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Author Topic: soft cap on the value of bitcoin?  (Read 847 times)
Anon136
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April 10, 2013, 02:13:21 AM
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By my estimation at around 1000 dollars we will start to see ~1 dollar fees to get your transactions included in a block. If they increase the block size to 10mb instead of 1mb than mb we could get a 10,000 dollar bitcoin with ~1 dollar tx fees. The devs wont be able to increase the block size higher than 10mb though or people with slower internet connections will begin to be cut out of the network, unable to download blocks fast enough.

So then the question becomes, would people still be willing to dump more capital into bitcoin once tx fees become 10 dollars? what about 100 dollars? it seems bitcoin would loose a great deal of its utility at that point. Doesn't this create something of a soft cap somewhere around 10,000 dollars.

i know this math is pretty rough but you can substitute your own numbers, the specific numbers arnt that important its the basic idea of the mechanisms at work here that matter.

what im saying is that we will never see a 100,000 dollar bitcoin unless someone can figure out how to address this issue, and i just dont see how they can.

So my question is this, do you think this is a problem? perhaps a 10,000 dollar bitcoin would incentivize entrepreneurs to figure out how to address this problem, since they could become absurdly wealthy by doing so. OF course there are a million and one ways to use centralized systems to deal with this but my interest is in decentralized solutions, since this is the biggest selling point of bitcoin.

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April 10, 2013, 02:46:19 AM
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what happens when miners arent making block rewards? they rely on transaction fees. If there arent fees to profit them in the future then bitcoin is doomed anyways.
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April 10, 2013, 02:49:13 AM
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what happens when miners arent making block rewards? they rely on transaction fees. If there arent fees to profit them in the future then bitcoin is doomed anyways.

yes this is true. it seems we will be forced to rely on altchains and there is nothing more to it.

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April 10, 2013, 02:55:47 AM
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1) Transactions of coins that have stayed dormant for a while are TX-free by default.
2) Gavin has already floated changing the default minimum fee to be dependent what miners are accepting. This would require no sort of fork - it's all network stuff.
3) There are still miners who accept low-priority (read: zero fee with young coins) transactions.

Not a problem. By the time miners need huge rewards from TX fees, the blocks will be big enough to pay them.

If there is something that will make Bitcoin succeed, it is growth of utility - greater quantity and variety of goods and services offered for BTC. If there is something that will make Bitcoin fail, it is the prevalence of users convinced that BTC is a magic box that will turn them into millionaires, and of the con-artists who have followed them here to devour them.
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April 10, 2013, 02:59:54 AM
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1) Transactions of coins that have stayed dormant for a while are TX-free by default.
2) Gavin has already floated changing the default minimum fee to be dependent what miners are accepting. This would require no sort of fork - it's all network stuff.
3) There are still miners who accept low-priority (read: zero fee with young coins) transactions.

Not a problem. By the time miners need huge rewards from TX fees, the blocks will be big enough to pay them.

Miners accept zero fee because they earn block rewards. In the future, i dont see it happening, electricity cost money.
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April 10, 2013, 03:01:31 AM
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1) Transactions of coins that have stayed dormant for a while are TX-free by default.
2) Gavin has already floated changing the default minimum fee to be dependent what miners are accepting. This would require no sort of fork - it's all network stuff.
3) There are still miners who accept low-priority (read: zero fee with young coins) transactions.

Not a problem. By the time miners need huge rewards from TX fees, the blocks will be big enough to pay them.

Its not about what the miners need. its about how limitations on the size that you can make a block within the technical limitations of internet service providers. How if the demand for bitcoin grows enough the demand for space in the blocks will begin to exceed the supply of space in the blocks. How if this happens it will cause users to be forced to bid higher and higher inorder to get into those blocks. Eventually they will be forced to pay so much that bitcoin will begin to lose its appeal and this will cause a soft cap on the value of a bitcoin. Im not saying this is good or bad just that its a thing and that it suggests that 1 million dollar bitcoin predictions are unrealistic even though we could easily see a 1 million dollar bitcoin if this soft cap didnt exist.

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April 10, 2013, 03:04:19 AM
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bitcoin has limitations, you named some, another is the blockchain size.  
However Im sure in due time it will be addressed and corrected. If not then Im sure an altcoin will rise and take bitcoin's place.
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April 10, 2013, 03:05:10 AM
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Yeah none of that made sense.  Fees in nominal terms will continue to go down.  We have seen the move from 0.01 to 0.0005 to 0.0001 already.  In 20 years who knows maybe the average fee will be 1 uBTC and that happens to be worth about $0.02.  

Still even if the block size never increases the 7tps "limit" is roughly large enough to handle the entire volume of the US fed wire system which processes about $600 trillion (yeah with a T) in transfers annually
http://www.federalreserve.gov/paymentsystems/fedfunds_ann.htm

I am not saying there aren't challenges but the idea that Bitcoin can't rise above $1,000 due to technical limitations is laughable. How many gold transfers are there annually?  The value of all gold above ground is one the order of $10T.  If Bitcoin was ONLY used a store of value and acheived similar value we are talking ~$500,000 per BTC. 

Now before someone goes off the deep end I am not saying Bitcoin is going to $500,000 just pointing out that the technical challenges can be solved and even if there are some limitations Bitcoin can move much much higher than $1,000.
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April 10, 2013, 03:05:14 AM
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bitcoin has limitations, you named some, another is the blockchain size.  
However Im sure in due time it will be addressed and corrected. If not then Im sure an altcoin will rise and take bitcoin's place.

my thought is that it wont rise to take bitcoins place. but it will rise to take the capital that cant fit in the bitcoin blockchain. Thats why i own quite a few litecoins.

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April 10, 2013, 03:07:14 AM
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Yeah none of that made sense.  Fees in nominal terms will continue to go down.  We have seen the move from 0.01 to 0.0005 to 0.0001 already.  In 20 years who knows maybe the average fee will be 1 uBTC and that happens to be worth about $0.02. 

I send out a LOT of tx everyday, no not Satoshi Dice spam but a lot and even with a token fee (0.00005 for high priority tx and min for low priority ones) I rarely don't have a tx confirmed in the next block.

ignore fees in nominal terms. Think of the amount of information that a miner can recieve in a 10 minute period and think about how many transactions take place on planet earth in a day. Miners will never be capable of recording even a miniscule fraction of all transactions in the bitcoin blockchain. These are the only data points you need to understand inorder to understand my point.

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April 10, 2013, 03:08:44 AM
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This is the reason why the PPC coin mining system is better - it is less energy intensive to mine proof-of-stake than proof-of-work.

Also, this is why we need transaction exchanges to allow more transparency between miners and users on transaction fees, as I talked about here: https://bitcointalk.org/index.php?topic=166859

The first person to build one owns a major part of the future bitcoin infrastructure.

crack money: 1BFzpDHT69SrwLXndVogGgoSf5W4A8TMVS
Qoheleth
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April 10, 2013, 03:15:02 AM
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Its not about what the miners need. its about how limitations on the size that you can make a block within the technical limitations of internet service providers. How if the demand for bitcoin grows enough the demand for space in the blocks will begin to exceed the supply of space in the blocks. How if this happens it will cause users to be forced to bid higher and higher inorder to get into those blocks. Eventually they will be forced to pay so much that bitcoin will begin to lose its appeal and this will cause a soft cap on the value of a bitcoin. Im not saying this is good or bad just that its a thing and that it suggests that 1 million dollar bitcoin predictions are unrealistic even though we could easily see a 1 million dollar bitcoin if this soft cap didnt exist.
Okay. There's two people who might need full blocks: miners, and users.

Miners, well, ASICs are a thing now. It's increasingly becoming a business that only makes sense if you have significant capital to sink into it (this is an intentional part of the design, btw; it means an attacker needs to spend all that cash too). They can afford fat internet pipes. Which means for them, 100MB blocks wouldn't be an issue.

As for users, solutions are already in the works - solutions wherein people who aren't mining will only have to download e.g. the block header and the changes in the UTXO tree, which would be significantly smaller.

There's a lot of coding and implementation to be done still, but these aren't problems without any known solution.

If there is something that will make Bitcoin succeed, it is growth of utility - greater quantity and variety of goods and services offered for BTC. If there is something that will make Bitcoin fail, it is the prevalence of users convinced that BTC is a magic box that will turn them into millionaires, and of the con-artists who have followed them here to devour them.
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April 10, 2013, 03:17:00 AM
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Yeah none of that made sense.  Fees in nominal terms will continue to go down.  We have seen the move from 0.01 to 0.0005 to 0.0001 already.  In 20 years who knows maybe the average fee will be 1 uBTC and that happens to be worth about $0.02.  

I send out a LOT of tx everyday, no not Satoshi Dice spam but a lot and even with a token fee (0.00005 for high priority tx and min for low priority ones) I rarely don't have a tx confirmed in the next block.

ignore fees in nominal terms. Think of the amount of information that a miner can recieve in a 10 minute period and think about how many transactions take place on planet earth in a day. Miners will never be capable of recording even a miniscule fraction of all transactions in the bitcoin blockchain. These are the only data points you need to understand inorder to understand my point.

Which has nothing to do with your post.   Bitcoin can rise much higher than $1,000 per unit (possibly to $500,000 per unit) being used as nothing but a store of value (with very low tps).  It could also be used a reserve currency of sort, it could be used as a backing for next gen crypto-currencies, or it could (potentially) be limited to large transfers of wealth like FedWire system which operating at less than 7tps transfers >$600T annually (>2T BTC at current exchange rate or >60x current estimated trade volume).  At ~70tps we are talking a potential of 10x US FedWire system (the highest volume value transfer system in the world) or something on the order of $6 quadrillion annually.  Your belief that fees will rise linearly is nonsense.  Nothing supports that.   If fees get too high then people will use alternatives (off blockchain txs, alt-coins, etc) however those very actions will reduce demand on blockspace and fees will fall.  To put it into perspective imagine Bitcoin was operating at say:

70 tps = 2.2 billion transactions annually.  At $0.01 per tx that is $22 million annually probably too small to support the network, but even $0.10 is $220 million.  Sure microtransactions aren't possible but on blockchain microtransactions are a pipe dream anyways.   

The idea that if Bitcoin can't replace all transactions on the planet it can't rise to very high levels is an unsupported opinion.
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April 10, 2013, 03:29:29 AM
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Yeah none of that made sense.  Fees in nominal terms will continue to go down.  We have seen the move from 0.01 to 0.0005 to 0.0001 already.  In 20 years who knows maybe the average fee will be 1 uBTC and that happens to be worth about $0.02. 

I send out a LOT of tx everyday, no not Satoshi Dice spam but a lot and even with a token fee (0.00005 for high priority tx and min for low priority ones) I rarely don't have a tx confirmed in the next block.

ignore fees in nominal terms. Think of the amount of information that a miner can recieve in a 10 minute period and think about how many transactions take place on planet earth in a day. Miners will never be capable of recording even a miniscule fraction of all transactions in the bitcoin blockchain. These are the only data points you need to understand inorder to understand my point.

Which has nothing to do with your post.   Bitcoin can rise much higher than $1,000 per unit (possibly to $500,000 per unit) being used as nothing but a store of value (with very low tps).  It could also be used a reserve currency of sort, it could be used as a backing for next gen crypto-currencies, or it could (potentially) be limited to large transfers of wealth like FedWire system which operating at less than 7tps transfers >$600T annually (>2T BTC at current exchange rate or >60x current estimated trade volume).

it has everything to do with my post... my post was asking the question of whether the limitations on block size would impose a soft cap on the value of bitcoin. What i explained was that bitcoin has limitations on block size. ergo it has to do with my post. I even said in the post that you could substitute your own numbers in there, it was the mechanisms that are important.

but anyway, what you are saying is that past the point where it is useful for internet purchases it would still have utility, just it would begin to have different a different utility and the price could still rise in servicing this new utility. Seems plausible, especially for clearing obligations between large financial institutions, i.e. it could be very useful in filling the role currently filled by fed-wire.

mb max keiser is right, maybe we could have a 1million dollar bitcoin =)

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April 10, 2013, 03:41:48 AM
 #15

Well I would say Bitcoin is more used as a store of value today than a method to buy cheap things on the internet so it would be more like it not expanding beyond its most significant use case then some "new utility". 

Still the idea that Bank Wires are only used by financial institutions is kinda bogus claim.  I sent 23 bank wires today so I am now Bank Of America?  Now today I have to go through a bank but in the future maybe not.  If most businesses and individuals accepts Bitcoin transfers I could bypass the bank. 

Even if limited by technical reasons to "only":
* store of value
* high value purchases
* fund transfers
* international remittance (think WU - even your inflated Bitcoin fees kill WU)
* gray area transactions
* high risk/fraud transactions (online gambling this could be $500B annually easy)
I certainly can see $500K to $1M(+) as possible (plausible? who knows?).



+ Note I don't claim Bitcoin is going that far but if it doesn't IMHO it won't be because of the blockchain limit. 
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