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Comment by elmar | Hacker News Reader

A way to value crypto assets http://www.jsfour.com/value-crypto-assets/

TL;DR - Bitcoin is an energy arbitrage.

Note that this only establishes an no-arbitrage ceiling on BTC valuation, not a target or a floor.

Hand-knitting a sweater takes about 30 hours. So if you can readily hire people to knit at $20/hour and sell the sweater for over $600, an arbitrage opportunity exists and we should expect prices to fall as new knitter-hirers appear to reap the free money.

But this does not imply that the price of hand-knit sweaters must always be at, or even near, $600. In fact, with a readily-available cheaper substitute that most people find acceptable, the price can be arbitrarily low. If the demand for hand-knit sweaters at $600 doesn't exist, then the market can simply evaporate.

How does this value Bitcoin? It only says that if BTC price is above a certain value, a riskless opportunity for profit exists by doing "energy arbitrage". You can not use this reasoning to set the BTC price. Or am I missing the point?

"Using the “what goes into it” valuing method, the value captured by each Bitcoin would be the cost of the mining hardware and the energy used before the number is guessed correctly."

the biggest factor is energy cost and because of this it's a big energy arbitrage.

Except that no energy is retained or sold. It’s energy consumption, like running a printing press for dollar bills in your basement.

No one cares what it costs you to produce the product.

Most of the coins in circulation already exist, and sellers can easily sell for less than it cost to produce today because most of the coins were produced for far far less than today's cost.

> the value captured by each Bitcoin would be the cost of the mining hardware and the energy used before the number is guessed correctly."

Sorry, the laws of physics say No. The electricity that you spend has been dissipated into the universe in the form of heat. It will quickly thermalize with its surrounding and be out of reach for useful work. Gone. You just proved your argument is a load of BS. Nothing is "captured" by each Bitcoin.

> "Using the “what goes into it” valuing method

Stop spewing BS please. There is no "what goes into it" method. No one cares how much something cost you.

Also the energy spent on gold mining is dissipated into the universe.

If the spot price of a Bitcoin fall's bellow the production price in electricity, the logic thing for the miners to do is to stop mining, if they do this, the blocks will start to take more than 10 minutes and supply will decrease, moving the market price until it reaches equilibrium.

CAPEX and OPEX production cost have nothing to do with the market spot price, especially because most of the coins in circulation have been produced or acquired for far far far less than the rate it costs today.

Entropy arbitrage.

Edit: You might as well try to assign a value to gold based on how much you spent on picks and hammers.

Over time, the price of gold is based on how much people spend on picks and hammers. More generally, it's based on the cost of extraction. That sets the price for the (new) supply curve. (There is also a supply curve from people who hold it being willing to sell it at the right price.)

The price of gold is set by what people will pay for gold, the cost of extraction is only tenuously linked. In short, you have it backwards.

http://www.lbma.org.uk/assets/blog/alchemist_articles/Alch75...

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