Thoughts on ASIC proliferation and Bitcoin Economics

[thatdude]

My gut feeling is that the proliferation of ASIC rigs will put downward pressure on the price of BTC, and that the price of BTC is artifically inflated by people hoarding them and the difficulty of getting fiat money into markets.

Perhaps it would be best for Bitcoin and would increase their utility if the price fell to $10 or $20 but with less fluctuation, and at some point  the sum of the tx fees in a block will be greater than the new coins generated.

What are your thoughts and does anyone have an economic analogy to explain what you think will happen with bitcoins and mining?


First Post!!   and thanks for your time.

[Birdy]

It's not a perfect anology as it lacks some details but:
Mining is more like e.g. the truckers who drive the gold to the next shop.
You need them for the system to work, but they don't define the price of gold.
Will the goldprice drastically drop or rise, because the truckers get better trucks to transport the gold?
It would have some limited influence on the price.


There is a constant downward pressure of about 3600 Bitcoins a day (actually a bit more) for about the next 3 years, but unless in states the user base is not kinda fixed and might increase.

[alh]

Just to be picky, it seems like the actual mining rate these days is closer to
4500/day. I get this using 7.5 blocks/hour from bitcoinwatch.com. Using 24
hours/day, and 25 bitcoins/block. This rate may well drop in the next 24 hours
when the difficulty rate jumps up by 25% which is also projected by bitcoinwatch.

[niko]

Could you elaborate on mechanisms by which ASICs may "put downward pressure on the price of BTC"?

I fail to see any connection.

The data clearly shows something else: the price of BTC drives mining difficulty, including efforts to develop next-generation mining technologies.

That's all there is to it.

[dunchy]

Thank you Niko for the question. As a newbie I was cautious to ask that and really don't understand the arguments for these "ASICs therefore BTC down" claims? Can someone please elaborate?

It's understandable that some people will try to get their ROI as soon as possible and sell at least the amount worth of equipment, but I don't see that as a reason for a "meltdown"..

[Birdy]

Just to be picky, it seems like the actual mining rate these days is closer to
4500/day. I get this using 7.5 blocks/hour from bitcoinwatch.com. Using 24
hours/day, and 25 bitcoins/block. This rate may well drop in the next 24 hours
when the difficulty rate jumps up by 25% which is also projected by bitcoinwatch.

Yes, that's one of the details.
When the computing power of the network rises or drops the difficulty adjustment will not be immediately, so there is a short timespan where too much blocks are found.
E.g. the difficulty doubles -> double the blocks where found per day before + we reach the next reward halving about a week ealrier.
So in fact the development of better mining tech or the rise of popularity has some effect.
It works in the other direction, too. If mining gets too unpopular or whatether reason the network power will drop, there will be less than 3600 Btc/day.

Remember that this effect is only active until the next difficulty adjustment.

[niko]

Thank you Niko for the question. As a newbie I was cautious to ask that and really don't understand the arguments for these "ASICs therefore BTC down" claims? Can someone please elaborate?

It's understandable that some people will try to get their ROI as soon as possible and sell at least the amount worth of equipment, but I don't see that as a reason for a "meltdown"..

Just look at the trading volume in major exchanges. Add to this OTC estimates. We are talking about millions of coins traded per month. Freshly mined coins represent few percent of the overall volume. It is absolutely insignificant. Miners can sell all or hold all, it does not matter at all.