Real honest Money

[balanghai]

Deep thought. Good read anyway.

[franky1]

I love a guy that creates a whole long freaking post to talk about PoW being "backed" by energy when he has no clue what "backed" even means

https://bitcointalk.org/index.php?topic=361813.msg7624335#msg7624335

To be backed by something, your exchange rate back to energy cannot change, just like when dollar was backed by gold until the 1970s.  It has to be set at a constant exchange rate and be guaranteed by some kind of entity that you can exchange the coin back to "energy cost" that it ORIGINALLY took to produce these coins.  Your oh-so-dear PoW coin values fluctuates with no regard whatsoever to what energy costs to produce these coins.  

A perfect analogy for your flawed argument is like saying "just because a stock X is dollar denominated, it is backed by the US Dollars" (and somehow that prevents it from dropping in value).  Yes it is worth a certain amount of US dollars but that amount is always changing.  A stock can be worth $50 one day and drop to $1 the next if people loses confidence in that stock.  The dollar value does not affect the stock price or vice versa.  

Same thing with PoW coins.  If people loses confidence in a coin, no matter if it's PoW (or even PoS for that matter, but i'm only concentrating on your flawed premise, which is what your argument is based on), it is going to drop regardless, no matter how much "energy" you put into making this coin.  This is why there is NO "BACKING" of any kind from energy.  Plus no entity would guarantee that "backing" of yours.

Don't talk about stuff that's over your head please.  

back when bank notes were backed by gold. you could never swap a bank note for the true value of gold. firstly the exchanger would look at the speculated price, then the local spot price for the area and add on their own admin fee.

meaning a £10 would get you £8 of true gold value. this is why people didnt really put gold under their bed and preferred to stick with bank notes as it was perceived as better value.

now bringing it to crypto currencies.. POW stops bitcoin falling too far.. because miners who have actual costs in mining, would be too stupid to sell at too much of a loss. so lets put this into perspective

mining costs have been calculated to be between $500 and $600 (dependent on electric, investment amount, size of reward person gets by being on the right/wrong pool), then as it reaches the exchanges, then comes the speculation and profiteering. adding another $50-$100 ontop.

so just like the gold backed bank note. bitcoin IS backed by POW costs, because this month bitcoin refuses to go below $500 (which has been proven).

in both cases there is a variance of 0%-20% but thats speculation/profiteering. but there is proof that POW costs do factor into the value of bitcoin, and the fact that bitcoin is over $500 due to it costing atleast that to mine them..

bitcoins true value is not $1 with $640 speculation, meaning bitcoin can drop and stay dropped to $1.. it can swing up and down, but on average it will be at or above mining costs because smart miners will refuse to sell at a lose, thus keping the prices on average above mining costs (excluding the random crackpot that dumps coin for a temporary crash..) but as i say ON AVERAGE the bitcoin value and mining costs do tally..

just watch out if someone makes a multi-terrahash miner that can mine a bitcoin for lets say $100.. then you will see the miners selling coins instantly, crashing the price to $100-$150 to grab profits.. but luckily i dont think that will happen..  

what makes me laugh is when people true to say bitcoin is not backed by POW, and bank notes are not backed by minimum wage/cost of living (+/- upto 20% speculation).. these people can never actually make an articulate argument using examples and numbers to say what bank notes and bitcoins is backed up by, in their opinion

[EtherCoin]

+1000

[nicetry]

Remember basic Physics you can not create something for nothing

Right now it costs $600 Dollar to generate a Bitcoin, someone has done $600 Dollars worth of work, thats a promise. If someone has done $600 dollar worth of honest work for you, are you going to pay him? If a miner sells below cost he will not be a miner for long, if the profit is huge others will join. I don't need to be Einstein to figure out if a Bitcoin sells for $1000 and i can produce it for $600 i will produce.

Retarded argument.  "someone has done $600 dollars worth of work".  Are you assuming that it ALWAYS took $600 of work to produce these coins?  What if bitcoin price drops to $300 the next day, are you going to change your argument to "someone has done $300 dollars worth of work"?  How is that "backing" exactly?  Do you even know how many bitcoins were produced when the production cost was only $10, $50, and $100 (hint, a whole lot more than when the BTCs that were produced at $600)? 

Your argument would be partially correct if bitcoin was a PERISHABLE consumable commodity, where the end buyer chooses to consume the commodity or modify it into some other kind of product, such as coffee, corn, etc.  And the original commodity is used up in the process of production (i.e. no longer exists).  If this is the case, the original producer of the commodity will always take the production cost into consideration.  And I stress perishable because the commodity has a very short lifespan if not consumed, hence the commodity price *SHOULD* closely follow the production cost because the production cost happened just *recently*.  Unlike your flawed argument that bitcoin "cost $600 to produced", which is obviously not true for coins made 2 years ago, last year, or even 6 months ago. 

And I said *partially* correct.  This is because even in the case of these perishable consumable commodities, the price is still mostly driven by supply/demand.  Think about it.  If the market demand stays constant for corn, and there is a GREAT harvest for corn.  Corn supply will greatly exceed demand, and the price will drop.   This is where the importance of *perishable* part comes in.  If the farmer cannot sell the corn in time, it will go bad, hence he has to reduce the price even if it meant that the production cost exceeds the prices he sells at (i.e. selling at a loss). 

So the lesson for you today is that production cost is only a small factor in determining market price, even for perishable consumable commodities (which BTC is obviously not, since once it's mined, it's mined, it does not expire.)  Everything is driven by supply/demand.  So there is no backing from production costs whatsoever.  Furthermore, you don't even bother to analyze what is the average cost to produce all bitcoins, instead of the current cost of production, which makes your entire argument fall apart in 2 seconds (i'm just really sad no one else pointed this out, tells you the average IQ of people on this forum).

[nicetry]

bitcoins true value is not $1 with $640 speculation, meaning bitcoin can drop and stay dropped to $1.. it can swing up and down, but on average it will be at or above mining costs because smart miners will refuse to sell at a lose, thus keping the prices on average above mining costs (excluding the random crackpot that dumps coin for a temporary crash..) but as i say ON AVERAGE the bitcoin value and mining costs do tally..

Franky, just read my most recent post.  You need to learn a thing or two about production cost, and what it really took to product ALL BITCOINS ON AVERAGE.

[franky1]

bitcoins true value is not $1 with $640 speculation, meaning bitcoin can drop and stay dropped to $1.. it can swing up and down, but on average it will be at or above mining costs because smart miners will refuse to sell at a lose, thus keping the prices on average above mining costs (excluding the random crackpot that dumps coin for a temporary crash..) but as i say ON AVERAGE the bitcoin value and mining costs do tally..

Franky, just read my most recent post.  You need to learn a thing or two about production cost, and what it really took to product ALL BITCOINS ON AVERAGE.

have a read of my post and learn a thing or two about the production cost, and what it really took to produce ALL GOLD ON AVERAGE..

gold 50 years ago was cheap, 100 years ago it was cheaper, its price does meander because there is a 20% speculation/profiteering going on.. the exact same as bitcoin.. between cost of production and demand

so the cost that gold miners sold their gold at is linked to if they used a pickaxe or an excavator, single person or a team of people
so the cost that btc miners sold their btc at is linked to if they used a CPU, GPU, FPGA or ASIC. single unit or server farm of units.

in both cases this was the true value of the item in question.. which over time increases.. then in both cases add on about 20% of speculation/profiteering..

and you may see that true gold value (gold miners sell price) and tru bitcoin value (btc miners sell price) do have a noticeable trends and show a noticeable bases to follow.

i personally do not judge bitcoin by its daily price. i do not base it on its high price. i believe true bitcoin value to be on the weekly, monthly or yearly average LOW PRICE. as being the price to back it by...

so right now i say bitcoin is backed by a mining cost of $500.

bank notes were not 100% backed by gold true value decades as gold prices fluctuated due to speculation/profiteering. today banknotes are not backed 100% by minimum wage as there is fluctuations in that too, such as tax and bank interest rates or fee's for withdrawal.. but in every case of trying to find true value of anything that is backed, their is always a 20%ish variance above proof of work.
gold (miners labour+20% spot)
banknotes(wage+20tax and fee's)
bitcoin(miners costs+20% profitering)

yet its proof of work labour that is what backs all/most things.. not supply and demand

so if im wrong. you tell me what is bitcoin and bank notes backed by and explain it in detail! dont simply pretend to be smarter without actually showing an answer, rather than just trying to prove others wrong.

if your going to say that its just backed by supply and demand, then you need to realise the supply and demand only affects the 20% speculation/profitering.
when there is high demand. it may exceed 20% reaching maybe 300% (as sen at the december spike) and when there is alot of supply and lack of demand, the price would be at the average production cost level (very small or no profit). (as seen last month when cost of mining was in the $400 range and no one was selling below $400).

but on average over a few years it is about 20%

[EtherCoin]

I think you are wrong, nicetry.

While is true that two years ago the production cost was ridiculous compared with the current scenario, the reality is that miners will just not release BTCs for less than the cost they are forced to pay, sure there will be exceptional cases where people will have ninja access to hardware, power, etc. but on AVERAGE if the cost if mining a BTC is 600$ surely the miners will not sell under production cost + profit margin.

This happen today at 600$ and the day of tomorrow when the mining cost of a single BTC is worth 1000$ then surely we will not see prices from miners dumping less than 1100-1200$. If I start mining today and it cost me 600$ to get a single coin, I will not give a shit about your "average production cost" arguments, and still push for getting ROI+profit.

Now if things go south and the cost of mining BTCs its not worth anymore due to not enough supply/demand, the supply of BTCs would slow down also, making the current BTCs on the market even more valuable, wouldn't that counter the dive on supply/demand?

So, it is indeed difficult to create examples of what would happen using other valuables as comparison, because BTC is quite unique in that aspect.

I don't think supply/demand justify a 650$ value for a BTC... RIGHT NOW... do you? But tell that to the miners..

So, I think BTC is indeed POW'ed and the market reflects it.

Anyway I am just a newb that started into cryptos just a month ago, I could be utterly wrong, but enjoyed writing this post anyway

Scholars feel free to correct me, I am in here to learn.

(N00b question - Would it represent the same kind of cost for a mining operation to mine BTCs and to mine just for get the transactions confirmed? or is it an indivisible operation? - When all the BTCs get mined, how costly will be to keep mining to keep the Tx going, considering the miners will get just transaction fees as profit?)

Eth.

[nicetry]

back when bank notes were backed by gold. you could never swap a bank note for the true value of gold. firstly the exchanger would look at the speculated price, then the local spot price for the area and add on their own admin fee.

Another guy that wants to "invent" what "backed by" means.  If the US Dollar is BACKED by gold, then the exchange rate is set by the US Treasury, 1 dollar for certain amount of gold.  In effect, U.S Dollar price no longer fluctuates against gold; because for every dollar, there is an equivalent amount of gold kept at Ft. Knox.  What is all this mumble jumble about speculated price and local spot price and admin fee???  What the heck are you talking about?  Are you talking about today's U.S. Dollar?  The US Dollar has been off the gold standard since the 1970s, aka US dollar is not backed by gold anymore.  In fact, no currency is backed by gold anymore in today's world.  

[lemfuture]

good read, while some alts have been pretty consistent, it is not so easy to knock them off anymore

[nicetry]

Another big flaw in your arguments.  Your posts all assume that the price of bitcoin is driven by production cost, but it is exactly the opposite.  The price of bitcoin is actually driving production cost.  Your $500-$600 figure all include the mining equipment costs, and what determines the equipment costs?  You think the makers of these equipments price them according to their material cost? Yea fat chance.  Why do you think BTC miners are all being sold/bought in BTC?  Or at least priced according to BTCs?  

Furthermore, cost of production in no way prevents a coin from dropping below production cost.  Let's say something catastrophic happens, such as bitcoin gets attacked via 51%, or has a major fork, what prevents it from dropping below this magical $500 threshold of yours?  And you think your miners will still cost the same amount of BTCs compared to before this drop? 

Why do you think all scrypt PoW coins drop in value so much lately such as aurora or doge or any other PoW?  You think it's because the cost of production is low? Tell that to the thousands of people that bought the gridseed blades for $1600 just a couple of months ago.   

Value of BTC comes completely from confidence in the coin, just like any other PoW or PoS coin.  But people's confidence is a lot higher in BTC than any other coins because BTC has been out there much longer.  And if BTC falls below $500, the miner prices will adjust accordingly. 

And stop talking only about Bitcoin in your arguments.  This guy created his long winded thread to tout all PoW coins.  Why are most of the alt scrypt PoW coins dropping despite the production costs? 

[franky1]

back when bank notes were backed by gold. you could never swap a bank note for the true value of gold. firstly the exchanger would look at the speculated price, then the local spot price for the area and add on their own admin fee.

Another guy that wants to "invent" what "backed by" means.  If the US Dollar is BACKED by gold, then the exchange rate is set by the US Treasury, 1 dollar for certain amount of gold.  In effect, U.S Dollar price no longer fluctuates against gold; because for every dollar, there is an equivalent amount of gold kept at Ft. Knox.  What is all this mumble jumble about speculated price and local spot price and admin fee???  What the heck are you talking about?  Are you talking about today's U.S. Dollar?  The US Dollar has been off the gold standard since the 1970s, aka US dollar is not backed by gold anymore.  In fact, no currency is backed by gold anymore in today's world.  

clever man.. read my posts again... gold 50 years ago i said.. and now minimum wage..

Another big flaw in your arguments.  Your posts all assume that the price of bitcoin is driven by production cost, but it is exactly the opposite.  The price of bitcoin is actually driving production cost.  Your $500-$600 figure all include the mining equipment costs, and what determines the equipment costs?  You think the makers of these equipments price them according to their material cost? Yea fat chance.  Why do you think miners are all being sold/bought in BTC?  Or at least priced according to BTCs?

price of bitcoin isnt driving production costs.. its production costs driving th price. because miners do not sell for a loss based on production cost not based on the changes of rigs costs..

for instance i have been running the same rig for 2 years.. whether it was priced at 60btc 2 years ago or 1btc today for the same gighash.. i dont change my goal sell price dependent on the rig cost.. i sell my coin dependent on my electric and time (production costs)+spot(profit)

your trying to say that gold is not backed by the production cost+spot but gold is backed by dollars. because dollars pay for the excavator which then digs out the gold!

so if an excavator costs $50k 2 months ago, and now advertised for $40k, no one in their right mind would sell 20% cheaper based on mining equipment price changes..

yes part of my production cost is the initial outlay of the rig) but has nothing to do with me changing my sell price if a rig producer changes their price day/weekly.. as thats irrelevant..

only when a person BUYS a rig, does that become part of production costs.

again if i buy a rig today, and suddenly the manufacturer has a half price promotion tomorrow due to a bitcoin value change. im not going to reduce my sell price.. purely based on a manufacturers dailyt price change..

if production costs is $500 im selling for above $500 no lower, no matter what promotions or rig costs changes happen hours/days later

Furthermore, cost of production in no way prevents a coin from dropping below production cost.  Let's say something catastrophic happens, such as bitcoin gets attacked via 51%, or has a major fork, what prevents it from dropping below this magical $500 threshold of yours?  And you think your miners will still cost the same amount of BTCs compared to before this drop?  

im not saying that the speculation part will make some panicers sell at a loss, but on average the price if you actually looked at a chart, always evens out, to at or above mining cost, yes there are pumps and dumps, spikes and crashes, but they always recover to atlast mining cost+ levels..

take for instance november-december.. that was a spike 300% above mining costs. due to the "china wanna own the planet" positive speculation then it crashed to $600 due to china "not allowed to own it" negative speculation news, and then down to $400 mtgox.. but then it held.. ask yourself why wasnt bitcoin at $10 in march!!!!

because true value was just shy of $400, and speculation averaged about $50 ontop.. today costs is a little above $500 and speculation (postive attitude) gives it atleast $120 speculation

[doo]

Why are most of the alt scrypt PoW coins dropping despite the production costs?

Aren't the ASIC's producing coins much more efficient than the inefficient graphic cards? Miners can sell at a much lower price.

[franky1]

Why are most of the alt scrypt PoW coins dropping despite the production costs?

Aren't the ASIC's producing coins much more efficient than the inefficient graphic cards? Miners can sell at a much lower price.

back in the day of GPU, people were still paying $300 per GPU, couple hundred per motherboard etc, and setting up GPU farms..
now with more people mining although hash per penny/cent is cheaper, the amount of miners counteract you idea as instead of (example number only) 25 people mining gpu's getting 1btc each. now there are 10,000 people getting dust amounts each. so even if their rig cost $200 now and equivalent to 50 GPU's.. its meaningless as they have to share a 25btc reward with 10,000 people.. thus needing to buy many rigs to try getting back to owning 1BTC a block, or collectively hoarding coins to get a higher price to cover their production costs.


miners a couple months ago had a $400 cost per coin.. they refused to sell, for less then the $400-$450.. and slowly the price started to increase because their hoarding attempt caused demand. then the miners that shut off their rigs at $400 turned them back on.. now due to more miners again, the costs are now $500+ which is a safe cost vs profit. if mining costs get to $600 and any hoarding attempt has not happened. then they will try to cause a price rise to ensure profit..

its a chain reaction.. but miners always try to keep some speculative buffer, after all they need some speculation ontop of costs.. as no one wants to work for no profit long term.. a day, week is acceptable. this is why you will see the occasional panic traders trying to push prices down below costs, but it never lasts long

[ShakyhandsBTCer]

Why are most of the alt scrypt PoW coins dropping despite the production costs?

Aren't the ASIC's producing coins much more efficient than the inefficient graphic cards? Miners can sell at a much lower price.

It would not be correct to say the ASICs are producing coins more efficiently. The Bitcoin protocol is setup so that the network can generate, on average one block per 10 minute period.

It would be more appropriate to say that ASICs can make SHA-256 calculations more efficiently then what CPUs and GPUs can.

[nicetry]

clever man.. read my posts again... gold 50 years ago i said.. and now minimum wage..

Gold 50 years means it was on the gold standard, read my post again, if it's gold standard, what the hell does speculative and spot price have to do with Dollar / Gold exchange rate?  Stop making up stuff

[nicetry]

And I just love your 20% speculation part of your argument, franky, you want other people to come up with statistics yet you are just making statistics up.  Rofl. 

[nicetry]

for instance i have been running the same rig for 2 years.. whether it was priced at 60btc 2 years ago or 1btc today for the same gighash.. i dont change my goal sell price dependent on the rig cost.. i sell my coin dependent on my electric and time (production costs)+spot(profit)

your trying to say that gold is not backed by the production cost+spot but gold is backed by dollars. because dollars pay for the excavator which then digs out the gold!

so if an excavator costs $50k 2 months ago, and now advertised for $40k, no one in their right mind would sell 20% cheaper based on mining equipment price changes..

yes part of my production cost is the initial outlay of the rig) but has nothing to do with me changing my sell price if a rig producer changes their price day/weekly.. as thats irrelevant..

retarded logic.  So your goal of selling BTC would always dependent on electricity and time regardless of how much you spent to buy the miner?  How do you even price your time?  This is just retarded thinking.  I'm not even to bother to argue with you anymore.  And you keep mentioning this $500-600 cost to produce BTC.  Are you saying your time and electricity cost that much to produce each coin?  

And I'm not going to even delve into your convoluted/nonsensical logic.  

Simply put, the market for a coin does not care how much you put into producing the coins.   And if you want to price your coin differently from the market price, the market is not going to care because either you will be 1. selling your coins way below market price.  2. fail to sell your coins because you are pricing them too high.

Simplest test to prove you and Manfred wrong is that these other PoW coins, aside from BTC (since demand is fairly high for BTC), is that these coins going to drop in value regardless of electricity cost it took to mine them.  These coins are going to drop in value because there is too much supply and not enough demand.  

And no, i'm not saying gold is backed by anything.  Gold price is determined by supply/demand like everything is in a capitalist market.  Learn some economics please.   There is no "backing" unless someone guarantees a preset exchange rate to enable you convert two commodities/currencies back and forth.

[franky1]

it makes me laugh that you think you know what "backed by" means yet you have no hard facts, just your opinion to back up your theory.
try looking at some charts now and again, see the trends, try using a calculator and do some maths.. dont just reply based on an opinion your limited imagination dreamt up.

hell people have even made calculators to work out mining profitabilty.. just to save you some time..

your supply and demand theory is high school level stuff. or as i prefer, the analogy of an orange. your theory is just the outer skin, yea you can hold it you can show people it, and thy will think thats all it consists of.. but you have not peeled away the skin and looked or felt the segments inside, the truly juicy and important things that make an orange, an orange.

[twiifm]

it makes me laugh that you think you know what "backed by" means yet you have no hard facts, just your opinion to back up your theory.
try looking at some charts now and again, see the trends, try using a calculator and do some maths.. dont just reply based on an opinion your limited imagination dreamt up.

hell people have even made calculators to work out mining profitabilty.. just to save you some time..

your supply and demand theory is high school level stuff. or as i prefer, the analogy of an orange. your theory is just the outer skin, yea you can hold it you can show people it, and thy will think thats all it consists of.. but you have not peeled away the skin and looked or felt the segments inside, the truly juicy and important things that make an orange, an orange.

w currency "backed by" means "convertible to"

nicetry is correct.  gold & bitcoin price is speculative

[franky1]

w currency "backed by" means "convertible to"

nicetry is correct.  gold & bitcoin price is speculative

another non miner that thinks bitcoins are worth pennies but only sold for $640 due to dreams and hopes and nothing more...