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by jegutman
3837 days ago
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An interesting though exercise: Does the new capacity make a bitcoin more valuable or less valuable? Intuitively seems like more valuable, but the average cost in energy to mine the marginal block has gone down (otherwise the new miner wouldn't be mining) and that's often though of as the floor on BTC value. Seems like having a stronger network is a net plus, and since they're probably not near the 50%+1 threshold it probably is in fact a stronger network. Although maybe they will get close if marginal miners are forced to turn off if the price of XBT drops and BitFury is enough more efficient. Although BitFury is probably not a bad actor, technically a 50%+1 attack is not obviously illegal (IANAL), although a government might step in ironically enough. It seems to me these types of more centralized setups do introduce some tail risk to the system. |
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https://s3-us-west-2.amazonaws.com/chainbook/The+Anatomy+of+...
> we now know that there is a near precise model that describes the cost of running and maintaining the network. The way the cost estimate is determined is through how Bitcoin acts as a decentralized waste heat creator that activates and deactivates heat generation based on market participation and pricing signals. What do the randomizations necessary for cryptography and the waste heat produced by computing devices have in common? One word: “exergy,” a term of art describing the maximum useful work possible during a process that brings a system into equilibrium with a heat reservoir. Exergy is always destroyed in the seigniorage hashing process - for example - if a token's value increases to $1,000, this means that at most $1,000 worth of waste heat will be generated somewhere in its creation.
From my reading of the text, it's not so much the additional hash power that's valuable, it's the additional money spent building and operating the ASICs. In theory, the market cap of a proof-of-work system should approach its total cumulative cost to secure. The more watts you see being dumped into the environment calculating hashes, the more you should value Bitcoin.
If Bitcoin is worth less than its cost to mine, no rational miner will mine (if they want BTC they'll just use their electricity budget to buy it on the market), so the competition (and therefore the cost) to mine each block goes down. If Bitcoin is worth more than its cost to mine, mining becomes profitable to anyone willing to put up the capex, so the competition (and therefore the cost) to mine each block goes up. There's an equilibrium where the value of Bitcoin is equal to its cost to mine.
The actual price of bitcoin as seen by the average consumer is insulated from the cost to mine because of effects like speculation, perceived future movement, and the value provided by ease of spending / anonymity, so the economic theory isn't really accurate, but that's why it's a theory!