A few thoughts on bootstrapping bitcoin and mining

[CookTing]

I see a lot of people diminishing the role of miners in the economy, but right now mining is critical.

Bitcoins can't continue to grow in value too far beyond the cost of mining the coins.  Who in their right mind would pay $100 per bitcoin right now when you could mine it at a cost of $1 per bitcoin?

But, if the value of bitcoin doesn't grow significantly then there isn't enough liquidity in the system for many of the potential uses.

A total value of $60M is a pittance.   By comparison the total value of all gold mined is around $5 trillion.

Having more miners is every bit as important as having more merchants accepting bitcoin; they're both necessary to keep things moving forward.

[FooDSt4mP]

I see a lot of people diminishing the role of miners in the economy, but right now mining is critical.

Bitcoins can't continue to grow in value too far beyond the cost of mining the coins.  Who in their right mind would pay $100 per bitcoin right now when you could mine it at a cost of $1 per bitcoin?

But, if the value of bitcoin doesn't grow significantly then there isn't enough liquidity in the system for many of the potential uses.

A total value of $60M is a pittance.   By comparison the total value of all gold mined is around $5 trillion.

Having more miners is every bit as important as having more merchants accepting bitcoin; they're both necessary to keep things moving forward.

When the value increases, mining increases.  There are plenty of people who are capable of mining.  I have no doubts the community can keep up with the value, and if not, there will be room for new miners, which is also healthy.  I have no worries about that.  We don't need more miners atm though.  Unless you already have the hardware, it is far more profitable to just buy bitcoins at this point.  That valuation changes and oscillates between better off mining and better off buying.  There will always be hobbyists cranking out a few bitcents with their gaming cards, but from here on out serious mining takes serious investment.  And if being profitable mining depends on price continuing up, why not just invest your capital directly?

[bitcoinBull]

We need all the miners we can get, whenever we can get them.  If we don't need more atm, how about two weeks from now if bitcoin is at $18?

That price is only sustainable with a matching increase in difficulty.  Only a rising difficulty can support the rise in price.


My worry is that the difficulty won't be able rise accordingly (in the short term) because all the good GPUs are sold out.  How long until the GPU vendors fullfil the back-orders?  Access to reasonably-priced GPUs is the main bottleneck to continued price increases in the near future, IMO.

Hopefully AMD/ATI and its vendors can keep up with the demand.

[FreeMoney]

if they can't deliver gpus then people will rationally buy coins instead of mine since they can't mine. the cost of mining includes the task of getting a gpu, if that is hard the price will show it.

[Findeton]

Difficulty changes every week. Right now in order to mine 1 BTC you need about 2$ and you get about 20$. If prices keep going up, mining will get more profitable, and that will attract more people to mining so there will be an increase of difficulty... but in order to maintain BTC/$ exchange rate on the long term, mining has to be only marginally profitable.

If the bubble bursts and the BTC/$ exchange goes below the mining being profitable limit, people will stop mining and difficulty will go down. This could get us all in a bear market trap easily, until mining gets profitable again.

[interfect]

We need all the miners we can get, whenever we can get them.  If we don't need more atm, how about two weeks from now if bitcoin is at $18?

That price is only sustainable with a matching increase in difficulty.  Only a rising difficulty can support the rise in price.


My worry is that the difficulty won't be able rise accordingly (in the short term) because all the good GPUs are sold out.  How long until the GPU vendors fullfil the back-orders?  Access to reasonably-priced GPUs is the main bottleneck to continued price increases in the near future, IMO.

Hopefully AMD/ATI and its vendors can keep up with the demand.

The system adjusts to the number of miners, to always produce 50 BTC every 10 minutes. The only way to get coins faster is to constantly increase the number of miners. So we don't need *more*, we need a *constantly increasing number*.

What we really need is for some of the earliest adopters to start selling off their coins.

[Findeton]

What we really need is for some of the earliest adopters to start selling off their coins.

I don't see why. We need either way more miners or a market adjustment. It's just that it's not very desirable to get both things at the same time.

[marcus_of_augustus]

So are you guys saying that the value of bitcoin is being held down by the cost of mining?

Anchored as it were?

[FooDSt4mP]

So are you guys saying that the value of bitcoin is being held down by the cost of mining?

Anchored as it were?

In a way, yes.  If mining becomes more profitable than purchasing, more people mine than purchase.  Less purchases means a lower price.  However, with the growth rate as high as it has been, it has been more profitable to invest directly for a while now (unless, possibly, if you want to be in the used GPU market 6 months from now).

[Litt]

no and wrong are two words that immediately comes to mind.

[Findeton]

So are you guys saying that the value of bitcoin is being held down by the cost of mining?

Anchored as it were?

No, what I'm saying is that at this rate of rising value, the value of bitcoin will be held down by the low cost of mining.