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Author Topic: Yes, miners influence price  (Read 1523 times)
the joint
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September 27, 2011, 12:41:27 AM
 #1

Due to a recent thread discussion that got way off-topic, I decided to make a new thread so it was on-topic.

I'm amazed by those who suggest miners don't influence price.

There are many reasons why it's obvious that miners affect price.  Let me give you one example, because all it takes is one.

I am a miner.  I have a psychological threshold that determines the minimum amount of BTC I must have in my wallet before I will sell.  This threshold is 1 BTC, and it has been 1 BTC whether BTC was valued at $17 or $4.  The rate at which I reach 1 BTC is determined by the number of miners.  The more miners there are, the longer it takes for me to acquire 1 BTC.  The fewer miners there are, the shorter it takes for me to acquire 1 BTC.

When I acquire 1 BTC, I sell.  Selling influences prices.  The rate at which I sell is determined by the # of miners.  Hence, miners influence price.  All it takes is one.

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Revalin
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September 27, 2011, 01:40:42 AM
 #2

The sum of fresh BTC dumped on the market by all miners combined is always about the same: there are 300BTC generated per hour regardless of the number of miners.  If miners are evenly split between dumping 50% and hoarding 50%, there will be 150BTC dumped on the market per hour whether there is 1 miner or a million.  All that changes is the amount of return you'll earn on a given power investment.

Yes, they "influence" the price, but it's a fixed influence that the miners themselves don't control in scale, other than choosing to sell or not (the same as anyone holding BTC does).

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Bitcoin is the Devil's way of teaching geeks economics.  --Revalin 165YUuQUWhBz3d27iXKxRiazQnjEtJNG9g
the joint
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September 27, 2011, 02:36:29 AM
 #3

The sum of fresh BTC dumped on the market by all miners combined is always about the same: there are 300BTC generated per hour regardless of the number of miners.  If miners are evenly split between dumping 50% and hoarding 50%, there will be 150BTC dumped on the market per hour whether there is 1 miner or a million.  All that changes is the amount of return you'll earn on a given power investment.

Yes, they "influence" the price, but it's a fixed influence that the miners themselves don't control in scale, other than choosing to sell or not (the same as anyone holding BTC does).

So we agree.  

It's whether they do or don't, not how much.

Generally, yes, the bell curve will win.  Though it's not necessarily safe to assume the bell curve at all times.

You would predict 150 BTC especially during times of low volatility.  However, suppose Bitcoin really catches on and the deflationary trend sets in.

As more and more miners watch the price steadily rise from 30, to 50, to 100, to 500, and beyond, the incentive to hoard increases, or the % of mined coins sold may decrease.  The opposite is likely true for inflationary periods, if only slightly.  Psychology is the factor that math isn't accounting for when determining the influence of miners on price.

Though in reality, I'd say it's an equal influence.  In other words, I think miners and value are entwined.

Every BTC coin is a mined coin.  The only times those coins have changed hands is, well, through exchange.  Not computer automated exchanges, but people exchanges (or at least people that taught bots to trade for them, thereby transferring their own intentions into the transaction).  Every mined coin came from a miner, and thus every coin (which gains value in an exchange), and the value of every coin, is influenced by the number of miners.

Even more simply, there would be no BTC were it not for miners.  Miners gave rise to Bitcoin's potential for value.  Without miners, there could be no BTC value.  And, if all miners quit now, there would be no confirmation of transactions, and thus Bitcoins would be valueless (nothing confirms their value anymore).

What I am getting at is that Bitcoin is a computer program, and Bitcoins are generated and confirmed by computers.  But only the miner hits the 'go' button and sets the whole thing in motion.  And only the miners, or potentially those who stop the miners, can press the 'stop' button and wipe out the whole thing.

Miners are an absolute necessity for Bitcoin's value as the current program stands.

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September 27, 2011, 03:06:39 AM
 #4

I agree with everything you're saying (clearly, anyone involved in a market will affect the market), but that's not what's usually meant by "miners influencing price".  It's usually said in the context of whether an influx of miners will raise or lower the price (there is no direct effect).

      War is God's way of teaching Americans geography.  --Ambrose Bierce
Bitcoin is the Devil's way of teaching geeks economics.  --Revalin 165YUuQUWhBz3d27iXKxRiazQnjEtJNG9g
BubbleBoy
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September 27, 2011, 11:19:58 AM
 #5

Quote
Every mined coin came from a miner
Yes.
Quote
and the value of every coin, is influenced by the number of miners.
No.

If the miners multiply in numbers, their individual "influence" is proportionally diminished so that the overall "influence" of the miners remains constant to what has been hard-coded into the protocol: a steady source of liquidity that is as hard to produce as bitcoins are valuable. The value of bitcoins is externally imposed by the market and the miner crowd reacts. The market is the dog, and the miners are the tail being wagged.

Quote
Miners are an absolute necessity for Bitcoin's value as the current program stands.

The emergence of miners is an entirely mechanic phenomenon, is there is value in mining someone will do it. Rational miners can't "press the 'stop' button and wipe out the whole thing". An individual miner can behave irrationally but his place will soon be taken by a rational miner. Hoarding at the miner level is inconsequential - the miner buys BTC with his resources. To affect the price he has to buy at a loss, to mine for hoarding when it's cheaper to buy on the market, in other words to behave irrationally.

To say miners can chose to stop Bitcoin is equivalent to saying that the drug cartel can end cocaine abuse. Sure, if all individual traffickers stop producing and selling cocaine, they could theoretically stop users from obtaining it. However as long as there's a demand someone will fill it, the drug cartel is a rational supplier for the existing drug demand.
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September 27, 2011, 05:40:38 PM
 #6

Mining activity simply makes the blockchain harder to attack by making a cryptographically strong problem. Bitcoin still works fine with 1% of the current hash rate (as long as miners don't leave all at once.) As the difficulty would adjust to keep six blocks (and 300BTC generated) per hour, only a reasonable amount of hash power that would prevent the strongest anticipated attacker from forging blocks is necessary.

More mining makes it more expensive to generate Bitcoins. You can say that this makes the price be influenced by the amount of mining, but it is more that the mining hashpower is influenced by the price. If the exchange rate was five times the current price, mining activity would probably grow by a proportionate amount. Mining activity seems to have settled into the expected equilibrium, where miners are making barely more than their electricity bill. As a side effect, this also means that profitability sets the cryptographic strength of the blockchain.

When I acquire 1 BTC, I sell.  Selling influences prices.  The rate at which I sell is determined by the # of miners.  Hence, miners influence price.
That sounds like you sell at a constant rate - 100% of generated income, as fast as you generate it. You are just breaking your sale into quantums by selling only every day or every week; 100 other people like you and there is a constant flow of new BTC into the economy.

Speculation, investment, and optimism that the price will increase will increase holdings by miners of their generated income for the future, and that will further affect the market value. By liquidating as fast as you generate, it just doesn't sound like you are very optimistic.

the joint
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September 27, 2011, 07:00:17 PM
 #7

Mining activity simply makes the blockchain harder to attack by making a cryptographically strong problem. Bitcoin still works fine with 1% of the current hash rate (as long as miners don't leave all at once.) As the difficulty would adjust to keep six blocks (and 300BTC generated) per hour, only a reasonable amount of hash power that would prevent the strongest anticipated attacker from forging blocks is necessary.

More mining makes it more expensive to generate Bitcoins. You can say that this makes the price be influenced by the amount of mining, but it is more that the mining hashpower is influenced by the price. If the exchange rate was five times the current price, mining activity would probably grow by a proportionate amount. Mining activity seems to have settled into the expected equilibrium, where miners are making barely more than their electricity bill. As a side effect, this also means that profitability sets the cryptographic strength of the blockchain.

When I acquire 1 BTC, I sell.  Selling influences prices.  The rate at which I sell is determined by the # of miners.  Hence, miners influence price.
That sounds like you sell at a constant rate - 100% of generated income, as fast as you generate it. You are just breaking your sale into quantums by selling only every day or every week; 100 other people like you and there is a constant flow of new BTC into the economy.

Speculation, investment, and optimism that the price will increase will increase holdings by miners of their generated income for the future, and that will further affect the market value. By liquidating as fast as you generate, it just doesn't sound like you are very optimistic.

I'm optimistic.  I sell immediately to have more to invest in trading, and trading is where I make a much larger % of my profit.

the joint
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September 27, 2011, 07:12:25 PM
 #8

Quote
Every mined coin came from a miner
Yes.
Quote
and the value of every coin, is influenced by the number of miners.
No.

If the miners multiply in numbers, their individual "influence" is proportionally diminished so that the overall "influence" of the miners remains constant to what has been hard-coded into the protocol: a steady source of liquidity that is as hard to produce as bitcoins are valuable. The value of bitcoins is externally imposed by the market and the miner crowd reacts. The market is the dog, and the miners are the tail being wagged.

Quote
Miners are an absolute necessity for Bitcoin's value as the current program stands.

The emergence of miners is an entirely mechanic phenomenon, is there is value in mining someone will do it. Rational miners can't "press the 'stop' button and wipe out the whole thing". An individual miner can behave irrationally but his place will soon be taken by a rational miner. Hoarding at the miner level is inconsequential - the miner buys BTC with his resources. To affect the price he has to buy at a loss, to mine for hoarding when it's cheaper to buy on the market, in other words to behave irrationally.

To say miners can chose to stop Bitcoin is equivalent to saying that the drug cartel can end cocaine abuse. Sure, if all individual traffickers stop producing and selling cocaine, they could theoretically stop users from obtaining it. However as long as there's a demand someone will fill it, the drug cartel is a rational supplier for the existing drug demand.

Miners trade.  There is no point to mine if you don't trade them, whether for cash or for goods/services.  The more miners there are, the more traders there are.  While it is not true that all traders are miners, it is much safer to think that all miners are traders.

The more traders there are, the more liquidity there is.

Liquidity influences the economy (lot's of buying and selling aids merchants) and thus price.

There are so many angles from which this can be approached, and this doesn't even include arguments for unknown effects of miners.

If people know exactly what influences what, then how come nobody knows (not predicts) where the market is going?


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September 29, 2011, 12:47:11 AM
 #9

What would be interesting is a two question survey to see the distribution of mining power vs. Selling intent.

Q1: How many GPU are you mining with ?

a: One
b: Two
c: 3 to 5
d: 6 to 10
e: 10 or more...


Q2: What % or earned Bitcoins have you sold ?

1: none
2: less than 10%
3: 10 to 50%
4: more than 50%
5: all, I sell them right away.


A even more elaborate survey could provide very useful data.

I would guess ; ab = 13, c = 5, d = 123, e = 12
gopher
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September 30, 2011, 08:22:52 AM
 #10

Quote
Every mined coin came from a miner
Yes.
Quote
and the value of every coin, is influenced by the number of miners.
No.

If the miners multiply in numbers, their individual "influence" is proportionally diminished so that the overall "influence" of the miners remains constant to what has been hard-coded into the protocol: a steady source of liquidity that is as hard to produce as bitcoins are valuable. The value of bitcoins is externally imposed by the market and the miner crowd reacts. The market is the dog, and the miners are the tail being wagged.

Quote
Miners are an absolute necessity for Bitcoin's value as the current program stands.

The emergence of miners is an entirely mechanic phenomenon, is there is value in mining someone will do it. Rational miners can't "press the 'stop' button and wipe out the whole thing". An individual miner can behave irrationally but his place will soon be taken by a rational miner. Hoarding at the miner level is inconsequential - the miner buys BTC with his resources. To affect the price he has to buy at a loss, to mine for hoarding when it's cheaper to buy on the market, in other words to behave irrationally.

To say miners can chose to stop Bitcoin is equivalent to saying that the drug cartel can end cocaine abuse. Sure, if all individual traffickers stop producing and selling cocaine, they could theoretically stop users from obtaining it. However as long as there's a demand someone will fill it, the drug cartel is a rational supplier for the existing drug demand.

Miners trade.  There is no point to mine if you don't trade them, whether for cash or for goods/services.  The more miners there are, the more traders there are.  While it is not true that all traders are miners, it is much safer to think that all miners are traders.

The more traders there are, the more liquidity there is.

Liquidity influences the economy (lot's of buying and selling aids merchants) and thus price.

There are so many angles from which this can be approached, and this doesn't even include arguments for unknown effects of miners.

If people know exactly what influences what, then how come nobody knows (not predicts) where the market is going?



I agree with you original proposition that the miners influence the price. That influence, compared to the influence from other forces, is quite negligible.

Your next proposition that the miners trade is much more interesting, although false - when the miners trade, they do not act as miners but as speculators.

See my other thread where I discuss the two contradicting groups in the Bitcoin market https://bitcointalk.org/index.php?topic=46116.0

I also do not agree with your proposition that liquid market aids merchants - I would say, exactly the opposite - the merchants prefer stagnated currencies.



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