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Author Topic: Mining too profitable?  (Read 3995 times)
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May 15, 2011, 05:04:52 AM

The beautiful thing about the design of Bitcoin is that the difficulty automatically adjusts itself to account for the total mining output of the entire Bitcoin ecosystem.  So if mining is too profitable, then the difficulty level will rapidly squash it back down.  Which is happening.

You have it backwards. The price began skyrocketing right about the time of (when everyone knew it would be imminent), and even moreso AFTER the last difficulty increase. The market is adjusting (and over-compensating) for difficulty increases, not the difficulty adjusting for the market prices (though that may happen indirectly).

This suggests nearly the whole of Bitcoins' value is based on how difficult they are to produce and not, for example, its adoption as a currency.

Difficulty follows price. Price does not follow Difficulty. Take a look of the 12WMA of price plotted with Difficulty and be amazed.

I would also say that difficulty follows price.  Bitcoin adoption increases price then more miners come in and difficulty goes up to take most (but not all) of the profit out of it. 

If the adoption rate continues go grow mining will remain profitable as there is a lag for the difficulty adjustment. 

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