First, the cost to produce them is greatly influence by how many people engage in mining which is itself determined by the market price of bitcoins, meaning that by this metric there are multiple equilibria.
Second, for any fiat money there is always an equilibrium with price=0.
Second, for any fiat money there is always an equilibrium with price=0.
That’s not technically correct. If the athourity issueing the fiat money collects taxes than that creates demand for it up to the amount required to pay outstanding tax bills (ie 1% of land value in the case of a property tax). Since property doesn’t produce fiat money itself property owners need to sell goods or services to get money.
So there are low equilibria for fiat money, and unstable equilibria for fiat money, but zero is typically not a natural equilibria
No, that does not apply to gold. The cost to produce more gold is influenced by how much people have engaged in mining in the past, and thus extracted the low-cost gold. If everyone but you stopped mining gold, the cost for you, personally, to produce as much gold as was previously being produced would be approximately the same as the cost everyone shared before. If everyone but you stopped producing bitcoin, it would be much, much cheaper for you to produce just as much bitcoin as previously.
Gold is not bitcoin. There are differences obviously. But there are analogies too.
For one the effort to mine a bitcoin intentionally rises by how much people have engaged in mining in the past.
I’m pretty sure the effort (processing power) required to mine a bitcoin is independent of the history of mining, and depends exclusively on how much processing power is currently being spent trying to produce bitcoin. Unless I’ve drastically misunderstood the algorithm for difficulty, which I’m relatively sure I haven’t (thinking of this page specifically).
The consequences of this seem obvious to me; bitcoin is only difficult to acquire when it is perceived as worth acquiring, meaning that a loss of confidence that it has value leads directly to it being much easier to acquire even without having to purchase it from people who have lost confidence.
What you seem to mean is the cost due to competition: Multiple miners trying the same block and the first one succeeding making all the work of the other mineres on this block worthless.
I meant the increase in difficulty for later blocks inherent in the algorithm.
One could—though I agree that it stretches the analogy—compare the first to gold miners competing in the same physical location—as has happened during the gold rush. This causes competition not exactly for the same gold veins but for the physical space and other resources around.
The second (algorithmical) increase can be compared to mines becoming sparser and sparser—you have to dig deeper.
I’m pretty sure the effort (processing power) required to mine a bitcoin is independent of the history of mining
The bitcoin supply is limited by design and as you approach the last bitcoin which could be mined, the effort needed increases. That makes the effort needed dependent on the “history of mining”, or, more precisely, on how many bitcoins have already been mined.
First, the cost to produce them is greatly influence by how many people engage in mining which is itself determined by the market price of bitcoins, meaning that by this metric there are multiple equilibria.
Second, for any fiat money there is always an equilibrium with price=0.
That’s not technically correct. If the athourity issueing the fiat money collects taxes than that creates demand for it up to the amount required to pay outstanding tax bills (ie 1% of land value in the case of a property tax). Since property doesn’t produce fiat money itself property owners need to sell goods or services to get money.
So there are low equilibria for fiat money, and unstable equilibria for fiat money, but zero is typically not a natural equilibria
I agree with your qualification.
The first also applies to e.g. gold.
I do disagree with the second.
No, that does not apply to gold. The cost to produce more gold is influenced by how much people have engaged in mining in the past, and thus extracted the low-cost gold. If everyone but you stopped mining gold, the cost for you, personally, to produce as much gold as was previously being produced would be approximately the same as the cost everyone shared before. If everyone but you stopped producing bitcoin, it would be much, much cheaper for you to produce just as much bitcoin as previously.
Gold is not bitcoin. There are differences obviously. But there are analogies too. For one the effort to mine a bitcoin intentionally rises by how much people have engaged in mining in the past.
I’m not clear what you are driving at.
I’m pretty sure the effort (processing power) required to mine a bitcoin is independent of the history of mining, and depends exclusively on how much processing power is currently being spent trying to produce bitcoin. Unless I’ve drastically misunderstood the algorithm for difficulty, which I’m relatively sure I haven’t (thinking of this page specifically).
The consequences of this seem obvious to me; bitcoin is only difficult to acquire when it is perceived as worth acquiring, meaning that a loss of confidence that it has value leads directly to it being much easier to acquire even without having to purchase it from people who have lost confidence.
What you seem to mean is the cost due to competition: Multiple miners trying the same block and the first one succeeding making all the work of the other mineres on this block worthless.
I meant the increase in difficulty for later blocks inherent in the algorithm.
One could—though I agree that it stretches the analogy—compare the first to gold miners competing in the same physical location—as has happened during the gold rush. This causes competition not exactly for the same gold veins but for the physical space and other resources around.
The second (algorithmical) increase can be compared to mines becoming sparser and sparser—you have to dig deeper.
The bitcoin supply is limited by design and as you approach the last bitcoin which could be mined, the effort needed increases. That makes the effort needed dependent on the “history of mining”, or, more precisely, on how many bitcoins have already been mined.
Or more precisely the currant year.