Speculate: Difficulty

[kjlimo]

I skimmed quickly, but didn't see anyone bring up this point:

Right now, we're dealing with inflation of 50 BTC per 10 minutes.

For the year, we're gonna go from 8 million BTC to 10.5 million BTC (ish), so more than 25% annual inflation, yet the price seems to be stable.  This implies that people are obtaining BTC at a pace that keeps up with this inflation.

Next year, inflation will be smaller for two reasons:

1) block reward cut in half to 25 BTC per 10 minutes &
2) For 2013, BTC will go from 10.5 million BTC to 11.75 million (ish), so less than 15% annual inflation.

If people continue to obtain BTC at a pace that keeps up with 25% inflation and yet inflation drops to less than 15%, then this will give upward pressure (where now we see flat or upward pressure on price).

Bottom line is that the economic statistics that give us moderate or even flat price growth could give us higher growth in future years if the underlying behaviors continue.  Will they continue?  Now that's a question for great speculation   I'm putting my money on yes.  and I believe they will even grow, but now back to developing the bitcoin economy...

Someone feel free to post the more accurate numbers; I threw these out off the top of my head, but you get the idea.  I'm just trying to show the directional movement.

[1713569325]

1713569325

[disclaimer201]

I have to reiterate.

With the humongous amount of FPGA being sold, difficulty will get a good amount higher.
I now believe we will get more than 4000000 difficulty by the time bitcon reward halves.

After that, GPU miners will leave the bitcoin scene, but not the FPGA miners. The lowest we will see at the beginning of 2013 will be 2000000 difficulty.

At the same time we might see even more people selling their GPUs, taking much higher hashrates offline than will be replaced with FPGAs. Cards will less and less used for mining but for gaming/normal desktop operation. At the current prices and ROI of FPGAs I'm guessing FPGAs will not fully substitute GPUs for a longer time. We may even end up with a lower longterm difficulty if it wasn't for sAsics/ASICs.

Even if reduced electricity costs make up for considerably lower hashrates the number of people who have the capital for FPGAs to begin mining in any sensible scope (1000Mhash/s+) will be much lower. People are often irrational and I doubt most GPU miners will continue to mine with other technology, particularly if it has little to no resale value.

[Stephen Gornick]

If people continue to obtain BTC at a pace that keeps up with 25% inflation and yet inflation drops to less than 15%, then this will give upward pressure (where now we see flat or upward pressure on price).

The thing that matters though is that it is already known when the per-block reward drop will occur (+/- a week or so) and the amount (from 50 BTC to 25 BTC).  So that might explain why the BTC/USD is stable at $5 versus being $2.

Now what if December comes and the block reward drops and, surprise surprise, the BTC/USD exchange rate drops a little as well. 

There aren't $50 million worth of Bitcoin commerce transactions occurring each day where 10.5 million BTC are needed (with "velocity" / turnover estimated at one transaction per-day.)

So the impact of the block reward could pretty much end up being a non-event.

It will all boil down to, are there uses for bitcoin that will start to gain momentum. 

The block chain transaction level (even excluding SatoshiDICE) is growing at a fair clip and there are no reasons apparent why that trend should reverse (or slow down even).

 - http://blockchain.info/charts/n-transactions-excluding-popular

[Raize]

So the impact of the block reward could pretty much end up being a non-event.

This is probably the most relevant statement in the thread.

[AniceInovation]

And now, with the ASICs coming, i can't even predict to where it goes.

[proudhon]

So the impact of the block reward could pretty much end up being a non-event.

This is probably the most relevant statement in the thread.

I think it'll be at best a non-event.