09 December 2017

A Bit of a Problem

Bitcoin's tulip bubble price rise is in the news of late. While mentioned before, some points bear repeating, therefore.

1 - bitcoin, unless those in control change their minds, has a 21 million unit fixed limit. Recent reporting puts total mined ~17 million.
2 - bitcoin availability (per unit time) is halved every 4 years, approximately.
3 - the cost/amount of electricity needed to mine is going up extremely non-linearly.

Put them together, and what do we get? For one thing, some in the techno-geek world think the instant deflation that would ensue when all bitcoin have been mined (again, assuming that the powers that be don't bump the size of the lode) is a good thing. Given the asymptote situation, below, we may get the effect long before all bitcoin are mined.
Once all 21 million bitcoins have been mined, the supply cannot increase — regardless of growing demand. The result of this discrepancy between the supply of and demand for money is a steady and gradual decrease in the general price level, which equates to an equally steady and gradual increase in the purchasing power of money. Therefore, as Bitcoin miners collect transaction fees over time, no matter how large or minute, the funds gain value.

Even math oriented econ types know that deflation is not a benign experience.

Put another way, bitcoin is near/at the flat plane of its asymptote:
It is quite interesting to think about how far bitcoin has come since its inception. With a hard limit of 21 million BTC to be generated by 2140, a lot of people assume there are still a lot of coins to be mined for the next few years. While that is true up to a certain extent, we are getting closer to 80% of the finite supply being brought into circulation already. Said milestone will take place roughly 365 days from now [now being 1 February 2017].

The point being, if you do some back of the napkin arithmetic, that halving the number of new bitcoin/unit time, means you get to really sparse supply for way most of the time they're available. Remember that old conundrum: "if you step half-way to a wall, how many steps does it take to get to the wall? Infinity. And you never get there."

Some have ascribed the recent explosion in bitcoin $$$ value to creeping towards the end of supply. Could be. But, since the rule is to limit, in current period, the number of bitcoin released no matter the number/compute-power-used of miners (and that number is supposed to decrease on a published schedule: halved, appx. each 4 years and that hasn't happened this year), that seems unlikela. The improvement of compute power is also subject to the asymptote of progress, as the ability to create more compute cheaper as we near the limit of node size wanes. Either way, the bubble has been going bonkers recently. At least with gold, it doesn't get harder (mostly) as one empties the lode. The lode just goes dry all at once.

Imagine if we'd spent the money educating the spawn of the Red states, instead? They'd know better than to elect those out to make their lives worse.

If nothing else, bitcoin proves the foolishness of "store of value" in useless "things", including gold. Unless, of course, you want catastrophic (for the 99%, naturally) deflation. Just look at 19th century USofA. Mostly in recession or depression. The Garden of Eden of Freedom.

And it's not trivial to note that security of virtual money may well be (IMHO, is) much less than real. Yes, central banks can debase their paper money by printing with abandon, but that's a purposeful act. Hacking away data, on the other hand, isn't from the point of view of the money. You don't need a fleet of 18-wheelers to spirit away billions of virtual bucks the way you would real bucks or gold. And given the mono-culture that pervades the innterTubes, I expect we'll see yet more of it.

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