NewLibertyStandard's methodology

[m0mchil]

I am just seeking your opinion on some thoughts I had recently. NLS states that he/she calculates how much energy is spent for daily BC production. If more and more BC users are involved in generation, the number of BC NLS produces will go down, for the same amount of energy spent. Hence, the price is bound to go up.

I mean, NLS methodology is wrong 

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[BitcoinFX]

Welcome m0mchil

NLS (New Liberty Standard's) methodology is not wrong, however you are somewhat correct with your thinking.

Many factors in the future will influence the buy and sell price of Bitcoins, as well as, their overall merchantability.

For example, if a goods or services provider decided to accept 100 Bitcoins for an item that costs $10 USD then this should massively effect the exchange rate.

New Liberty Standard is doing fantastic and logical work to help "set the ball rolling". Take Gold for example, it's exchange rates are also determined by the cost of extraction i.e. electricity, workforce, transportation, machinery etc. These base factors are fairly certain before other market forces and influences.

As I write this, I'm currently compiling a Neural Network model that takes into account other factors such as the finite number of Bitcoins, daily Gold and Silver fixings, other currency pairs and daily exchange rates and the average number of Bitcoin users etc. I'm of course factoring in the New Liberty Standard. This will be a very adaptable model to help calculate and predict future exchange rates and I will share it with our growing community.

[NewLibertyStandard]

I am just seeking your opinion on some thoughts I had recently. NLS states that he/she calculates how much energy is spent for daily BC production. If more and more BC users are involved in generation, the number of BC NLS produces will go down, for the same amount of energy spent. Hence, the price is bound to go up.

Yes, that's correct. I expect the value of bitcoins to increase as the user base increases and decrease if the user base decreases. I do measure my electricity usage, but it's fairly constant.

I mean, NLS methodology is wrong 

Could you be more specific about what exactly is wrong?

[riX]

I mean, NLS methodology is wrong 

Could you be more specific about what exactly is wrong?

I believe he/she refers to the fact that your formula makes the price proportional to the number of people generating, assuming a fixed energy price. Since we "know" that the total processing power available for generating bitcoins will increase over time, we also know that their value will rise, and hence should take this into account when determining the exchange rate.

However, since you're currently the only one both selling and buying, I think your method is as good as any. When more people start exchange services, the formula used by the majority will be the one everyone has to use, since any differences in enchange rate larger than the transaction cost is can be easily exploited by arbitrageurs.

[m0mchil]

I still owe an explanation... here it is...

A quote from BC FAQs, 'So your wealth is determined by...':

There's a constant average rate of new Bitcoins created, and that amount is divided among the nodes by the CPU power they use.

User X as a sole participant in the system generates coins with rate R bitcoins/hour. This is the global rate. If another participant Y joins the system now both participants are generating with the same (global) rate. If their CPU power is equal they will generate (R/2)/hour bitcoins each. With every new participant the price of bitcoin generation will go higher and higher. So high eventually that...

The easier way to gain a lot of wealth would be trading goods.

NLS, your methodology is right when used to evaluate the price at which you are generating your bitcoins. I'm trying to say that price of generation is not equal to the actual market price. For evaluation of the market price you need a market.

You can easily create a ฿/$ exchange service. Just provide a place where anyone is able to post bid/ask prices. Whenever there are corresponding bid and ask a deal would take place. A classical market.

[BitcoinFX]

Since New Liberty Standard is currently the only 'open' exchange service for BTC to USD. Then it goes without saying that their is no 'real market' to help calculate a market price or other market influences from...

'Which came first ? The chicken or the egg ?' Well, in terms of evolution the chicken of course !

However, I understand what you mean and other 'closed' BTC to 'whatever' transactions will of taken place, probably. This is one issue concerning the usage of a sudo-anonymous currency and then trying to calculate market influences from transaction that don't exist ! You have to start somewhere.

"You can easily create a ฿/$ exchange service. Just provide a place where anyone is able to post bid/ask prices. Whenever there are corresponding bid and ask a deal would take place. A classical market."

I agree and such a service already exists for eCurrencies http://exchangezone.com/ - Now they just need to add Bitcoins

I'm already trying to build an exchange calculator and exchange rate predictor using a Neural Network and 'known' factors.

I will be using Liberty Reserve for my exchange service and they accept USD, EUR and 'back' payments by Gold.

So, my Neural Network model includes; XAU (Gold), EUR, USD exchange rates, the New Liberty Standard and Total Daily Block generation Rate / The Finite Number of bitcoins... and more.

Oanda Historical Exchange Rates - http://www.oanda.com/currency/historical-rates

Of course the value of Bitcoins has 'nothing' to do with the EURUSD at the moment, but these types of models are certainly useful in the future and can go along way to making our exchange rates behave like 'real' markets.