Post
Topic
Board Economics
Re: Quick Figures on the size of Bitcoin Economy to Support Miners
by
Dr.Zaius
on 20/04/2014, 06:22:58 UTC
More people are starting to do the math and realize running the bitcoin network costs an absolute fuckload. Bitcoin developers have very low or limited knowledge of actual economics.

The problem with bitcoin's coin distribution is its based on the flawed quantity theory of money. Satoshi believed scarcity was the only property needed to set value. Coins are produced regardless if there is market demand for them or not. On the flip side, when market demand is strong we see extreme deflation(price rise) followed by extreme inflation(price collapse). No mechanism exists to respond to changing demand for bitcoin. Miner's tend to exacerbate the downside when they deplete fiat bid pools.

Miners are constantly on the ask side. Why wouldn't they be? They are realizing free gains.

People make the justification that the miner reward somehow helps strengthen the network. This argument falls flat on its face. What exactly is the price for securing the network in the first place? How is it set?

The problem lies within the fact as the real value of a BTC rises, it costs more to run the network. This is because the block reward is fixed.

At $1000 per BTC it cost 3.6 million per day to "secure" 60,000 transactions.
At $500 per BTC it costs 1.8 million per day to secure 60,000 transactions.

You see the problem here? The security subsidy is not even based on actual security, but the real value of 1 unit of BTC. This is called rent seeking. Users are forced to absorb rising costs. So not only does a BTC become more expensive, but subsidizing it's network does too. Bitcoin's price and it's users are under the whim of what miners decide to do. The same way economies of old were strangled by a perpetual gold shortage, bitcoin ecosystem will face perpetual shortage of supply. Well until miners and large holders exchange it(or lend) at grossly inflated margins(or interest rates).

Satoshi justified his coin distribution scheme because he believed "1 CPU 1 vote." He believed users and miners would be one in the same. The reality is you can never predict what technology does in the future. Hence, what has occurred is an oligarchy of miners who simply feed off of users.