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Ask HN: Propsal: Inner value of BTC == Power cost?

1 points by waffenklang ↗ HN
To continue the debate about the inner value of 1 Bitcoin. How about to link the value of 1 Bitcoin to the price of the power needed to create/maintain that one bitcoin? Until mining is running, until all bitcoins are mined this would be the price to create one bitcoin at current tech level (means it decreases with ASICS/fpgas), from the point of all bitcoins mined it would be the price of power needed to confirm a one bitcoin transaction within a block. The price per kWh would be the mean price worldwide.

6 comments

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zamalek
The kWh to maintain a BTC would mean its value would be next to zero. Considering that a select few machines could maintain all the BTC on Earth (hypothetically, if one person owned all of them). A 120W machine consumes 1.1MW in a year, that means that the entire GDP of BTC could be summed up as a very small portion of the running cost of a very small coal power plant.

For BTC to get anywhere you need people earning BTC, spending it on goods (to the degree where you can spend it at a supermarket), etc. In addition you need a flow of new BTC into the market as value is added into the market (a farmer grows a crop and by doing so introduce more currency into the market, AKA Gross Domestic Product).

The 21 million BTC limit is also extremely naive. Inflation is not caused by more money being minted, it's caused by too much money being minted (when compared to the amounts of goods produced within the producing country). Money needs to flow into the market otherwise you wind up with hyper-deflation: humans, being humans, would hoard the currency and the currency would lose its liquidity. Unfortunately someone needs to valuate the value of the goods flowing into the market and decide how much money to mint based on that - a decision needs to be made which unfortunately means a controlling authority is required.

If you could remove the 21 million BTC limit and get a couple of million people to abandon their current currency (dollars, pounds, whatnot) and adopt BTC exclusively, maybe it would work - but valuating physical goods would be tricky, as right now it's valuates on the electricity-producing capacity of a country (which is definitely not its gross value).

BTC has very good motives, unfortunately the way we have set up things (and the way that humans behave) means that it's nothing more than a blue sky dream.

mschuster91
Well, the BTC can be split up into 8 decimal places at now (mBTC, Satoshi)... so when the demand for bitcoins is high enough, the "dominant" btc unit will become mBTC. Problem solved.
zamalek
The problem is that the 1BTC I have in my wallet increases in value over time without me doing anything to compensate for that. An ever-increasing (but correctly increasing) amount of BTC ensures that the buying power of my one BTC remains the same.

For example, today I can get 1BTC for ~$100. Say I held onto that 1BTC for a very long time and eventually bitcoins became the earth-standard currency. That 1BTC would now be worth significantly more than $100 (say, now I would be able to buy a house with it).

You might argue that this is how banks work (interest etc.), however banks earn you interest by lending your money out to other people who contribute to the GDP on your behalf.

It all comes down to buying power. http://en.wikipedia.org/wiki/Purchasing_power

Don't get me wrong, I think something like BTC is a great idea - our human nature just makes it impractical (not impossible). Things like money-hoarders and deflation need to be addressed, which at the moment are not.

waffenklang
Referencing this post and your first: The fact that bitcoins can be divided until 10^-8 is mainly the feature where the idea was relying. Your state of the power plant compare was right, but as bitcoins get divided the number of transaction will rise causing the blocks to get higher. sure they will settle at a current level, but this will provide the stability in its value.

the problem of the value is already present at the moment. Taking that simple example of the 10000BTC pizza, the Pizza service, if they still hold that amount, are now millionaires. but thats the point with every currency. but they use reforms to handle the problem, which requires an authority to control it, which will not be possible with btc.

zamalek
Exactly. You seem to have done a better job at making my point :).
mschuster91
Much of the value present now will be lost in not too near time. Wallets get stolen (and the thieves don't dare use them, because BTC is not as anonymous as most people think), wallets get lost (mindwallet password forgotten, disk crashes and no backups), people just forget about their Bitcoins like many of the early "adopters" did whose bitcoins are now rotting... so this will be a good adjustment for Bitcoin value, when the "divide" happens or earlier.