$5000 per coin will never happen if PoW mining is allowed to continue

[TonyT]

PoW mining currently transfers $500 million USD worth of wealth out of the Bitcoin eco-system, into the pockets of pools/miners/asic hardware vendor/electricity company.

This wealth transfer will go on, perpetually, as long as PoW mining exists. Because, as long as Bitcoin relies on PoW mining to secure the network, the expense will exist, and it can
not be cheap (otherwise attack on the network will be cheap and easy too).

In order for Bitcoin price to rise, there has to be at least more than $500 million of new money to enter the eco-system, every year, just to maintain the current price.

All Bitcoin holders are essentially charged a 10% tax per year, perpetually, by the PoW mining network. How can this be sustainable?

Excellent post and I think you know the answer.  Bitcoin is not "free".  Seigniorage (http://en.wikipedia.org/wiki/Seigniorage) is, as you say, 10% a year.  So do the math:  in 7 years the stock of money in Bitcoin will be halved, unless, as you say, new money comes in.  But new money is getting harder to find.  I myself--a Bitcoin long who has two Bitcoin exchange accounts, one in the USA, one in the UK--have yet to buy any Bitcoin because the transactions have been canceled (coinbase.com) or slow in arriving.  I may drop out of Bitcoin if I don't get bitcoin soon. And it took me 44 hours to install Armory, my PC wallet, and I am told that is not unusual.  Only 7000 full Bitcoin nodes exist--a tiny number that makes the Bitcoin P2P network very fragile. Further, the chief scientist Gavin A. has stated himself he sees a day when users get charged for using the P2P network, and already as you know there is a minimum recommended transaction fee for every bitcoin send.  Further G.A. has said anonymity may not always be the same as today in future versions of the Bitcoin P2P network, which will make this network less attractive to the principle people who use bitcoin and don't just horde it for speculation, and that would be black marketeers.

In short, Bitcoin is a bit of a Ponzi scheme for black marketeers working in the dark market.  And, as others have pointed out, the transaction fees in established payment schemes that use fiat currencies, like PayPal, like Western Union, and the like, while high, at least have the advantage of being transparent.  In Bitcoin, these fees are hidden.  Bitcoin is not free of transaction costs, is not anonymous, depends on a fragile P2P network, and is hard to convert to and from fiat currencies.

[kokojie]

Now a days getting 500 is quite hard then 5000 looks like a dream.

That is because any new money is basically transferred to pay pools/asic hardware/electricity company, barely any is left to benefit the Bitcoin eco-system. If we end PoW mining today, there would be $500 million new money annually available purely for the benefit of Bitcoin eco-system, how do you think that will affect the price?

[TonyT]

LOL basic economics fail OP.  POW mining is exactly what gives bitcoin its value.  Miners have to expend real resources and fiat (or other value) to buy mining equipment and to run it, which they won't do unless they and other miners value those costs as lower than the amount of bitcoins they mine with them.  POW mining sets a base value for bitcoin.  That money you think "leaves the ecosystem" doesn't leave, it *sets the price*.

Not really true.  The same thing is said of gold miners, in that they "set the price of gold" and that "gold can never fall below the costs of mining it", but time and again this 'rule' is violated.  The OP has it right.

[kokojie]

LOL basic economics fail OP.  POW mining is exactly what gives bitcoin its value.  Miners have to expend real resources and fiat (or other value) to buy mining equipment and to run it, which they won't do unless they and other miners value those costs as lower than the amount of bitcoins they mine with them.  POW mining sets a base value for bitcoin.  That money you think "leaves the ecosystem" doesn't leave, it *sets the price*.

Not really true.  The same thing is said of gold miners, in that the "set the price of gold" and that "gold can never fall below the costs of mining it", but time and again this 'rule' is violated.  The OP has it right.

I think he's probably a miner shill, these people don't care about Bitcoin eco-system, they care only about profits. They even dare to claim their useless PoW mining give Bitcoin value.

Saying Bitcoin derive value from useless PoW mining, is an insult to Satoshi Nakamoto, the developers that contributed to Bitcoin, and the Bitcoin community.

[bitcool]

They are an unnecessary and damaging part of the community. They extract value from cryptocurrency eco-systems and transfer them to pools/hardware vendor/electric company.

PoS eco-systems has proven that PoW mining is not needed.

I've been thinking about PoS, just couldn't figure out the difference between PoS and a would-be digital dollar issued by the Fed.

[kokojie]

They are an unnecessary and damaging part of the community. They extract value from cryptocurrency eco-systems and transfer them to pools/hardware vendor/electric company.

PoS eco-systems has proven that PoW mining is not needed.

I've been thinking about PoS, just couldn't figure out the difference between PoS and a would-be digital dollar issued by the Fed.

I think you are confused, PoS is just another way to secure the network, there's basically no difference from how PoW secure the network, except PoS uses stake instead of ASIC, and stake doesn't expend resources, that's all.

All other rules of cryptocurrency still applies, Bitcoin's rules will still be exactly the same if switched to a PoS system.

[redsn0w]

#kokojie
So did you think the PoW system ( at the moment) is an error ? Which is the better algorithm for you ?

[kokojie]

#kokojie
So did you think the PoW system ( at the moment) is an error ? Which is the better algorithm for you ?

It is not an error, but just a system that is behind the times. Would you be still using VHS tapes, when netflix streaming is available?

If Bitcoin switch to PoS system, all its rules and function will still be the same, just that it will no longer expend $500 million USD in value every year, to pay miners/pools/hardware vendors/electricity companies. All that money will stay in the Bitcoin eco-system, for the benefit of the eco-system.

[Keyser Soze]

It sounds like you are just saying that the $500 million figure is roughly the current value of coins mined in one year and that miners will spend an amount slightly less then that on mining. However, there is no explanation on why you keep saying this money is "leaving the Bitcoin eco-system". Are you trying to say that if Bitcoin used POS, then this $500 million would instead be used to purchase coins?

Edit: It may help if you define the "Bitcoin eco-system".

[onewiseguy]

pools/miners/asic hardware vendor are not outside the bitcoin ecosystem in my eyes, they are part of it.

on point, with out any of the pools/miners/ hardware ext there will not be any bit coins!

[redsn0w]

#kokojie
So did you think the PoW system ( at the moment) is an error ? Which is the better algorithm for you ?

It is not an error, but just a system that is behind the times. Would you be still using VHS tapes, when netflix streaming is available?

If Bitcoin switch to PoS system, all its rules and function will still be the same, just that it will no longer expend $500 million USD in value every year, to pay miners/pools/hardware vendors/electricity companies. All that money will stay in the Bitcoin eco-system, for the benefit of the eco-system.

Your thinking is correct , but if the bitcoin will lose the PoW part I think it will lose all  its (actual) "price" and ( I don't hope this) its value il drop to $ 100/150.

This will be an hard fork and I think not all the users/miners will accept this fork.

[kokojie]

It sounds like you are just saying that the $500 million figure is roughly the current value of coins mined in one year and that miners will spend an amount slightly less then that on mining. However, there is no explanation on why you keep saying this money is "leaving the Bitcoin eco-system". Are you trying to say that if Bitcoin used POS, then this $500 million would instead be used to purchase coins?

Just tell me, if not the Bitcoin eco-system, who is paying for miner profit, pool fee, asic hardware cost/profit, electricity? are these money not leaving the eco-system? I'm pretty sure they are sitting in the bank accounts of the above, and not benefiting the eco-system.

and Yes, I am saying these money that are used to pay the above, will be instead used for the benefit of the Bitcoin eco-system.

[bitcool]

I think you are confused, PoS is just another way to secure the network, there's basically no difference from how PoW secure the network, except PoS uses stake instead of ASIC, and stake doesn't expend resources, that's all.

Thinking the bigger picture, making network secure is just a technical annoyance we need to deal with.  The perceived fairness of money creation & distribution is many times more important.  

Similarly, nowadays even though rich people can invest in gold mines to acquire more gold, mining gold is still considered much more honest than printing paper dollars by most people. And by centralization the Fed can make their digital dollar network fairly secure with much lower cost than PoS.

[kokojie]

pools/miners/asic hardware vendor are not outside the bitcoin ecosystem in my eyes, they are part of it.

on point, with out any of the pools/miners/ hardware ext there will not be any bit coins!

Incorrect, PoS system are perfectly functional in securing the network, processing transactions and producing currency supply, there is nothing PoW can do that PoS can't do better.

[kokojie]

I think you are confused, PoS is just another way to secure the network, there's basically no difference from how PoW secure the network, except PoS uses stake instead of ASIC, and stake doesn't expend resources, that's all.

Thinking the bigger picture, making network secure is just a technical annoyance we need to deal with.  The perceived fairness of money creation & distribution is many times more important.  

Similarly, nowadays even though rich people can invest in gold mines to acquire more gold, mining gold is still considered much more honest than printing paper dollars by most people.

Again, you are confused if you think PoW distribution is fair, and PoS must be unfair. I admit PoW distribution is "easy", but it might not be fair. PoS distribution requires more thought and design, but a properly designed distribution can be made more "fair" than a PoW distribution.

[bitcool]

Again, you are confused if you think PoW distribution is fair, and PoS must be unfair. I admit PoW distribution is "easy", but it might not be fair. PoS distribution requires more thought and design, but a properly designed distribution can be made more "fair" than a PoW distribution.

Please show me a PoS distribution model that you consider more "fair" than Bitcoin/Litecoin/Dogecoin...

[kokojie]

#kokojie
So did you think the PoW system ( at the moment) is an error ? Which is the better algorithm for you ?

It is not an error, but just a system that is behind the times. Would you be still using VHS tapes, when netflix streaming is available?

If Bitcoin switch to PoS system, all its rules and function will still be the same, just that it will no longer expend $500 million USD in value every year, to pay miners/pools/hardware vendors/electricity companies. All that money will stay in the Bitcoin eco-system, for the benefit of the eco-system.

Your thinking is correct , but if the bitcoin will lose the PoW part I think it will lose all  its (actual) "price" and ( I don't hope this) its value il drop to $ 100/150.

This will be an hard fork and I think not all the users/miners will accept this fork.

Don't kid yourself, Bitcoin development is very much centralized, the users will accept whatever client distributed by Gavin Andressen, just like they will accept the upcoming block size hard fork, without realizing there are better solutions available to solve the problem.

[kokojie]

Again, you are confused if you think PoW distribution is fair, and PoS must be unfair. I admit PoW distribution is "easy", but it might not be fair. PoS distribution requires more thought and design, but a properly designed distribution can be made more "fair" than a PoW distribution.

Please show me a PoS distribution model that you consider more "fair" than Bitcoin/Litecoin/Dogecoin...

I could think of a number of distribution models better than Bitcoin. For example, distribution by donation to development effort and bounties. So instead of paying $500 million to miners/pools/hardware/electricty company. These money can be used to:
1. fund Bitcoin development and propel it fast forward
2. pay for people to build more Bitcoin infrastructure to benefit the Bitcoin eco-system.
3. pay the PoS miners for running a full node and processing transactions (ok I realize they are still miners, but they are by definition stakeholders of the eco-system)

I'm sure there are much more talented people who can think of new ideas better than these.

[inBitweTrust]

Don't kid yourself, Bitcoin development is very much centralized, the users will accept whatever client distributed by Gavin Andressen, just like they will accept the upcoming block size hard fork, without realizing there are better solutions available to solve the problem.

That is not how the discussions work within Github and you are conveniently ignoring the other implementations.

I agree with some of your statements of the weaknesses and limitations of PoW and the inherent costs. What you fail to disclose are all the benefits. You simply are shilling PoS and DPoS without a serious consideration of security. Are you assuming that Satoshi didn't consider mining centralization?

The current system where every user is a network node is not the intended configuration for large scale.  That would be like every Usenet user runs their own NNTP server.  The design supports letting users just be users.  The more burden it is to run a node, the fewer nodes there will be.  Those few nodes will be big server farms.  The rest will be client nodes that only do transactions and don't generate.

Take for example another solution. Bitshares using DPoS. I was told by several active proponents that it is more secure and decentralized than Bitcoin and PoW and BTSX was a "True" deflationary currency because it would never grow beyond 1,999,883,512 coins which investors mainly purchased in an IPO. One month latter a one developer is able to leverage his time between a competing DAC to influence most of the delegates into a merger to create a capital infusion to help pay for development costs or his salary. So it looks like 2.5 billion will be the new number. I wonder how long that will remain true?

Good luck, raising the 21 million cap within bitcoin sir.

[TonyT]

It sounds like you are just saying that the $500 million figure is roughly the current value of coins mined in one year and that miners will spend an amount slightly less then that on mining. However, there is no explanation on why you keep saying this money is "leaving the Bitcoin eco-system". Are you trying to say that if Bitcoin used POS, then this $500 million would instead be used to purchase coins?

Edit: It may help if you define the "Bitcoin eco-system".

The OP is saying the total value of bitcoins minus Seigniorage (http://en.wikipedia.org/wiki/Seigniorage) is too high.  That's a valid point.  It takes money to mint BTC, and that money is paid by the users of BTC.

TonyT