Gold collapsing. Bitcoin UP.

[Adrian-x]

the Bitcoin Virus won't stop replicating:

Someone over at blockchin reads this thread, that chart looks a lot more smooth.
Still this hashing increase is in my view is phenomenal.

It is absolutely phenomenal.

However note that the rate of growth has started to slow down instead of speed up at around November '13:

It is speeding up if you zoom in the next difficulty is 18% on top of about a 10% increase. The short term is going to be around 15% every 2 weeks as planned inventory comes online and we may plateau if price falls (like 2011)

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[World]

Re: It's about time to turn off PoW mining
and
Re: Projected Minimum Cost per BTC over the next year

[Melbustus]

...
In a competitive market, the price of a commodity tends to its cost of production.
...

In the following, the author argues that it's counter-intuitively the other way around for bitcoin: http://cryptonomics.org/2014/09/16/some-crypto-quibbles-with-threadneedle-street/

So the exchange value of the mining award determines the marginal costs rather than the other way round. An economist might find that pretty weird, but that is how it works.

...Economists are used to thinking in terms of prices (ephemeral market stuff) being a function of costs (stuff that is “material” and “real”, like a production function). But the way the Bitcoin protocol works, the hashing costs of the network are a function of the mining award’s market value. I’m not saying it’s a nice feature of the protocol. But it is what it is.

Some interesting points made in that piece (a bunch of which I disagree with (on first pass, at least), but interesting nonetheless).

The following passage seems especially relevant to the PoS discussion recently:

In my opinion, the most important innovation of hash-based proof-of-work isn’t its solution to the problem of distributed consensus, for which there are arguably better solutions. Rather, the real innovation is the way in which this energy intensive defence against the Sybil attack makes the marginal cost of proof-of-work fiat money meaningfully non-zero, refuting the argument above. The scheme’s seigniorage doesn’t really accrue to anyone. Instead, it gets burned up in hashing blocks, where the marginal cost of producing a new set of coins equals the cost of solving the hash problem on the block that brings the new coins into existence. There is no coin “issuer”, scarcity comes into existence ex nihilo.

And this “seigniorage burning” isn’t a complete waste, as my metaphor might suggest and an economist will wrongly suspect as “inefficient”, for it has the side-effect of bootstrapping a solution to the distributed consensus problem and thereby creating a distributed payment system on which the value can be transferred (a coin can’t be scarce if it can be double spent). After all, shouldn’t seigniorage be spent on a public good? I think that this is conceptually beautiful, and it deserves to be a chapter in the micro foundations of money economics, whatever its ultimate fate ends up being. The first credible scheme for credibly rationing the supply of privately produced fiat currency.

The dominant narrative to-date has been that digital currencies like Bitcoin have value because of the utility of the distributed payments system combined with an (eventually) fixed coin supply. I think that the latter belief is unfounded. It’s not the fixed supply of a coin that makes it scarce, but rather the marginal cost of producing the coin that makes it so.

[Peter R]

Re: It's about time to turn off PoW mining

It always surprises me how common this line of reasoning is (I'm referring to the OP in the linked thread), even among those who've been involved with bitcoin for a while.  In addition to the likely-unresolveable technical problem regarding nothing-at-stake with PoS [cue kodtycoon], people miss the fact that the "mining cost" is due to the inflation schedule rather than strictly due to the PoW.  If there's 25 BTC up for grabs each 10 minutes, and the process to win those 25 BTC is competitive, then somehow the average cost to acquire those new bitcoins must approach the price to buy 25 bitcoins from an exchange.  The reason is that market participants will be happy to consume up to 24.9xx BTC worth of real resources to compete for them.  

The only way to avoid this is to eliminate the competition for the block reward, for instance, by awarding new coins in proportion to how many coins we already hold.  But that's no different than moving the decimal point and then pretending we all have 10X as many coins!  It's completely missing the point of bitcoin's inflation schedule (which is to distribute coins to a wider number of people).  

...
In a competitive market, the price of a commodity tends to its cost of production.
...

In the following, the author argues that it's counter-intuitively the other way around for bitcoin: http://cryptonomics.org/2014/09/16/some-crypto-quibbles-with-threadneedle-street/

Agreed.  

[Adrian-x]

Re: It's about time to turn off PoW mining
and
Re: Projected Minimum Cost per BTC over the next year

Thanks for the reference this is big news for those not aware of the dynamic something's got to give, I'm not sure what it is either way I felt getting back into mining was a good hedge.

Re PoW it's not time to change it, if or when Bitcoin hits the next order of magnitude in value, every one is going to know about it and energy choice people and collectives (city's) make are going to bring in more efficiencies as we'll be re-assessing the value of electricity. It's going to have global impact and a profound reevaluation on consumers priorities.   

Bitcoin will go virtual and the disruption will be monumental.

[Xiaoxiao]

51% attack is inevitable, that is if bitcoin gets anywhere, which it probably won't.

[cypherdoc]

51% attack is inevitable, that is if bitcoin gets anywhere, which it probably won't.

It's not inevitable for all the reasons elucidated throughout this thread numerous times.  

[Erdogan]

Re the two articles from BOE: Basically, progress.

They now fully understands the technology and the invention. (First article).

The second article basically says that it is conceivable bitcoin could take over, but it is extermely unlikely.

They don't know, I don't know, so their guess is as good as mine.

They base this likelihood on some perceived defects in the system, and some money theory I disagree with.

a) The three functions of money. They note that houses can be money in the storage of money function, but not in the exchange function. This is wrong, because if you can not exchange, it can also not be money. The fact that you normally exchange houses for fiat is not relevant; money can be changed for money, it is also an exchange. Houses are not good money of course, the fact that they are money is only due to the failure of fiat money as a long time store of value.

They note that bitcoin is not a unit of account. This is only correct since bitcoin is not used much at all, but again, it can not be money unless it can also be a unit of account, the crucial traits here are that they are divisible and fungible, bitcoins are the best money in that regard.

b) They focus on volatility, not understanding that all money are volatile. Bitcoin is more volatile than some fiats at the moment, but have the potential to be just as stable as the pound. Some fiat money going to zero is also volatility.

c) They believe that transaction fees will have to go up, to be more expensive than current transaction costs in the bank system. This should be the result of miners overinvesting, this point of view is an instance of the labour theory of value, which is bogous.

The price of transactions is market based, and after block rewards they can be higher, but, with high costs, transactions will be supplied by businesses, with only clearing transactions performed on the block chain. There are lots of other reasons for this to be true.

They also conflate block reward and transaction fees. They add up the total cost of the system, but as a payer you do not consider the block reward, only the fee. So the transaction cost is the fee.

d) They believe that an eventual contraction of mining power will lead to a monopoly. Heck, their arguments should logically lead them to believe that monopoly in mining will occur in all cases. Anyway, they do not understand that the only relevant monopolies occur with the help of government restrictions with subsequently extended privileges. An eventual monopoly in mining would be based on merit, be short lived, and is not more likely than in any submarket. Only if you define the market narrowly, you can find monopolies, and if you define the markets to be indivisibly small, they are all monopolies.

e) Maybe the most important part of the article is the money management aspects. Seen from a statist view, bitcoin is a threat to stability. They do not consider the master slave tendency of the current system, because they are close to the masters.

[justusranvier]

It always surprises me how common this line of reasoning is (I'm referring to the OP in the linked thread), even among those who've been involved with bitcoin for a while.

It's been going on ever since GPU mining started.

Nobody really likes watching their profit margins shrink because of competition, no matter how inevitable it is, or how beneficial it is for an economy as a whole.

There's always some group of people in any economic situation who believe they deserve their profit margins forever, and will appeal to any external force they can contact in order to keep the playing field tilted towards them.

Taxi drivers try to get the state to ban Uber and Lyft, and bitcoin miners invent scrypt mining and PoS.

[molecular]

Re: It's about time to turn off PoW mining
and
Re: Projected Minimum Cost per BTC over the next year

Also interesting in this context: Proof of Idle

[notme]

c) They believe that transaction fees will have to go up, to be more expensive than current transaction costs in the bank system. This should be the result of miners overinvesting, this point of view is an instance of the labour theory of value, which is bogous.

Nice summary, thanks!  I'd just like to point out that the real difference here is the lack of a captive market.  If the banks overinvest in infrastructure, they can raise rates on their target audience.  If miners overinvest, all they can do is drop out and take their losses.

[Adrian-x]

Re: It's about time to turn off PoW mining
and
Re: Projected Minimum Cost per BTC over the next year

Also interesting in this context: Proof of Idle

There is alot in a name. (I thought it was a parody)  This chap overlooks a fiew fundamental problems with money like how to distribute it and what gives it value.

[molecular]

Re: It's about time to turn off PoW mining
and
Re: Projected Minimum Cost per BTC over the next year

Also interesting in this context: Proof of Idle

There is alot in a name. (I thought it was a parody)  This chap overlooks a fiew fundamental problems with money like how to distribute it and what gives it value.

I don't remember him talking about money much. I thought the whole idea was interesting... based on many assumptions, but given the right conditions, this could be done. On the other hand: maybe it's just an academic exercise.

btw regarding all the discussion about mining. I can't wait for the cost do double sometime in 2016

[molecular]

shorts on bfx at 1 month (or longer) high > 10 kBTC

[Zarathustra]

Before the agricultural revolution, it took humanity about one million years on average to develop enough infrastructure/capability to support an additional one million humans living at subsistence levels. After the agricultural revolution, that changed to talking only a few hundred years. Now, after the industrial revolution, that takes 90 minutes on average.

There are huge side effects:
http://www.worldwildlife.org/threats/soil-erosion-and-degradation

That's important but the kicker is overall economic growth, we're moving from a meme of more to a meme of better. The problem is the centers of control are working from the ideology of Co opting / controlling the supply of more. Monopolies have no value when people find alternatives,  micro electronics, alternate energy and food security technologies like aquaponics (oh and money) are reshaping everything.

Forget it, Adrian.

In economics, the Jevons paradox (/ˈdʒɛvənz/; sometimes Jevons effect) is the proposition that as technology progresses, the increase in efficiency with which a resource is used tends to increase (rather than decrease) the rate of consumption of that resource.[1] In 1865, the English economist William Stanley Jevons observed that technological improvements that increased the efficiency of coal-use led to the increased consumption of coal in a wide range of industries. He argued that, contrary to common intuition, technological improvements could not be relied upon to reduce fuel consumption.[2]

The issue has been re-examined by modern economists studying consumption rebound effects from improved energy efficiency. In addition to reducing the amount needed for a given use, improved efficiency lowers the relative cost of using a resource, which tends to increase the quantity of the resource demanded, potentially counteracting any savings from increased efficiency. Additionally, increased efficiency accelerates economic growth, further increasing the demand for resources. The Jevons paradox occurs when the effect from increased demand predominates, causing resource use to increase

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

I'm aware of Jevons_paradox, but much smarter people than me (Satosi) know it's only supply and demand that brings it into equilibrium. The divergence in usage as a result of innovation also express it's self in an economy as art and culture ultimately this is enriched experiences.

We won't find a comfortable equilibrium with constant economic growth as managed under the target of central banks.

With or without central banks: "a comfortable equilibrium with constant economic growth" is an oxymoron.
An economy is a collectivist organisation (state bastard), and:

"Essentially, the economy is an engine that transforms resources into waste."

http://www.financialsense.com/contributors/ugo-bardi/2011/07/22/entropy-peak-oil-and-stoic-philosophy-part-2

An economy is by extension part of an ecosystem, entropy is a feature, one which drives the evolution of life. Waste as president in you referenced material is a byproduct of an economy artificially stimulated by monetarist policy.

The homo oeconomicus is an artificially stimulated homo sapiens. Monetarist policies are a byproduct of that artificial life.

[cypherdoc]

oh my.  we've entered silver free fall.  there's no support until about 13.43:

[cypherdoc]

gold and the Dow futures aren't doing any better:

[cypherdoc]

like i said Friday, wouldn't it be "fitting" if the world's largest IPO ever, BABA, top ticked the stock mkt while Bitcoin bottomed.

to be clear, there is no technical evidence that we've topped in the stock mkt.  absolutely none of my indicators have confirmed any top at all.  it's just a feel and a matter of timing that bothers me.  we're way overdue for a cyclical downturn.  some ppl operate off a 7 yr cycle implying the earliest for a down turn being 2015.  problem is, i work off a 4 yr cycle, which is way over extended.  we'll see.

the way the USD (poking over resistance) and UST's (TLT bottoming) are setting up and the way that commodities, especially gold and silver, are heading down, one would be wise to be on high alert for a deflationary event.

[cypherdoc]

i'll say it again.

as long as gold and silver are falling, there is no reason to sell Bitcoin.  if fact, you should be buying Bitcoin.

b/c when the next crisis comes, and there will be another crisis, there will be no other fixed supply safe haven asset to run to other than Bitcoin.  for all the reasons i've outlined throughout these gold threads over the past few years, gold has failed at its historical role as an enforcer to fiat abuse from central banks.  that could not be clearer at this point.

[cypherdoc]

shorts on bfx at 1 month (or longer) high > 10 kBTC

yeah, i like the looks of that.