Does it though or is it a load of claptrap? Buy a coffee from costa using bitcoin and that uses as much energy as a house for a week..... My O'Meter goes full scale deflection. If it cost that much to facilitate the transaction then the system doesn't work.
See my
previous post in this thread about why the estimate is overblown. Also, don't forget that this is only about Bitcoin: most other cryptocurrencies are much more efficient to mine. Both in electricity and hardware costs.
As for deflation: BTC has been designed from the get-go to have a cap on how much currency can be mined, so it was designed as a deflationary currency from the start. Mind you, while most economists (though not all) regard deflation in an
economy as a bad thing, for reasons mentioned above, we are talking about deflation in currencies. In Bitcoin, it might have been a good idea, so as to offer it as a good alternative to traditional currencies, which are inflatory. Bear in mind that the project started at the beginning of 2009, when the global financial crisis was in full swing. In such times of economic hardship, many companies decide not to invest their assets in tangible investments, but to get some short-term gains on forex (foreign exchange) instead. (Which is an activity that produces even less "practical" value than cryptocurrency mining does.) Now, a deflationary currency can compete on that ground much better. Exchanging cryptocurrencies to fiat has always been seen as a big challenge to tackle, so competing better with forex was a must.
Also, since Bitcoin was originally designed as a currency that can even be used by poor people - "banking for the unbanked" - a deflationary currency would have actually been better for them. However, in this regard, BTC has failed, as average successful transaction fees of 3-9 USD aren't acceptable for "unbanked" folks. (Oh, and @ shreddog: no, larger transactions as in larger amounts don't really require more mining than tiny ones. More transactions do.)
Although there probably were other reasons for this decision too, I just couldn't find nor think of them.
The Bitcoin price rise: right now, what's driving it ever upward is the upcoming hard fork near the end of November. BTC will split in two different currencies, and since both will keep the old blockchains (up till the moment of the split), people will have the same amount in both currencies that they had. In essence, it's "free money" on the new chains. Hence why a lot of people are selling every other cryptocurrency and buying Bitcoin with them, or just buying it with traditional currencies. What will happen to the prices of both forked currencies is anyone's guess, although since in my opinion the currency is grossly overvalued right now, regardless of the fork, sooner or later they'll all correct to a much more reasonable level. Which will be a crash.
But with all bubbles in history, you can make good money if you get out in time before it all pops. It's just that it's hard to know
when is the good time to cash out all your assets and buy something else instead.
Oh yeah, and mining difficulty. Cryptocurrencies that do allow mining (only a few don't) have a dynamic difficulty set. The basic idea is that the more computers that mine, the more difficult it'll get - to prevent the network paying too much currency to too many miners. So, since your operating costs are fixed, but the income from your mining will go down with increasing difficulty, your profits will go down. Eventually, once the difficulty is high enough that mining other currencies (for example, those with few miners and a low difficulty) becomes more profitable, many miners will switch to those. Which will in turn lead to the difficulty lowering, which in turns leads to profits increasing, then eventually the miners come back... You get the picture.
However, Bitcoin's difficulty and network hash rate have both been steadily increasing this past year because the increase in price (hence, mining income) outpaced these. To be honest, lots of things have happened with Bitcoin that weren't originally foreseen, and the new developers haven't been great at handling them.
