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it objectively really does. Scarcity is merely a constant. As i said, anyone can code a cryptocurrency and make it more scarce than bitcoin, but it will be worth jack as no one will mine it. It makes no logical sense to say that because there is x in circulation (scarcity), this is worth y at time t. Scarcity is not a time variable due to the inherent way bitcoin works, so it simply makes no sense to value bitcoin because of its scarcity. When bitcoin was worth 1c, max circulation is around 21m. Now its worth $30k, max circulation is still 21m. So how can you say that because there will only ever be 21m bitcoins in circulation, this is what gives it today's value? bitcoin value varies with time, therefore whatever gives bitcoin value must be time variant. On average and over the long run, when something gains in value after time t, another variable with respect to time has varied. So what has varied with bitcoin in the long run? Popularity. Popularity is directly proportional to hashrate which is directly linked to difficulty. Hashrate is the closest measure we have of quantifying popularity, and popularity vs instantaneous or short term demand/supply are different beasts. You wouldn't value a company at the peak SP of a short squeeze, would you? Supply/demand mechanics should never be used to value something as it is reactionary to greater powers at work. Work required to mine a block has increased, hashrate (popularity/demand with respect to time) has increased therefore price has increased. These variables are all time variant, which is why value can fluctuate. Without working out how to value bitcoin, I have no idea how you can then start talking about a store of that value. A store of value attributed by trader supply/demand mechanics at any given time? Not a great store of value IMO.
Hashrate is also key for security and integrity of the entire network. A low hash rate leaves huge vulnerabilities in the entire network via 51% attacks. Although this is self destructive hence pointless, it is still a huge concern for one company or nation to have such a large chunk of network hashrate as then it will effectively no longer be decentralized. Look at the influence China has on the price.
"Hashrate doesn’t drive either supply or demand. The network could be 1EH or 100EH and there would still be 144 blocks/900 coins (on average) mined every day, so a fixed supply." I am trying to appoint a fundamental base value for bitcoin based on time variants and tangible value of creation effort and real world use(which bitcoin has very little/none compared to other cryptos like ETH), not on trader supply/demand dynamics which is only relevant in the very short term, so I'm not sure what your point is. I can assure you that the difference in fundamental bitcoin value for a 1EH network vs 1ZH network would be significant and for several reasons, the key reasons being popularity and network integrity.
Scarcity in the short term is also affected by the extent to which miners (like ARB) can hodl the coin they produce or release it to the market at lower price points.
And related to Argo - as a blockchain company - no, not everything can be made scarce in the digital world - that has been the problem! You can literally copy and paste anything in the digital world (a contract, a music track, a movie etc.) there is potentially a limitless supply of anything digital, which can make it difficult to extract value from digital goods.
However, blockchain tech - and the immutability of a blockchain’s content - can help to limit the supply of digital goods, thus making it easier to attribute value. NFTs are probably the closest solution the the above problem but smart contracts, crypto etc. all solve a lot of big, real-world problems, and Argo will be able to provide the infrastructure to solve these.
This isn’t a normative issue, it’s a positive one. It’s not about opinion, it’s about fact. You previously argued that hashrate gives BTC its value, it - objectively - doesn’t.
You’ve now seen the light and are saying that popularity and uptake (AKA demand) gives it value and difficulty to obtain it (AKA scarcity of supply) gives it a store of value.
Yes, the most scarce good on the planet would be worthless if nobody wanted it. BTC price wouldn’t increase if supply increased at the same rate as demand; BTC price would decrease if supply was greater than demand (or have no value if unconstrained). The beauty of BTC is that it’s supply halved every 4 years, thus constraining supply. Even if demand remained constant (I.e. No increase in BTC volume over time), BTC price would increase (double!) due to the halving. It’s no coincidence that price increases take place 6-12 months after a halving, and these price increases help to increase popularity/demand.
Hashrate doesn’t drive either supply or demand. The network could be 1EH or 100EH and there would still be 144 blocks/900 coins (on average) mined every day, so a fixed supply. Demand is driven a whole range of factors but definitely not driven by hashrate. Although, as you suggest, hashrate does serve as a good proxy for demand - but it’s a correlate rather than a covariate.
I cant agree fully with the scarcity arguement rorydinho. There are plenty of scarce things in this world that are worthless. Platinum is 30x more scarce than gold...now ask yourself why it is valued less than gold. There are many reasons, but the common denominator amongst the various reasons is probably popularity.
Anything can be made to be scarce in the digital world. I could code a crypto which is much more scarce than bitcoin and much more difficult to mine. Will that therefore have more value than bitcoin?
I personally think its popularity and uptake is what gives it value, and the difficulty of obtaining it is what acts as its store of value, not how scarce It is, purely down to the way bitcoin works. The closest metric to determine popularity is hashrate. I agree it is not as black and white as that, but if hashrate drops, difficulty drops which is more than just a speed limit. Work done, or cost to mine a block cost is reduced. Less work to acquire a block equals less value (this excludes halving effect which of course has the effect of less reward for the same work done, therefore 2×work needs to be put in for the same reward, or 2^n work where n is the number of halving events which has an effect of increasing value as more work needs to be imputed for the same reward). I never implied supply is greater if hashrate reduces because of course it is not; I merely pointed out the easier something is to obtain, the less value it inherently has (or should have)
This is all purely philosophical of course and everyone probably has differing opinions on how bitcoin derives its value. I personally believe hashrate is the most important variable in the long run if you ignore sentiment driven events.
BTC does not derive value from the effort put in to mine it - yes, there’s a correlation, but it’s not a great one because hashrate has also gone up whilst BTC sentiment has been bearish/price has gone down.
BTC derives value by virtue of its scarcity - its price increases due to dynamics of supply and demand.
Bull runs ~6-18 months after a halving aren’t driven by an increase in hashrate, they’re driven by constant demand and halved supply, which in turn drives the price up, and in turn results in new investors chasing increased prices - increased demand for a recently halved supply. This is essentially what the S2F model is estimating .
Miners are perpetually chasing (not driving) increasing BTC prices but are still very early adopters relative to the population.
Difficulty is essentially just a ‘speed limit’ that ensures an average of 144 blocks are mined per day (1 every 10 minutes) regardless of hashrate. A decrease in hashrate does not mean supply is greater than demand.
At the risk of being one of those that "don't know what they are talking about" ARB will mine more BTC in June because the average difficulty is lower than in May (by over 10%). I agree that revenues in June are likely to be down though as any increase in numbers mined will probably be offset by the drop in average value of each coin - not to mention the impact from the reduction in value on the HODL.
However, IF the value of BTC later recovers then ARB will be in a better position than if the value of BTC and hahrate had remained flat and this is why I think people are calling the reduction in difficulty a good thing and this seems hard to argue with?
Personally though I would rather see BTC steadily rising than this pain today for the possibility of a little extra jam tomorrow.
Triumph, have you not been watching the US mining scene? This is what they have been waiting for and there is not shortage of either companies or electricity- only the machines, in the West. How many cancelled orders from China will now head to USA? They are hungry and dying to use Texas renewables. Don’t forget that Argo are late to Texas in terms of Bitcoin mining companies- are many there already plumbed in to the network
Those saying hashrate, thus difficulty decreasing is actually good for ARGO dont know what they are talking about and dont understand crypto mechanics.
As mentioned earlier, the only thing that gives bitcoin value is hash rate as the more people who utilise the network, the more valuable it is and the more difficult mining becomes, thus AISC increases. Yes it will be easier to mine....but who is interested in something that is "easy" to obtain??? The fractional increase in bitcoin mined by ARGO caused by the reduced difficulty will pale in comparison to the bitcoin slump! If hashrate drops, so does bitcoin value. ARGO will end up mining something that is worthless.
Again, china is extremely important to the bitcoin network. The slack in hashrate will be very hard for another player to pick up due to the cost of electricity in the west. All this equates to a very bearish picture for bitcoin.
Now below 100
"Difficulty" missing out of above post
The BTC has reduced significantly during June, all good for Argo, BTC mined should be up for July's report.