But “demand” for bitcoin is not the same as bitcoin adoption. Bitcoins are neither created nor destroyed when (for example) a merchant accepts bitcoins in a transaction. Similarly, demand for dollars is not a function of how many people are willing to use dollars in their transactions, but rather how many people want to hold dollars (and at what liquidity price). I agree that increased demand for bitcoin (relative to supply) will increase the price, I just don’t see why that relative demand has to increase if bitcoin catches on as a medium of exchange. For example, suppose bitcoin neither ‘dies’ nor expands, but stays at its current level. In that case, we’d expect the price of bitcoins to fall over time, as more bitcoins are created but demand does not increase.
Good catch. But doesn’t this re-inforce my point that the cost of mining bitcoins will cap, rather than set, the price?
You are correct. There can be an increasing number of transactions per unit time, but whether those transactions are in microbitcoins or megabitcoins is orthogonal.
I thought Bitcoins were a proof of work thing, with a limited total number, so the rate of mining changes over time and in response to the price, or has that changed?
When I lasted looked mining on your own electricity bill was madness, but botnets were being used to mine, and had sufficient benefits in being easy to convert that the botnet operators were preferring bitcoin mining over riskier endeavours.
A little ambiguous. The total return to all miners halves every 4 years or so. If the total investment in mining equipment is doubling every 4 years, then the return to unit investment in mining will decrease by 75% every 4 years. Both the total rate of BTC creation and the increasing investment chasing that creation are decreasing the return to the mining investment.
Bitcoins are created at the same pace no matter what, so
If there is a lot of demand for bitcoin, the price will necessarily increase since we can’t mine at a faster rate.
Miners don’t affect the rate of bitcoin creation,
But “demand” for bitcoin is not the same as bitcoin adoption. Bitcoins are neither created nor destroyed when (for example) a merchant accepts bitcoins in a transaction. Similarly, demand for dollars is not a function of how many people are willing to use dollars in their transactions, but rather how many people want to hold dollars (and at what liquidity price). I agree that increased demand for bitcoin (relative to supply) will increase the price, I just don’t see why that relative demand has to increase if bitcoin catches on as a medium of exchange. For example, suppose bitcoin neither ‘dies’ nor expands, but stays at its current level. In that case, we’d expect the price of bitcoins to fall over time, as more bitcoins are created but demand does not increase.
Good catch. But doesn’t this re-inforce my point that the cost of mining bitcoins will cap, rather than set, the price?
You are correct. There can be an increasing number of transactions per unit time, but whether those transactions are in microbitcoins or megabitcoins is orthogonal.
I thought Bitcoins were a proof of work thing, with a limited total number, so the rate of mining changes over time and in response to the price, or has that changed?
When I lasted looked mining on your own electricity bill was madness, but botnets were being used to mine, and had sufficient benefits in being easy to convert that the botnet operators were preferring bitcoin mining over riskier endeavours.
The rewards of mining half every 4 years or so, and this can be sped up some if the total network hashrate doubles up a lot, but that’s about it.
A little ambiguous. The total return to all miners halves every 4 years or so. If the total investment in mining equipment is doubling every 4 years, then the return to unit investment in mining will decrease by 75% every 4 years. Both the total rate of BTC creation and the increasing investment chasing that creation are decreasing the return to the mining investment.