Stephen Reed's Million Dollar Logistic Model

[mestar]

You do realize that this situation would be full adoption, meaning that there will be 1 billion users and every store would take bitcoin, right?

OMG, everybody has to come up with $1 for bitcoin every day on average.

So, all the electric power utilities in the world start accepting Bitcoin.  Still, US uses about 2$ billion worth of oil daily, and that is approximately how much energy would Bitcoin network use.  In other words, an ecological catastrophe.

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[el_Tico]

The energy expenditure would be distributed throughout the world. Also it would be necessary to support such a large network.

I would think that the network would save energy in comparison with the current system.

[SlipperySlope]

Ah, the cool $1 million per Bitcoin in 2018.  Let's see what this means.  

If miners decide to sell all their mined Bitcoins, (or 50%), this is how much daily fresh money is needed on the exchanges for the price to be stable:

2014-2016 :   $3.6 billion ($1.8 billion if 50% sold)
2017-2020:   $1.8 billion ($0.9 billion)
2021-2024:   $0.9 billion ($.45 billion)
etc.

So, if Bitcoin is $1 million in 2018, good luck in finding that daily one billion dollars. (0.3$ trillion in a year). Dr. Evil would be proud.

I too wonder about the consequences of what the log trendline suggests. If and when bitcoin prices reach $1 million in 2017 and top out, there should be 50% adoption by the population of speculators. By way of clarification I mean not full adoption by the underlying economy, rather of the people and institutions that will ever purchase bitcoin as a speculation, half of them will have done so by 2017.

In 2017 the block reward will be halved from the current 25 to 12.5. At the rate of 6 blocks solved per hour, the daily block reward totals 1800 bitcoin, thus requiring $1.8 billion to buy all mined coins at $1 million apiece.

Total daily retirement savings in the US is about .5 to 1 $billion according to the Investment Company Institute. And given that only a fraction could reasonably allocated to Bitcoin, the majority of the daily required $1.8 billion will come from other sources including non-US retirement savings and especially I believe - merchant trade and the foreign exchange market.

[SlipperySlope]

The energy expenditure would be distributed throughout the world. Also it would be necessary to support such a large network.

I would think that the network would save energy in comparison with the current system.

Agreed, and I believe that to forestall action by efficiency-minded governments, the bitcoin proof-of-work mining algorithm could be re-engineered to save electricity. One naive notion I have is that a finite number of digital medallions could be sold by consensus miners which entitle the bearer to mine bitcoins. Or jurisdictions could forbid or otherwise restrict mining, e.g. no mining anywhere electric power is government subsidized, or mine off-peak hours only.

[FiatKiller]

The energy expenditure would be distributed throughout the world. Also it would be necessary to support such a large network.

I would think that the network would save energy in comparison with the current system.

Agreed, and I believe that to forestall action by efficiency-minded governments, the bitcoin proof-of-work mining algorithm could be re-engineered to save electricity. One naive notion I have is that a finite number of digital medallions could be sold by consensus miners which entitle the bearer to mine bitcoins. Or jurisdictions could forbid or otherwise restrict mining, e.g. no mining anywhere electric power is government subsidized, or mine off-peak hours only.

I agree that the "waste" of electricity will come to a head at some point. Did you see more and more places won't even let you warm-up your car? It's getting ridiculous. Not sure how they will police this - mandatory inspections if you use over a certain amount maybe?

[David Rabahy]

*If* every newly mined coin were immediately sold then the exchange rate won't be as high as if they are held instead.

*If* the Bitcoin exchange rate runs up to $1,000,000/BTC then I sincerely doubt a significant fraction of newly minted coins are being sold at that time.

Can we measure the proportion of newly minted coins being moved through an exchange?

[SlipperySlope]

Can we measure the proportion of newly minted coins being moved through an exchange?

I believe that mining pools obscure the transaction trail that originates with the new block reward. If payments to participating miners were sent from a well-known pool address, then an analysis of the blockchain should be able to figure out what proportion of the block rewards are rapidly spent.

I suppose that lacking a sound analysis, a poll of miners might suggest the proportion that you requested.

[BitDreams]

*If* every newly mined coin were immediately sold then the exchange rate won't be as high as if they are held instead.

*If* the Bitcoin exchange rate runs up to $1,000,000/BTC then I sincerely doubt a significant fraction of newly minted coins are being sold at that time.

Can we measure the proportion of newly minted coins being moved through an exchange?

Thanks for pointing that out. Trade Volume vs Transaction Volume Ratio @ https://blockchain.info/charts/tx-trade-ratio is something I'm going to start watching.

A detailed explanation here: http://codinginmysleep.com/measuring-bitcoin-speculation/ which I've only given aa quick read.

That might help?

Newly minted coins would likely be originating from the large mining pools but they change those addresses. Receiving addresses of miners are less likely to change and probably exhibit specific behaviors that might help to quickly identify the pool addresses.

I agree, especially when the hashing power race is mature, the more Bitcoins are worth, the more likely people want to hold them.

A bit off topic, but his site has many interesting statistics not tracked anywhere else: http://www.bitcoinpulse.com/

[cr1776]

Ah, the cool $1 million per Bitcoin in 2018.  Let's see what this means.  

If miners decide to sell all their mined Bitcoins, (or 50%), this is how much daily fresh money is needed on the exchanges for the price to be stable:

2014-2016 :   $3.6 billion ($1.8 billion if 50% sold)
2017-2020:   $1.8 billion ($0.9 billion)
2021-2024:   $0.9 billion ($.45 billion)
etc.

So, if Bitcoin is $1 million in 2018, good luck in finding that daily one billion dollars. (0.3$ trillion in a year). Dr. Evil would be proud.

I too wonder about the consequences of what the log trendline suggests. If and when bitcoin prices reach $1 million in 2017 and top out, there should be 50% adoption by the population of speculators. By way of clarification I mean not full adoption by the underlying economy, rather of the people and institutions that will ever purchase bitcoin as a speculation, half of them will have done so by 2017.

In 2017 the block reward will be halved from the current 25 to 12.5. At the rate of 6 blocks solved per hour, the daily block reward totals 1800 bitcoin, thus requiring $1.8 billion to buy all mined coins at $1 million apiece.

Total daily retirement savings in the US is about .5 to 1 $billion according to the Investment Company Institute. And given that only a fraction could reasonably allocated to Bitcoin, the majority of the daily required $1.8 billion will come from other sources including non-US retirement savings and especially I believe - merchant trade and the foreign exchange market.

Just a note, this looks like it could be northern hemisphere summer (or fall) 2016 vs 2017.

 

[pungopete468]

One point I would like to make is that there aren't 20 million Bitcoins available at this time nor will there be in 2018. So given this information the chart would need to be adjusted accordingly to account for a given market capitalization figure.

If there were a 2 trillion market cap with 12 million available coins the value would have to be more like 166,666 per BTC.

[SlipperySlope]

One point I would like to make is that there aren't 20 million Bitcoins available at this time nor will there be in 2018. So given this information the chart would need to be adjusted accordingly to account for a given market capitalization figure.

If there were a 2 trillion market cap with 12 million available coins the value would have to be more like 166,666 per BTC.

Right!

The logistic model merely tracks bitcoin price not market capitalization. The latter comes into to play when figuring out a plausible probability distribution for the maximum high price when bitcoin speculation is fully adopted.

[BitchicksHusband]

You do realize that this situation would be full adoption, meaning that there will be 1 billion users and every store would take bitcoin, right?

OMG, everybody has to come up with $1 for bitcoin every day on average.

So, all the electric power utilities in the world start accepting Bitcoin.  Still, US uses about 2$ billion worth of oil daily, and that is approximately how much energy would Bitcoin network use.  In other words, an ecological catastrophe.

There wouldn't be 1 billion miners.  I mean there are probably over 1 billion credit card users today and it's not "an ecological catastrophe".

[mestar]

So, all the electric power utilities in the world start accepting Bitcoin.  Still, US uses about 2$ billion worth of oil daily, and that is approximately how much energy would Bitcoin network use.  In other words, an ecological catastrophe.

There wouldn't be 1 billion miners.  I mean there are probably over 1 billion credit card users today and it's not "an ecological catastrophe".

That's because all the card processors in the world put together don't use 1 billion dollars worth of electricity, do they?  Which is what would happen to the Bitcoin network, if price rises to 1 million dollars per Bitcoin.

[marcus_of_augustus]

So, all the electric power utilities in the world start accepting Bitcoin.  Still, US uses about 2$ billion worth of oil daily, and that is approximately how much energy would Bitcoin network use.  In other words, an ecological catastrophe.

There wouldn't be 1 billion miners.  I mean there are probably over 1 billion credit card users today and it's not "an ecological catastrophe".

That's because all the card processors in the world put together don't use 1 billion dollars worth of electricity, do they?  Which is what would happen to the Bitcoin network, if price rises to 1 million dollars per Bitcoin.

 

sums or you're just full of it ...

[2586]

So, all the electric power utilities in the world start accepting Bitcoin.  Still, US uses about 2$ billion worth of oil daily, and that is approximately how much energy would Bitcoin network use.  In other words, an ecological catastrophe.

There wouldn't be 1 billion miners.  I mean there are probably over 1 billion credit card users today and it's not "an ecological catastrophe".

That's because all the card processors in the world put together don't use 1 billion dollars worth of electricity, do they?  Which is what would happen to the Bitcoin network, if price rises to 1 million dollars per Bitcoin.

You're assuming that mining hardware is free, takes up no space, requires no labor to set up or maintain, and that mining operations have no profit margin. You're also assuming that the next block reward halving won't happen early, and that the price will reach $1M before then.

[SlipperySlope]

Bitcoin mining and electricity consumption at $1 million per bitcoin

You're assuming that mining hardware is free, takes up no space, requires no labor to set up or maintain, and that mining operations have no profit margin. You're also assuming that the next block reward halving won't happen early, and that the price will reach $1M before then.

This too is a very interesting point. Supposing that $1.8 billion is received by miners when and if bitcoin reaches $1 million in say 2017, then there will be a tremendous incentive for miners to compete with each other to receive their daily $1.8 billion.

Assuming a reasonable 90 payback for mining equipment, then 90 x $1.8 billion equals an approximate $162 billion market for mining equipment for the 90 day period when bitcoin is priced at $1 million.

Also assuming that competitive miners spend roughly one-third of their income on electric power, then miners will spend $1.8 / 3 equals $900 hundred thousand daily on power. At say $0.13 per KWh then approximately 7 million KWh will be consumed by miners in a 24 hour period at the rate of approximately 300 megawatts.

A very high amount of power usage but doable.

[mestar]

You're assuming that mining hardware is free, takes up no space, requires no labor to set up or maintain, and that mining operations have no profit margin. You're also assuming that the next block reward halving won't happen early, and that the price will reach $1M before then.

Take a look at this picture: https://bitcointalk.org/index.php?topic=366214.msg3910508#msg3910508

You can see that it shows one million dollars in 2017.  So, it was OPs assumption.  I'm just trying to show how ridiculous that would be.  Bitcoin miners would have incentives to spend up to $1.8 billion dollars, daily, on their non-free running costs, of which the major part would be electricity. 

[2586]

You're assuming that mining hardware is free, takes up no space, requires no labor to set up or maintain, and that mining operations have no profit margin. You're also assuming that the next block reward halving won't happen early, and that the price will reach $1M before then.

Take a look at this picture: https://bitcointalk.org/index.php?topic=366214.msg3910508#msg3910508

You can see that it shows one million dollars in 2017.  So, it was OPs assumption.  I'm just trying to show how ridiculous that would be.

Current estimates put the next halving at September 2016. By the OP's chart, the price would be around $400k.

Bitcoin miners would have incentives to spend up to $1.8 billion dollars, daily, on their non-free running costs, of which the major part would be electricity.

According to the mining hardware comparison on the bitcoin.it wiki, a Block Erupter Blade costs $350 and draws 83 watts. A Block Erupter Cube costs $550 and draws 200 watts.

Power cost for the Blade:
0.083 kW * 0.10 USD/kWh * 24 hours/day = 0.1992 USD/day * 365 days/year = 72.708 USD/year

Power cost for the Cube:
0.2 kW * 0.10 USD/kWh * 24 hours/day = 0.48 USD/day * 365 days/year = 175.20 USD/year

If you were to purchase and run one of those for a year, the power cost for the Blade would be 17.2% of your total cost. For the Cube, it would be 24.16%.

[kdrop22]

*If* every newly mined coin were immediately sold then the exchange rate won't be as high as if they are held instead.

*If* the Bitcoin exchange rate runs up to $1,000,000/BTC then I sincerely doubt a significant fraction of newly minted coins are being sold at that time.

Can we measure the proportion of newly minted coins being moved through an exchange?

Thanks for pointing that out. Trade Volume vs Transaction Volume Ratio @ https://blockchain.info/charts/tx-trade-ratio is something I'm going to start watching.

A detailed explanation here: http://codinginmysleep.com/measuring-bitcoin-speculation/ which I've only given aa quick read.

That might help?

Newly minted coins would likely be originating from the large mining pools but they change those addresses. Receiving addresses of miners are less likely to change and probably exhibit specific behaviors that might help to quickly identify the pool addresses.

I agree, especially when the hashing power race is mature, the more Bitcoins are worth, the more likely people want to hold them.

A bit off topic, but his site has many interesting statistics not tracked anywhere else: http://www.bitcoinpulse.com/

Excellent collection of data for measuring Bitcoin economy fundamentals, however it is worth point out that the Blockchain info - trade to transaction volume only measures USD volume. You should also take into account that the China volume went from a small fraction to double the US volume over the last 6 months.

[mestar]

You're assuming that mining hardware is free, takes up no space, requires no labor to set up or maintain, and that mining operations have no profit margin. You're also assuming that the next block reward halving won't happen early, and that the price will reach $1M before then.

Take a look at this picture: https://bitcointalk.org/index.php?topic=366214.msg3910508#msg3910508

You can see that it shows one million dollars in 2017.  So, it was OPs assumption.  I'm just trying to show how ridiculous that would be.

Current estimates put the next halving at September 2016. By the OP's chart, the price would be around $400k.

And my estimates of Bitcoin network energy consumption are for the period after the halving.  I don't know how could you miss this, since I put all three periods in:

--->
If miners decide to sell all their mined Bitcoins, (or 50%), this is how much daily fresh money is needed on the exchanges for the price to be stable:

2014-2016 :   $3.6 billion ($1.8 billion if 50% sold)
2017-2020:   $1.8 billion ($0.9 billion)
2021-2024:   $0.9 billion ($.45 billion)
etc.
<---

Bitcoin miners would have incentives to spend up to $1.8 billion dollars, daily, on their non-free running costs, of which the major part would be electricity.

If you were to purchase and run one of those for a year, the power cost for the Blade would be 17.2% of your total cost. For the Cube, it would be 24.16%.

And that is exactly why we see such huge increases in difficulty.   

Want to know when the increases in difficulty will stop?  When power costs of generating one BTC get close to one BTC.  In other words, in the situation when most of the block awards get used on paying electricity bills.