Bitcoin

[cAPSLOCK]

I'm still trying to make sense of the concept of how a thing gains value because of the electricity that was spent in creating a long string of numbers. These strings have no value, they are just electricity receipts for doing nothing more than having a videocard go brrrrrrrrrrrr.

The idea that this is such a worthy cause as to devote "green energy" to is beyond absurd.

I am glad to offer some insight. It's a deep subject that crosses SEVERAL disciplines in computer science, cryptography, and game theory to name a few. Over time one begins to understand why there is value in "burning this energy for nothing"... A misunderstanding in the first place. Here's why:

Bitcoin's energy use is called "Proof of Work". And that energy use is at the base of what secures the Bitcoin network. But by far the most important part is it is a provable and observable way to know that when a miner adds more information to Bitcoin's blockchain that it is legitimate. The miner cannot just make up the fact that they went to trouble to solve a difficult math problem.

This energy use allows actors across the entire globe to agree on a single set of facts (the blockchain) despite the reality they are incentivized to cheat. (See John Nash's concept of non cooperative game theory) If someone could make bitcoin, or charge transaction fees WITHOUT doing the work... AND proving they did then they most certainly would. And this would instantly undermine the security of the network and would remove the foundation for Bitcoin having a monetary value in the first place.

The energy use is THE most simple and straightforward way to create this barrier.

It is counterintuitive, but consider this. Gold is just the same. It is valuable because it is extremely hard to produce. And it cannot be just created out of nothing... or some other metal (well... ermm... there is THIS recent development).

Gold's Proof of Work is exploration, digging giant holes, hauling away tons and tons of earth, sorting out the ore, refining it, smelting it, forming it into bars (etc), and THEN there is transport, security, the defense of something like Ft Knox, etc.

A TREMENDOUS amount of energy goes into mining and producing gold. And it leaves a net negative impact on the environment. And even after we have pure gold we have to continue to spend an ongoing amount of energy in the form of resources and human labor to protect, move, store etc. the shiny yellow element.

Bitcoin boils that ALL down to pure energy use, and achieves a superior result in many regards. Bitcoin is easier to transport, divide, store, etc.

And... you mention wasting green energy. Bitcoin incentivizes the use of stranded energy, AND the development of green energy. I will outline 3 examples.

1. Oil production inevitably also produces natural gas. This can be sold and used as well if the wells are close enough to human populations. But in most locations it is simply flared. This is better than just releasing it unburned into the atmosphere (MUCH MUCH better) but still polluting. Compact bitcoin mining stations however can burn the gas in ways that pollute less BUT also produce a useful asset.

2. Bitcoin can be the "buyer of last resort". One problem with renewables is the fact they are intermitant. AND demand also fluctuates. And the two can be out of sync as well. This makes building a lot of kinds of reneweables financially unfeasible. BUT if you can park a Bitcoin mine next to the energy source then in times the energy would be wasted the mine can run, and produce income. Then when the big city down the lines needs more energy (like in a TX ice storm) then we can turn off all the miners and point all we got at the grid. THIS allows us to build solar and wind we could not otherwise!

3. Finally imagine an area in an undeveloped nation. There is a massive oppourtunity for hydroelectric plants near a warterfall on a river the villages surround. And the villages would GREATLY benefit from having electricity. But they are poor. And therefore the extremly expensive endeavor of building a dam would not pay off in a timeframe that would make it worth doing. Alright... build the dam AND a bitcoin mine. And start making value immeadiately. Build the beginnings of the infra to the villages, and as they increase their electrical use, they will also increase their productivity, and will be able to afford more power, and infrastructure etc... all the while Bitcoin is filling in the gaps and making the project possible in the first place. A virtuous cycle.

There is so much more we could talk about... but maybe that is already a bit much.

 

[JohnfrmClevelan]

So will Bitcoin's value since it is based on that [increasing energy costs]. The basic of the Bitcoin price is it's value at the margins of production. As time goes on this will continue to rise parabiolically.

The positive correlation to energy costs isn't logical. A higher cost of production just makes Bitcoin less attractive to mine/maintain. Like oil, if the price of Bitcoin drops below the cost to mine it, mining will stop. Also, the more it is mined, the less that commodity will be worth.

 

[cAPSLOCK]

The positive correlation to energy costs isn't logical. A higher cost of production just makes Bitcoin less attractive to mine/maintain. Like oil, if the price of Bitcoin drops below the cost to mine it, mining will stop. Also, the more it is mined, the less that commodity will be worth.

This is ignoring the monetary value. Otherwise we would stop mining gold too. At least at a cost of about $300-400 an ounce which is the current estimation of it's industrial value. And we do stop when the gains from mining it becomes smaller than the COST of mining it.

So the price of Bitcoin, as well as the cost of mining it become the determining factors here.

 

[JohnfrmClevelan]

This is ignoring the monetary value. Otherwise we would stop mining gold too. At least at a cost of about $300-400 an ounce which is the usual estimation of it's industrial value. And we do stop when the gains from mining it becomes smaller than the COST of mining it.

So the price of Bitcoin, as well as the cost of mining it become the determining factors here.

I didn't ignore the price of Bitcoin, I just commented because the original quote made it sound like the price of Bitcoin went up as electricity costs went up, which made no sense.

As always, the price is determined by the market. Only miners care about the cost of electricity, I would think.

 

[cAPSLOCK]

I didn't ignore the price of Bitcoin, I just commented because the original quote made it sound like the price of Bitcoin went up as electricity costs went up, which made no sense.

As always, the price is determined by the market. Only miners care about the cost of electricity, I would think.

I said "Monetary value" and should have said "monetary premium" technically... though the general idea is the same. Which in the case of bitcoin IS the price... so you are right. But the reason for the distinction is gold has some value aside from the monetary premium.

And I agree miners only care about the cost of electricity... but consider their position.

If Bitcoin is costing more to produce than it is to sell, then they can do one of two things:

1. They can turn off mining hardware. This will save them money. But it will then making mining that much more profitable for the miners who are running a tighter ship. Those miners will then become more profitable. And the miners who had to shut off their hardware will either catch up, or sell out.

2. The miners can choose to keep mining in spite of doing it at a loss. Or find some middle ground where they turn off their less efficient miners and continue with the rest. And then gamble that the BTC they mine will be more valuable in the future... which it always has been so far.

Either one of these scenarios is healthy for the network. It prunes the dead branches, and dampens the (famous) volatility.

Now. This is a pure model of a more complex issue. There are what the buyers think the value to be... which can change based on many other macroeconomic factors. Particularly when the buyers are not just nerds in their basements. But are nation states, and corporations.

And again this is a reason why PoW is so powerful. It can self correct with MUCH more agility when something like gold is quite the complex situation... big machines, factories payrolls that have to be enlarged, then shrunk etc.

 

[Parker_Chess]

Crypto is the biggest sham ever. And it's become like a religion to some people.

 

[ldub23]

The positive correlation to energy costs isn't logical. A higher cost of production just makes Bitcoin less attractive to mine/maintain. Like oil, if the price of Bitcoin drops below the cost to mine it, mining will stop. Also, the more it is mined, the less that commodity will be worth.

If she wants me to buy Bitcoin, im a buyer.

 

[cAPSLOCK]

If she wants me to buy Bitcoin, im a buyer.

Every bitcoin cycle. Somewhere near the top... People start coming out of the woodwork saying this exact thing. "This time it's going to be different." And I would love it if it was, and actually think there is some reasonable chance that it could be a little different this time.

But it probably won't.

If people aren't prepared for a very large pullback, they're liable to be very disappointed.

My bet is we'll probably see one more thrust upwards. It could be magnificent and then some horrible piece of news will drive prices down by at least 50% over a fairly short amount of time. But we'll see.

 

[cAPSLOCK]

.Also, the more it is mined, the less that commodity will be worth.

I don't see with Bitcoin's properties how this is true.

Why would Bitcoin be worth less if it was mined more?

 

[JohnfrmClevelan]

I don't see with Bitcoin's properties how this is true.

Why would Bitcoin be worth less if it was mined more?

Because that's generally true of any commodity.

Yes, Bitcoin is a different type of commodity, but it's still a commodity. Just one that has a very unpredictable market.

 

[cAPSLOCK]

Because that's generally true of any commodity.

Yes, Bitcoin is a different type of commodity, but it's still a commodity. Just one that has a very unpredictable market.

Well... I suppose what I am asking is WHY does more mining = lower price.

Is it because if we increase the supply side it follows that greater supply drops the price? Ex. Gold price rises. Barrack mining brings dormant mines back online since now they are more profitable. Therefore gold price drops?