Coinsetter: Block Size Issue Can Affect Prices, Trading

Thursday, 02/07/2015 | 15:20 GMT by Leon Pick
  • Coinsetter assesses that the ongoing block size issue can eventually have ripple effects on bitcoin's trading and prices.
Coinsetter: Block Size Issue Can Affect Prices, Trading

US-based Bitcoin exchange Coinsetter assesses that the ongoing block size issue can eventually have ripple effects on bitcoin's trading and prices.

While nothing earth shattering, its analysis is a reminder of the interconnectedness between the Bitcoin economies of Payments , mining/validation and exchange. In most debates on the topic, Bitcoin's core technology is the focus, the effects on exchangeability seldom raised.

In its analysis, Coinsetter suggests that leaving the block size limit as is (1 MB) may adversely affect Bitcoin's value as a quick, international transactional system, if its adoption continues to increase as anticipated. With more transactions, the available capacity of blocks is reduced, and transactions will have to wait more than the current average of 10 minutes. This was experienced during the latest 'stress test'.

The reduced value may then translate into reduced prices. In addition, longer confirmation times may hamper trading activity. Market participants may face delays in trading their capital, including arbitrageurs for whom timing is important. This may result in a less efficient market.

On the other hand, an increased block size can adversely affect miners, particularly the smaller variety or those based in locations with underdeveloped internet infrastructure. For them, processing larger amounts of data will be too difficult, thereby compromising the goal of Bitcoin's globalization.

Miners facing increasing costs may no longer find it profitable to operate, and may resort to buying bitcoin instead of mining it. Perhaps counterintuitively, a reduced mining network can actually lead to increased demand and prices.

US-based Bitcoin exchange Coinsetter assesses that the ongoing block size issue can eventually have ripple effects on bitcoin's trading and prices.

While nothing earth shattering, its analysis is a reminder of the interconnectedness between the Bitcoin economies of Payments , mining/validation and exchange. In most debates on the topic, Bitcoin's core technology is the focus, the effects on exchangeability seldom raised.

In its analysis, Coinsetter suggests that leaving the block size limit as is (1 MB) may adversely affect Bitcoin's value as a quick, international transactional system, if its adoption continues to increase as anticipated. With more transactions, the available capacity of blocks is reduced, and transactions will have to wait more than the current average of 10 minutes. This was experienced during the latest 'stress test'.

The reduced value may then translate into reduced prices. In addition, longer confirmation times may hamper trading activity. Market participants may face delays in trading their capital, including arbitrageurs for whom timing is important. This may result in a less efficient market.

On the other hand, an increased block size can adversely affect miners, particularly the smaller variety or those based in locations with underdeveloped internet infrastructure. For them, processing larger amounts of data will be too difficult, thereby compromising the goal of Bitcoin's globalization.

Miners facing increasing costs may no longer find it profitable to operate, and may resort to buying bitcoin instead of mining it. Perhaps counterintuitively, a reduced mining network can actually lead to increased demand and prices.

About the Author: Leon Pick
Leon  Pick
  • 1998 Articles
  • 5 Followers
About the Author: Leon Pick
  • 1998 Articles
  • 5 Followers

More from the Author

CryptoCurrency

!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|} !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}