Would free energy cause a market collapse?

Consider a world where energy is free and plentiful. Bitcoin, and other cryptocurrencies, are given value since they are 'proof' of work. This work comes at the cost of:

a. time
b. energy

By removing the cost of electricity, hardware expenditure becomes the ceiling for hashrates. Surely this makes cryptocurrencies less valuable. Wouldn't the market become hypersaturated as supply went up? On large enough scale, hardware turnover rates might provide some limiting factor to supply- but for the most part mining operations should be able to keep up with the increasing difficulty of the hash.

I can see otherways the blockchain would be useful, but I'm starting to wonder whether cryptocurrencies would continue to work.

Dylan Madisetti

Posted 2016-12-13T01:24:13.787

Reputation: 111

To close voter: this is a question about the economics of mining, and is therefore on topic here. While free energy is unlikely, the discovery of alternative energies far cheaper than what we have today is possible in the future. – maservant – 2016-12-13T02:04:18.313

There's still the upfront cost that you'll have to pay for despite having cheap alternative sources. I'll be voting to close this as it is impossible to have free energy which yields no side-effects. – renlord – 2016-12-22T23:13:54.843

Answers

Although this question might be "too broad" or "off-topic", I'll give you an answer and it's no.

By removing the cost of electricity, hardware expenditure becomes the ceiling for hashrates. Surely this makes cryptocurrencies less valuable. Wouldn't the market become hypersaturated as supply went up?

I don't follow. By removing the cost of electricity you only remove ONE of the prohibitors. There are still other prohibitors such as equipment/bandwidth/storage costs, know-how, and time. There should be no increase in supply. The bitcoin difficulty will still remain, so blocks will still be solved in a ~10 minute target window. Even if they had free energy and built a mining chip that doubled the current hash rate it would just retarget after 2,016 blocks.

m1xolyd1an

Posted 2016-12-13T01:24:13.787

Reputation: 3 356

Even if energy becomes free, there are

limited ASIC miner production
hardware costs

Especially, there is very little room for the supply to increase: More than 3/4 of all bitcoins have already been found, and the mining difficulty resets every 2016 blocks to adjust to added mining power. It can adjust to up to four times the previous value, so unless you expect something great than quadrupling mining power in one week, the increase in production rate would be a small single digit factor at most.

So, altogether, the block interval might decrease for a while, and the remaining Bitcoin reward schedule would be slightly sped up.

Murch

Posted 2016-12-13T01:24:13.787

Reputation: 41 609