[ANNOUNCE] EnCoin - An alternative with a completely different paradigm

[johnj]

I suspect that the effect of said sell-off will largely depend on market environment.

Funnily enough, I don't. It's not as if this has never happened before. BitCoins were worth $30 at one point, you know.

You seem to imply that price of coins shall not rise proportionally (at least) upon subsidy reduction for miners. Yes, that would be a catastrophic scenario (with or withou sell-off), but I find no rational argument can be made for or against it

Should the coin price actually rise, the sell-off's devastation potential shall not be that high (and it seems to me that a significant portion of first-adopters have already cashed out).

The price will likely rise, I wholeheartedly agree. It is the intention of the design of BitCoin that the price will rise. But you are wrong about the sell-off's devastation not being high. The price has absolutely nowhere to go but down in a sell-off. If you take my (not so extremely unlikely) example of 1 million people mining 12.5 BTC, you will see that an average person "earns" 0.054 BTC per month at a cost of $17.28 (200Wh x 24 x 30 x 0.12/kWh). This means the cost to produce 1 BTC is $320. Since 54k BTC are produced a month at this point, a 25k sell-off is the equivalent of 333 MILLION BTC-hours of effort. What took 1 million people two weeks to produce was conjured out of thin air by one person. Assuming no profit margin, 8 MILLION DOLLARS of demand was just eliminated from the economy. It is hard to say how the price will be affected, but it certainly won't be in a positive direction.

How many times will it take for people to get burned before they stop mining is the question. And once that happens, the security and value of BitCoin goes out the window.

At no profit margin, BTC are going for $320 each. 15M coins mined if the reward is 12.5.  That's a 4.8 billion dollar market.

24k coins is .16% of 15m

I don't think a 0.16% is going to make that much of a difference? Am I missing something?

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[Etlase2]

At no profit margin, BTC are going for $320 each. 15M coins mined if the reward is 12.5.  That's a 4.8 billion dollar market.

24k coins is .16% of 15m

I don't think a 0.16% is going to make that much of a difference? Am I missing something?

Yes, you are reiterating one of the follies of BitCoin. The value of the total BitCoins is not 15Mx$320. That is what this whole fricken issue is about.

If we again use the same assumptions as my proposal (which are certainly incorrect, it is unlikely that there is a linear progression of bitcoin value--it is more likely than not bottom heavy, but this would require a detailed analysis of the difficulty levels and so on), the total cost to produce the current amount bitcoins is 7.3Mx$1.80, or about $13M. If we use a linear progression from $3.60 to $320 from 7.3 to 15M, we get $161.80x7.7M or 1.245B. A total of 1.258B (with the first half costing 1% of the price to produce, and the second half costing 99%). 26% of what you estimate the value to be.

I don't know how many coins are for sale right now within a reasonable market range, but let's just say it's 100k. That means 1.4% of the market total volume is for sale. With the incentive for hoarding in BitCoin, this should come as no surprise. At 15M, it is not a stretch to use that same 1.4% figure, as coins are much more difficult to acquire, so many more people will be selling, but they will be for much smaller amounts. We can essentially just double it as the number of coins has about doubled, so roughly 200k coins will be for sale at any given time. 25k@$1.80 plus 200k@$320 = $285 (simplistic). Every coin's theoretical value just lost $35. You can't use the price on an exchange to determine the value of the coins. So many are hoarded. If they all went on sale at once, assuming there was enough demand, they would roughly be worth $1.80. 1.258B/15M = $84 while costing $320 to produce NEW coins.

So BitCoin value relies on the fact that people will keep hoarding. At some point, greed is going to take over. People are not going to hoard forever. Or hell, maybe a big wallet gets hacked. Either way, someone is going to try to make money, and to do that lots of people are going to lose value. I believe it will eventually cause the collapse of the network.

It is an ingenious and neat system, but it is not a proper medium of exchange.

Why not promote a system that promotes spending and trade, which actually does create value. Read up on GDP.

[Lolcust]

It appears to me that there is a fundamental disagreement as to what "value" is.

Also, a fundamental disagreement as to the scope and nature of "bitcoinomy" (hence reference to GDP which seems problematic to apply to ephemeral mathematic artifacts existing only in places between computers)

[johnj]

It seems you're basing the 'value' off of the cost to produce.  This is where I disagree. There are other things which give Bitcoin value apart from the electricity invested.

Edit: I'll add, that the 'worst case scenarios' described are at a value of 1:1.  This will only happen if the other aspects of BTC cease to appeal to anyone.

In those scenario's described above (where BTC is 320 each), there's a huge value to being able to send value instantly, pseudo-anonymously, globally, without oversight, cheaply.  Add that value on top of the 1:1 energy/BTC ratio, and the figures change a bit.

[Etlase2]

Yes, I am using the bottom-end cost to produce value rather than a hoarding-inflated trade value which is unpredictable and represents a very small portion of the market. Unfortunately I mix the two terms together.

Even so, the point stands. Multi-million % returns on early bitcoins, thousands of % returns on middle bitcoins, hundred % returns on late bitcoins is not a sustainable economy. It requires suckers, and those suckers will eventually dry up.

[casascius]

I skimmed this thread... to me, the cost of mining is going to be irrelevant as I believe that more and more, mining will be performed covertly on the computers of the unsuspecting, who don't know they're paying the bill for it.

Their computers are either controlled by a botnet, or are running software (e.g. games) whose developers have snuck a miner in.  

Or will be done deliberately by those with the opportunity to make someone else foot the bill for the power (be it parents, landlord, employer, neighbors, other tenants, etc.)

In all these cases, nobody in control of the mining is concerned about the rationality of the expense, because they will be trying their best not to pay it.

[Lolcust]

That's plenty mean, also, most typical botnet boxen have a lousy GPU

[Etlase2]

It seems you're basing the 'value' off of the cost to produce.  This is where I disagree. There are other things which give Bitcoin value apart from the electricity invested.

Edit: I'll add, that the 'worst case scenarios' described are at a value of 1:1.  This will only happen if the other aspects of BTC cease to appeal to anyone.

In those scenario's described above (where BTC is 320 each), there's a huge value to being able to send value instantly, pseudo-anonymously, globally, without oversight, cheaply.  Add that value on top of the 1:1 energy/BTC ratio, and the figures change a bit.

This same value is added to an alternative type of coin that isn't based on scarcity. So all other things being equal, the threat of losing massive amounts of value exists with BitCoin whereas it does not with EnCoin. This "worst case scenario" 1:1 value is a simplistic look. The real, true value of a single BitCoin today is $1.80+ROI. That ROI can be high because of the high initial investment (computers, video cards, etc.) and slow rate of return, as well as the utility of BitCoin. But the return, in general, should be spread to everyone, not more and more early-heavy. It is not a matter of jealousy, it is a matter of economics. BitCoin needs to expand to be secure and to increase in value. Early coins will drag down the value of later coins as they trickle or torrent back into the economy, and it will disincentivize new people from supporting the network.

I skimmed this thread... to me, the cost of mining is going to be irrelevant as I believe that more and more, mining will be performed covertly on the computers of the unsuspecting, who don't know they're paying the bill for it.

This really doesn't matter as the value is still added, regardless of how.

[BCEmporium]

Proposal for possible successor to BitCoin -- EnCoin

You just started with both wrong feet on the title, no need to read more. Move along, one solidcoin was enough.

[Minsc]

Another coin system based around price.  This is the wrong way to do it because it won't work and won't affect the price.

[Etlase2]

Another coin system based around price.  This is the wrong way to do it because it won't work and won't affect the price.

It's not based around price, it's based around a consistent value to produce. Supply and demand will still affect the price like BitCoin.

Proposal for possible successor to BitCoin -- EnCoin

You just started with both wrong feet on the title, no need to read more. Move along, one solidcoin was enough.

To quote the proposal:

"So what is the incentive to switch from the proven BitCoin? Well, it is relatively simple to connect the two networks so that anyone using EnCoin software will earn both EnCoins and BitCoins. This has been looked at in depth on the message boards and will not be rehashed here, but suffice it to say that it is possible. Instead of the cheap coin bootstrapping process employed by BitCoin, EnCoin will simply award BitCoins at the same rate as usual while also awarding EnCoins. "

It's not as if I said, "THIS WILL CRUSH BITCOIN, SWITCH NOW."

I am offering an alternative to move away from the dangerous volatility of BitCoin. The market has already shown what happens when small percentages of the overall coins hit a hoarding-inflated exchange. A 420% average coin ROI is not going to last. And 420% is about what it takes for the late-comers to make a profit.

You guys can keep putting your heads in the sand, or you can start considering viable, less controllable alternatives. Not to mention all of the other features of EnCoin, not one of which has been brought up in this thread.

[Minsc]

Another coin system based around price.  This is the wrong way to do it because it won't work and won't affect the price.

It's not based around price, it's based around a consistent value to produce. Supply and demand will still affect the price like BitCoin.

That's not enough.  You need to have every feature proposed and put it into one really good cryptocurrency for it to be a real replacement.  A single tweak alone, especially some money thing is lacking.

[Etlase2]

That's not enough.  You need to have every feature proposed and put it into one really good cryptocurrency for it to be a real replacement.

Well, I proposed what I proposed. I wouldn't expect the system to work as I describe unless everything was there. I'm not the type to go half-way, it's all in or get out.

 A single tweak alone, especially some money thing is lacking.

What do you mean? I am open to suggestions. I intended to start a discussion on EnCoin, not BitCoin, after all.

The profit margin will still be there. The security will be enhanced. The utility will be enhanced. It has a voting system. It does not require pools. It has the ability to change for the future instead of being stuck with one paradigm.

Demand is still created by destroying currency. The price of EnCoin will increase as fiat currency inflates.

I thought I had most of it covered, but as I said, I am open to suggestions. Do you think 2x/1.75/1.5/1.25 award would be the extra push? I'm thinking over a 2 year timeframe.

[Etlase2]

I have updated the proposal to revision 2.1. It puts a more proper order to the information, and I have completely revised the section on BitCoin.

Since it is such a hot topic of discussion in this thread, I will quote the relevant parts here:

Businesses commonly make use of a simple calculation called Return On Investment (ROI). If we assume that there was a linear increase of the price to produce 1 BTC (highly unlikely, but simplifies calculations greatly), we come to a figure of $1.80 worth of electricity to produce an average coin. For the sake of including all factors, I will make a gross guestimate that with all of the computer hardware purchased for BitCoins, the average coin has cost $2.50 to produce. This is heavily, heavily weighted on later coins as initial coins were CPU mined, not expensively GPU mined.

ROI is calculated as (Gain - Cost) / Cost. ($4.80 - $2.50) / $2.50. We get a figure of 92%. The average BitCoin sees a 92% ROI at a trade price of $4.80 (as of 2011/09/20, the current trading price is closer to $6). 92% ROI, almost a guaranteed double-your-investment, by turning on a computer and making it do stuff.

Common sense would argue that this is not a sustainable economy. In fact, if we use that $0.70 figure for cost of hardware and add it to the current $3.60 price to produce, we are dangerously close to the $4.80 sell mark.

Couple this with the fact that BitCoins are about to become more scarce when the block award drops to 25 BTC at the 210,000th block, the security of BitCoin may even be at risk. BitCoins will either immediately cost $7.20 to produce, or half of the mining network must stop (and that half of the network might just decide to turn against BitCoin), or some point inbetween. BitCoin proponents are hoping the renewed scarcity will cause the price to increase and that they will continue to see exorbitant ROIs.

None of this has even taken into account that the market exchanges offer a very small percentage of the total BitCoins in existence for sale. The total value of the BitCoin network is commonly quoted as being the sell price multiplied by the total number of coins. If that is the case, then the BitCoin network was once worth $30x6.3 million but is now worth $5x7.3 million. Where did that $150,000,000 go? Where is the evidence that it can’t or won’t happen again? 1.6 million coins alone were mined for a total cost of $584. Will a market price of $5 really bear any small percentage of those coins being suddenly added to circulation?

have at my logic

[BCEmporium]

Production price measures nothing but the investment itself and ROI part. It DOES NOT settle any final price, final price is settled by how scarce or abundant a good is compared to its demand and use.

This starts to look like "the desperate miners section"! Too bad many didn't took to account that their hardware wouldn't be keeping up with the constantly growing btc network hashrate demand.

[Etlase2]

Production price measures nothing but the investment itself and ROI part. It DOES NOT settle any final price, final price is settled by how scarce or abundant a good is compared to its demand and use.

Production price does not include ROI. The ROI is theoretically what every coin should be able to make, were they able to be sold for today's prices.
Scarcity or abundancy is controlled by people with coins.
2-4 CPUs worth mined 1.6 million coins.

Whether or not you believe Satoshi is a "rational actor," (I will ignore bringing up the fact that he disappeared -- oh wait) why would you want to place that much trust in him?

This starts to look like "the desperate miners section"! Too bad many didn't took to account that their hardware wouldn't be keeping up with the constantly growing btc network hashrate demand.

http://en.wikipedia.org/wiki/Straw_man

[johnj]

Production price measures nothing but the investment itself and ROI part. It DOES NOT settle any final price, final price is settled by how scarce or abundant a good is compared to its demand and use.

Production price does not include ROI. The ROI is theoretically what every coin should be able to make, were they able to be sold for today's prices.
Scarcity or abundancy is controlled by people with coins.
2-4 CPUs worth mined 1.6 million coins.

Whether or not you believe Satoshi is a "rational actor," (I will ignore bringing up the fact that he disappeared -- oh wait) why would you want to place that much trust in him?

This starts to look like "the desperate miners section"! Too bad many didn't took to account that their hardware wouldn't be keeping up with the constantly growing btc network hashrate demand.

http://en.wikipedia.org/wiki/Straw_man

I skimmed over your paper on EnCoin.

I'll give it a try when it launches.

[BCEmporium]

All your strategy goes around:

1) Fork bitcoin (you're not doing nothing new)
2) Start a FUD campaign over bitcoin

This results in yet another pump'n'dump scheme, nothing different than CH.

[Etlase2]

http://en.wikipedia.org/wiki/Straw_man

PS - if you actually read the proposal, you will see that there is no built-in "pump'n'dump" scheme. (which of course since it has been done with forks of bitcoin,  you can draw the parallel that it is also possible with bitcoin itself)

EnCoin is not a fork of BitCoin.

[Lolcust]

All your strategy goes around:

1) Fork bitcoin (you're not doing nothing new)
 

With all due respect, you are being demonstrably wrong here.

So far, neither source nor binaries are to be found, so it's more like "discuss forking bitcoin in a rather curious way"