Quote from: Fjordbit on June 23, 2011, 09:51:05 PM

Quote from: SchizophrenicX on June 23, 2011, 07:55:38 PM

Thats what the difficulty adjustment is meant to do. The inflation rate is kept constant. And thus further proves the point that difficulty has got nothing to do with exchange rates. The supply unrolls in a fixed expected rate. What was meant by 'fixed'. However the exchange rate is driven by demand.

So your thesis is that the fact that it takes $8.6M worth of computer equipment running maybe around 5.4MW to generate 6 btc in an hour has no bearing on the price than if it were just a $100 computer with a $56 card running at 60W. Sounds logical to me!

Or maybe, just maybe, it's all related.

Let's get causality the right way here.

Why is the price of a coin what it is currently (around $15)? Because someone wants to buy the coin for that amount of money, and someone is willing to sell for that amount of money. That is THE ONLY reason the price is what it is. It is the intersection of the supply and demand curves that gives you this price level.

Supply is not moving (well, it's ever so slowly increasing) so the ONLY thing that can affect price is demand. If no one is willing to buy at $15, the price of a BTC is not going to be $15, it's going to be something less.

The reason that we see difficulty being correlated (note, not CAUSING) with price is that as the price goes up, there is an incentive to enter the market to make money. The cost of the computer equipment necessary to create a bitcoin does not have any impact on the value of a bitcoin - the causality works only the other way around (price determines amount of computer equipment). Or rather, I should say that the expected price of bitcoins is the determining factor, since future price is not fixed.