Mining is actually quite essential to Bitcoin, I think. Those 50 BTC have to go somewhere, and assuming that Bitcoin becomes widely adopted, even a small fraction of that 50BTC will become radically valuable. The more miners there are, the more the currency is distributed and the longer it would take on average for each individual person to sell their holdings. It's like a communal investment that naturally helps stabilize the economy and increase demand/value.
Right, but if the difficulty continues to hover around the point where the average electricity cost to mine those 50 BTC is more than what those BTC will pay for, then the only people with a real incentive to mine will be those who are either stealing their electricity from someone else, are irrationally willing to pay a premium to get the bitcoins they want to spend by mining over a long period of time, when they could just buy then directly for less, or are speculators convinced that the price will go back up but still irrationally decide to mine as their way of "buying in", when, again, they could just buy them directly faster and more cheaply.
I'm all for bitcoin succeeding, but it seems that unless miners can be compensated for more than what would be breaking even at near to whatever the common electricity rates are when using the most efficient hardware, then you end up with a "lowest common denominator", unethical currency system. I say this because I don't think you can claim to have an ethical currency system that is primarily built on the backs of individuals getting compensated for stealing electricity, nor can you say this about one that primarily benefits from irrational human behavior. Well, I guess you could argue that the latter is still ethical, in the sense that it is akin to "profiting off the proceeds of running a casino", but I don't think the former can be legitimized so easily. Now, there are also those who will pay higher than market rates to mine for their bitcoins, instead of buying them directly, simply because they want to support the cause, but I don't think that those kind of contributions alone can sustain it.
Collecting transaction fees to make mining perpetually marginally profitable, even for those who don't steal their electricity, may be the only way to go about maintaining at least something that can't be argued to be based in large part on unethical practices.
This is ridiculous.
The first mistake is assuming that the only cost of mining is electricity. In addition there is the capital cost of the hardware, with a trade off - FPGA are expensive but energy-efficient, while old GPUs are cheap but inefficient.
If the "average" electricity cost (whatever that means) is higher than purchase cost, it only means that those who mine will be those who have a comparative advantage
in doing so. These are people who...:
1. Can afford FPGA / ASIC (perhaps developed in-house) as part of a scalable, profitable business.
2. Already have the hardware for other needs, such as GPUs for gaming.
3. Live in a place where electricity is cheap.
4. Live in countries where there is a need to import bitcoins and it is easier to buy computers than to send money overseas for purchasing bitcoins.
5. Speculate that the difficulty will decrease.
6. Enjoy mining or think they can learn something from it, and are not straw Vulcans
7. Last and least, irrational people and those who steal electricity and can get away with it even after the bill goes through the roof.
Relating to this my earlier comment, the average Bitcoin user is not
any of the above, and thus shouldn't be introduced to mining.
I had a more in depth reply, but accidentally hit F5.
Anyway, I don't think what I wrote is ridiculous. Maybe incomplete, but not ridiculous.
Point by point:
1.) I don't know enough about these to make long term projections.
2.) This doesn't exempt their motivations from being influenced by the cost of their electricity.
3.) These people will also eventually be priced out of the market by difficulty increases, correct, or does the nature of the beast allow for profitability pockets to perpetually exist?
4.) I think this is a niche situation, but I could be wrong.
5.) They can just buy the BTC directly.
6.) I think this is a niche situation, but I could be wrong.
7.) Right, and they take away from the ethical nature of the system, like I already said.