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Comment by tibbon | Hacker News Reader

What's interesting, is that this is what should happen. Since Bitcoins are generated at a constant rate (from my understanding) regardless of how many people are working on them, the market should eventually even out so that its a break-even at best. Likely it will be a little worse than break-even, because there are always some people out there willing to attempt to generate coins even if what they are doing doesn't financially make sense, breaking the market.

Just because you've got a competitor in business, doesn't mean that they are profitable or running good business. Trying to meet them can easily run you into the ground. It just happens in bitcoin-world, everyone has the same 'product'.

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Likely it will be a little worse than break-even, because there are always some people out there willing to attempt to generate coins even if what they are doing doesn't financially make sense, breaking the market.

I'd guess that the percentage of miners and speculators in the BTC market who are economically irrational in their activities is a lot higher than most of us think it is. Ergo, I don't place too much faith in any models, theories, or projections about this market that lean heavily on assumptions of rational actors.

Following from this logic, I can't justify taking a significant position in this market. The risk is enormous, and as risk goes, it's not incredibly attractive compared to alternative investment vehicles or strategies.

Not to mention the lack of proper regulation. Particularly at the exchanges: http://nerdr.com/bitcoin-exchange-scam-bitcoins-are-worthles...

I was days away from entering the Bitcoin marketplace until I read that. Now I realize it's speculation propping up an artificial market price. Saying that, I would be open to hearing opinions on estimates of the true value of a Bitcoin, based on it's use cases and value proposition if anyone has any...

I would be open to hearing opinions on estimates of the true value of a Bitcoin

Forget it. Nobody knows. It's a function of how big the Bitcoin economy gets, and how many Bitcoins people decide to keep in their wallets. (It's convenient to keep some amount, to save the hassle of doing conversions all the time, but the volatility of the currency may well dissuade most people from keeping large amounts.)

The "true value" of a Bitcoin is zero -- it's just some bits on a computer. In the same way, the "true value" of paper currency is very close to zero -- I guess you could use it for note-taking. The market value of Bitcoin will depend on the demand to own Bitcoin, as opposed to any competing commodity or currency.

Common myth, but it's false. Paper currency's true value is that the issuer is obligated to do something in return for it. Since that's usually governments, paper currency's true value is that you can use it to pay debts to that government. Everybody in the world can stop using US Dollars for anything else, but they'll still be useful for that, because that is basically the definition of a US Dollar. Says so right on the bill.

You can set your philosophical bar of "real value" higher than that, but there's not much light of day between that and a standard so high that it's not even theoretically reachable, at which point I stop caring about your definition of "real value" since when nothing can meet the bar, it's not a useful concept anymore. (But I do mean "not much", not "zero".) In the end, all value stores are transient on a century timescale, and I don't see that changing. Even gold hasn't had anything like a constant value. But for a putative currency, BitCoin is distinctive in its total disconnection from a concrete value.

Governments are typically not bound to continue accepting payment in today's currency tomorrow. There have been many cases of government arbitrarily redenominating their currencies and/or their debts.

I don't think we're really arguing here. My comment was meant to be somewhat tongue-in-cheek, but nonetheless most currencies share the property that their value in trade is decoupled from their inherent value. Back to the OP's question, there is no such thing as a real value of a BitCoin, it comes down to how much someone else is willing to exchange (in barter, currency, gold, whatever) at any particular moment.

How is that a scam? He charges $1.05 for a BTC when everyone else is charging $1.00. That's not a scam, that's just setting your own prices. Unless I am missing something here.

In reality, where people use money to purchase goods and services, the exchanges cannot unilaterally decide to advertise a best bid and offer price worse than reality and then pocket the difference.

In fact, it's worse than that, because the global rate of BTC production goes down over time. After 2025, hardly any new bitcoins will be generated. https://secure.wikimedia.org/wikipedia/en/wiki/Bitcoin#Monet...

That's the whole point. As the amount of Bitcoins gets closer to the maxim, it will become harder and harder to mine them. But ideally, this should be overcome by Bitcoin's increasing popularity and value.

This isn't happening right now, and it appears to have stagnated, but that's not a problem for Bitcoin's future, because the continous mining of Bitcoin is not necessary to ensure its success.

This simply means that there has to be a bigger real economy behind Bitcoin's value, and once that economy is strong enough and catches up with Bitcoin's inflated value, the value should start rising again, and miners will appear again as it becomes profitable to mine them.

Isn't the expectation that the miners will compete to confirm transactions, and there is an expectation they will work for small transaction fees?

It doesn't matter how many people are mining, coins are generated at a fixed rate. The difficulty to mine coins is varied automatically to assure this.

It's this difficulty that affects miners when more folks start mining. In effect they are taking the known portion of the pie (coins to be mined in a given time frame) and slicing it into many more pieces. This means that you have to work for a much longer time to have a nice large piece of pie with plenty of room for ice cream and whipped cream on top.

Except if Bitcoin becomes popular, other similar digital currencies will arise. Bitcoin will be no more speicial than nickels are in the non-digital currency realm. It will be just another kind of digital coin in your digital pocket.

Beyond a certain point the majority of the mining reward will come from transaction fees.

If I remember correctly, they are being generated at an (decreasing) exponential rate, i.e. first n years 7 million, next n years 3.5 million, etc...

> Likely it will be a little worse than break-even

Only if you are marking against the current market price for bitcoins, which is not necessarily the best way to look at this.

1. Conversion Costs: Converting USD->BTC is currently very cumbersome so it may be worthwhile to go USD->Mining-Rig->BTC instead if only to avoid the hassle (as well as securing a low-cost source of BTC going forward after the Rig has paid for itself.

2. Market impact: Buying BTC on the open market will put short-term upward pressure on the price which is bad if you are trying to accumulate a position (especially in the aggregate). Mining them nets you an increasing BTC position without this impact.

3. Pricing against expected value: Many miners likely believe that the current market price is artificially low and are not 'marking' their mining efforts against this. Unless the miners are simply churning their BTC into other currency at the spot price this is entirely reasonable[1]. If/When the exchange rate goes up to the effective price the mined bitcoins will be 'worth it'.

[1] This only really holds if you don't have an alternative way to convert USD->BTC (see #1) or don't have any USD to convert. If you did you would buy the cheap BTC with cash instead of paying to mine.

Bitcoins are not generated at a constant rate. The difficulty of generating bitcoins increases exponentially over time, so the number of bitcoins generated by the pool (assuming the pool remains the same size) will decrease accordingly.

However the pool didn't remain the same in the past. All the BTC press (and $10 USD rate) substantially increased the number of people mining. This sped up the discovery of bitcoins but it also gave each miner a smaller cut.

At this point the only way to mine a non-trivial amount of BTC is to invest $ in a GPU-heavy mining rig.

The difficulty of generating bitcoins increases exponentially over time

No, it changes in proportion to the number of blocks generated in the past week or two. This could even result in a decrease if the number of miners decrease.

.. really? Interesting! Thank you for the correction, I've been reading enough about BTC while considering mining and this is the first time I've heard this.

https://en.bitcoin.it/wiki/Difficulty

The difficulty is adjusted every 2016 blocks based on the time it took to find the previous 2016 blocks. At the desired rate of one block each 10 minutes, 2016 blocks would take exactly two weeks to find. If the previous 2016 blocks took more than two weeks to find, the difficulty is reduced. If they took less than two weeks, the difficulty is increased. The change in difficulty is in proportion to the amount of time over or under two weeks the previous 2016 blocks took to find.

The goal of changing the difficulty is to maintain a constant rate. As the computational power dedicated to mining Bitcoins increases, the difficulty increases proportionately, to keep the overall rate of Bitcoin discovery more or less constant.

If tomorrow, everyone agreed with this guy and quit mining, the next difficulty adjustment would make it easier to mine Bitcoins, to keep the constant rate with a smaller pool.

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