I don’t necessarily agree that supply scarcity = only way is up.
Yannick Roux

I don’t necessarily agree that supply scarcity = only way is up. Perhaps in the short term, with hype and speculation. But long term I’d like to believe that utility will drive the token prices.

Let’s take BTC as an example. BTC, is basically a combination of 3 things:

  • Software
  • Hardware
  • Electricity

As of mid-2017, the Software is basically static. We can’t even agree on a change in block size.

The Hardware seems to have some improvement left, but even the recently launched Antminer S9 isn’t an absolute winner. The 16nm process is pretty close to the end of the line. I mean, we’re not going to get a 1000x increase in efficiency over the next 10 years. So the hardware is basically static.

So that leaves us with the Electricity. Every BTC mined today is basically backed by the electricity that went into its creation. Because of ever increasing difficulty, every new BTC will require significantly more electricity to mine than the BTC that came before it.

And mining is really just “clearing transactions”. So over time, every transaction clearance is going to require more and more electricity. And it has to be this way, because the expenditure of electricity is also defensive. You have to spend this electricity just to defend the ledger from attacks.

If the BTC network requires requires ~13TWh to maintain in 2017, it needs at least that much electricity next year and the year after that. Unless everybody turns off their miners for a while and the difficulty collapses, we need to keep pumping this electricity into the network. And nobody is going to let the difficulty collapse significantly, because nobody wants to open themselves up to a 51% attack.

So BTC will forever require more electricity and therefore its cost will forever rise. Maybe it will fluctuate over days, but the BTC in 2025 will have to be more expensive than the BTC in 2017 or the network will have failed.

I am intrigued by the idea of demand response. How would you envisage that to work?

There are several options here, but I will preface these by mentioning that none of them are going to be popular with people who want “digital gold”.

Demand Response inherently means that you have some form of inflation.

  • Eliminate the “caps” and “halvenings”. If the potential value created by humans is boundless, why does the currency need a cap?
  • Make the network respond to increased mining activity with increased mining output. If more people want to spend more electricity building out the network, we should encourage that by providing more coins.
  • Let coins expire off the network. If this is a currency, it’s not meant to be “bought and held”, it’s meant to be moved. This is dicier to implement, but there needs to be some premise that a coin mined 10 years ago and never used is probably dead.

The core idea is that a network with more people in it should have more “money” in it as well. If you want “Utility” to drive the token price, then the network has to be able to respond to changes in utility. The network has to be able to size itself correctly.

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