A Bitcoin Update

Bitcoin is fascinating but, (admittedly as a non-technical and relatively new observer), I continue to feel stablecoins will be the ultimate crypto medium.

I read a terrific article by Anna Golubova on Kitco.com tonite. Here is a portion of that article:

“One of the most important things to understand about the next halving is that it will lower the reward for mining bitcoin blocks from 12.5 bitcoins to 6.25 bitcoins, which will make mining more expensive.

“When the halving happens, bitcoin miners will only get 6.25 bitcoins per block. That means that the amount of electricity and the amount of overhead they need to pay to mine the coins might not make sense economically anymore,” Chen said.

Chen is bullish on prices for next year because he views the halving as an opportunity for bitcoin to rise and match the cost of mining. “Halving could lead to a more bullish market, where bitcoin prices have to rise. Otherwise, a lot of miners will be dropping off and it would create a problem of stability.”

A few facts first...

At the present time, approximately 17,850,000 bitcoins are outstanding, and the expectation is that it will take until 2140 for all 21,000,000 coins to be mined, given the current cost structure. Halvings occur once every 210,000 blocks, or once every 4 years, and with each halving it becomes more expensive to mine, everything else being equal. (I would, however, expect mining cost will come down as computing power increases while the cost of that computational effort ultimately declines.)

Now some might say the existing float and the marginally incremental maximum float of 21,000,000, is a value driver. To me, it is simply a guarantee of volatility, but not necessarily value. In fact, Chen’s point of view referenced above, is putting the cart before the horse. Just because mining is more expensive does not mean the price needs to rise to keep miners from going out of business. When the cost to produce gold is above gold’s price that lower supply does not necessarily mean prices will rise. It is only continuing demand that may have that effect.

The driver is whether the market finds a reason to bid up bitcoin so that mining and increased supply comes on to the market. Just because supply is small doesn’t mean prices rise unless there is demand.

As I’ve said, I don’t get the value proposition, except for those that find a reason to want to avoid government authorities with their money. Not only is that an illicit theme I don’t want to support or bet on, but I think governments will have the same headset that may impact bitcoin's "invisibility" thus impacting the value prop and underscoring the logic of stablecoins.

Yes, crypto currency in the form of stablecoins is an absolutely relevant, needed, financial innovation. Of course stablecoins by definition, are linked to something, whether to gold or a fiat currency or to some index. As a linked vehicle, a stablecoin IS NOT an investment ... a “value proposition” ... as bitcoin proponents expect of bitcoin, but rather simply a highly efficient, eminently “modern,” medium of exchange.

But take my observations with a grain of salt as I am more shooting from the “intuitive” hip rather than speaking from deep experience in the crypto sphere.

By the way, in an earlier blog, I commented on the relationship between the world’s fastest existing computer and a quantum computer, that was referenced in a CNBC article. The article spoke to a quantum computer doing in 200 seconds what an existing super computer would take 10,000 years to process. I was shocked by that stat which influenced my interpretation of its impact on the sanctity of bitcoin and blockchain, and rightly so, as it apparently was wrong. I’ve been told the correct relationship is 20 months of quantum computing equating to 10,000 years. Well, whatever that relationship is, I continue to feel quantum computing must have implications for blockchain and bitcoin. Although incredibly fast, it is also incredibly expensive and out of reach at the moment, but that wont always be the case. 


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