$500,000 per Bitcoin, baby. The math behind it.

[smooth]

"The price at which he bought the rig is irrelevant to this decision. It’s a “sunk cost”." -- https://bitcointalk.org/index.php?topic=694401.0

I don't think that's true. The miners will continuously have to buy new hardware since the price/performance of computing power doubles every year. Old hardware has to be replaced. And in addition there are costs for bandwidth and for maintenance, administration, rent of buildings etc.

Only if the cost of electricity is much larger than all those other costs over time can the assumption in the quote be valid.

Better to approach this from the opposite direction. The least efficient miners (and only the least efficient miners) will approximately break even, meaning they are spending their share of the rewards on electricity. As long as there is a range of efficiencies of miners, then electricity usage does not equal block rewards.

The simplistic model of electricity usage equal to rewards implies a cessation of ASIC R&D. That is not happening any time soon.

EDIT: Two additional points

1. If we use a simple model of most efficient miners using zero electricity and the least efficient using all of the block reward, and further assume that the distribution is linear, then approximately half the block rewards to go electricity. In reality the least efficient do not use zero, but the distribution is probably biased toward more efficient miners, so these two assumptions cancel out to some extent. Half may be a reasonable estimate. That does not substantially impair the argument that $500K bitcoin is implausible until the reward is lower.

2. Where the argument does break down is if the dollar drops in value as BTC increases relative to the dollar (i.e. $/kwh significantly increases).

[go1111111]

So way over 10% of Gross World Product can eventually be Bitcoin.

10% of Gross World Product is $8.5 trillion.

Divide 12M coins into $8.5 trillion

$500,000 Bitcoin baby.

The flaw in this analysis is that it assumes each Bitcoin will only be spent once per year, on average. Or in other words it assumes Bitcoin velocity is 1.

The velocity of USD is about 10. So if Bitcoin has the same velocity as USD, that makes it $50k per bitcoin. However one advantage of bitcoins is that they can move around faster than dollars through the existing banking system. Velocity could be a lot higher with Bitcoin. If it's 100, then that's only $5k per bitcoin.

[icet208]

nice OP dude. Hope that you`r right:D

[ensurance982]

Yeah, it seems so easy. Things may be even sweeter if you consider that a market capitalization isn't directly reflecting the total worth of a single bitcoin. A single bitcoin may be worth a lot more due to the market's demand and supply - which really decides about a bitcoin's worth.

[jonald_fyookball]

So way over 10% of Gross World Product can eventually be Bitcoin.

10% of Gross World Product is $8.5 trillion.

Divide 12M coins into $8.5 trillion

$500,000 Bitcoin baby.

The flaw in this analysis is that it assumes each Bitcoin will only be spent once per year, on average. Or in other words it assumes Bitcoin velocity is 1.

The velocity of USD is about 10. So if Bitcoin has the same velocity as USD, that makes it $50k per bitcoin. However one advantage of bitcoins is that they can move around faster than dollars through the existing banking system. Velocity could be a lot higher with Bitcoin. If it's 100, then that's only $5k per bitcoin.

are you sure?  can you explain why it wouldn't be velocity 10 instead of 1?  if we are talking about 10% of the world money supply it should have 10% of the value given the same velocity.

Also there is no reason to believe Bitcoin will have a true "higher velocity" than other forms of money.
Sure, the transaction happens faster, but that doesn't mean people are buying more often.
If anything, people should be spending less because of deflation/appreciation.

[db]

ASIC space heaters?

If you think that miners can find a profitable use for the waste heat from the mining process then that would allow them to use even more power than the estimates given.

Yes, but it wouldn't be wasted. Say resistor wire with built-in mining hardware costs about the same as regular resistor wire and that 6% of electricity production goes to heating. Then all those 6% (instead of 3%) would be used for mining. No other mining would take place as it would be highly unprofitable. More power would be used for mining but used efficiently and at no cost to society.

[vuduchyld]

The massive flaw in this alleged "math" is that it is tied to GWP.  That is clear and utter nonsense.

Bitcoin would be more analogous to money supply, likely M2.

Of course, the adoption rates are also plucked out of thin air.

[labsbitforum]

Bitcoin is the 3rd revolution I'm living through

1st revolution was Personal Computer's which are now tablets and smartphones to many (1980's-2000's)
2nd revolution was The Net the age of instant free info (1990's-2000's)
3rd revolution was Digital Cryptocurrency (2010's-)

The Digital Revolution and subsequent Information Age will be considered a transformation era every bit as significant as the Industrial Revolution and Neolithic Revolution.

But...  Why are you so sure that Bitcoin will be a long term success in the digital currency space?  Things evolve over time and its rare that the early versions or leaders in a space survive at all.

Some examples off the top of my head.  My Space, AOL, Napster, Blockbuster, Netscape, Xerox, IBM...  At one time all of those companies were the champions of their space but its normally the case that as things evolve they are not able to maintain that position.  Normally someone comes along with a version 2.0 that is so much better everyone moves on to that.  Then a different company comes out with 3.0 that causes another industry shift and so on.  The company that did the 1.0 version becomes a footnote to history.

Bitcoin has very serious scalability issues.  It is increasingly less decentralized.  It does not have strong leadership or a lot of re-development happening to address core problems with its long term viability.  Most likely it will be replaced by something else in the not too distant future...

[BurtW]

Most likely it will be replaced by something else in the not too distant future...

So...   Which alt are you pumping? 

[Bagatell]

Some examples off the top of my head.  My Space, AOL, Napster, Blockbuster, Netscape, Xerox, IBM... 

Those are brands and companies that built on underlying technologies. Those technologies are still with us.

[FUR11]

Bitcoin is the 3rd revolution I'm living through

1st revolution was Personal Computer's which are now tablets and smartphones to many (1980's-2000's)
2nd revolution was The Net the age of instant free info (1990's-2000's)
3rd revolution was Digital Cryptocurrency (2010's-)

I honestly believe most here will be telling our grand kids about a thing we used to have called money that evil governments printed at will to fuel stupid wars.

They will ask, "Gramps, how did you become so rich?"

You will say, "Because I SAW THE REVOLUTION COMING and put lots of worthless government notes into tech notes you call BITCOIN."

After you've been front lines in a couple of revolutions you start to see them coming.

BITCOIN is like the Internet and the personal computer. It is the NEXT revolution.

Bitcoin had four ten-fold growth bubbles:

• $0.05 per bitcoin. The start.
• $0.50 per bitcoin. First tenfold bubble
• $5.00 per bitcoin. Next tenfold bubble
• $50.00 per bitcoin. Next tenfold bubble
• $500.00 per bitcoin. Our current bubble

Next bubbles:

• $5,000 per bitcoin.
• $50,000 per bitcoin.
• $500,000 per bitcoin.

For $5,000 to happen you need ONLY 0.1% acceptance of world population for Bitcoin. We are at 0.01% now.

$50,000 is just 1% of Gross World Product by Bitcoin. This produces the $50,000 bubble.

$500,000 per Bitcoin is just 10% Gross World Product by Bitcoin.

Can Bitcoin hit 10% growth of population?

Credit cards did and they reject 90% of the world.

Bitcoin rejects no one.

So Bitcoin will go in trade where Visa/Mastercard refuse to go.

So way over 10% of Gross World Product can eventually be Bitcoin.

10% of Gross World Product is $8.5 trillion.

Divide 12M coins into $8.5 trillion

$500,000 Bitcoin baby.



- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

The original poster of this was not me. Full credit goes to this guy "domainbrokers". I liked his post so much that I wanted to share it.

Wow that really sounds like a dream. But it's backed by some calculations, and even they seem pretty pessimistic if Bitcoin should really lift off! Man, I should put some more money into it. This has to take off soon!

[siggy]

Bitcoin is the 3rd revolution I'm living through

1st revolution was Personal Computer's which are now tablets and smartphones to many (1980's-2000's)
2nd revolution was The Net the age of instant free info (1990's-2000's)
3rd revolution was Digital Cryptocurrency (2010's-)

The Digital Revolution and subsequent Information Age will be considered a transformation era every bit as significant as the Industrial Revolution and Neolithic Revolution.

But...  Why are you so sure that Bitcoin will be a long term success in the digital currency space?  Things evolve over time and its rare that the early versions or leaders in a space survive at all.

Some examples off the top of my head.  My Space, AOL, Napster, Blockbuster, Netscape, Xerox, IBM...  At one time all of those companies were the champions of their space but its normally the case that as things evolve they are not able to maintain that position.  Normally someone comes along with a version 2.0 that is so much better everyone moves on to that.  Then a different company comes out with 3.0 that causes another industry shift and so on.  The company that did the 1.0 version becomes a footnote to history.

Bitcoin has very serious scalability issues.  It is increasingly less decentralized.  It does not have strong leadership or a lot of re-development happening to address core problems with its long term viability.  Most likely it will be replaced by something else in the not too distant future...

Every example you have listed above is a company ( or company like) ... or maybe more apropriately a "thing" ..  Bitcoin is more of a protocol, and in my view, protocols are much more resiliant with "first mover advantage" .. think more like:  TCP/IP, HTTP, FTP, SMTP ...  While all of these have somewhat evolved over the years, the current incarnations are still very much like the originals, and built up from the originals. 

If BTC hasn't already hit critical mass with the first mover advantage, it isn't far off.  And with a protocol, once critical mass has hit, it is nearly impossible to replace it with a new (even if better) non-compatable protocol.

Sigg

[labsbitforum]

Every example you have listed above is a company ( or company like) ... or maybe more apropriately a "thing" ..  Bitcoin is more of a protocol, and in my view, protocols are much more resiliant with "first mover advantage" .. think more like:  TCP/IP, HTTP, FTP, SMTP ...  While all of these have somewhat evolved over the years, the current incarnations are still very much like the originals, and built up from the originals. 

If BTC hasn't already hit critical mass with the first mover advantage, it isn't far off.  And with a protocol, once critical mass has hit, it is nearly impossible to replace it with a new (even if better) non-compatable protocol.

Sigg

Your right bitcoin is a lot like a protocol.  The Internet suite protocols examples you gave are all things that grew out of the formation of the internet by DARPA, IAB, IETF, W3C etc.  Bitcoin is a disruptive entrant that is more similar file sharing protocols than it is to the governmental and academic bodies that created those protocols.

File/music sharing protocols and the entities behind them have evolved considerably. 
Napster
Gnutella, eDonkey2000, Freenet
Kazaa
Limewire
Bittorrent

I think digital currency will evolve just as everything else has.

Bitcoin = 1.0  Something else will be 2.0

[CoinDiver]

File/music sharing protocols and the entities behind them have evolved considerably. 
Napster
Gnutella, eDonkey2000, Freenet
Kazaa
Limewire
Bittorrent

I think digital currency will evolve just as everything else has.

Bitcoin = 1.0  Something else will be 2.0

Sounds fine, but what did any uses have invested in those technologies? Nothing, or close to nothing. Not the case with bitcoin.

[ThatDGuy]

File/music sharing protocols and the entities behind them have evolved considerably. 
Napster
Gnutella, eDonkey2000, Freenet
Kazaa
Limewire
Bittorrent

I think digital currency will evolve just as everything else has.

Bitcoin = 1.0  Something else will be 2.0

Sounds fine, but what did any uses have invested in those technologies? Nothing, or close to nothing. Not the case with bitcoin.

This is an extremely important point.  If an individual has a lot invested in Bitcoin, they also have a vested interest in seeing that specific protocol's infrastructure strengthened.  This is very different from an individual user of Napster, Kazaa, Limewire, and slightly different from a user of Bittorrent.

[Benjig]

Yes, it will take a while to reach $50,000. Many years.

But it will hit $5000 within the next 6 months.

A sustained $5000/BTC price would drive mining to attempt to consume about 0.3% of world wide power production.  That is a lot, but at least is it possible.

Everyone will get their old miners back out and turn them on again ;-)

This cant happen, even if the price is 10 k per bitcoin, old miners like gpus or usb will not make roi in years.

[siggy]

Everyone will get their old miners back out and turn them on again ;-)

This cant happen, even if the price is 10 k per bitcoin, old miners like gpus or usb will not make roi in years.

ROI has nothing to do with it.. once a miner is purchased, that is a sunk cost.  Once you have it, the only thing that matters is operating costs (electricity, mostly) ..  So long as bitcoins returned are greater than current operating cost, the miners will be turned on.   It makes no difference that it will never make ROI.  At this point, it is about reducing losses, not making a profit.

Sigg

[labsbitforum]

File/music sharing protocols and the entities behind them have evolved considerably. 
Napster
Gnutella, eDonkey2000, Freenet
Kazaa
Limewire
Bittorrent

I think digital currency will evolve just as everything else has.

Bitcoin = 1.0  Something else will be 2.0

Sounds fine, but what did any uses have invested in those technologies? Nothing, or close to nothing. Not the case with bitcoin.

This is an extremely important point.  If an individual has a lot invested in Bitcoin, they also have a vested interest in seeing that specific protocol's infrastructure strengthened.  This is very different from an individual user of Napster, Kazaa, Limewire, and slightly different from a user of Bittorrent.

Agreed.  File/music/movie sharing for the most part are hack0rz and tech savvy people that are just trying to avoid paying for stuff and don't have a lot invested in it financially.  While not identical I would argue its more similar to bitcoin than say the TCP standard developed more than 40 years ago by DARPA.  People in this forum tend to have a lot invested in bitcoin but the average person out there does not.

I'm not pumping any alt.  They are all scams.  The few legitimate attempts I've seen to get a true decentralized P2P distributed digital payment system in place don't seem to have any traction or adoption.  If there is a serious collapse in bitcoin I would expect one of those to bloom.

[BitchicksHusband]

A cheap lottery ticket for living next the beach dream.

Bought 1 bitcoin. Hopefully will have 5 before year end.

If only I had spent the money that I used to buy lottery tickets back in 2011 on Bitcoin instead. Back then, Bitcoin was the real lottery ticket. You could hardly buy anything with it and the chances of it going mainstream were slim. Even though the odds were stacked against you, the potential rewards would have been enormous. Who knew that Bitcoin would be where it is today.

Don't beat yourself up.  It was very, VERY hard to buy bitcoin in 2011.  You pretty much had to find a miner to deal with directly.

[Mobius]

Bitcoin is the 3rd revolution I'm living through

1st revolution was Personal Computer's which are now tablets and smartphones to many (1980's-2000's)
2nd revolution was The Net the age of instant free info (1990's-2000's)
3rd revolution was Digital Cryptocurrency (2010's-)

I honestly believe most here will be telling our grand kids about a thing we used to have called money that evil governments printed at will to fuel stupid wars.

They will ask, "Gramps, how did you become so rich?"

You will say, "Because I SAW THE REVOLUTION COMING and put lots of worthless government notes into tech notes you call BITCOIN."

After you've been front lines in a couple of revolutions you start to see them coming.

BITCOIN is like the Internet and the personal computer. It is the NEXT revolution.

Bitcoin had four ten-fold growth bubbles:

• $0.05 per bitcoin. The start.
• $0.50 per bitcoin. First tenfold bubble
• $5.00 per bitcoin. Next tenfold bubble
• $50.00 per bitcoin. Next tenfold bubble
• $500.00 per bitcoin. Our current bubble

Next bubbles:

• $5,000 per bitcoin.
• $50,000 per bitcoin.
• $500,000 per bitcoin.

For $5,000 to happen you need ONLY 0.1% acceptance of world population for Bitcoin. We are at 0.01% now.

$50,000 is just 1% of Gross World Product by Bitcoin. This produces the $50,000 bubble.

$500,000 per Bitcoin is just 10% Gross World Product by Bitcoin.

Can Bitcoin hit 10% growth of population?

Credit cards did and they reject 90% of the world.

Bitcoin rejects no one.

So Bitcoin will go in trade where Visa/Mastercard refuse to go.

So way over 10% of Gross World Product can eventually be Bitcoin.

10% of Gross World Product is $8.5 trillion.

Divide 12M coins into $8.5 trillion

$500,000 Bitcoin baby.



- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

The original poster of this was not me. Full credit goes to this guy "domainbrokers". I liked his post so much that I wanted to share it.

Wow that really sounds like a dream. But it's backed by some calculations, and even they seem pretty pessimistic if Bitcoin should really lift off! Man, I should put some more money into it. This has to take off soon!

The OP does not use any facts to support why bitcoin would be such a large part of the global economy. I personally think that bitcoin will be successful over the long term but I don't think it will ever reach reserve currency status which would essentially be needed to reach these numbers.