Bitcoin is close to becoming worthless?
marketwatch.com
Bitcoin is close to becoming worthless?
1–10 of 83 posts
Re: Bitcoin is close to becoming worthless?
#2> In that respect, it is more like gold, in that its value is driven to some extent by its desirability and potential uses, but mostly by its cost of mining
This is not how prices work: https://en.wikipedia.org/wiki/Labor_theory_of_value
What matters is how much somebody will pay for an asset (supply and demand) not how much it cost to produce that asset to begin with.
Re: Bitcoin is close to becoming worthless?
#3The key argument seems to be:
> Third, the futures markets have changed the game, enabling miners to estimate their mining losses and profits at the outset — if you can buy in a futures market at a price below my mining costs, why mine for a sure loss?
Re: Bitcoin is close to becoming worthless?
#4> In that respect, it is more like gold, in that its value is driven to some extent by its desirability and potential uses, but mostly by its cost of mining This is not how prices work: https://en.wikipedia.org/wiki/Labor_theory_of_value What matters is how much somebody will pay for an asset (supply and demand) not how much it cost to produce that asset to begin with.
Even more so in the case of Bitcoin, where the cost of mining is always slowly converging towards the market price (if cost of mining is higher than market price some people stop, difficulty drops and mining becomes cheaper; if cost of mining is lower than market price more people start mining).
Re: Bitcoin is close to becoming worthless?
#5> As I argued, once Bitcoin’s price falls below its cost of mining, the incentive to mine will deteriorate, thrusting bitcoin into a death spiral.
When bitcoin appeared it's price was zero, yet people still mined it despite being a clear "worthless" activity.
Re: Bitcoin is close to becoming worthless?
#6> In that respect, it is more like gold, in that its value is driven to some extent by its desirability and potential uses, but mostly by its cost of mining This is not how prices work: https://en.wikipedia.org/wiki/Labor_theory_of_value What matters is how much somebody will pay for an asset (supply and demand) not how much it cost to produce that asset to begin with.
Even more so in the case of Bitcoin, where the cost of mining is always slowly converging towards the market price (if cost of mining is higher than market price some people stop, difficulty drops and mining becomes cheaper; if cost of mining is lower than market price more people start mining).
And if mining slows too much where there's not enough block space for transactions, the fee market will pep up and make it profitable eventually too.
Re: Bitcoin is close to becoming worthless?
#7Bitcoin's price drop might look bad enought to warrant sensational articles, but if you take any bitcoin price chart over the last years (like [1]) and switch it to logarithmic price, it doesn't appear exceptional. The same thing happened in 2013.
Re: Bitcoin is close to becoming worthless?
#8The key argument seems to be: > Third, the futures markets have changed the game, enabling miners to estimate their mining losses and profits at the outset — if you can buy in a futures market at a price below my mining costs, why mine for a sure loss?
There is only so much you can buy in a futures market before it starts pulling the spot market up.
Re: Bitcoin is close to becoming worthless?
#9The key argument seems to be: > Third, the futures markets have changed the game, enabling miners to estimate their mining losses and profits at the outset — if you can buy in a futures market at a price below my mining costs, why mine for a sure loss?
This is wrong argument. Mining costs are different for different miners. Someone has cheap electricity, someone has cheap electronics. If mining is not profitable for some part of miners, they'll stop mining and difficulty of mining will decrease, making mining more profitable again. It's a self-regulating mechanism.
Re: Bitcoin is close to becoming worthless?
#10The article is misinformed:
I am the first one to jump on Bitcoin's flaws, but this here just reeks of somebody not understanding the protocol:
> As I argued, once Bitcoin’s price falls below its cost of mining, the incentive to mine will deteriorate, thrusting bitcoin into a death spiral.
The cost of mining adjusts depending on the hash rate, so if nobody is mining the cost of mining goes down until people start mining again.
EDIT: The mining difficulty gets adjusted only every 2013 blocks, so it might be that mining activity drops so low that the block chain starves out before the difficulty can be adjusted down.
Is this what the article is trying to say?