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Author Topic: Minning Cost Irrelavant to Value of Bitcoin  (Read 665 times)
DrYe5
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June 25, 2011, 01:22:05 PM
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Bitcoin value dictates value of mining. Mining cost should not be relevant to value of bitcoin.

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June 25, 2011, 01:34:40 PM
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Mining costs are only indirectly related to the value of bitcoins.

When the value of bitcoins drops below the cost of mining, it makes no economic sense to mine. So people who mine for profit should stop mining. This means it will become cheaper to mine again, and there should be an equilibrium.

However, there are also people that mine for other reasons than economy, or who expect that the price of bitcoins will rise enough to get them out of the costs.

(replace bitcoins with gold, and you'll see what has been done in gold-based economies for thousands of years)
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June 25, 2011, 01:52:16 PM
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Mining costs are only indirectly related to the value of bitcoins.

When the value of bitcoins drops below the cost of mining, it makes no economic sense to mine. So people who mine for profit should stop mining. This means it will become cheaper to mine again, and there should be an equilibrium.

However, there are also people that mine for other reasons than economy, or who expect that the price of bitcoins will rise enough to get them out of the costs.

(replace bitcoins with gold, and you'll see what has been done in gold-based economies for thousands of years)

I may misunderstand the Bitcoin difficultly here so if I do feel free to correct.

As difficulty increases it will take longer to generate blocks, thus coins. Those who have paid out early on for huge mining rigs will have likely recovered some if not all their cost however the difficulty alone would see to deter new large miners. As for the little guys who thought they could load a miner and use their GPU when they were not using it (150-300Mh) or worse the CPU (6-20Mh) they will find that running a local miner will result in bitcoins for weeks, months, maybe longer and even in a pool it will take days to get .010 bitcoins. This should cause a dropout of miners, especially on the low end and without just as many joining the mining the overall hash rate should drop. As that hash rate drops does not the difficulty?

If I'm on the right track then one would think the total hash rate would not grow evenly over the life of mining but will ebb and flow and as such so would the value (if any) of bitcoins. As difficulty reduces and more coins are dumped on the market the price should drop, as difficulty rises fewer coins are there so price goes up. Up until recently the difficulty has been at a level where even slow rigs could generate blocks but I'm seeing already the difficulty change turning even a hobby into something almost useless (mining) so is not mining entering new territory here? If the price of Bitcoins does not rise dramaticlly will not even the large rigs start seeing the uselessness of mining and shutdown, if only temporarily? Add in market events such a MtGox, the EFF and doesn't that price become dis-joined from the cost of mining entirely?
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