Bitcoin in a hyperbolic bubble

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DazedInPontoon said:
Back when the reward was 50 btc per block, people were predicting that by the time the reward had reduced by over 85% percent that this would have already happened, and yet here we are at 6.25 btc per block, and record high hashrate.
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Yes, and the rewards are at a record high, which is not a coincidence. I would doubt that even @tecate predicted a price of $47K back when the reward was 50. With a halving every 4 years, in 20 years the rewards will be 0.2 btc per block. I am not predicting anything in this space any more but there is a good chance that the main revenue of miners will come from transaction fees so that, in effect, the participants will be paying for the electricity costs unlike today where the the main source of miners' revenue is quite literally coming out of nothing.
 
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The average fees over the last 2000 blocks was around 1 btc per block, so tx fees could be a bigger factor than block reward even sooner than you say, but that's only one factor anyway. As you say the price per btc is another one. You also must account for how the bitcoin industry would react to mining power reaching a level low enough to threaten the system.

The participants are already paying for the electricity costs, just indirectly, because miners pay for their electricity by selling bitcoin to the participants.
 
DazedInPontoon said:
The participants are already paying for the electricity costs, just indirectly, because miners pay for their electricity by selling bitcoin to the participants.
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Well, there are those who believe it is digital gold, that "mining" an extra 6.25 bitcoins genuinely has created added cap. The miners may well offload their coins as soon as they have them washed which may or may not be to existing participants but either way those who purchase them do not believe that they have incurred any costs.
But tx fees look and feel like a genuine cost so that will put manners on the amount spent on electricity. Today the illusion persists that money can be created out of nothing if you just throw enough electricity at it.
 
tecate said:
BTC is the energy standard that Henry Ford first floated 100 years ago. LINK.

Your insecurities re. likes - I can't help you with, your Dukeness.
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Thanks for the link, but my feeble intellect is still struggling with the original post.
As for the link what a typical load of plausible rubbish to hype bitcoin.
Of course the price and the cost of supply are heavily correlated. That is how it was designed. But the causality is all one way. The price decides the amount of mining effort committed. In the more normal situation the causality is two way. The cost has a direct impact on supply and hence on price. By design the supply of bitcoin is completely unaffected by either its price or its cost of mining. If electricity prices were increased 10-fold in the morning, it would reduce the amount of mining committed and bring down the difficulty levels from their current ridiculous value of 21 trillion times what Satoshi thought would be adequate.
I would say the spinner of that piece knows all this but still dangles plausible but entirely erroneous causality effects in the cause of the hype. Just like telling us that total world gold is $10trn. What has that got to do with the price of bananas or bitcoin?
 
@dukey - I'm not sure how you're struggling with Dazed in Pontoon's post then (the need for energy re. bitcoin being a solution to creating money out of nothing). You accept that this cost is significant. You dismiss Henry Ford's energy standard yet you can't possibly disregard that Ford's whole thesis was similar in principal i.e. the energy cost implicated would give such a currency value.
Otherwise, you've identified that if mining becomes unprofitable, then the bitcoin algo difficulty rate drops down - so the system works in that respect.
As regards the relevance of consideration of gold's market cap, I would have thought it's worthwhile to keep it in mind if the belief is that bitcoin improves upon gold at this point and eats into that market cap.
 
I don't quite know what Henry's idea was but my guess is that it was centred on two aspects, first and foremost that energy has intrinsic value and secondly that it costs (money?) to produce. Air has intrinsic value but it costs nothing, so not a good candidate for money. It would cost a lot to pulp used tyres and whilst the finished product would have some desirable qualities like divisibility and durability it would be useless as money as it has no intrinsic value. The M Pesa is similar to Henry's idea and again the key feature is that mobile minutes have intrinsic value and cost to produce.
Bitcoin has no intrinsic value. It's cost of supply is irrelevant to its price (though clearly not the other way round) and in fact will not only ultimately be irrelevant it will be non existent.
 
Duke of Marmalade said:
Don't understand but clearly greater minds than mine have given this a like, so it must make some sort of sense.
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Ah, Duke, you do yourself a disservice.

I put the Professor Fergusons definition of money to you "trust, inscribed". You appeared to agree 100%?

Trust is an abstract form of communication transmitted from one human to another.

You trust your wife/husband/partner/brothers/sisters/children/parents/ friends etc. You trust your work colleagues and associates.
Occasionally, though, that trust can be broken and all value is lost, or damaged. Sometimes repairable, sometimes not.
But it is all an abstract form of human communication.

Cast your trust-net a little further, to retailers, traders, business associates and competitors.
Like electricity, trust only transports so far before it needs another foundation to carry it further. In electrical terms, power-stations and the electric grid do the job, allowing electricity to flow to far-flung remote destinations across the globe. Marvellous.

In human trust terms, a written legal contract can act as a power-station. It allows humans to spread their trust and conduct business and trade far beyond their own immediate inner circle and community. Practically anywhere across the globe, another marvellous invention.

Underpinning the global order of trade, commerce and communication is energy. Electricity being the fundamental energy source that facilities all our modern conveniences.
I have €20 paper note that I have no doubt you would trust if I were to exchange it for goods or services provided by you. However, obviously, we cannot exchange paper money in a timely efficient manner by today's standards, so we need something else. Thankfully, digitalisation, and the electric energy that it operates on, allows us to exchange money more efficiently.
Using electric energy (and the global banking infrastructure in-between) we can transfer information to one another that says my monetary value is reduced €20 and your monetary value is increased equally by €20 and we trust this to be true.

With bitcoin, I can transfer 1 BTC to you via digital transaction existing on electricity (no banking infrastructure needed) and that transfer is information that says my BTC holding has reduced by one and yours has increased by one, and we trust this also to be true.

Money is now created, it is trust inscribed and is transferable out of nothing but electric energy.
 
Duke of Marmalade said:
I don't quite know what Henry's idea was but my guess is that it was centred on two aspects, first and foremost that energy has intrinsic value and secondly that it costs (money?) to produce.
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It's explained in Charles Edwards article which I linked to. The rationale is that what Ford proposed had an energy backing. Edwards likens the notion to that of bitcoin - you can try and deny the energy input in this context all you want but it's wayward to do so.

By the way, seeing as you put so much faith in a certain type of economist (the nobel prize winning type), you should note this quote from renowned economist Fredrick Hayek which pops up in Edwards' article:

"I don’t believe we shall ever have a good money again before we take the thing out of the hands of government. That is, we can’t take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can’t stop.”
 

This is important. Governments and central banks have taken a monopoly position on money. But money is not the preserve of any institution or organisation to be controlled, and determined by any given policy, at any given time. It is too important for that. Money is the human system of communicating value to one another.
 
Henry was proposing a backing for the currency. Instead of a promise to redeem in gold, it was a promise to be able to purchase an amount of electricity. He clearly believed the currency had to have intrinsic value/backing. One can see that Kw/h has many desirable features in that respect, much superior to, for example, sugar. To claim that this in any way endorses bitcoin miners dumping a trillion, trillion, ziga Kw/h down the pan as a fulfilent of Henry's dream is "wayward" beyond comprehension.

Hayek clearly sees merits in a money free of all government control. I don't agree with him but I can understand the viewpoint. Bitcoin purports to achieve that and if it did then I presume Hayek would be a supporter. But bitcoin does not achieve that since, as Satoshi pointed out, it has no intrinsic value, something which would cause Henry to dismiss it out of hand.
 
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It would not be a desirable thing IMHO but that is not the point. The point is that bitcoin does not fulfill that róle as it is not money; it has no intrinsic value; it is not used in any material way as a medium of exchange.
 
Oh dear, wolfie, in your full flown Michael D mode. I do fear that I am out of my intellectual depth in these parts. You will see my nigh eve comments on the electricity motif, in my reply to @tecate.
 
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Duke of Marmalade said:
Oh dear, wolfie, in your best Michael D mode.
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Hah! Fair enough!

In simplified terms, bitcoin is money.

Money is not a product or function created, distributed and managed by over-arching authority to be bestowed upon the people.
It is the other way round. People bestow privilege to over-arching authorities to distribute and manage their money. When that privilege is being debased, people look to other means to protect the value of their money.

Bitcoin broke $50,000 earlier today.
 
WolfeTone said:
Hah! Fair enough!

In simplified terms, bitcoin is money.
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I do not agree.
If such an alternative means existed I would certainly go for it. Bitcoin does not do it for me.
WolfeTone said:
Bitcoin broke $50,000 earlier today.
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Yes, unnnnbelievable. It has a market cap of nearly 1 trillion dollars. 1 trillion dollars with no substance whatsoever. How does this make sense? Yes there are trillions of fiat which has no intrinsic value but behind that are debts both private and public, a legal commitment by these agents to deliver economic value sufficient to pay the debts. Yes there is the risk that they will be able to pay back their debts at a much increased pricing level for their economic activity (inflation). It is the job of the central bank to manage this risk but yes it is a risk and if I could duck that risk I would do so, but I would see bitcoin as a much much greater risk.
 

Ford was proposing a way to get money out of the hands of Kings and central bankers as he recognised that they weren't using that monopoly for the benefit of society. He stated this:

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

You've often said that you would approve of bitcoin if it was backed by a physical resource. It's clear what obstacles Ford faced when he tried to run with that based on his comment -> "A simple affair of business which should have been decided by anyone within a week has become a complicated political affair."

They successfully frustrated his efforts.

Whatever way you slice and dice it, bitcoin is the product of a mass of energy. That's undeniable. That electricity is an input that results in its production.

Duke of Marmalade said:
But bitcoin does not achieve that since, as Satoshi pointed out, it has no intrinsic value, something which would cause Henry to dismiss it out of hand.
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Satoshi was the first bitcoin critic - so he critiqued aspects of his own project. You're homing in on one isolated utterance he pondered on a message board before the project was finalised. The fact remains, he came to the ultimate conclusion to launch bitcoin.
Ford's present day auto-industry counterpart (Musk) certainly is on board where btc is concerned and there's every indication that Henry would approve. He would certainly have known - after that experience - that a different approach would be necessary - one that they couldn't crush. Hayek is blatant in pointing to exactly that.
 
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