Post
Topic
Board Mining
Re: 6 blocks an hour my ass!
by
Fjordbit
on 23/06/2011, 22:40:04 UTC
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.

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.

Sorry, but no. It's an equilibrium that sits on those three things (cost for a GH/s of mining power, price of btc in $, difficulty). What we have seen recently is price driving difficulty, but difficulty rising above a certain threshold (determined by a ratio of price and cost of GH/s) can cause rising price to cause an alignment to the ratio (because nothing in the market is making cost of GH/s lower in that ratio). This has happened clear twice as far as I've seen, and is probably happening again with the 50% increase soon.

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.

I'm just going to quote from another post of mine where I was talking about the exchange price at $200/btc and $5/btc.

"Something to note is that there is a bit of a difference in demand in these two scenarios. People don't have a demand for btc, they have a demand for the transaction. Let's say they want to use btc to buy a spot troy oz of silver ($36.25). In the first case they need .18 btc, in the second case they need 7.25 btc. Even though the real demand is the same, the nominal demand for btc is higher when the price is lower."

People keep confusing nominal demand for real demand, and I don't get why.

And another thing, an increase in difficulty represents a relative increase in cost to the miner (in both operational and opportunity costs). An increase in costs to the supplier translates into a rightward shifting supply curve. Remember supply is btc as a function of dollars, so higher doller costs means lower btc supply.