
Bitcoin is close to becoming worthless? - ilamont
https://www.marketwatch.com/story/bitcoin-is-close-to-becoming-worthless-2018-12-03
======
konschubert
The article is misinformed:

I am the first one to jump on Bitcoin's flaws, but this here just reeks of
somebody not understanding the protocol:

> As I argued, once Bitcoin’s price falls below its cost of mining, the
> incentive to mine will deteriorate, thrusting bitcoin into a death spiral.

The cost of mining _adjusts_ depending on the _hash rate_ , so if nobody is
mining the cost of mining goes down until people start mining again.

EDIT: The mining difficulty gets adjusted only every 2013 blocks, so it might
be that mining activity drops so low that the block chain starves out before
the difficulty can be adjusted down.

Is this what the article is trying to say?

~~~
rhn_mk1
This has been addressed in the article:

> So, it appears bitcoin is now entering a death spiral: If the price
> continues to drop and the cost of mining does not fall correspondingly (the
> cost of mining will algorithmically decrease, but not necessarily to same
> extent as the decline in prices), bitcoin will quickly go to zero.

~~~
ekianjo
Why would the cost of mining not fall correspondingly? It will adjust until it
becomes profitable again, nobody is going to run mining farms if they are
clearly losing money every single day.

~~~
Slartie
Because the adjustment window is not real-time-based, but block-based: every
2016 blocks, an adjustment is done - with the obvious caveat being that the
duration it takes to mine 2016 blocks is based on the global hash rate. Also,
the downward adjustment is limited to (IIRC) halving the difficulty at max.

So, given the number of miners drops too far too fast, Bitcoin may end up in a
situation in which the global mining power is too low to even reach the end of
the adjustment window in a realistic timeframe, which in turn triggers even
more miners to shut off their equipment and sell their coins, which lowers the
price even more and lengthens the timeframe, which in turn...and so on. This
situation is known in Bitcoin circles as the "chain death spiral", and it has
been a purely theoretical thing - until now, at least.

~~~
uncletammy
> Because the adjustment window is not real-time-based, but block-based: every
> 2016 blocks, an adjustment is done ...

This is definitely true. Luckily for miners there are two other blockchains
their mining equipment can make use of which don't suffer from the slow
difficulty adjustment. They are both version of Bitcoin Cash (BCH and BSV) and
they both have 10-block adjustment periods. This makes them much more
resilient to sustained periods of depreciation.

------
mcv
I may still have some bitcoin, but I certainly hope it becomes worthless. It's
turned out to be ridiculously energy-consuming, and it seems to be used mostly
for speculation rather than payment. Transactions have become too slow and
expensive to be efficient for a payment system.

It's entirely possible that cryptocurrencies will be the future, but it won't
be bitcoin. It needs to be more efficient and more scalable than that.

~~~
deif
Sounds like someone hasn't been keeping up with recent bitcoin tech and is
merely repeating lines from Dec 2017.

~~~
Tepix
Note Martijn was specificially talking about Bitcoin. Bitcoin is still based
on proof-of-work and i don't see it changing any time soon.

In fact, any change in bitcoin is unlikely as all parties are hopelessly at
odds with each other.

~~~
mcv
Exactly. If a cryptocurrency has some stable basis that's more efficient than
proof-of-work (== wasting energy for its own sake), and has cheaper, faster,
more efficient transactions so it can actually be used for small purchases,
then I totally think that currency could conquer the world. Bitcoin itself is
just too limited. Great idea, but too many problems.

------
swalsh
I haven't bought bitcoin since it was sitting at $8 a coin... but hey, Buy
when there's blood on the streets. I don't think bitcoin is nearly as
important as many of people who invest in it believe. But it does seem to be a
thing that will be around for a while. I view it as digital gold, and not
necessarily a currency. Unless you're buying during one of the large
speculative bubbles (which come every few years) it's not a TERRIBLE store of
value... though it wouldn't be my first choice, it is an option. I think it
has some more life in it.

------
wongarsu
Bitcoin's price drop might look bad enought to warrant sensational articles,
but if you take any bitcoin price chart over the last years (like [1]) and
switch it to logarithmic price, it doesn't appear exceptional. The same thing
happened in 2013.

1:
[https://coinmarketcap.com/currencies/bitcoin/#charts](https://coinmarketcap.com/currencies/bitcoin/#charts)

~~~
xyzzyz
If you take any time series asset of the price of any asset, and switch it to
logarithmic, none of the drops will appear exceptional either. That’s what
logarithmic scale does.

~~~
wongarsu
If you assume something grows exponentially (which is roughly how bitcoin
behaves), then looking at a linear chart doesn't lead to useful conclusions.

Alternatively you can look at [1] which uses linear scale, but as you look at
different parts of the timeline it rescales the chart. Sure, the recent drop
looks dramatic. But it looks less dramatic than when in 2011 the price rose
from $0.80 all the way to $30 and fell back to $2.20. Or the 2013 event where
the price rose from $15 to $100 to $1000 in the span of a few months, only to
crash down to a devastating $230.

1: [https://99bitcoins.com/price-chart-history/](https://99bitcoins.com/price-
chart-history/)

------
Felz
> And it looks as though the Blockchain economy is here to stay, where many of
> our transactions will be processed on the blockchain and use cryptocurrency
> for daily transactions. Indeed, while the world maybe forever be indebted to
> Satoshi Nakamoto for giving us a viable cryptocurrency, bitcoin may cease to
> exist.

Huh? Does anyone seriously use cryptocurrencies for daily purchases right now?

It seems to me like cryptocurrencies are entirely useless (except maybe for
illegal things and ransomware) and the entire space will be dead after it's
done crashing. Ultimately, Satoshi Nakamoto may have accomplished nothing but
caused untold misery for thousands of bankrupted people, redistributed money
like a lottery, and burned the rest in electricity.

------
almostdigital
[https://99bitcoins.com/bitcoinobituaries/](https://99bitcoins.com/bitcoinobituaries/)

------
TekMol
Mining can only become unprofitable for a while: Until the difficulty is
adjusted.

There is a whole industry depending on Bitcoin. If mining becomes
unprofitable, there will be players that pay for the mining to continue until
the difficulty adjusts. To keep their companies alive.

There is also another counterargument. One that does not only apply to the
problem of mining but to any problem with Bitcoin in general: If a hard
problem occurs, it is very likely that the industry would collectively switch
to a fork.

For me, the value of Bitcoin is mainly rooted in that fact. Bitcoin is widely
spread. So it will probably be the seed for future currencies that one day
will be more valuable then the original.

------
ckastner
The key argument seems to be:

> _Third, the futures markets have changed the game, enabling miners to
> estimate their mining losses and profits at the outset — if you can buy in a
> futures market at a price below my mining costs, why mine for a sure loss?_

~~~
vbezhenar
This is wrong argument. Mining costs are different for different miners.
Someone has cheap electricity, someone has cheap electronics. If mining is not
profitable for some part of miners, they'll stop mining and difficulty of
mining will decrease, making mining more profitable again. It's a self-
regulating mechanism.

~~~
pbhjpbhj
>If mining is not profitable for some part of miners, they'll stop mining //

Real world is always more complex than this.

My expectation would be that done miners will contribute to mine at below
profit levels because they seek to cut their losses.

If they have cheap electricity but large sunk costs due to expensive hardware,
that's not paid off, then - absent other uses for the hardware - they'd seek
to reduce the loss?

So mining wouldn't stop, but it would drop off precipitously.

~~~
wongarsu
There is a level below profitability but above electricity costs where most
professional miners will keep mining. But at some price level miners start
dropping out because the electricity is more expensive than the mining income.

Luckily this wouldn't be one huge even but dragged out over a large price
range since electricity prices vary considerably depending on location and
source. This ensures that there is enough time for difficulty adjustments to
kick in and correct the market.

------
starchild_3001
Lol, first going to infinity, now going to zero. This is the typical
overshoot/undershoot behavior. When everybody starts believing something is
going to zero, it bounces back and vice versa.

------
magnamerc
I remember these same articles in 2013

------
granaldo
Bitcoin price in the past 30 days Chart
[https://www.coingecko.com/en/coins/bitcoin](https://www.coingecko.com/en/coins/bitcoin)
has been on a pressure And that's look mainly driven by market, miners will
shake up and driven to mine what's most profitable and they have option to
point to Bitcoin Cash and Bitcoin SV for ASICs

------
decentralised
Counterargument: actors aren't rational and will continue mining at a loss
because of the sunken cost fallacy.

Mining will always continue because it's what keeps the current canonical
ledger safe so if nothing else the exchanges and market makers are still
economically incentivised to mine.

~~~
prostoalex
Can't that sunken cost be repurposed to mine Monero / ETH / ZCash / whatever
else is in vogue nowadays?

~~~
decentralised
Some of it yes. ASICs usually can only do one mining algorithm (nakamoto,
hashimoto, etc) and can't easily upgrade their firmware.

------
21
> _As I argued, once Bitcoin’s price falls below its cost of mining, the
> incentive to mine will deteriorate, thrusting bitcoin into a death spiral._

When bitcoin appeared it's price was zero, yet people still mined it despite
being a clear "worthless" activity.

~~~
m-i-l
_> When bitcoin appeared it's price was zero, yet people still mined it
despite being a clear "worthless" activity._

It was as simple as pressing a button, labelled "Generate" on the original
Bitcoin client if I recall, which used your CPU to mine a block of 50 BTC. The
button was removed after it started taking more than the time between blocks
(10 mins) to mine a block on an average CPU.

Interesting concept that you could simply press a button to generate something
that was worth at its peak a few years later US$1M. If you think that sounds
like it comes from an old episode of The Twilight Zone you may be thinking of
[https://en.wikipedia.org/wiki/Button,_Button_(The_Twilight_Z...](https://en.wikipedia.org/wiki/Button,_Button_\(The_Twilight_Zone\))
: "One day they receive a mysterious locked box with a button atop it ... a
smartly dressed stranger ... [gives them] the key to the box and explains that
if they press the button then two things will happen: they will receive
$200,000..."

------
MR4D
So, if enough miners drop out, wouldn’t that encourage some nefarious group to
try and hijack Bitcoin by having more than 50% of the miners?

In an odd way, it seems that possible situation might keep the number of
miners higher than it would otherwise be.

------
edoo
Bitcoins' value is in its utility at the moment. Until it stabilizes it is
poor as a money (a store of value) while still quite handy as a currency
(exchange of value). If it becomes a more stable store of value than competing
fiat currencies it will have even more value added.

~~~
lokedhs
How would it ever stabilise? There is a hard limit to the number of coins
issued, and unless the market is static, the value of bitcoin has to go up.

I haven't seen a good explanation to that problem.

~~~
edoo
Stabilize as in not so volatile. You could have a 1% deflation rate per year
and that would be much more stable than the USD.

------
gammateam
Great observations, Odd conclusions

Miners will mine at a loss for a limited time. Difficulty adjusts lower and
price will reach a level where there is demand

Permenantly drop to zero? And nobody here would buy it?

Okay

------
kingo55
> governments might start issuing cryptocurrencies.

Great idea... we can go back to the old model of trusting third parties to
print our money for us.

~~~
ykevinator
Ha, right

------
arcaster
This is so fucking hilarious.

------
niahmiah
Buy signal

------
wyldfire
Don't feed the trolls.

------
ForHackernews
> In that respect, it is more like gold, in that its value is driven to some
> extent by its desirability and potential uses, but mostly by its cost of
> mining

This is not how prices work:
[https://en.wikipedia.org/wiki/Labor_theory_of_value](https://en.wikipedia.org/wiki/Labor_theory_of_value)

What matters is how much somebody will pay for an asset (supply and demand)
not how much it cost to produce that asset to begin with.

~~~
atq2119
It's actually not that simple, and strangely one of those areas where
economics has had a blind spot for a long time.

Lots of businesses use cost-plus pricing, which contradicts the econ 101
assumption that you're repeating.

Now, one might naively argue that even with cost-plus pricing, the outcome is
still the same because businesses who set their price too high will be either
outcompeted or just find no demand either way and disappear from the market.

However, this assumes that the buyer-side utility functions and price
expectations are somehow exogenous, and come from outside the entire market
system. But that's obviously not true: people form their expectations of how
much things are supposed to cost, and even what the value of goods are (see
Giffen goods for an extreme case) by looking at the de facto prices of goods
-- and those are usually set by the suppliers, using cost-plus pricing.

The bottom line is that utility functions and price expectations are really
endogenous, which radically breaks the econ 101 model of supply and demand.
I've heard of economists making various attempts to fix their models to
account for this, but I'm not aware that a consensus on _how_ to fix this has
emerged.

~~~
ForHackernews
You're talking about products, not commodities. What's the consumer utility
function look like for gold ore or bitcoin?

~~~
atq2119
That's specifically why I mentioned price expectations.

