I don’t understand what does “anchored to a cost” mean.
In crude terms, things have value and they have a cost to produce. If the value is above the cost, more things like that will be made. If the value is below the cost, no one will make these things. Nothing in that speaks to “anchoring”—the cost does not “anchor” the value.
Bitcoins certainly have a cost to produce (and it’s growing, by design), just like gold. If the value of bitcoins falls below that cost, no one will produce new bitcoins any more.
If there is a fixed cost to produce something, then if the value ever moves above the cost, more will be produced until the value falls to the cost. This means that the value is anchored to the cost. Bitcoins do not have a fixed cost. It would be more accurate to say that the cost of bitcoins is anchored to the value.
This means that the value is anchored to the cost.
Wouldn’t it be capped by the cost (+usual profit)? There is nothing about the cost of production that prevents the value from falling below the cost and all the way to zero.
Bitcoins do not have a fixed cost.
Why not? It’s not hard to calculate the cost of production (cost of hardware and electricity) for bitcoins. That cost changes with time, but that’s normal for most everything.
Wouldn’t it be capped by the cost (+usual profit)?
That probably would be a better term. I should add that I haven’t been educated much in economics, and if “anchor” is economic jargon, I don’t know it. I was just going by the normal use of the term and the context to guess what the OP was trying to say. Also, pointing out that it’s only anchored from above pokes a hole in the OP’s comment, but since someone else already addressed that I didn’t bother.
Why not?
Bitcoins are produced at a rate that halves every two years. It doesn’t matter how much effort you put into mining them. Putting more effort into bitcoin mining does not increase the amount of bitcoins, and thus does not decrease the price. The price is not dependant on the cost to produce. On the other hand, if the price doubles, then people will put twice as much effort into mining them, and the cost to produce will double. The cost to produce is completely dependant on the price.
No, I’m using words in standard meanings: “anchoring” means limited to the vicinity of a particular place or value, and “capped” means can go down but cannot go up above a certain limit.
The price is not dependant on the cost to produce.
Yes, under the assumption of many separate agents. However people can cooperate if there are sufficiently large incentives for that and there’s no anti-trust authority to stop them in the Bitcoin world. One mining pool already got over 50% of world capacity at one point—it quickly backed down for obvious reasons, but my first guess at an attractor point (equilibrium in econospeak) would be a duopoly where two mining pools control most of mining and they may or may not collude.
How are you suggesting they manipulate prices? While there are a number of security flaws, none of them allow counterfeiting. You can’t increase the supply beyond what it should be no matter what you do. You can destroy bitcoins by sending them to invalid accounts and cause deflation that way, although I have no idea why you’d want to. You could get over 50% of mining capacity and frequently use it for the 51% attack, causing people to lose trust in bitcoins and making the price fall, but again, it’s not going to help you.
Not prices, but the cost of production. With increased prices normally you would have increased mining efforts which, through competition, would make cost of production rise towards the price. If you control the amount of mining, you can avoid that and keep the mining effort at the same level. Your profit (price—cost) then stays high.
I don’t understand what does “anchored to a cost” mean.
In crude terms, things have value and they have a cost to produce. If the value is above the cost, more things like that will be made. If the value is below the cost, no one will make these things. Nothing in that speaks to “anchoring”—the cost does not “anchor” the value.
Bitcoins certainly have a cost to produce (and it’s growing, by design), just like gold. If the value of bitcoins falls below that cost, no one will produce new bitcoins any more.
If there is a fixed cost to produce something, then if the value ever moves above the cost, more will be produced until the value falls to the cost. This means that the value is anchored to the cost. Bitcoins do not have a fixed cost. It would be more accurate to say that the cost of bitcoins is anchored to the value.
Wouldn’t it be capped by the cost (+usual profit)? There is nothing about the cost of production that prevents the value from falling below the cost and all the way to zero.
Why not? It’s not hard to calculate the cost of production (cost of hardware and electricity) for bitcoins. That cost changes with time, but that’s normal for most everything.
That probably would be a better term. I should add that I haven’t been educated much in economics, and if “anchor” is economic jargon, I don’t know it. I was just going by the normal use of the term and the context to guess what the OP was trying to say. Also, pointing out that it’s only anchored from above pokes a hole in the OP’s comment, but since someone else already addressed that I didn’t bother.
Bitcoins are produced at a rate that halves every two years. It doesn’t matter how much effort you put into mining them. Putting more effort into bitcoin mining does not increase the amount of bitcoins, and thus does not decrease the price. The price is not dependant on the cost to produce. On the other hand, if the price doubles, then people will put twice as much effort into mining them, and the cost to produce will double. The cost to produce is completely dependant on the price.
No, I’m using words in standard meanings: “anchoring” means limited to the vicinity of a particular place or value, and “capped” means can go down but cannot go up above a certain limit.
Yes, under the assumption of many separate agents. However people can cooperate if there are sufficiently large incentives for that and there’s no anti-trust authority to stop them in the Bitcoin world. One mining pool already got over 50% of world capacity at one point—it quickly backed down for obvious reasons, but my first guess at an attractor point (equilibrium in econospeak) would be a duopoly where two mining pools control most of mining and they may or may not collude.
How are you suggesting they manipulate prices? While there are a number of security flaws, none of them allow counterfeiting. You can’t increase the supply beyond what it should be no matter what you do. You can destroy bitcoins by sending them to invalid accounts and cause deflation that way, although I have no idea why you’d want to. You could get over 50% of mining capacity and frequently use it for the 51% attack, causing people to lose trust in bitcoins and making the price fall, but again, it’s not going to help you.
Not prices, but the cost of production. With increased prices normally you would have increased mining efforts which, through competition, would make cost of production rise towards the price. If you control the amount of mining, you can avoid that and keep the mining effort at the same level. Your profit (price—cost) then stays high.
It changes with time, but only because the amount being produced changes over time.