Your argument as to the cost of mining destroying wealth is not new [ ... ] however there is no "destruction" of economic value as the payments are still in circulation just not in the BTC economic network. Until those that sell us the electricity begin to use and hold BTC.
As I have explained several times before: When you are computing your personal wealth, or the wealth of a company, or even the wealth of a city, it is proper to count banknotes, bank deposits, stock certificates, treasury bonds, and other tokens as wealth, together with the market value of your real wealth -- cars, buildings, furniture, jewelry, etc. That is because such tokens can be exchanged with people outside the unit (you, the company, etc.) for additional real wealth.
However, when evaluating the wealth of a whole country, or of the whole world, it is wrong to include the tokens that cannot be exchanged with anyone outside that larger unit. Just as you cannot count the chips issued by a cassino, at face value, as part of the cassino's capital.
Thus, when considering the cost of mining at the global scale, one must look first at the
real wealth that is destroyed or created; not at the destruction or creation of of dollar bills and bank balances, which is of course zero. Mining actually consumes electricity, that could be used to light homes or make aluminum; and electronic equipment, that must be discarded after a year or two of service. Assuming that mining now must be barely profitable, if at all, we can estimate the dollar value of this consumed wealth as being close to 1 million dollars per day. That is, the real cost of mining is roughly equivalent to demolishing half a dozen houses in my neighborhood, every day.
On the other hand, we defintely must consider the flows of wealth-representing tokens (mainly dollars and bitcoins) to estimate the transfers of real wealth between the various players. The flows include the amounts paid and received by traders, the profits of miners, the fees charged by banks, bitcoin exchanges, etc.. However, in order to see the concrete effects of those flows, we must eliminate the tokens at the end of the analysis, and focus on the changes in the real wealth of the individuals that they imply.
Specifically, it is certain that, each average day, the "bitcoin system" must remove more than one million dollars worth of real wealth from some set of "losers", who end the day with less real wealth than they had a day before. As said above, the system destroys somewhat less than 1 M$ of real wealth per day, in the form of electricity, equipment, and other goods and services that are irrecoverably consumed by mining and other activities such as running the exchanges; and that wealth ultimately must come from the "losers". The rest of the wealth that is removed from "losers" goes to increase the real wealth of:
* the miners (as mining profits),
* the exchanges and other bitcoin service companies (as fees),
* another set of people, the "winners", who find themselves richer than they were a day before.
Today's "losers" may become "winners" tomorrow, and then they may recover some of the wealth that they lost, and perhaps even become wealthier than they were before. But, at the global and individual level, the things will not balance in the end; quite the opposite. Again, as a whole, the bitcoin system takes almost 1 million dollars worth of real wealth per day from the losers, and destroys it. Individually, the sets of winners and losers will tend to grow, and the wealth gained by the winners will keep increasing, and the wealth lost by the losers will keep increasing even faster.
Winners who leave the system with a profit, and do not come back, will never become losers; so the wealth that they took from the losers will never return to them. As I said before, there seems to be no data at all on the magnitude of this "pyramid effect" of the bitcoin system, the amount of wealth it transfers from losers to winners (besides what gets destroyed or passed on to miners and skimmers). However, we now that many people have left the system with considerable gains. Given the volume of bitcoins that get traded each day, on the exchanges and privately, I would guess that the losers lose at least 1.5 M$/day, and the winners gain at least 0.5 M$/day. Does anyone have a better estimate?
the concept used to equate BTC to the "pyramid effect" is shared if you were to equate Berkshire Hathaway Inc. to a "pyramid effect" and all costs to maintain the trading servers and techology including the effort to maintain its value equates to wealth "destruction". Berkshire Hathaway Inc.(NYSE:BRK.B)"145.53 +0.65 (0.45%) Mar 20 - Close NYSE real-time data "
BRK is a holding, a company that only owns stock of other companies that actually produce goods and services - like General Electric, Fruit of the Loom, Coca-Cola, etc. Apart from the indirection, investing on BRK stock is basically the same as investing on stock of all those companies.
When you buy shares from BRK, you become owner (indirectly, but effectively) of a small slice of each of those companies. You will also own the same slice of whathever each company produces -- a couple of blenders, a few cotton briefs, a few bottles of Coke. When each compan sells those things, it gives the money to Warren Buffet, who takes his slice and gives the rest back to you. When one of those companies invests some of the revenue in more equipment, new buildings, etc., a slice of those extra assets is also yours. Finally, when you sell the BRK shares, you are selling those slices of GEICO and FotL and Coca-Cola to someone else.
So, the dividends paid by BRK shares, and any increase in BRK's share price while you hold them, are largely the result of real wealth created by those companies, either sold to their markets, or invested in their assets. Shares or BRK therefore can be counted as very real wealth, as much as your home or car. In fact, they are
productive real wealth, that continuosly creates more real wealth for you. On a very fundamental level, investing in BRK is not very different than buying a baker's oven and making and selling bread yourself. Or buying a milk cow, or raising and breeding pigs.
But real wealth can be destroyed, so the shares of any of those companies, and therefore the BRK shares, may lose value unexpectedly -- e.g., if a factory is destroyed by fire, or the US government decides to ban carbonated brown beverages. That is not different than your bakery or your home being destroyed by fire, or your milk cow being eaten by a chupacabra. You become poorer -- that is life.
Your bitcoins, on the other hand, are not like BRK or Coca-Cola stocks, because they are not certificaes of property of anything. They are more like bank notes of an exotic country. They can be counted as part of your personal wealth, sure, but are nowhere as "real wealth" as a car, or a lot of BRK shares. That is because the bitcoins, like foreign banknotes, will only become real wealth if and when you find someone who will accept them in exchange for real wealth. Bitcoins are also unlike BRK shares in that they do not produce real wealth for you while you own them. (These two differences seem to be the reason why most experienced investors won't even consider putting their money into bitcoin.)
Bitcoins are more similar to the so-called "penny stocks": shares of failed or bogus companies that have no signiicant assets, whose products or services are non-existent or have insignificant value. Owning a slice of such a company adds practically nothing to one's real wealth, and therefore the market price of such shares should normally be near zero. However, strong or deceptive marketing may induce some people to buy them for a significant price; and then speculators may buy them too for a significant price, in the hope of finding such fools who will buy for even more. While such speculative distortions may affect also the price of solid stocks, like BRK, they alone may sustain a substantial market price for some penny stocks -- at least for a while.
Bitcoin is supposed to have sort of an intrinsic value because the exceptional qualities of the accounting mechanism that establishes the current ownership of bitcoins, that consists of its miners and relay nodes. Stocks, including penny stocks, also have an accounting system for that establishes their ownership, consisting of various ledgers and databases maintained by stock exchanges like NYSE and NASDAQ, brokers, investment funds, etc.. There are many differences between the two ownership tracking mechanisms, such as who is in control, whether the owners are identified, whether transfers can be blocked or reversed, robustness against various types of attack, legal and police support, and so on. It is debatable whether those differences are advantages or dsadvantages, and how much they are worth. One main difference is the cost of maintaining the ownership records; which, as said above, is one million dollars per day for bitcoin, and a small fraction of that for a specific stock like BRK or APPL.
As said before, in order to get a rought measure your current wealth, it is customary estimate the dollar value of your material possessions, at their current market prices, and add all those amounts together with your bank accont balances. Your stocks should be included too, because they are actually slices of companies. However, is not very meaningful to include your bitcoins in that computation, because you can't know what will be their market value when you decide to spend or sell them. (Strictly speaking, that holds for your other material possessions, too; but the future market price of a car or home is nowhere as uncertain as that of bitcoin.) It is better to count your bitcoins separately from your dollars and other possessions with relatively stable value.
How unstable was trade back in the 1500s?
Trade was more complicated than now, because there were many more currencies in circulation, and the relatively slow communication channels made their relative values more uncertain. However, the accountants of the Spanish Empire, for example, used a stadardized currency unit -- the "maravedi" -- from the late 1400s into the 1600s and beyond. Originally it was a copper coin, but the maravedi remained in use as unit of accounting for a century or more after the coins disappeared from circulation. Thanks to that standardization, and the extensive bureaucracy of the Empire, we can now learn, for example,
how much Columbus's expedition cost, and how expensive it was in relation to the cost of other things.
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