Re: A queston for John T

Posted by MarkB_MI on December 12, 2018 at 15:21:06 from (174.230.19.60):

In Reply to: Re: A queston for John T posted by Bret4207 on December 12, 2018 at 06:05:20:

> And some people scoff at faith in a higher power at that same time they believe electrons have "value"?!!! We're all nuts!

Brett, if you're referring to cryptocurrency that's a gross oversimplification. Let's make an apples-to-apples comparison.

Suppose you're in the business of making and selling gold coins. You have various expenses that go into each coin: the gold itself, the dies, electrical power, labor, and so on. You make your coins and you market them. If you're lucky, you can sell those coins for more than it cost you to mint them and you net a profit. Presumably buyers see something of value above and beyond the value of the actual material in the coins. For example, in the case of coins minted by the US Mint, they're fairly liquid because you can almost always find a buyer for them and they're easily identifiable.

Now let's consider the bitcoin "miner". The miner has two major expenses: the computer hardware that executes the algorithms that "mine" for crypto-coins, and the electrical power needed to operate that hardware. Electricity is a big expense for bitcoin miners, just as gold is a major expense for a mint. It currently costs around a thousand bucks to mine a single bitcoin, depending of course on local electricity costs. At current prices, the miner can turn a profit of two or three grand per bitcoin, because buyers are willing to pay a premium over the cost of production. Why? Supply and demand, of course. Miners can't create cryptocurrency fast enough to meet the demand. Presumably at some point in time the price will stabilize; otherwise cryptocurrency is doomed as a form of currency, which is its ostensible reason to exist.

But why do folks think cryptocurrency has value? Well for the same basic reasons other folks think a particular gold coin has value: 1) Its authenticity is easily verified, and 2) there are other folks willing to fork over other things of value in exchange for cryptocurrency. Of course you can't melt down a bitcoin to make earrings, but on the other hand nobody has figured out how to teleport a US Eagle halfway around the globe in a few hundred milliseconds.

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