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Author Topic: [reddit] The real cost of bitcoin? - Breaking Down the Math  (Read 9084 times)
zby
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August 15, 2011, 03:41:21 PM
 #81

One more thing to add. Consider these scenarios:

We have approx. 14 million coins left to mine.

1) If the price of bitcoin stayed at $10 tomorrow then by the time all bitcoins are mined we will have spent in the region of $140 million dollars on electricity.

2) If the price of bitcoin rose and held at $100 tomorrow as a collective group we would spend $1.4 billion dollars.

What is gained in the 2nd scenario? The security provided is surplus to requirements and cannot exist at that level when the 50 BTC block rewards stop. We are paying to distribute wealth but using that wealth in the process.

The need for security grows together with the overall market cap of the system which grows with the price of bitcoin - so this is actually a correct result, this additional security is needed even if the number of transactions stays the same.  I've argued that if the system grows and has more transactions then probably the market cap will also grow - but this is not direct relation.
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piuk
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August 15, 2011, 06:25:01 PM
 #82

One more thing to add. Consider these scenarios:

We have approx. 14 million coins left to mine.

1) If the price of bitcoin stayed at $10 tomorrow then by the time all bitcoins are mined we will have spent in the region of $140 million dollars on electricity.

2) If the price of bitcoin rose and held at $100 tomorrow as a collective group we would spend $1.4 billion dollars.

What is gained in the 2nd scenario? The security provided is surplus to requirements and cannot exist at that level when the 50 BTC block rewards stop. We are paying to distribute wealth but using that wealth in the process.

The need for security grows together with the overall market cap of the system which grows with the price of bitcoin - so this is actually a correct result, this additional security is needed even if the number of transactions stays the same.  I've argued that if the system grows and has more transactions then probably the market cap will also grow - but this is not direct relation.

Interesting, i had only thought of increased transaction volume requiring increased security, but I guess the amount available to steal i.e. the market cap is the real driving factor.

$1.4 billion dollars on security seems like an expensive requirement for something only worth $2.1 billion. The point still stands, as the block rewards decrease the security of the system will fall, so at least some must be surplus. Really its better for the collective group to not push up the market price until enough transactional volume is being processed, else we are just wasting extortionate amounts of money on not much.

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August 16, 2011, 09:39:05 AM
 #83

I've made a small script that collects data from blockexplorer to generate some statistics about bitcoin's running costs.

http://rainydayapps.com/bitcoin-efficiency/

It updates every 24 hours. When I have enough data I'll add some graphs and stuff, should be interesting to see how things change over time.

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August 16, 2011, 09:51:15 AM
 #84

I've made a small script that collects data from blockexplorer to generate some statistics about bitcoin's running costs.

http://rainydayapps.com/bitcoin-efficiency/

It updates every 24 hours. When I have enough data I'll add some graphs and stuff, should be interesting to see how things change over time.

That's awesome puik.

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Vladimir
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August 16, 2011, 10:18:49 AM
 #85

The guy has a correct systemic approach. If a large amount of real-world resources are spent to maintain the system operation, it's a really good question on who pays for it all, at least if you believe in thermodynamics, no free lunch and the like.

If I buy one bitcoin I trigger this economic chain:
1. people buy hardware made using scarce resources such as copper and oil
2. said people to run said hardware 24/7 and consume electricity
3. these resources are irreversibly spent for bringing one bitcoin in existence

Therefore a minute quantity of wealth as expressed in natural resources has been irreversibly destroyed in order to give me one shiny bitcoin to play with. Who pays for it ? In the short run, every member of society by higher real commodity prices. In the long run, the investors left holding the currency when the show's over.

This is in contrast with a purely fiat system where maintaining the system costs next to nothing. The economic soundness of such a system is an entirely different topic, and it's quite similar to the old debate of gold vs. fiat. Gold too commands resource expenditures for it to be extracted out of the ground, only to be stored after purification in another hole in the ground.

Arent you a bit biased? What is the cost for the government to impose and mantain a monpolly on money? You can not count the cost of printing a piece of paper and saying that is all the cost involved in fiat money.

What is the cost of all the wars they waged in last 100 years or to distract the population from all the money they have stolen using their fiat money invention? Or is it they invented the process of stealing money from population using fiat money and inflation to fund all those wars? Damn! I got completely lost here.



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PatrickHarnett
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August 16, 2011, 09:13:52 PM
 #86

I've made a small script that collects data from blockexplorer to generate some statistics about bitcoin's running costs.

http://rainydayapps.com/bitcoin-efficiency/

It updates every 24 hours. When I have enough data I'll add some graphs and stuff, should be interesting to see how things change over time.

That's awesome puik.

+1, that's some really interesting metrics - thanks.
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