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> 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.
Great idea... we can go back to the old model of trusting third parties to print our money for us.
> 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.
The 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 mi…
> 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.
Lots of businesses use cost-plus pricing, which contradicts the econ 101 assumption that you're repeating.
Now, one might naively argue that even with cost-plus pricing, the outcome is still the same because businesses who set their price too high will be either outcompeted or just find no demand either way and disappear from the market.
However, this assumes that the buyer-side utility functions and price expectations are somehow exogenous, and come from outside the entire market system. But that's obviously not true: people form their expectations of how much things are supposed to cost, and even what the value of goods are (see Giffen goods for an extreme case) by looking at the de facto prices of goods -- and those are usually set by the suppliers, using cost-plus pricing.
The bottom line is that utility functions and price expectations are really endogenous, which radically breaks the econ 101 model of supply and demand. I've heard of economists making various attempts to fix their models to account for this, but I'm not aware that a consensus on how to fix this has emerged.
Bitcoin'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. 1: https://coinmarketcap.com/currencies/bitcoin/#charts
The 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 mi…
> So, it appears bitcoin is now entering a death spiral: If the price continues to drop and the cost of mining does not fall correspondingly (the cost of mining will algorithmically decrease, but not necessarily to same extent as the decline in prices), bitcoin will quickly go to zero.
> 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.
The 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 mi…
This has been addressed in the article: > So, it appears bitcoin is now entering a death spiral: If the price continues to drop and the cost of mining does not fall correspondingly (the cost of mining will algorithmically decrease, but not necessarily to same extent as the decline in prices), bitcoin will quickly go to zero.
Bitcoin'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. 1: https://coinmarketcap.com/currencies/bitcoin/#charts