New miner-centric site with hopes to stabilize the BTC economy

[borgfish]

Hi,

why do you base your calculations on the speculators prices ?
10 days ago a bitcoin was worth 8.50 usd, who told it should be worth 20 like today?

did you see how little sales moved the mtgox price down ? i think like 40k coins where needed from price 32 usd to 10.
there are so much coins arround compared to this number, you will always have independent miners undercutting your suggested cartel ( union) price

[avoid3d]

this is just a plea for miners to price fix right... ?

[enmaku]

You are promoting the idea that miners profit should be somehow protected from that speculative factor, thus evening out risks. I would argue that everyone invested different amount of money thus taking higher or lower risk. It _is_ communism - I see nothing wrong about someone throwing money into a risky venture such as bitcoin then losing his investments. I see no reason why wouldn't someone profit on speculative margins while others suck it up due their own greediness and stupidity.

I'm promoting the idea that every user of BTC should be somehow protected by the ability of the speculators to destroy the market. I'm promoting the idea that education about where this currency comes from and the factors that truly drive its VALUE - not its PRICE - might just help stabilize the bitcoin economy. If we all know what a bitcoin SHOULD cost then we can compare that to what a bitcoin currently DOES cost and make better decisions, avoid bubbles and prevent tremendous crashes like we saw on Saturday.

[gat3way]

What about lots of people repeating that "price follows difficulty" which is in fact plain bullshit? It's actually difficulty that follows price - and often that's speculative price.

I'm promoting the idea that every user of BTC should be somehow protected by the ability of the speculators to destroy the market. I'm promoting the idea that education about where this currency comes from and the factors that truly drive its VALUE - not its PRICE - might just help stabilize the bitcoin economy. If we all know what a bitcoin SHOULD cost then we can compare that to what a bitcoin currently DOES cost and make better decisions, avoid bubbles and prevent tremendous crashes like we saw on Saturday.

Well, they also "created" this market. More than 90% of the miners wouldn't be there if speculators did not exist.

[enmaku]

What about lots of people repeating that "price follows difficulty" which is in fact plain bullshit? It's actually difficulty that follows price - and often that's speculative price.

I'm promoting the idea that every user of BTC should be somehow protected by the ability of the speculators to destroy the market. I'm promoting the idea that education about where this currency comes from and the factors that truly drive its VALUE - not its PRICE - might just help stabilize the bitcoin economy. If we all know what a bitcoin SHOULD cost then we can compare that to what a bitcoin currently DOES cost and make better decisions, avoid bubbles and prevent tremendous crashes like we saw on Saturday.

Well, they also "created" this market. More than 90% of the miners wouldn't be there if speculators did not exist.

To contradict something my mother used to tell me: Just because you created something doesn't mean you have the right to destroy it. Murder is murder, even if you're killing your own child.

Speculation within certain bounds is a good thing, without active speculation we wouldn't have Forbes and SmartMoney writing articles about us, but too much speculation allowed to run rampant and create bubbles as massive as this past week has seen create collapses like we saw on Saturday and I for one don't want to see any more collapses that big. It is therefore in everyone's best interest to understand what 1 BTC *should* be trading at and refuse to participate in such speculations. There will always be those who will and small inflationary bubbles and their associated crashes can still occur - I welcome them even, because they mean more investors coming to our community - but we can't allow them to get out of hand like they recently have.

I'm not talking regulation or enforcement, I'm talking education. People are still welcome to make their own decisions, but I'd like them to be well-informed decisions.

[oillio]

History has proven time and again that this sort of manipulation is doomed to failure.  You cannot control the price of a currency unless you can completely control it's supply.  For a recent and famous example, research how Soros broke the Bank of England.

If you do find limited success, it will only serve to worsen the problem.  When the market finally does break you, the dislocation will be many orders of magnitude greater than anything we have seen yet.
This is due to the fact that, the more successful you become at manipulating the price, the more a competitor can profit by breaking your hold.  Markets are designed to make what you are attempting impossible.

Speculators are not a bad thing in a market.  They serve to provide liquidity and price stability.  When they buy low and sell high they effectively put a floor and a ceiling on the market.  Speculators profit on the volatility, and in doing so actually leach the volatility out of the system.  The price swings in bitcoin are fundamental in nature.  They are happening because the actual value of bitcoin is changing very rapidly.  This is not good for people who want to use bitcoin as a currency, but it is unavoidable.  If bitcoin survives, the price will stabilize on its own.

Regardless, I applaud you for actually trying to fix the problem.  Good luck.  Your going to need it.

[Veldy]

Hi everyone, I've been working on the technical aspects of an idea I've been chatting about a little since the whole "market correction" yesterday. The bitcoin economy has grown far too speculator-centric to see much success as a real currency. In order for BTC to truly remain/become useful for purchasing goods and services some level of stability is necessary; a slow steady rise is fantastic, a continuous roller-coaster of huge peaks and valleys is not. Furthermore, as a miner it concerns me greatly to see prices dip low enough to damage my business when these bubbles eventually burst.

So I have a proposal: It begins with the miners since we/they are the initial source of all bitcoins (some 7200 per day, a fairly substantial number) but it hopefully sees adoption by many others too. If you're not a speculator, if you're a miner or someone who does business in bitcoins you want a stable exchange rate that increase proportionally to important factors like adoption levels or hash difficulty (which is actually sort of a factor of adoption levels) not on the whims of a bunch of get-rich-quick investors! If you want bitcoin to take off and stay useful in the long term, to survive the media madness and become a viable dominant e-currency, then we MUST do something about the volatility. The advice to "buy when it dips then resell high" doesn't help the market as a whole, it only helps the speculators who buy into the methodology and eventually, such a low will not have a corresponding recovery. You can only crash a market so many times before it stays crashed.

So I suggest that we adopt a new ideal value for what those of us treating this like a business are willing to accept for 1 BTC. We set up an exchange rate that is pegged to difficulty and assume that to be the value of 1 BTC. If a mountain of miners and traders all decide that 1 BTC = X dollars then speculators will have a hard time increasing or decreasing the value by as much. They have to buy their way through the mountains of BTC available at $X before they can effectively raise the price above or below it. This means that significantly larger amounts of money can move about in the market without affecting the exchange rate. If you look at the market depth data on Mt. Gox right now you'll see two large spikes of sell orders at $25 and $30. These spikes represent such a "wall" and we've seen before the stabilizing effect that such walls can have on value.

I've created a simple web site (changed: http://www.bitcoinreference.com) with a forum attached that displays what I believe to be a fair market value for BTC which is automatically calculated from the current difficulty setting and converted into several world currencies. The data updates automatically so it should change immediately when the difficulty does. Right now I'm using P=D/25000 to set the price, which seems to roughly follow historical data if we ignore the recent bubble and its associated correction. This pegs the price at $22.69 USD currently. I am of course open to suggestions on more accurate or reasonable formulae should you have any input.

If we all buy/sell/trade at this assumed value with at least a meaningful portion of our BTC we can create a new "wall" set where WE decide. We can stabilize the value of the bitcoin, which makes it more attractive to existing and new businesses and gives it the image to match its potential as the new world currency.

Edit: Changed URL, my proposal wasn't really a "union" per se so bitcoinreference.com is much more appropriate. Site content has not changed, nor has the URL structure, so the API can now be found at http://bitcoinreference.com/api

That is a socialist economic idea.  The Chinese do it [to their benefit since nations continue to do business with them in spite of this], but it would never be tolerated by a smaller entity ... it no longer becomes a free market.  In fact, fixing the price to difficulty would potentially allow the early hoarders who loaded up BIG when GPU mining started and difficulty was low such that they could slowly empty their hoarded coins from their secret purse [wallet ] at what is probably an inflated price for them, and the sales would not affect the cost of the coin, so the large volume of sales from these individuals would not allow for the market to react to high supply.  THAT WOULD DESTROY THE MARKET MORE ASSUREDLY THAN SPECULATION.  Why bother with bitcoin at all then; using Dwolla or other intermediaries would make far more sense and skip the middle man [bitcoin] altogether.

[SchizophrenicX]

Well I'm not about to join the argument. I don't think you'll be successful in controlling the prices, but I think it'd be a great idea to add a simple system to reflect upon what the suggested price of BTC is, however I also feel the formula is too simple (as many think).

I also read the part about just getting started and welcome for suggestion. So heres my suggestion, an important factor of how we miner's value BTC is via the difficulty. However, another important factor that can be as easily overlooked is the amount of investment that we put into the equipment, and the operating cost.

I believe the formula would have to factor both of these in as well to come up with a better metric of the value in 1 BTC. Which is to say instead of tackling how many people are mining, go straight to how much it cost to mine in the first place.

Irregardless of how many people is to mining, the difficulty adjusts so that 6 blocks are solve in an hour, that is 300 coins into the system. The person who has high hashing power also had to pay for his equipment and operation cost, also equally the risk he is taking. No one should be complaining about him getting the large piece of the pie imo.

Maybe something like,

Amount of power required to solve a block/50 BTC = Amount of power required to put 1 BTC into the system
Global average cost of electricity x Amount of power required to put 1 BTC into the system = generation cost of 1 BTC
(Remember to adjust when block solve = 25 BTC later on)

then we find the amount of hardware cost (normalised) at current retail price to put 1 BTC into the system, (risk of miners)

if we take what I assume is the most common build around, take it's cost (not forgetting the 5xxx series would phase out soon) divide by the amount of Mhash/s
i.e [ 4x5850 + ~700W PSU + [3SlotPCIex16 + 1SlowPCIex1] MOBO + Avg(Sempron140+Sempron145+Athlon2XII) + 2GB RAM + 8 GB Thumbdrive ] ~ 1.4 GHash/s @ $ x $
I believe almost everyone is averaging between $0.75/Mhash(/s) ~ $1/Mhash(/s)

However, if we include total network capacity, it will not be fair since many people would have broken even and the only cost would be operation. If we were to take for example the last 3 month's increase of network capacity cost weighted maybe it'd be fairer to those who are diving into mining currently since those who are already moving towards breaking even are carrying lesser risk then those who are just starting. (or the newer hardware)

Assuming 3 months window, thus accordingly we should 6 difficulty adjustments (example of weighted, should change to exponential)
cost of increase in network capacity would be
$/Mhash*{
11/36 * most recent adjustment +
9/36 * 2nd most recent adjustment +
7/36 * 3rd most recent adjustment +
5/36 * 4th most recent adjustment +
3/36 * 5th most recent adjustment +
1/36 * 6th most recent adjustment
}

Since, Current hash (2**32*Difficulty)/Total Network Speed = 1 blk/10 mins = 50 BTC / 10 mins
600 secs/ 50 BTC = 12 secs / BTC
thus 12 secs of total network speed would generate 1 BTC,

also not forgetting that we are paid to do these transactions taking an average, (although many of us exchange these for less variance, we have to account these in, since they are there to replace the generations when generation starts to decay 50>25>12.5 per block solved)
Fees paid to miners per BTC = Total Transaction Fees/(Total Block Solve*50 BTC)

Therefore,
cost of electricity (Base)
cost of increase in network capacity (last 3 months maybe?)
less transaction fees per BTC (last 3 months maybe)

1 BTC = Avg Cost of Electricity to Generate + Weighted Cost of Inc in Network Capacity - Transaction Fees Per BTC

Also, maybe as more factors maybe included, they should as well be weighted (probably). I think most importantly, what a BTC cost should be heavily weighted by the true demand

I didn't really go into numbers but I think this might be a good start for other people to add onto, the difficulty is already in the network capacity. This concept should be somewhat a fair & agreeable to what a miner would perceive is the price of a BTC. Also, a decrease in difficulty would decrease this number heavily since it'd be the most recent adjustment. In the long run, if the network capacity were to become stagnant, the cost would be calculated as the generation cost less transaction fee. I am negating the rent for the space the rigs & cooling since it isn't mandatory for everyone.

Again, I don't encourage controlling the currency neither do I think it's possible, as mentioned 7200/day isn't a lot to play around the market with especially when there's 6.5 million out there. However, I do think adding some sort of a reflective guide would help vastly in the reduction of speculation (that is beyond reason), since as of now there is no means to measure the true demand. (We don't really see/know it)

[SlaveInDebt]

Your proposal betrays a fundamental misunderstanding of how the market operates. To begin with, 7200 BTC/day is now a small fraction of trading volume and is not likely to influence anything. The idea of attempting to peg the price to difficulty just means that your 'enforced' price will eventually end up lagging the current (more widely traded) price by a few weeks. If you attempt to enforce that valuation in any way you will only succeed in creating an extremely attractive arbitrage opportunity for someone who will take all your coins. This 'wall' of yours will most assuredly get blown through every day that the market values Bitcoin differently than you do. Not to mention, you would have to do it on more than one exchange. Of course, you will need a lot of people to help you with this, because if you tried to do it yourself you would lose all your coins. Unfortunately, those who adhere to your cartel will also lose all their coins.

So... Good luck with that.

Hadn't considered the tiny amount of btc introduced daily versus the sum that's already available. Good post.

[enmaku]

Your proposal betrays a fundamental misunderstanding of how the market operates. To begin with, 7200 BTC/day is now a small fraction of trading volume and is not likely to influence anything. The idea of attempting to peg the price to difficulty just means that your 'enforced' price will eventually end up lagging the current (more widely traded) price by a few weeks. If you attempt to enforce that valuation in any way you will only succeed in creating an extremely attractive arbitrage opportunity for someone who will take all your coins. This 'wall' of yours will most assuredly get blown through every day that the market values Bitcoin differently than you do. Not to mention, you would have to do it on more than one exchange. Of course, you will need a lot of people to help you with this, because if you tried to do it yourself you would lose all your coins. Unfortunately, those who adhere to your cartel will also lose all their coins.

So... Good luck with that.

Regardless of the problems with my implementation, merchants will not enter this marketplace if they have to change their prices daily - and in the current market, daily wouldn't even be often enough! There is no reason that anyone anywhere should pay 1 BTC for a shirt and then twenty minutes later see a price tag of 0.8 BTC and then 1.4 BTC twenty minutes after that. The issue still remains that this market is too volatile for real commerce and if the only people in the market are the speculators, who thrive on volatility, there will likely never be a sufficient decrease in that volatility to make this a worthwhile mechanism for most businesses to transact in.

I see a lot of people reaffirming that I've spotted a problem and telling me that my solution is stupid, wrong or communist but not a lot of people stepping up to do anything themselves. So until someone has a better idea and wants to implement it, stop complaining about my imperfect solution.

[enmaku]

Oh and just to reaffirm that a big enough wall of coins can stabilize the price of bitcoins, anyone else remember the $20, $25 and $30 marks and how we hovered around them so much longer than, say, the $16 mark or the $23 mark? Go look at Mt. Gox's market depth data. See those big spikes at the even $5 increments? That would be the source of that stabilizing factor so yeah we have actually seen that stabilization occur before - it couldn't stop the bubble but it did stall it at $5 increments. Those familiar spikes, by the way, represent about 2,000 BTC each according to Mt. Gox's chart, which is less than 1/3rd the kind of power a united coalition of miners could wield.

[qed]

i have made an android app monitoring bitcoin exchange rates, it's supporting around 20 currencies. I'm planning to add some more feature about the market in the near future, following this thread.

BitWid

[AntiVigilante]

There is a much better solution for those doing business in prices denominated in Bitcoin. The problem is in trying to treat it as a proxy for native currency instead of treating Bitcoin as a native currency itself.

DING DING DING. This is why I price my loans in BTC with BTC in fees. If others with more money than I have ($220) don't have the balls that's their problem.

THIN MARKETS ARE SUPPOSED TO BE UNSTABLE. IF YOU DON'T KNOW THAT, WAIT A YEAR. The time for stability is when those who know the system know how to make it productive. You can't impose stability so you can play miniature golf in sand dunes.

This is like the DNS registrars saying that 2600.org was an unacceptable domain. Guess who won? 2600 kept hacking into the DNS and registering.

If a business is doing a substantial volume of its sales transactions in Bitcoin it should also be doing accounting in Bitcoin because it simply does not translate as a Dollar proxy in practice. Inventory, operating costs and other inputs need to be accounted for as denominated in Bitcoin or they will make bad decisions and loose money.

Fixing a problem that isn't there is the biggest problem of BTC.

A perfect example is mining. Sure, it can look wildly profitable if priced in Dollars, but if you were to account for all the costs involved as denominated in Bitcoin many miners may well conclude that they would accumulate more Bitcoin by purchasing them on an exchange vs. mining them. Another great example is the exchanges themselves, the fee taken by the exchange is taken as a percentage whether it be in Bitcoin or some other currency, and thereby it is always denominated in whatever the native currency is used for the transaction.

Until Bitcoin merchants catch onto this, they will always be plagued by the exchange rate problem. If they are smart they will find a way to make it work for them instead of hoping it won't work against them.

Or someone more enterprising beats them to the punch.

[dumb_mother]

i just want to correct a simple misunderstanding that many people have- it is speculators who bring consistency to a currency.  in the original post you badmouthed people who "buy the low and sell the high", but the more people who do that, the higher the lows are and the lower the highs are.  it is the actual action of price discovery that happens when buyers and sellers meet that decides the value of anything.  the more participants involved, the less extreme the extremes are- i for one know that i can make far more money trading bitcoins than mining them- and that will be where i concentrate my firepower.  i plan on being as large a player in the market as i can, and the only thing my "speculation" will bring is more stability.  as things are currently, it is impossible to short BTC- that being the case the only thing "speculators" can do is force the price higher by their mere involvement (basically why people hate long-only commodity funds currently even though i could prove mathematically that they should depress the front month [cash] markets by their involvement).  i might even start an intra-day BTC valuation thread, we'll see.  anyways, i digress, "speculation" is GREAT for BTC- it draws more attention to it and actually makes the moves on any given day LESS.

[ahtremblay]

So basically a MINERS CARTEL!

[enmaku]

All right, fine, just pretend I'm not trying to accomplish anything by putting the information out there then. All I am is a guy who threw out a web site that shows, based on prior trends, what the average exchange rate for BTC should be for a given period as delineated by difficulty changes. Do with that information what you will - I still say it will keep bubbles from growing as large just for people to know exactly how inflated the currency probably is at a given moment.

[AngelusWebDesign]

The difficulty is set to go up about 50-60% in a few days.

Do you really think there will be 50-60% more Bitcoin users than there were 2 weeks ago?

When a miner adds a couple rigs, and increases the total network hashrate by 0.5%, do you think that the Bitcoin userbase also grew by 0.5%?

There really is no correlation between the two.

[enmaku]

All right, fine, just pretend I'm not trying to accomplish anything by putting the information out there then. All I am is a guy who threw out a web site that shows, based on prior trends, what the average exchange rate for BTC should be for a given period as delineated by difficulty changes. Do with that information what you will - I still say it will keep bubbles from growing as large just for people to know exactly how inflated the currency probably is at a given moment.

'Inflated'

Does not mean what you think it does.

If you want to make a compelling case for managing the Bitcoin economy you must convince people you know what you are talking about.

in·flat·ed  (n-fltd)
adj.
1. Filled or expanded by or as if by gas or air.
2. Unduly enlarged or aggrandized; swollen: an inflated estimate; an inflated ego.
3. Full of empty or pretentious language; bombastic.
4. Raised or expanded to abnormal levels: an inflated economy; inflated wages.
5. Hollow and enlarged: an inflated calyx.

I'm going with definition 4 on that one. If we have a baseline measure of average value for a span of time, and the currency is currently trading well above that value, I'm pretty sure the Oxford English dictionary says we get to use the word "inflated." It does, in fact, mean what I think it does.

[enmaku]

The difficulty is set to go up about 50-60% in a few days.

Do you really think there will be 50-60% more Bitcoin users than there were 2 weeks ago?

When a miner adds a couple rigs, and increases the total network hashrate by 0.5%, do you think that the Bitcoin userbase also grew by 0.5%?

There really is no correlation between the two.

Then the total processing power of the network magically grew out of thin air with no new interest drummed up in the project whatsoever? Again, people posting crap about how screwed up my methods are without bothering to post their magical fix to the solution. What is your better option?

The hashrate is a product of the number of miners, which is a product of the number of users. The difficulty lags the actual network growths by a bit but yes, since hashrate is (albeit indirectly) a measure of network size/interest, it should raise proportionately with price per BTC which is also largely a function of network size/interest.

[enmaku]

Oh, and the network is at 6.550 TH/s right now, to add 0.5% to the network with his "couple rigs" your theoretical miner would have to be pulling 32,750 MH/s. That's something on the order of 61 5970s. Assuming quad-card rigs that'd eat up about 20 kilowatts of electricity, which would be interesting to see outside of a data center since most houses and apartments are fused at 100A (115V * 100A = 11,500W maximum load). That's also not counting the 8 kilowatts he'd have to spend cooling off the 70,775 BTU of heat he's dumping into his house for that "measly" 0.5%. Get an idea of the scale we're working with before you act like you understand things.