In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.
Those coins can never be recovered, and the total circulation is less. Since the effective circulation is reduced, all the remaining coins are worth slightly more. It’s the opposite of when a government prints money and the value of existing money goes down.
In a few decades when the reward gets too small, the transaction fee will become the main compensation for nodes.
I’m sure that in 20 years there will either be very large transaction volume or no volume.
The price of any commodity tends to gravitate toward the production cost. If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling more. At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.
Lost coins only make everyone else’s coins worth slightly more. Think of it as a donation to everyone.
It’s the same situation as gold and gold mining. The marginal cost of gold mining tends to stay near the price of gold. Gold mining is a waste, but that waste is far less than the utility of having gold available as a medium of exchange. I think the case will be the same for Bitcoin. The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used. Therefore, not having Bitcoin would be the net waste.
Bitcoins have no dividend or potential future dividend, therefore, they are not like a stock. They are more like a collectible or commodity.
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.
I would be surprised if 10 years from now we’re not using electronic currency in some way, now that we know a way to do it that won’t inevitably get dumbed down when the trusted third party gets cold feet.
With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.
A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990?s. I hope it’s obvious it was only the centrally controlled nature of those systems that doomed them. I think this is the first time we’re trying a decentralized, non-trust-based system.
To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they’re generated too fast, the difficulty increases.
As computers get faster and the total computing proof-of-worker applied to creating bitcoins increases, the difficulty increases proportionally to keep the total new production constant. Thus, it is known in advance how many new bitcoins will be created every year in the future.
The guy who received the double-spend that became invalid never thought he had it in the first place. His software would have shown the transaction go from “unconfirmed” to “invalid”. If necessary, the UI can be made to hide transactions until they’re sufficiently deep in the block chain.
The receiver of a payment must wait an hour or so before believing that it’s valid. The network will resolve any possible double-spend races by then.
When there are multiple double-spent versions of the same transaction, one and only one will become valid.
The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.
A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases. In your head, you do a probability estimate balancing the odds that it keeps increasing.