Something I wrote about marginal cost to a friend in June, 2011

[crowned]

just found an old email chain...

Right after I'd heard about bitcoin...

So, you know how everyone always says "well silver costs $5 to dig out of the ground"?

Well, there are these new computerized coins called Bitcoins or BTC, that are made by solving equations or someting, and each one is progressively more complicated than the previous one.  So the "price" of "mining" a "bitcoin" is always increasing, and they don't get cheaper unless computing power goes way up.  Right now it takes maybe 3 days to make one with a normal computer, and they are going for about $10.

I personally think they're worthless, but if people believe in them, each is more difficult than the last to "get out of the ground" and so maybe they're going to get more and more valuable.

http://bitcoincharts.com/markets/



And one week later...



Since we chatted they went from ten to thirty.

http://forum.bitcoin.org/?topic=92.0 (link that works today : https://bitcointalk.org/index.php?topic=92.0 )

This dude couldn't sell 10k of them for $50USD a year ago.  We literally could have retired had we invested $500 in these a year ago.


Normally when I  put money toward an investment, vehicle, whatever, I put in $2k.  At the time of that first email, if I'd bit the bullet, that would have been 200BTC (at the time, I had about 10k in physical gold and silver and had studied marginal cost, the gold market, the FED, etc., and had considered putting a chunk into bitcoin, but it seemed so expensive compared to a year earlier).

Today, bitcoins are "expensive", but if the marginal cost keeps going up, shouldn't they keep getting more expensive... by design ?

[1713878105]

1713878105

[1713878105]

1713878105

[1713878105]

1713878105

[1713878105]

1713878105

[1713878105]

1713878105

[player514]

just found an old email chain...

Right after I'd heard about bitcoin...

So, you know how everyone always says "well silver costs $5 to dig out of the ground"?

Well, there are these new computerized coins called Bitcoins or BTC, that are made by solving equations or someting, and each one is progressively more complicated than the previous one.  So the "price" of "mining" a "bitcoin" is always increasing, and they don't get cheaper unless computing power goes way up.  Right now it takes maybe 3 days to make one with a normal computer, and they are going for about $10.

I personally think they're worthless, but if people believe in them, each is more difficult than the last to "get out of the ground" and so maybe they're going to get more and more valuable.

http://bitcoincharts.com/markets/



And one week later...



Since we chatted they went from ten to thirty.

http://forum.bitcoin.org/?topic=92.0 (link that works today : https://bitcointalk.org/index.php?topic=92.0 )

This dude couldn't sell 10k of them for $50USD a year ago.  We literally could have retired had we invested $500 in these a year ago.


Normally when I  put money toward an investment, vehicle, whatever, I put in $2k.  At the time of that first email, if I'd bit the bullet, that would have been 200BTC (at the time, I had about 10k in physical gold and silver and had studied marginal cost, the gold market, the FED, etc., and had considered putting a chunk into bitcoin, but it seemed so expensive compared to a year earlier).

Today, bitcoins are "expensive", but if the marginal cost keeps going up, shouldn't they keep getting more expensive... by design ?

I really like the communication posts. It's always super cool to see people's reactions before bitcoin booms and then after them.

I'm not 100% sure on what you mean by the question. Are you saying that, regardless of the bitcoin fluctuations due to buyers/sellers, bitcoin will go up by design because there is a limited amount of btc? In that case, I'd say that it depends heavily on the support that it's getting from everyone who is using it. If there is no support and no demand for bitcoin, there is no reason for it to have its price going up.

[Xavofat]

each one is progressively more complicated than the previous one.  So the "price" of "mining" a "bitcoin" is always increasing

This is false.  The cost of mining BTC does not increase by default.  The cost and difficulty of mining it reacts to the amount of computing power which is dedicated to the network.

Basically, the network attempts to adjust so that no matter how much computing power is dedicated to the network, a block is mined approximately every ten minutes.  The way that it does this is using difficulty - every 2016 blocks (approximately 2 weeks) the difficulty of mining a block changes based on how much computing power is dedicated to the network so that a block is still mined every ten minutes.

If the computing power decreased, so would the difficulty of mining BTC.

Today, bitcoins are "expensive", but if the marginal cost keeps going up, shouldn't they keep getting more expensive... by design ?

No.  The cost of mining BTC is designed to follow the price, because all investors are attempting to make a profit.  When the price rises, so does the difficulty, and when it falls, so does the difficulty.