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Comment by CalmStorm | Hacker News Reader

The other common misconception is that the price of bitcoin is determined by the hashrate. It is actually the other way around, a higher price drives up the hashrate, because a higher price means more demand for bitcoin.

Some founders of altcoins apparently don't understand this and try to buy hashpower to artificially increase the hashrate, hoping to increase the price of their coins. If there is no demand for their coins, an ASIC farm is no different from a Rasberry Pi.

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The price is not determined by hashrate, but hashrate is nevertheless an important metric for the market to determine the price.

An altcoin that has insufficient hashrate is highly vulnerable to attacks and if its price were to rise, those attacks would become profitable.

Therefore, you need enough hashrate to make attacks unprofitable right away. A Raspberry Pi is not going to cut it.

The most easily achievable way for attacks to be unprofitable right away, of course, is for your token to be worthless...

Wait... isn't it worse than that? If I buy enough hashpower to have a measurable effect on the price, shouldn't the price be driven down, by the increased supply? Thus an ASIC farm is worse than a raspberry pi, at least as far as the effect on price goes.

(But, isn't there some majority attack? So maybe I want an ASIC farm as a way to protect my investment...)

no, the mining difficulty self-adjusts, so the supply is only increased for a very brief time

No because the supply is fixed in time

The supply is fixed in number of blocks, not time.

Supply of what? The supply increase of coins is constant regardless of the hashrate.

This is exactly why there was no effect on bitcoin price when the reward rate halved. The value of the coin drives mining behavior, not the other way around.

Actually, it doesn't. The difficulty adjusts every 2016 blocks, in theory every ~2 weeks, but if a large percentage of the hash power suddenly disappeared it could be much longer.

For a temporary period of time, before it self-corrects back to ~2weeks. It's easy to leave this part out as it is an edge case that doesn't need the extra sentences qualifying the "normal case" that will be observed 99.99% of the time.

Hashrate determines the difficulty to attack, aka security. Security influences the price.

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