

Why Bitcoin’s Erratic Price Doesn’t Matter - kristianp
http://blogs.wsj.com/moneybeat/2014/12/21/why-bitcoins-erratic-price-doesnt-matter/

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danbruc
The price does matter. Keeping a network with 250 PHash/s running costs 219
million Dollars per year (1 GHash/J mining efficiency, 100 $/MWh energy costs)
and probably quite a bit more if you account for other costs like hardware,
rental or cooling. If your block reward is worth nothing you will have a
problem keeping the network running. Scale back the hash rate and you get
vulnerable. Increase the fees - with 100k transaction per day you are looking
at costs of 6 Dollars per transaction for electricity only - and you damage
one of the main selling points of Bitcoin, cheap transactions. And this again
is prohibitive for Bitcoin adoption in underdeveloped countries which are
often suggested as a core market.

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sj4nz
This is the scariest thing about BitCoin, this efficiency bubble. What happens
when the world's miners decide that a different crypto-coinage is more
profitable?

I don't believe that the difficulty parameter in BitCoin adjusts very fast
(every 2016 blocks or ~14 days) and you could have transaction speed
disruptions. If a block doesn't solve in 10 minutes but instead an hour,
you'll have a lot of very unhappy people waiting for transactions to seal and
they'll abandon the network after selling off their assets. That's just the
time aspect, you mention the transaction fee aspect, and that will drive
people away as well if they start to creep near what legacy financial systems
charge. The declining block reward in BitCoin guarantees that transaction fees
will increase because of the limited capacity of the consensus network's data-
storage/transaction block.

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davidgerard
At present:

* Bitcoin is doing badly in terms of electricity cost versus block rewards. If it keeps going down, the miners are going to switch off.

* All altcoins are doing worse.

Because the altcoins are basically alternatives to Bitcoin, but their value
has gone down even more than Bitcoin's.

(I could be wrong - are there any that haven't, which have non-negligible
exchangeability and/or trading volume?)

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hawkice
The erratic price prevents it from being a store of value or a unit of
account. So it is a currency that clocks in as a medium of value transfer
only. Even then, the transfer involves another currency on either end in
almost all cases.

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marcell
> The erratic price prevents it from being a store of value

Not true in itself. Consider the stock market: it's value has been unstable
for the past two decades, yet it is still one of America's most popular stores
of value. Consider also gold and housing, two other popular stores of value
that also have unstable pricing.

The erratic price does however prevent it from being a unit of account.

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sgt101
Housing is a store of value in a way that gold and bit coins aren't; if the
price of housing crashes to 0 you can still live in the houses. Also, the
price of housing is highly likely to only crash to the cost of building a new
house - wear and tear + scarcity costs for land.

There is a speculative component in house prices, and this is a concern for
anyone who is "storing value" in them, but there are fundamental uses for
housing far beyond the fundamental uses for gold.

Equities have a value story too. The dividend on stocks represents a future
earnings value which is tradable. Also Equities provide voting rights which
have value.

Fiat currency has a value story; the states monopoly of violence provides it
with the ability to collect tax from economic activity where that monopoly
holds true. Tax revenues are a future income stream that has value; hence the
underpinning of fiat.

Bitcoin has rarity and speculation only.

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zaroth
Well, the key difference is you pay property taxes on a house. And as long as
you keep doing that, and paying all associated upkeep, you can hopefully see
appreciation. Oh, and you can live in it.

The point is, there's no analog to the digital nature of placing a conversion
value based on the bits of a certain integer value stored in a distributed
blockchain.

The latest round of blockchain technology is showing, bc is good for a lot
more than currency. In fact, there are many things that BC can do much better
even than it can be a currency.

My point is, I bet on the long-term value of bc technology, but actually not
on the long term value of Bitcoin as a digital asset.

For example, very soon enough you will be able to cheaply, easily, and freely
store your USD or whatever currency you want on a blockchain, and use it to
spend and trade freely. Choose any blockchain and conversion rate / resolution
you want and issue a legally binding IOU. Of course the trick is handling
redemption!

~~~
sgt101
Totally agree that block chain technology is very interesting and I think
valuable. I think that particular block chains will gain value as they begin
to underpin particular applications, but of course if the value of a block
chain becomes an impediment to the application the users may disrupt that
application and move to new blockchains.

For my education could you expand on your thoughts around "The point is,
there's no analog to the digital nature of placing a conversion value based on
the bits of a certain integer value stored in a distributed blockchain". I
think that you are making an interesting point here but I haven't quite
grasped it so am intrigued.

~~~
XorNot
I think there's a lot being said about blockchains because of Bitcoin, but
other then Bitcoin I haven't seen any appreciable or desirable uses of them.
At the end of the day, you're spending a lot of power and CPU cycles on
something very transient.

EDIT: This is distinct from various toy applications of the "you _could_ do
_this_ with a blockchain..."

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netcan
I think this article is pretty much on point.

Bitcoin's price isn't really what matters, even bitcoin specifically doesn't
really matter. What matters is whether or not the technology will have wide
adoption, how that looks, and what sort of effects that will have.

The price of bitcoin is a side game. The volatility makes for flashy daily
"news" as fortunes blink in and out of existence but that doesn't ultimately
matter.

Money is the original network effect technology. I also suspect that banks and
the entire financial system is incredibly fat and lazy. This enormous industry
could be usurped.

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r109
paywall?

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chuckup
someone pasted it here -

[http://www.reddit.com/r/Bitcoin/comments/2q0jb4/why_bitcoins...](http://www.reddit.com/r/Bitcoin/comments/2q0jb4/why_bitcoins_erratic_price_doesnt_matter_wall/cn1uzzb)

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DominikR
Sorry if anyone feels offended, but why exactly does this article have any
relevance on Hacker News?

I can understand people submitting pieces about their own apps or startups but
why does anyone think that we need more "financial product XYZs price is
underestimated, I'm bullish, BUY BUY BUY" articles.

~~~
Drakim
There are also occasional articles about rocks on Mars, strange bacteria
commanding killer fungi, and vikings in Arctic Canada. It's not that Bitcoin
is the one odd topic that somehow squeezed in, it's more that hacker news
likes to stray outside it's original scope a bit. Personally I enjoy that.

