
Bitcoin revealed: a Ponzi scheme for redistributing wealth - jrochkind1
http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/14/bitcoin-is-revealed-a-ponzi-scheme-for-redistributing-wealth-from-one-libertarian-to-another/
======
tlrobinson
_" Bitcoin prices are so low, you see, that miners are spending more money
running their supercomputers than they're making from new coins. So why are
they still going? Well, they have dollar debts that they need to pay back, and
where else are they going to get the money? They're stuck, in other words, in
a catch-22: they can't afford to keep mining, but they can't afford to stop
mining, either."_

Huh? If miners are spending more on electricity than the Bitcoins they mine
are worth then they should immediately stop mining (unless they are engaging
in speculation)

~~~
robert_tweed
I believe this refers to the TCO which includes the up-front purchase cost as
well as the operating costs, over the lifetime of the equipment. The up-front
costs are already sunk and need to be repaid, hence they have to keep paying
the ongoing costs in order to recoup as much as possible of their up-front
debt.

Of course sooner or later, due to Moore's law and the way bitcoin works, the
operating costs themselves will exceed the value of bitcoins mined. But that
is years into the future.

~~~
nostromo
I suspect this is happening to some oil producers as well.

Ex: if a large portion of an operation is a sunk cost, a producer may respond
to lower prices by producing even more oil, in an attempt to maintain revenue
(particularly if the producer is leveraged and has debt to maintain).

Edit: oops, busted for not RTFA

~~~
benjaminjackman
Yes I think it is.

Quoting
[http://en.wikipedia.org/wiki/Economic_bubble](http://en.wikipedia.org/wiki/Economic_bubble)

"Net Result of a Bubble: The one true constant with all bubbles is that they
create excess demand and production. Once the bubble deflates, which it always
does, a contraction or consolidation has to occur to alleviate the excess. Two
examples are the dot-com bubble and the current housing bubble. In both cases
there were huge consolidations, bankruptcies, and deterioration of asset
values."

This statement sounds a bit more authoritarian on the topic than I like, but
the "excess demand and production portions" are demonstrably true, in fact, I
would almost take them to be a better definition of what a bubble is than
"trade in high volumes at prices that are considerably at variance with
intrinsic values", which is a difficult definition because what determines an
intrinsic value?

I don't think such a thing really exists for several products that can
experience bubbles.

------
juliangoldsmith
How many deaths of Bitcoin are we on now? I can remember 3, at least, the
first of which was when it came down from its peak of $30/btc.

Personally, I hope this drives out most of the speculators. They have, in my
opinion, done little for Bitcoin except make it difficult to use as an actual
currency.

~~~
IgorPartola
While I agree about the speculators, they are not the reason BTC is hard to
use as a currency. Rather, BTC is the reason BTC is hard to use as a currency.
Let's see here:

\- BTC tends to fluctuate a lot. I could buy a pizza with it today, or a car
tomorrow, or a house in a week. Therefore, I am going to think twice about
buying a pizza today.

\- Tax implications of BTC are complicated. If you have never owned BTC, and
this year decide to buy it to experiment with it, now you have additional
paperwork to file about it. If you buy it via a BTC ATM, or some other cash
method, you now have to keep track of all the records. (Presumably, places
like Coinbase, etc. do this for you, I haven't checked). This is not
insurmountable, but that's different than taking $20 out of an ATM and buying
a slice of pizza.

\- BTC is hard to acquire. Yes, yes it is. Coinbase requires a multi-day
verification process.

\- BTC is hard to keep secure. To do this properly, you have to know how to
create an encrypted cold storage wallet _and_ how to keep your computer safe
so that when you unlock it, someone doesn't grab the wallet while you are
using it. This is _hard_. It's so hard that intelligent people with domain
knowledge get it wrong. I don't expect someone who is not a "computer person"
to just get it. Coinbase and such are great for the "not computer persons",
but are not secure (as in, you need to use 2 factor auth + strong password,
which most people do not do; it's also not secure in that if someone does get
into your account, you are done for. There is no reversal/insurance).

\- BTC is weird when you are spending money. With fiat currency, I go on
Amazon, punch in my credit card number, hit "buy" and viola! my order is all
set. Theoretically, my credit card can get rejected later, but in practice it
doesn't happen; if it does, I am familiar with the process. With BTC, I am
suddenly shown number of confirmations, have to wait for minutes to know if my
order went through, etc. Imagine buying Google IO tickets with BTC: by the
time my confirmation comes through, someone else already paid with a faster
method and got my reservation. (I know they recently changed it to a
queue/invitation system, but my point stands for lots of purchases where the
quantity is limited).

\- BTC is weird to spend, again. If my BTC is in an encrypted cold storage
wallet, as it should be, I now have to defrost it, decrypt it, push the BTC
somewhere, then wait. Oh, and for some modes of spending, I then have to
transfer BTC again, and wait again (localcoin for example).

So, where will BTC go from here? Well, I think it'll continue being a
specialized currency. It's not great for buying pizza, and I don't think ever
will be. It is great for transferring money in/out of restricted
jurisdictions, or from person to person without leaving an obvious trail. That
part works well. If you are a Snowden-type whistleblower and need your friend
to get you money, this is as good a way to do it as any. Or if you are my
grandfather who cannot get his money out of Ukraine due to the banks "not
having enough USD on hand" to wire his balance to a US bank. Or if you want to
make an anonymous donation. BTC is basically a faster and more secure version
of stuffing cash into envelopes and mailing it.

~~~
ingler
> BTC is hard to keep secure.

It's very easy to secure.

Create keypairs offline. Print keypairs. Send coins to address(es). Store
paper wallet in safe place.

~~~
pdx
Your mindset represent a trend that is rampant in the bitcoin community, and
is a huge drag on bitcoin, in my opinion.

The mindset being that you're securing your life savings.

That mindset is prevalent in the bitcoin community, because many of them
indeed hope that their bitcoin IS their life savings. They hope for the day
when their bitcoin has appreciated to the point that it's a significant asset,
worthy of significant pains to protect it. From that perspective, your mindset
it rational and correct.

The problem is that when you advocate such complex storage and use methods,
you are advocating unnecessary complexity for the people you are attempting to
sway to bitcoin. The normal person who wants to send $50 to his mother in the
Philipines, or wants to have $100 on his phone to buy beer and hotdogs with,
does not need such complexity, and will quickly run the other way when
bombarded by it.

Any normal person who looks in to bitcoin, is bombarded with crazy ideas that
the self appointed bitcoin experts claim he must must jump through.

    
    
        * Use multiple addresses for privacy.  Nobody should reuse an address.
        * Use offline storage
        * Generate your addresses on computers not connected to the internet
        * Use a trezor.
        * Use a deterministic wallet
        * Don't use coinbase or circle, or the government will track you
    

This barrage of advice, which does indeed make sense for aspiring bitcoin
millionaires and criminals, doesn't make sense for normal people, but nobody
tells them that. Instead, they tab their browser over to facebook and resume
their day, secure in the knowledge that bitcoin is not for them.

If you insist on making bitcoin the domain of nerds, only nerds will use
bitcoin.

~~~
ingler
I'd never claim to be normal, but I'm neither a bitcoin millionaire nor a
criminal.

If Bitcoin is "too hard" to figure out for someone, they probably shouldn't
use it.

~~~
IgorPartola
And Bitcoin is too hard to figure out for 99.99999% of the population, which
is why it'll never reach mainstream adoption?

~~~
ingler
Probably so. It still doesn't take away from Bitcoin's underlying usefulness.

------
robsears
That article was terribly written, and snarky lines about libertarians and
"It's too bad Bitcoin doesn't have a central bank to help stabilize its value"
don't add humor or insight. He brushed over the importance of the underlying
technology so he could assault it for being a representative currency.

I get the sense the author doesn't know any more about economics than he does
about bitcoin. He basically just stated the differences between bitcoin and
fiat currencies with a smug undertone of blind faith in Keynesianism, then
concluded only a government is fit to regulate transactions between private
parties.

------
throw7
Oil drilling revealed: a Ponzi scheme for redistributing wealth
(washingtonpost.com)

~~~
jrochkind1
I think there is actually some profound truth to your intended sarcastic
comment, although you didn't intend it. There _is_ an aspect of that in oil
drilling.

But the difference is that, in the end, there _are_ consumers who want oil for
_doing_ something with it (generating electricity and other work; making
plastic), not just for trading for other commodities. The only thing you want
bitcoin for is trading for other currency or commodities, it has no use value
in itself.

------
SilasX
>If Bitcoin were a currency, it'd be the worst-performing one in the world,
worse even than the Russian ruble. ...

>But that's not much of a consolation to anyone who bought anywhere near
Bitcoin's $1,100 top. Or near $1,000, or $900, or $800, or, well even
yesterday's prices.

Looks like the usual Bitcoin trilemma:

\- Price goes up? Everyone knows that appreciating currencies can't work.

\- Price goes down? Obviously it was a bubble all along and my criticisms are
vindicated.

\- Price stays flat? Obviously its market cap is too low to support broader
usage.

Was this same author praising Bitcoin as the best performing currency of 2011,
2012, and 2013? [1]

I don't want to sound like this all wine and roses; obviously, Bitcoin has its
issues. I just hope that when the mob's "head is done spinning, its face is to
the front".

(Disclosure: I'm behind understandingbitcoin.us, which is supportive.)

[1] Before anyone says it, I know: a good currency is one that's stable, and
the author is criticizing the _change_ in price, not the loss in value. Then
why not criticize (or at least mention) the Swiss Franc's recent 30%
appreciation?

------
kordless
> almost nobody uses it to buy anything other than drugs

This is a patently false statement. You can verify this yourself by looking at
serveral Bitcoin survey results:
[https://docs.google.com/spreadsheets/d/1pz3BiQr8jEVM98PuZtSo...](https://docs.google.com/spreadsheets/d/1pz3BiQr8jEVM98PuZtSo7gOaLmEaAyIoOsU6EllGCKU/edit#gid=757082055)
and
[https://docs.google.com/spreadsheet/ccc?key=0Avvn4_NlztWedEN...](https://docs.google.com/spreadsheet/ccc?key=0Avvn4_NlztWedENNRkZ5SVhwSUJFamtxM0lJZzF3S0E#gid=6)

I'll go ahead and use this fact as a good excuse to discredit Matt's entire
shitty post.

~~~
Dylan16807
As long as you admit it's an excuse to ignore an entire post because you are
going to counter one sentence with an anonymous survey.

Unless that was the joke.

~~~
kordless
Given it was used by the author to ad hominem Bitcoin, yeah, it's a joke.
Typed with tongue in cheek, of course.

------
msie
"Ponzi scheme" and "redistributing wealth" in the same headline? Wow, that is
a sure warning sign for the quality of the article.

------
ewzimm
Focusing on such a small period of times makes for a deceptive chart. Everyone
knows that it's been volatile for a while. That's not news. You really need to
look at the value over a larger period of time.

[http://bitcoincharts.com/charts/bitstampUSD#rg1460ztgSzm1g10...](http://bitcoincharts.com/charts/bitstampUSD#rg1460ztgSzm1g10zm2g25zv)

------
baddox
This one's already in the running for the most hedged and meaningless article
of the year.

> If Bitcoin were a currency, it'd be the worst-performing one in the world,
> worse even than the Russian ruble.

> But Bitcoin isn't a currency.

Okay, it starts off with an admitted paradox of entailment. If 2 + 2 = 5, then
Bitcoin is a Ponzi scheme for redistributing wealth. And besides all that,
there are plenty of time periods over which Bitcoin would be the _best_
-performing currency in the world.

> It's a Ponzi scheme for redistributing wealth from one libertarian to
> another. At least that's all it is right now. One day it could be more.
> Venture capitalists, for their part, are quick to point out that it's really
> a protocol, like the early internet, and its underlying technology could
> still be revolutionary. What are they supposed to say, though, when they've
> bet hundreds of millions of dollars on it?

This is a hedge that reveals the inane clickbait nature of the headline. The
author isn't talking about Bitcoin, but rather about some group of people and
firms involved with Bitcoin is some way. We could say "economics is a Ponzi
scheme for redistributing wealth," because lots of people have utilized
economics to implement Ponzi schemes.

> It has no inherent value, after all, because, despite companies trying to
> get free PR by saying they'll accept it, almost nobody uses it to buy
> anything other than drugs.

To make the claim falsifiable, the author would need to define "almost
nobody." To make the claim accurate, that definition would need to be
preposterous.

> Bitcoin miners, you see, borrowed money—and real money, as in dollars—that
> they could only pay back if Bitcoin prices kept rising, or at least didn't
> fall this much.

Bitcoin is not the first currency or technology around which foolish
investments have been made.

> This means we don't need a bank to know that I've sent money to you and only
> you, but it comes at the cost of making it irreversible.

The irreversibility is likely a cost to some and a benefit to others. Since no
one that I'm aware of has been _forced_ to use Bitcoin, I don't see this as a
problem. If you consider the irreversibility of a bitcoin transaction to be a
significant cost, then do not make the bitcoin transaction.

------
gesman
That's an interesting perspective on why bitcoin price is falling, or rather
why the fall is accelerated, but I don't see anything Ponzi about it.

In fact it might be a good time to buy bitcoin.

------
benjaminjackman
I don't think that the strong majority of people that buy bitcoins have any
idea of what they are actually doing or what the bitcoin protocol is. Under
that assumption it would seem that the price of bitcoin is dominated by "the
other people are doing it" school of trading.

This is typical, most numbers in the financial space just go up and down
because some people are willing to put more money in their belief than others.

The author pulls bitcoin out by one dimension of its pros and cons and then
says it does unfavorably in that dimension.

It was not designed to be stable in that dimension (price relative to
currencies), therefore it isn't stable in that dimension. It never will be,
unless central banks start pegging their currency to Bitcoin, or start pegging
Bitcoin to their currency (which they could do if they wanted).

Who else has the interest or capability in printing / destroying large amounts
of fiat currency or ramping up / down large amounts of mining horsepower to
balance out the volatile speculative nature of bitcoin?

So until some force acts to provide stability in that dimension, and that
force likely only being a large central bank, there will be no stability, only
the fluctuations of speculation.

Ultimately the question bitcoin is posing isn't should I store my money in
Rubles or Bitcoins or leave it in my bank account, or in S&P's or USG
Treasuries or etc.. It's should I conduct an electronic transaction in
Bitcoins or Rubles or Visa USDs or Paypal USDs etc?

------
jacquesm
Does the bitcoin protocol foresee in a situation where the hashing capacity is
drastically reduced? (It has admirably adjusted to the increase in hashing
power but it is not unthinkable that a few very large miner farms going out of
business would actually reduce the hashrate of the network to the point where
the transaction speed would slow down so much that the whole institution
becomes un-usable.)

~~~
deeviant
Yes, part of the plan is for miners to transition from mining-based activity
to focusing on transaction fees. This would probably mean transaction fees
will trend upward. I think it remains to be seen if this will be a profitable
enterprise. Certainly, bitcoin trade volume will be a very important part of
this equation, if it does not really take off as an actual currency, but
remain as instrument to store wealth, that could spell disaster for bit coin.

If miners do turn away from bitcoin, the capacity will be drastically reduce
which makes a 51% attack much more feasible, threatening bitcoin's existence.
This is much more worrisome than transaction speed slow-down and in fact, as
long as there is heavy volume, miners could make money off transaction fees so
they are almost mutually exclusive events.

Despite all this, I think bitcoin is pioneering the field, and regardless of
it lives or dies, it will have impacts in various facets of the future.

~~~
jacquesm
I think you mis-understood the question.

------
rboling91
Miners don't necessarily need supercomputers to mine. Sure, perhaps miners who
set up huge operations might be in trouble, but anyone with access to
moderately strong computational power, including basic laptops or even cheap
SoCs, can mine. It might be beneficial to have mining spread out among those
running less powerful computers, assuming that the miners act independently,
for then the risk of a single mining firm/group controlling a dangerously
large percentage of computational power would decrease substantially.

The author also doesn't mention tipping, which will eventually be the dominant
source of mining fees. In a drastic case, Bitcoin users could provide tips
substantially larger than the current reward for block discovery/vetting.
Should this be the case, the system could be self-correcting, and if the
Bitcoin network is too dependent on large miners, the tipping system could act
as a "bail out" in the near-term.

~~~
querulous
What tip volume and value do you envision that tipping fees will make up the
main source of income for miners?

~~~
rboling91
The volume of tips would have to increase drastically. In any case, the volume
would depend on the price. Slightly off point, it might not be completely
unrealistic to imagine a world in which miners do not derive their main source
of income from mining. Perhaps miners could running mining programs on SoCs
during the day while the miners themselves work other/additional jobs. While
the number of miners mining in this way would have to be very large in order
for this configuration to be possible, should this be the case, miners
wouldn't be nearly as financially dependent on mining, and they could be more
immune to fluctuations in the price

------
bramgg
The current price of Bitcoin is irrelevant to its long term success.

~~~
jacquesm
And is still extremely high compared to where it was not all that long ago. If
bitcoin would have gone on a monotonic increase from < $1 to where it is today
everybody would be speaking about a miracle. We'll see where it goes in the
long run, so far if anything bitcoin has been one of the most interesting
things happening in this new millenium and I'm very curious where it is headed
in the longer term, but I won't make bets either way.

~~~
ssharp
I also find BitCoin to be interesting but I'm not sure if that interest has
really spread that far from tech-oriented audiences.

The people who really support BitCoin can be rather fanatical in their
expectations of what BitCoin will become and I don't see its current growth
coinciding with those expectations.

It would be interesting to see how many people are using BitCoin as a daily
currency, and what the changes to that number have been over time.

We see lots of places accepting BitCoin (and using services that instantly
convert that to USD so they don't actually hold the BTC) but is there the
similar growth on the buying side? Who's buying BitCoin and why? If BitCoins
growth has largely come from people who are speculating / investing, or are
doing illegal things with it, then growth rates aren't sustainable and these
crashes become more and more likely.

As for the miracle, I don't think it's that out of the ordinary. Apple went
from being worth $0 dollars to being worth over $600 billion. Being on the
ground floor of either would have been nice, but when BitCoins were < $1, they
were still more likely to be worth < $1 today than being worth $200.

I can say one thing for certain: BitCoin's price chart since it's high over a
year ago does not give me any confidence it in. I have no desire to hold onto
something like that in the hopes that it becomes worth more. It just seems
like a ridiculous thing to do. I see no value in using it transactionally and
negative value in holding it and I don't really see either changing. I don't
wish BitCoin to be a failure, I just don't see it being the kind of success
that so many people have bet on it being.

~~~
jacquesm
> I have no desire to hold onto something like that in the hopes that it
> becomes worth more.

Excellent, just like 'real money' then. See, if you're using bitcoin as a
speculation device you're doing it wrong.

~~~
ssharp
I don't even want to have a wallet to use Bitcoin as a transnational currency
because of how volatile it is. The USD is a pretty stable currency, so why
would I change that stability to something as volatile as Bitcoin, especially
given that we don't think Bitcoin is a good speculative device?

I just don't see the use-case, except buying drugs.

------
nether
A year ago people were saying it could go to $10,000/btc if it became
widespread in China. Then China banned it.

------
stevedekorte
Did it seem odd to anyone else that the author doesn't appear to understand
the meaning of the word "deflation"?

------
abotsis
It's an ok article, though technically inaccurate on a few fronts: The
difficulty of mining is related to the number of coins mined (not the number
of miners). The miners aren't the "central repo" of the ledger (it's
distributed and anyone can download it). _shrug_

~~~
kordless
The claim that most people buy drugs with it is flat out WRONG.

------
TehCorwiz
From the article: "But in the long run, we're all dead, and Bitcoin might be
too."

Google "bitcoin is dead".

Go on, I'll wait.

Here I'll make it easy:
[http://lmgtfy.com/?q=bitcoin+is+dead](http://lmgtfy.com/?q=bitcoin+is+dead)

They've been claiming that since at least 2011.

The fact is that it isn't dead or dying. It's still 10x what is was worth in
2012. Currency markets move and when you have to trade one currency for
another. We just saw the first real bitcoin xmas last month. With some big
names accepting btc for the first time. Those vendors want their fiat and have
to sell it on the market to cash out. That's one of many factors right now
which includes government auctions of seized bitcoins. As adoption increases
and more can be done within the bitcoin ecosystem it will stabilize.

~~~
bdcravens
Bitcoin itself isn't dead, but for some it is, if your play was to get wealthy
off of it. For those who haven't been following it long, but who saw the
rocket ship of 2013 and wanted a ride, it may be dead for them. I'm perfectly
okay with that, as speculation usurped what it can really accomplish.

------
turnersd
The content of this piece presents nothing new, and has absolutely nothing
whatsoever to do with "Ponzi schemes" or "redistributing wealth."

------
patrickgokey
"...despite companies trying to get free PR by saying they'll accept it,
almost nobody uses it to buy anything other than drugs."

I stopped reading right there.

~~~
Igglyboo
It's hyperbole but it has some truth to it.

Why would you go through the hassle and possibly loss of money to convert fiat
to bitcoins then purchase things with bitcoins instead of just buying with
fiat? You wouldn't, except that bitcoin is anonymous so you can use it to buy
things privately. Most people really don't care enough about the privacy of an
average amazon purchase to go through all this hassle.

When you're buying illegal goods, however, privacy is #1. And what is the most
popular item on the most popular illegal goods marketplaces? Drugs.

Almost everyone I know that uses bitcoin is either speculating to make a quick
buck, or using it to buy something on a darknet market. I'm sure there are
people using it for everyday goods but it really doesn't make much sense to do
that now unless you value your privacy very highly.

~~~
wmil
It's also useful for bypassing currency controls.

Some countries have an official exchange rate, but a very different black
market exchange rate.

In Venezuela , local bitcoin sites are selling BTC for the equivalent of over
$6000USD at the official exchange rate.

If you manage to exchange them without being robbed a few BTC can pay for a
hell of a vacation.

------
dailen
lol this article is HORRIBLE

I like the part about it being irreversible...I recall a humorous back and
forth between two politicians where one was arguing that we should outlaw all
currencies that can't be logged or tracked and the other politician said "you
mean like we do with cash? Oh well lets outlaw cash then!"

------
jrochkind1
This is a much better article than you'd expect from the clickbaity title,
seriously, take a look.

~~~
minimaxir
The Washington Post has posted articles with even more clickbaity titles very
recently. [http://www.washingtonpost.com/news/the-
intersect/wp/2015/01/...](http://www.washingtonpost.com/news/the-
intersect/wp/2015/01/13/is-this-the-single-most-important-trick-to-going-
viral/)

:P

~~~
chkuendig
to be fair. that's actually an article about linkbait :P

------
mrb
I was a co-founder of TAV (we built and sold 3 TH/s of ASIC miners in Sept
2013). This journalist, Matt O'Brien, clearly has done little research on
Bitcoin and is not familiar with mining operations. His article contains lies,
fallacies, and personal opinions that do not reflect reality.

 _" What are [venture capitalists] supposed to say, though, when they've bet
hundreds of millions of dollars on it?"_

Fallacy number one. If VCs were merely praising Bitcoin with no (or very few)
investments, the journalist would say "well why don't they put their money
where their mouths are?". Now they do put their money on it, but he says "well
what else are they supposed to say?".

 _" It's fallen 36 percent the past two days, as you can see below, with a 24
percent decline the past 24 hours."_

This is hardly newsworthy. What he seems to forget or point out is that
Bitcoin is and has always been volatile --no one denies it. There has been
_dozens_ of instances where BTC lost (or gained) 20% or more in a span of 24
hours. Today's drop is no different than the other ones.

 _" It's too bad Bitcoin doesn't have a central bank to help stabilize its
value."_

This is very ironic to write 2 days after the Swiss central bank themselves
caused an appreciation of the CHF of 30% in mere hours, hurting Swiss exports
badly.

 _" It has no inherent value"_

Another journalist who fails to realize no fiat currency has any inherent
value either. Currencies (whether fiat or crypto) have value because people
demand/accept them (whether it is the IRS asking to pay your taxes in dollars
or Newegg accepting Bitcoin). This is it. Nothing gives them "inherent" value.

 _" almost nobody uses it to buy anything other than drugs"_

Utterly false. The journalist has no data, no source, nothing to back up this
claim. This claim used to be made 4 years ago when Bitcoin was barely starting
to get in the public eye, when the top exchange (MtGox) barely had a few
thousand users, when there was no payment processors to help businesses accept
Bitcoin, etc. But the reality is that the Bitcoin economy has grown very
quickly over the last 4 years: today 82,000 merchants accept Bitcoin [1],
numerous processors exist (Bitpay, Coinbase, etc), merchants like Newegg and
Gyft experienced their best Bitcoin Black Friday sales ever [2], etc.

 _" Bitcoin prices are so low, you see, that miners are spending more money
running their supercomputers than they're making from new coins."_

This is not true at all. There is _zero_ reason for a miner to, say, spend
$50,000 on electricity a month to mine X bitcoins when he could simply buy
these bitcoins from the market for, say, $25,000. So if this was the case, it
would make sense financially and logically for the miner to stop mining and
buy the coins from the market. At the very least they would suspend mining
activities. In fact this is precisely what happened to CEX.io [3] (they were
likely inefficient and overspent in some areas, compared to other miners who
continue operating because they are still profitable).

Nowadays any large smart professional miner does not have high fixed recurring
monthly costs like colocation in a data center (these are very cost-
ineffective facilities to run mining operations). Instead they set up shop
somewhere, eg. in a warehouse retrofitted for cooling and power, see [4]. This
makes electricity their highest recurring cost, so they _can_ in theory stop
mining any time and it would significantly reduce their operating cost on the
spot.

[1] [http://www.coindesk.com/state-bitcoin-2015-ecosystem-
grows-d...](http://www.coindesk.com/state-bitcoin-2015-ecosystem-grows-
despite-price-decline/)

[2] [http://blog.bitpay.com/2014/12/09/bitcoin-black-
friday-2014-...](http://blog.bitpay.com/2014/12/09/bitcoin-black-
friday-2014-recap.html)

[3] [http://www.coindesk.com/cex-io-halts-cloud-mining-service-
du...](http://www.coindesk.com/cex-io-halts-cloud-mining-service-due-low-
bitcoin-price/)

[4] This is KncMiner's facility:
[http://www.datacenterdynamics.com/sites/default/files/KnCMin...](http://www.datacenterdynamics.com/sites/default/files/KnCMiner-
Boden.jpg)

------
jfmercer
The writer seems to have no understanding whatsoever of either Bitcoin or
economics. Bitcoin is a Ponzi scheme only in an imaginary world.

