There is no mistake. “Holder” implies that at some point you will release. With HODL, community people came up with a different concept that is still something we are not aware as a collective.
With so many discussions and attention on Bitcoin value (currently 11.000€, compared to 3.800€ from September 1st) the usual questions and arguments have been raised again.
It’s a bubble! It’s not backed by anything! You can’t touch it! …and so on.
Us hodlers we are betting on a different thing. Or couple more. But let’s explain a couple of things, just assuming you lived in caves for the past few years:
- There will be only 21 million Bitcoins mined in total. There is no way to print more.
- To mine Bitcoins, you need to invest in hardware, time and (lots of) electricity.
Let’s start with the miners who invested into having computers (nowadays it’s dedicated machines that have no other usage at all) perform calculations (while providing a service to the network) using tons of electricity and generating so much heat that needed more electricity to cool things down (with miners located in cold regions having it easier. No kidding, there were plans from Google to move some datacenters in artic regions to use the natural cooling temperatures).
Once coins have been mined (and it’s a bloody competitive thing to do, with networks of miners getting together to mine the same data, faster, to get the block rewards, but this is another story), miners will most likely sell few of them to pay back the electricity company and other bills. The current rate of creation of new blocks is 12.5 Bitcoin every 10 minutes. The network adjusts its difficulty of the mining calculations on regular intervals and block rewards will drop by half, making a mining operation less profitable, if the Bitcoin exchange value doesn’t go up by double.
Because the electricity price won’t go down, you need to expect Bitcoin price to double at any halving of block reward. A block reward today is worth 11.000€ x 12.5. Every ten minutes.
And I bet that mining companies are not doubling their money but make just decent (more than decent sometimes) profits. And they will want to at least keep the same level of profits.
If when the halving occurs, Bitcoin market price hasn’t doubled, they may not make it to the end of the month. Unless the price goes up.
And when the price goes higher than this, miners may need to sell off fewer Bitcoins from their mining profits, creating even more scarcity on the market, hence pushing the price up.
But it’s a clear bubble!
Well, yes and no. Whoever you ask about your clever idea to start mining Bitcoins with your old computer, will clear things out for you. If you want to get “something” out of mining, you need to invest money upfront for a machine that can do the job, lots of electricity and cooling systems (unless you are Santa) and eventually, you may be so lucky to get one of the block rewards (or be constantly lucky by joining a pool).
However, by mining, you will contribute to the network capacity of doing faster transactions (lol). Doesn’t matter, companies around the Bitcoin environment are mining just to confirm more transactions (exchanges do this quite regularly).
When so many players and new investors jump on the boat, it makes the cost of creating Bitcoins (AKA mining) expensive. There are wonderful real-time statistical webs that give you the exact rates of how profitable it is to mine Bitcoin right now. Some days it is not profitable (meaning you will spend more money on electricity than the equivalent in Bitcoin you will get).
If Bitcoin exchange rate would drop to September values (35% of today) most miners will turn off their machines or start mining something less difficult to get. This will make the market less competitive, hence the remaining ones still mining will have better chances to get a reward. So, less value per Bitcoin, but more Bitcoins for them. At the next network difficulty adjustment (automatic!) the difficulty to mine Bitcoins will be readjusted (back to be a ten-minute thing again) making even more miners leave the operation. And so on. Until it’s profitable for someone, there will be someone doing it. And the difficulty thing readjusts to make it doable.
Going to the first point, there will be only 21 million Bitcoin available. Clearly not enough for everyone to own one. But Bitcoin is divisible!
All the early investors, all the miners who keep some Bitcoins in their wallets, are nerds sure, but it is also your doctor, your neighbor, your colleague, your employee.
And when your nerdy developer employee you always treated badly in the company, checks his net worth in Bitcoin, he may quit and open his own thing (or simply retire).
Lots of new entrepreneurs launched innovative startups, tech companies with smart students. A new generation of Winklevoss and Zuckenbergs.
What is the price of Bitcoin, you ask? For Hodlers it’s the current world economic wealth, divided by 21 million. Not what the market is offering… today.
So we hold for life (and we sell a few Satoshis to follow our dreams)…