Forensic economics for breakfast today. If any of this makes your head hurt, Ure right, it should probably have been put on our Peoplenomics.com subscriber site. We’re putting it up here because we really don’t wish to be right in our outlook.
Let’s start up with a few basics:
- The big selling point of Bitcoin (in the beginning) was that it would be “honest money.” There would only be some finite number of coins created.
- The total number of BTC that will ever be created is 21-million.
- In the beginning, the whole concept of “mining” was that outside organizations would be able to use BTC resource to scour the internet and solve problems, do research…
- But, that quickly evolved into just finding other miners in order to “confirm transactions.”
This last has been pretty damn slow. Here lately (and check me on this) the median (half above, half below) time to get a “confirmations” has been running about 12-minutes.
Not our idea of a valid currency for mass use!
What keeps Bitcoin mining alive is that miners are finding a new coin about every 10-minutes, or so. Good for them: BTC’s are right around $8,000 apiece right now.
The pieces that most people fail to assemble and ask the logical question about goes something like this:
- Bitcoin miners are paid Bitcoins for confirming transactions as well as “mining” new coins.
- Mining new coins is generating over $1-million a day of Bitcoins.
- But, totally central to the generation of “the network” is all the miners…
Now come the difficult questions – and hopefully, there is an expert on BTCs who can set us straight by answering a simple question.
But, before asking, one more data point to ponder: Bitcoin mining is consuming climate-impacting levels of energy. As The Economist noted in an article (a year ago) “Why bitcoin uses so much energy“::
“BITCOIN has been alarming people for years because of the amount of electricity needed to mint new virtual coinage. Alex de Vries, a bitcoin specialist at PwC, estimates that the current global power consumption for the servers that run bitcoin’s software is a minimum of 2.55 gigawatts (GW), which amounts to energy consumption of 22 terawatt-hours (TWh) per year—almost the same as Ireland. Google, by comparison, used 5.7 TWh worldwide in 2015.”.
Electricity is not free. And yes, making it causes “climate change” so either a) a person who uses BTC is anti-environment or b) doesn’t believe in climate change. Only the most screwed-up, insanely confused person would pretend to have it both ways. (What was Spock’s StarTrek line? “That wouldn’t be logical, Captain…:”),
OK, 22 TWhrs per year is too big for me to deal with, so let’s convert that down to kilowatt-hours, shall we? Conversion factor?
In engineering notation, we just as 9-zeroes on the end of 2.2 for a total of 22,000,000,000 (kilowatt-hours).
And we know the price of energy is at least 10-cents and more like 20-cents a kilowatt-hour. We’ll use $0.15 (15-cents) as a middle ground…which is probably low.
Which means (22,000,000,000 times $0.15) is $3.3-BILLION dollars per year.
The “terrible Truth” the coiners don’t tell their tulip purchasers is that when the last coin is mined, in order to keep the “network” alive, each bitcoin would have to contribute ($3.3 billion/21-million coins) which we pencil out to be $157.142857 per year, PER COIN to keep the network at present (12-minute median T-time) performance levels.
And It Gets Worse
As near as we can figure it, there are only a couple of “ways out of the box” for people who hold bitcoins when the last one is mined.
First, the transaction fees will have to fund that $3.3 billion power bill…but that’s before the miners get something for their overhead and warehouses full of ASICs. Let’s say the miners will need at least as much money to remain online as the power bill. Suddenly, the “keep-alive cost” of the network becomes $157 X2 per year ($314 per coin).
So, what is the total value of $8,000 Bitcoins today – if all of them had been mined? $168-billion is the right answer.
With no money from mining, and likely transaction costs of $314 per coin), we don’t see how Bitcoin makes any sense. Either, a transaction charge of $314 would have to be loaded into the BTC purchasing power, OR there would need to be another kind of “tax” invented to keep the system going.
Any way we penciled it out, the overhead of BTC, in our view, will require a 3.9 percent overhead adjustment (tax on use) when mining hits the 21-million level.
Ure’s Axiom #523: Is it Nakamoto’s oversight failing to ask “Who pays to keep the network up after the mining is done?”
So, how many Satoshi’s is it to buy a free lunch, these days?
This may answer some important questions that have confounded us: “Why aren’t the Central Banks attacking this upstart nuevo dinero right and left? Could it be they too have considered the BTC business model deeply and see the brick wall up ahead? With an ibid and some ditto’s for the FedGov as well….
I have circulated this question to some very knowledgeable colleagues who are right out there on the edge of the ‘net. They’re not finding a hole in my logic, so… Let’s see how many answers we get.
Stick to answering the question in your reply: Explain where the money for the post-mining overhead comes from and how that works without either a per BTC fee or transaction tax to fund the network. Thank you.
We now return you to our daily dose of…
Financial Ga-Ga and Blah-Blah
NFIB small business survey is just out under the banner “Small Business Optimism Roars Back, Rivaling Historic Highs” and details like this:
“Capital Spending, Expansion, and Sales Expectations Drive a Solid Performance:
WASHINGTON, D.C. (June 11, 2019) — Small business optimism eclipsed pre-shutdown levels, increasing 1.5 points to 105.0 in May. Six components in the Small Business Optimism Index improved, three were unchanged, and one dipped. Capital spending plans increased along with actual outlays. Small business owners’ expectations for sales, business conditions, and expansion all rose, as the previously reported inventory imbalance was resolved. Earnings, job creation, and compensation remained very strong. “Optimism among small business owners has surged back to historically high levels, thanks to strong hiring, investment, and sales,” said NFIB President and CEO Juanita D. Duggan.
What makes this an interesting report is that the last ADP hiring report showed most of the new job growth was in big companies. With he strength of this report, we are beginning to think in terms of our summer rally to late August and major decline this fall could be the way the ball bounces.
Next we have Producer Prices from Labor:
“The Producer Price Index for final demand rose 0.1 percent in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 0.2 percent in April and 0.6 percent in March. (See table A.) On an unadjusted basis, the final demand index increased 1.8 percent for the 12 months ended in May.
In May, the rise in final demand prices is attributable to a 0.3-percent increase in the index for final demand services. In contrast, prices for final demand goods declined 0.2 percent. “
(Any cardiologist would spot the change in the QRS complex here, lol!).
After the data, the futures were still on blow with futures up over 150 on the Dow side. As a Zero Hedge piece explains: Blain: “The Market Is Once Again Sucking Everyone In”.
We do worry when we see headlines like “They Don’t Have A Clue” – Trump Blames Fed For Strong Dollar, Says Interest Rates “Way Too High”.
Blather and Splatter
Factbox: U.S. companies warn Trump’s tariffs could hit results. Meantime, while brinksmanship seems to have worked with Mexico, don’t count your migrants yet: Trump administration hopes Mexico can tighten Guatemala border.
And for Cupertinians: Apple Has a Backup Plan If the U.S.-China Trade War Triggers iPhone Tariffs.
Stunning Monet unseen for 87 years eyes $44.6 million auction. I wonder if Elaine could do a knock-off?
The spies are everywhere: Latest? MI5 criticised over ‘unlawful’ use of data gathered. In case you didn’t know, the spy agencies listen-in on every, all the time.
Say you make a call. The call routes (via fiber) through Menwith Hill or Alice Springs. There, foreign nationals can listen-in — and we of course, return the favor at places like The Fort – that home of Echelon in Maryland. Most of which is under the mega parking lot. Five Eyes? Maybe…but don’t even try to count the ears.
If you think Alexa is the a threat…get the sand out of your eyes and ears…You do know what an “infinity transmitter” is, right?
The dope on Boston? “Chart: Massachusetts recreational marijuana sales approach $140 million.”
Big feature on Peoplenomics tomorrow is our complete deep water culture build for tomatoes and melons. 19 pictures and a complete guide to building a system (and parts list with links).
The server error on our ComputationalFuture site was corrected so that’s back humming. Maybe time for a nap…