Bitcoin unit of account

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Bitcoin has had a short, but incredible history since its bitcoin unit of account in There has been much debate about both the technology and the economics of Bitcoin. Many have made bitcoin unit of account arguments about the technological innovations that enabled Bitcoin to be successful. There has been somewhat less discussion on the economics of Bitcoin. Bitcoin has many great qualities as a money. The core functions of money is that it is used as a store of value, medium of exchange and unit of account.

Bitcoin currently is only used sparingly as a medium of exchange. The last function of money is as a unit of account.

This is where at first glance Bitcoin, like fiat currencies, may seem to have a problem. Bitcoin just so happens to inherently have the qualities that make it a good money and its primary role is to serve as a money.

Furthermore the earliest forms of money had characteristics of value that differed from typical commodity money. Nick Szabo, the godfather of Bitcoin, writes extensively about the origins bitcoin unit of account money.

The intrinsic value of bitcoin rewards incentivizes Bitcoin miners to buy hardware and consume electricity similar to how gold mining companies set up operations to produce gold.

The increased utility of bitcoins drives its value up and subsequently attracts Bitcoin miners to invest more capital. The utility value drives the price of Bitcoin first and foremost. Secondarily, the cost of production can be a good proxy of value in general. Szabo discusses this idea in his post "Of wages and money: Likewise the unforgeable costliness of bitcoin may instill a similar measure of sacrifice that can strengthen its perceived value.

In the long run Bitcoin mining resembles a purely competitive market because there are very few barriers to entry and it is a globally accessible market. Hence profit margins for the mining industry should be expected to trend towards zero. Bitcoin unit of account theory, the marginal costs to produce bitcoin should eventually bitcoin unit of account marginal product in a purely competitive market.

Hence the price of bitcoin should approximate the cost to produce it. Bitcoin unit of account the marginal costs for bitcoin are primarily driven by electricity consumption. Bitcoin users can ascribe a real world resource value to each bitcoin by using the energy consumption measured in Watt-hrs used to produce it. If we simplify the total cost of bitcoin production to an equivalent amount of energy we can estimate each bitcoin to be worth about 58 Megawatts-hrs of electricity.

Today, people can use Watt-hours as a measure of electricity and unit of account that allows them to easily compare bitcoin money with electricity needs. In the modern world, electricity is probably a bitcoin unit of account and more useful measure of utility than a grain of wheat or rice. People can subjectively compare the amount of electricity required to power their car, home, appliances or computing needs to decide if and when they want to spend or hold bitcoin.

Bitcoin has all the qualities of a good money. Bitcoin unit of account can serve as a store of value, medium of exchange and bitcoin unit of account a unit of account based on a measure of electricity, namely the Watt-hour. I was informed Joules bitcoin unit of account Watt-Hour is the appropriate measure for electricity consumption, not the Watt.

Corrected title and some content to reflect that. Of course not all bitcoins are created Equal. Over time mining difficulty changes as well as differing cost of electricity around the world. Which is also exactly why the argument of value-backing through resource input is invalid.

But the value of 1 bitcoin changes immensely over time, the swings are huge both up and down. That element of value also has nothing to do with the amount of resources used to create it. The "sunken" production cost of "old" bitcoins is quite irrelevant bitcoin unit of account this aspect, and most of the mining will always happen where the electricity is cheapest - but for Bitcoins to be a useful "unit of account", the production cost should be fairly constant over time - and it is not.

Actually, I'd argue that the author has put the horse behind the cart in his article, electricity consumption is a function of the bitcoin value, not the other way around. The higher the value of the bitcoin, the more energy will be used on mining, and the higher difficulty level. The lower the value of the bitcoin, the less energy will be used on mining.

I'd also argue that it's a quite bad design choice both to retarget the difficulty after blocks as well as to halve the reward every blocks, the algorithms should have been more smooth - now both the difficulty retarget and reward halving can be like major events affecting the market price a lot.

Ideally, things bitcoin unit of account have been done bitcoin unit of account frequent and in smaller steps, and only external factors should be affecting the market price. So rather than use historical input costs for each bitcoin individually, people will use the current electricity consumption as a proxy to value all bitcoins at the same time.

The problem is that it's the bitcoin value that is driving the electricity consumption, not the other way around. If bitcoin value drops, the miners with the smallest margins i. If the bitcoin value rises, there will be more investments in mining rigs and more electricity consumption. Bitcoin unit of account what will happen if the bitcoin raises tenfold in value once more - I do worry a bit on the impact on global energy consumption, electricity may become more expensive when used for other purposes.

I would say that history has already proven that agreement on value is enough for something to hold value, it doesn't need to be backed by anything else than consensus. Without the waste of PoW and the capitalist risks of standard PoS, the most elegant and efficient solution to date seems to be Delegated Proof of Stake, the consensus protocol Steem runs bitcoin unit of account.

A month ago I would have agreed with you ,, but I just learned of a 3 year old company programmers that is using an older tech called HashGraph which is mathematically even more secure than bitcoin unit of account and the proof algorithm is even easier with less size.

Well, Dan Larimer is pretty firm in his vision on Hashgraph and the limits of that technology. I don't know what technology will ultimately dominate the decentralized economy, whether that's DPOS, Tangle or Hashgraph Could be something entirely new bitcoin unit of account be brought in by a big company like Google, Amazon, Facebook or Apple. It also is not very useful in an emergency situation e. Puerto Rico where there's no wi-fi or electricity.

Hello, thanks for your question. It bitcoin unit of account a really interesting one and something that cant be answered, for sure, in one post.

We need to learn and understand how does Blockchain technology works. A way of being informed in bitcoin unit of account cryptocurrency world is to follow different news sources. Not always the most important information is covered by the biggest news outlets.

We invite you to follow us and learn together. We say thanks to you because it is great to start to ask and comment. You help others and others help you. If you want, you can read here some news that we just wrote: I like proof-of-stake coins, but I liken them more to shares of a company.

I see DPOS systems similarly and it has a great system of getting more distributed over time as more stakeholders get involved.

Can these coins eventually be used as money? A lot of it might depend on how people feel about using these coins as a unit of account. Also distribution is always a difficult issue with POS ecosystems compared to POW systems, but that's another topic to discuss. Bitcoin is a strong cryptocurrency that is working in a wonderful way with a consensus among all users.

I note in your post that you comment on value linked to network effect and number of users. Utility increases as the network size increases. Another way to measure value. I don't agree a watt should be used because once we have mined all the bitcoin, then a watt will be useless. Then people will just transfer bitcoins and not mine it.

However this can change if bitcoin level cap is changed but then the value of bitcoin will drop since more is issued. Just like fiat currency. There are already too bitcoin unit of account articles written about bitcoin and they are already fed up. But your article is really interesting, thank you.

What a well written instructional post! I really enjoyed reading all the details and I appreciate the heavy research you did for this. It's an interesting proposition, using the Watt as a unit of account. I imagine it's not easy to implement though, what with the differing prices for each country, but it's definitely a good measure. I do hope more eyes gets to read this and that this idea would gain more traction!

Yeah it might be difficult to identify precisely how many machines are running around the world and how many Watts they are collectively using, but we can probably approximate that pretty well similar to how Digiconomist has done to make its estimates. We'll see if this idea makes sense to people and thanks! Well thought bitcoin unit of account ideas like this should definitely be considered.

Everyone wants digital currency to be sustainable, so this is definitely worth looking a second look at. Enjoy with following, Resteemed and upvote steemrollin. I have just started a channel on Telegram for free ICO bounties. I'm aiming bitcoin unit of account research a few ICOs every week and share them with you. All you need to is register with the ICO and you will be credited free tokens.

To join the channel, follow this link: You've researched this a lot I see. Interesting and as a digital currency Bitcoin certainly gets stronger by the bitcoin unit of account.

However, no-one really knows what will happen in future. For now it's something Steemians in particular are interested in therefore it's important. I don't have a crystal ball but learning more about it, whatever your viewpoint, is essential.

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Travelers toured the world subsisting on bitcoins. Senate committee held hearings at which regulators commented favorably on Bitcoin and other virtual currencies. Bitcoin is not issued by a government or a business but by computer code that runs on a decentralized, voluntary network. Money is supposed to serve three purposes: Bitcoin arguably satisfies the first criterion, because a growing number of merchants accept it as payment.

But it performs poorly as a unit of account and a store of value. During its volatility was three to four times higher than that of a typical stock, and its exchange rate with the dollar was about 10 times more volatile than those of the euro, yen, and other major currencies. Nor does it correlate with the value of gold.

With a currency whose value is so untethered, it is nearly impossible to hedge against risk. Bitcoin also lacks additional characteristics usually associated with currencies. There is nothing comparable to the deposit insurance relied on by banking consumers. No lenders use bitcoins as the unit of account for consumer credit, auto loans, or mortgages, and no credit or debit cards are denominated in bitcoins.

Even if volatility subsides and the currency finds a place in the world payments system, it has another fatal economic flaw. Only 21 million units can ever be issued, and a fixed money supply is incompatible with a growing economy. In a bitcoin-dominated economy, workers would have to accept pay cuts every year, and prices for goods would gradually fall. A new prototype gets at how—and why—manufacturers and product designers might benefit from a blockchain.

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