Namecoin Forum

That's what I don't get. What are the basis for thinking that the value of NMC will become equal to BTC and that a crash in BTC will mean a crash of NMC too? I just don't see how they are supposed to get tied.

JohnDoe wrote:That's what I don't get. What are the basis for thinking that the value of NMC will become equal to BTC and that a crash in BTC will mean a crash of NMC too? I just don't see how they are supposed to get tied.

Okay, first do you agree that the difficulties of the two networks will get tied?

We'll take it step by step from there.

moa wrote:Okay, first do you agree that the difficulties of the two networks will get tied?

We'll take it step by step from there.

Yes, I agree. And I believe that will allow the value of NMC to freely float based on demand/confidence instead of being roughly pegged to the BTC/NMC difficulty ratio.

And I believe that will allow the value of NMC to freely float

Fine.

And I believe that will allow the value of NMC to freely float

... and what basis do you have for harbouring this belief?

The basis is that the confidence people have in BTC and NMC is not equal, and won't become equal just because difficulty is. There are a lot of Bitcoin miners that may not care about Namecoin but they'll cross mine anyway because the additional cost is negligible. Since they don't care about Namecoin they'll try to sell them for BTC as soon as they get them, putting a downward pressure on the price of NMC. When more infrastructure grows around Namecoin some people will start hoarding instead of selling immediately because they are more confident of the currency's future, putting upward pressure on the price.

The value of BTC and NMC have never been a function of difficulty, but of demand/confidence. Cross mining will not change that in my opinion.

The value of BTC and NMC have never been a function of difficulty, but of demand/confidence. Cross mining will not change that in my opinion.

On the upside, there is already a lot of good evidence of difficulty tracking value by about 2 weeks (see posts by chopaba on btc forum).

On the downside, the value of btc/nmc is underwritten by the cost to mine. If their value drops below the cost to mine then miners shut-off their rigs and difficulty will drop.

There is a premium component of their value, on top of the cost to mine, made up from demand/confidence that the market is willing to pay for benefits of transacting/holding the currency, this is the monetisation premium. Happily, it seems btc and nmc have nearly always been in the state of having that premium above the mining cost, i.e. they are profitable to mine. But if value ever drops below cost to mine then the economics changes dramatically.

If you tie namecoin production to bitcoin production with cross-mining you are effectively removing the floor under the namecoin value that is their cost to mine, since they now have negligible cost to mine, as you said yourself. They become a by-product of the bitcoin mining process. There is then nothing to stop them going to zero value except for the residual value of their real/perceived benefits in holding/transaction namecoins for domain naming utility.

moa wrote: There is a premium component of their value, on top of the cost to mine, made up from demand/confidence that the market is willing to pay for benefits of transacting/holding the currency, this is the monetisation premium. Happily, it seems btc and nmc have nearly always been in the state of having that premium above the mining cost, i.e. they are profitable to mine. But if value ever drops below cost to mine then the economics changes dramatically.

If you tie namecoin production to bitcoin production with cross-mining you are effectively removing the floor under the namecoin value that is their cost to mine, since they now have negligible cost to mine, as you said yourself. They become a by-product of the bitcoin mining process. There is then nothing to stop them going to zero value except for the residual value of their real/perceived benefits in holding/transaction namecoins for domain naming utility.

Moa has a sound argument.

As Moa stated they both are connected to mining costs for the most part.
BTC are a currency that can be used for thousands if not hundred of thousands of things over the internet and in person.
NMC are a domain utility, they have no other real value. If you connect the two you undermine the whole value of NMC.

The client for NMC is what makes it special with the registering of .bit other then that BTC is used everywhere else.
So by merging the mining NMC now become a novelty item that you so happen to get from mining BTC.
Only real enthusiast for .bit will have any value for NMC at that point and the price will become nothing.

I know I restated alot of what Moa already said, but my hopes was to pull out the main reasons.

fireballchad wrote: As Moa stated they both are connected to mining costs for the most part.
BTC are a currency that can be used for thousands if not hundred of thousands of things over the internet and in person.
NMC are a domain utility, they have no other real value. If you connect the two you undermine the whole value of NMC.

Your argument is flawed because Namecoin can be used for the same things that Bitcoin is used. The only thing that it lacks is awareness/adoption.

JohnDoe wrote:

fireballchad wrote: As Moa stated they both are connected to mining costs for the most part.
BTC are a currency that can be used for thousands if not hundred of thousands of things over the internet and in person.
NMC are a domain utility, they have no other real value. If you connect the two you undermine the whole value of NMC.

Your argument is flawed because Namecoin can be used for the same things that Bitcoin is used. The only thing that it lacks is awareness/adoption.

I did put some more thought into it. It is flawed, short term its right in a sense. On the other hand long term (like you pointed out) it should stabilize both will be limited in supply once they cap out. Thus NCM could potentially be worth more due to there domain ability(once it gets supported more and easier to implement) and smaller amount total then BTC.

Anyways it is a good topic to bring up, validating concerns and clarifying them. Long term (if NMC makes it) things should normalize.