2x for free.


I think I could buy a different wall oven from overstock.com with btc  and I did find one that would fit


 http://www.overstock.com/Home-Garden/HypoTheory-Stainless-24-inch-Electric-Wall-Oven/9269668/product.html?searchidx=1


So it is electric not gas costs a lot and is not worth 3600usd for my style of kitchen.

Thus btc for this purchase is not an option for me.
85% or more of my purchases are not worth using btc.

Now to really research I found this oven at www.rakuten.com

it would work

http://www.rakuten.com/prod/electrolux-frigidaire-fgb24l2ec-24-gas-wall-oven-with-lower-broiler/227959231.html


So I went to the site started up an order  and I am now stock on a spot where I have to click to pay but  I do not know how many btc to pay.

That  is a bit nerve wracking.  but I have to say if AMAZOM.COM and  RAKUTEN.COM  do this BTC it will gain more acceptance.

Still not as good for me as the Lowes deal but almost good enough to use btc

[alh]

I think a great deal of the above discussion emanates from the differing views of Bitcoin. I, and expect many others, view Bitcoin as a commodity. The other major view is the one that Bitcoin seems to aspire to, is that of a currency. Most regular currencies are strictly that, they have no use value outside of a form of payment. Obviously in the past, precious metals were used as a form of currency. Today those all have become a commodity, and are acquired either for their usage (e.g. gold/silver for jewelry, dental fillings, etc), or as a store of value. Gold for example is held by many as a hedge against inflation, assuming it will go up in value with inflation. Those that hold gold though are completely exposed to any price swings that accompany holding a commodity. Just like when a person buys and then holds Bitcoin. Most other commodities I can think of are usage centric in nature. Pork, corn, oil, coal are generally expected to be consumed and rarely have any long term value.

What's really interesting about Bitcoin though, is that it has a "target" rate of production, and will self adjust to try and hit that target. That's unlike any other commodity of the past. Precious metals of all kinds have had their boom and bust cycles. But none of them had an intrinsic rate of production. Plant more acres, get more corn at the end of the summer. Drill more wells, produce (maybe) more oil over the year. We can also see when it will step down by half sometime in 2016 (aka the "halving"). We have seen the massive rise in difficulty as a result of huge investments in mining hardware and efficiency, but over the course of a month, we are producing about the same number of Bitcoins in April of 2015, as we did in April of 2014 and 2013. A huge "Bitcoin rush" akin to the "Gold rush" has produced no appreciable increase in the production of the commodity because of the built-in difficulty adjustments.

In terms of how Bitcoin is perceived in terms of value, it's anybodies guess. It seems like the usual laws of supply and demand apply. At the outset, mining was the biggest supplier, though that shrinks every month as the total amount of Bitcoin in "circulation" grows. The impact of mining will only shrink with time in terms of the total supply side.

In terms of demand though, I have no idea. My view is pretty myopic in terms of non-miner demand for Bitcoins. The obvious trading schemes are at work, but what is the intrinsic demand for Bitcoin? Is there a significant consumer demand for Bitcoin? Unless and until someone has a cogent theory on Bitcoin demand, we will all be at the mercy of whatever blows the Bitcoin price the way it does.

[Diabolicus]

Best post I read on here today.

I don't have any numbers, but what are the annual “maintenance“ costs of the current fiat system in comparison? Probably not 9% like with bitcoin today, but definitely not zero either (banks, vaults, security systems, ATMs, personnel, printing bank notes, minting coins, credit card fraud, insurances etc.)? Sum it up and you will know how many more halvings until break even. Just a thought.

[philipma1957]

Best post I read on here today.

I don't have any numbers, but what are the annual “maintenance“ costs of the current fiat system in comparison? Probably not 9% like with bitcoin today, but definitely not zero either (banks, vaults, security systems, ATMs, personnel, printing bank notes, minting coins, credit card fraud, insurances etc.)? Sum it up and you will know how many more halvings until break even. Just a thought.

Don't forget prisons and police as part of the cost.

I actually don't fear the power cost/difficulty = bust .

I do fear lack of demand due to public's perceptions of BTC = low price = bust out.

[alh]

Don't forget prisons and police as part of the cost.

I actually don't fear the power cost/difficulty = bust .

I do fear lack of demand due to public's perceptions of BTC = low price = bust out.

Police and prisons exist for a variety of reason. Direct cash theft is probably small potato's compared to drugs, assault, and homicide. So far I have seen nothing to suggest that Bitcoin eliminates financial crimes in general. It will certainly change the nature of some, but we've seen Ponzi schemes operate just fine within the Bitcoin realm.

In terms of acceptance, right now Bitcoin is a "solution in search of a problem". I have yet to see a compelling reason to use Bitcoin instead of USD for anything so far (yes I am a USA resident). The very few times I've purchased something with BTC, it was mining related, and required by the Seller. Just my $.02 on Bitcoin acceptance.

[notlist3d]

Best post I read on here today.

I don't have any numbers, but what are the annual “maintenance“ costs of the current fiat system in comparison? Probably not 9% like with bitcoin today, but definitely not zero either (banks, vaults, security systems, ATMs, personnel, printing bank notes, minting coins, credit card fraud, insurances etc.)? Sum it up and you will know how many more halvings until break even. Just a thought.

Don't forget prisons and police as part of the cost.

I actually don't fear the power cost/difficulty = bust .

I do fear lack of demand due to public's perceptions of BTC = low price = bust out.

I think public perceptions is important aswell if we want acceptance by majority of people.  Things such as silk road, illegal uses that paid for by btc is bad for us normal users.  The news will pick up on btc and make it sound like a bad thing.

In the end btc is just like fiat money it is not good or bad, but it can be used for good or bad things.  But new places focus on btc's negative aspects most of the time when reporting.

[philipma1957]

Don't forget prisons and police as part of the cost.

I actually don't fear the power cost/difficulty = bust .

I do fear lack of demand due to public's perceptions of BTC = low price = bust out.

Police and prisons exist for a variety of reason. Direct cash theft is probably small potato's compared to drugs, assault, and homicide. So far I have seen nothing to suggest that Bitcoin eliminates financial crimes in general. It will certainly change the nature of some, but we've seen Ponzi schemes operate just fine within the Bitcoin realm.

In terms of acceptance, right now Bitcoin is a "solution in search of a problem". I have yet to see a compelling reason to use Bitcoin instead of USD for anything so far (yes I am a USA resident). The very few times I've purchased something with BTC, it was mining related, and required by the Seller. Just my $.02 on Bitcoin acceptance.

Yeah this is what holds it back.  Okay you can hedge inflation vs the dollar or another currency.  You can now trade in the stock market .  It is a BTC backed stock.  So for smart money guys you made it accessible.  But when my wife says to me hey Phil  put a few BTC on my  iphone  or  android phone I am going to Target  they are running a BTC based sale >  then prices  for BTC will get better.

At least in my opinion.  And I have made a lot of bad guesses.  

My newest really bad guess was  why does anyone need an iPad the day it came out I predicted it would be a bust.  Too big and not enough  processing power.    After that truly poor guess I am less inclined to have an opinion in print on the net.