I managed a Bitcoin mining operation a long time ago. We made machines that made 50% of their BTC in the first month of their operation, and the remaining 50% over the next 5 months. After that they cost more to run than they produced.
The accountants wouldn't believe us when we told them that the machines were worthless after only 6 months.
That makes sense, 2013 was when ASICs were getting popular and started dominating mining. The industry has slowed down significantly since. Presumably they've implemented most of the low hanging fruit optimizations. Antminers from 3+ years ago are still profitable in a lot of areas with <=$0.1/kWh electricity.
This makes sense. In the earlier days of bitcoin we’ve seen substantial improvements in mining every 3-6 months.
We’re talking about significant 100x-1,000x improvements in efficiency and profitability.
To stay competitive, these improvements in efficiency made it necessary for miners to upgrade mining equipment every 3-6 months.
Because of its closeness to silicon fabrication and cheap energy, China emerged as the de facto place to set up these mining farms.
Those previous 100x-1,000x improvements are no longer possible.
The development of mining hardware caught up with Moore’s law.
This is the observation that transistors in a dense integrated circuit doubles about every two years.
It would be fair to assume ~2x improvements in mining every ~2 years.
This would mean that mining equipment would now have a longer shelf life, and no longer be obsolete in a few months.
You can mine on worse machines if you have lower power costs or are valuing the BTC higher than the electricity costs (ie you're long/bullish on BTC or you're doing it somewhat altruistically or alternatively not doing the math on how much it's costing.)
> I'm not sure how that would assuage the risk [averse] accountant
If the accountant's salary depends on being assuaged, this should hardly be a problem: the accountant will then just tell you that he does not believe this to be a good idea, and give reasons for his judgement.
Well, I managed as well some hardware and in the long run, they paid themselves. I started to mine with FPGA and then with asicminers. I mined in total, 23 BTCs. Then I stopped and kept the BTCs, (sold some), sold my hardware via ebay (which helped to return almost all my investment). I then got the BTCs doubled when bitcoin cash was created, which I sold well enough too. So when I read this whole "it doesn't worth to mine, etc", i think that is relative. It worked well, even for me, running it in Germany.
Eh? I'm not mining anything on anything, just pointing out what the commenter I replied to left out.
If power is free then any hashrate is profitable. With "typical" power prices you basically need ASICs. In the middle there are myriad possibilities, and many miners have access to very cheap power (eg during hydro gluts in monsoons).
I was asking what hardware you were talking about. "You should mine a different cryptocurrency" wasn't meant as something specifically for you the commenter, but as a recommendation to everyone in the world. Theoretically you'll get something by GPU mining bitcoin, but it'll be tiny. You shouldn't do it. Instead you should use that GPU to mine ethereum. That'll be much better.
As an example, the AMD Radeon HD 7870XT[1]. It gets 346 Mh/s for bitcoin, which is $0.00004308/day[2]. It gets 14.5 Mh/s for ethereum, which is $0.3508/day[3]. So you get 8000x more by mining ethereum.
GPUs are pretty good at the algorithm (certainly much more than CPUs), just nowhere near as good as ASICs. Mostly this was because the proof of work function wasn't really designed with any such target in mind, and the basic cryptographic primitives available tend to lend themselves to ASICs dominating everything else unless you explicitly design it otherwise (like ethereum's PoW which is intended to be memory bandwidth limited and thus best suited to GPUs with ASICs offering minimal benefit, or Monero's algorithm which is designed to be extremely branchy and thus best suited for general purpose CPUs).
You cannot delete once someone has replied. And by editing away your opinion (thereby breaking the context of the replies) instead of owning up to it, you will be earning many more downvotes.
Perhaps the ASICs should be designed so that they are a little more general-purpose then. Perhaps capable of mining for the next cryptocoin on the block?
ASICs only offer a benefit through significant specialisation. Specifically with bitcion the double-SHA256 hash lends itself to an extremely efficient hardware operation which beats any general-purpose system substantially.
In general what you want to do is design the algorithms differently. There's a few reasons to do this. Firstly your new coin probably doesn't want to run best on hardware which is already used by a bigger coin, especially bitcoin, because then there's a massive attack vector just looming over you as the existing miners could just turn a fraction of their processing power towards your network and destroy it easily. This means you generally want to come up with a novel proof of work function which is not easily computed by existing miners. The best form of this is using a completely different hardware resource.
Secondly (and apart from the few large coins which generally got to this idea first, competing with the first point), if you care about keeping your miners distributed in terms of ownership and control, it helps if said algorithm is tuned for some general purpose bit of hardware your users are already likely to have for some other purpose. Ethereum's PoW was expliticly designed to be optimal for GPUs (because computing it is memory-bandwidth limited), and Monero's was designed to be optimal for CPUs. Chia's system was optimised for storage space instead of compute power. Lower-effort clones (e.g. dogecoin) tend to at least change the hashing algorithm used at little to provide some protection, but to a lesser degree (e.g. Ethereum is probably safe from attacks by bitcoin miners, Monero is probably safe from ethereum miners, but while dogecoin is probably safe from attacks by bitcoin miners, it's not safe from the other larger coins, and especially bitcoin forks have actually been attacked by bitcoin miners).
No amount of "ASIC unfriendlyness" will bring back the cute old days of distributed desktop mining. Concentration to a few specialists is the natural end game of any PoW scheme, no matter how much effort you put into inconveniencing them. If a highly concentrated cryptocoin network is not good enough, cryptocoin is not good enough.
(your last point however is valid nonetheless, the scenario of large blocks of capacity jumping between networks and how deliberate algorithm design tweaks might offer some protection)
FWIW, Dogecoin is a fork of Litecoin which was originally designed to be GPU and ASIC proof, but that claim didn't last long and there are ASICs that can mine them.
This is sort of what Nvidia did with the cards they sold directly to miners. At the end of the day they're still GPUs (albeit without display outputs) so they could in theory be repurposed for work that actually benefits society.
In practice that would never happen because by the time miners are done with the cards they'd be too out of date for machine learning or other general compute workloads, and useless for budget gamers because of the lack of display outputs. It's really a shame how much power and silicon is being wasted on cryptomining.
But pure ASICs get rid of even more of the GPU than just the output stage.
A pure ASIC to cover the fundamental calculations in hardware with just a CPU to feed them data and pull results is the most efficient.
Think of something as direct as a cell phone modem. The batteries last as long as they do because a ton of the low level modem behavior is done in accelerator blocks direct in hardware, and the DSPs just route data between the blocks and manage the higher level protocols.
I don't disagree, I'm just saying that Nvidia literally shipped normal Ampere cards directly to miners. Ethereum is tricky to build purpose built ASICs for.
Some of the top-rated comments make me wonder whether the authors have even read the article. This isn't about whether PoW or cryptocurrencies as a whole make sense, but strictly about the economics of mining, and how standard accounting practices might obfuscate miners' true profitability. The author sounds like an investor who would be equally happy to hold long instead of short positions in those stocks if their prices were different.
On that note, I don't get why it doesn't mention if there are any other (standard) methods of depreciation accounting that are more realistic for this kind of asset. The author mentions that oil well already have this issue and so you could just see if their method works.
> I don't get why it doesn't mention if there are any other (standard) methods of depreciation accounting that are more realistic for this kind of asset
Of course there are, and they should actually be using them. But then fundraising would be harder. They are cheating on accounting, in order to raise equity capital, and hoping that the price of bitcoin will go up in the future and cover the losses.
> if there are any other (standard) methods of depreciation accounting
IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes. There is thus an incentive for firms to tweak depreciation and pull it forward, to either concentrate it in relatively more profitable years, or generally push tax payment further back into the future.
To counteract that, tax authorities often specify an upper limit on how much you may depreciate every year. These limits often distinguish by type of asset, and allow for faster depreciation for shorter-lived assets, but I could imagine that the tax code makes no provision for ultra-short-lived crypto mining equipment.
> IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes
I think that’s overstating it. You’re always going to depreciate to 100% eventually[1], so faster depreciation just means you realize a loss (and reduce the tax bill) sooner rather than later.
[1] or sell for actual value, in which case you adjust the books to the actual loss of value which may before or less than the depreciation formula estimated.
You're right: with all of that, you're just shifting things around in time, and it resolves when you sell the asset or toss it. This can still have real effects in times of high interest rates, or due to the fact that a loss might give you less of a tax credit, depending on jurisdiction, than a profit generates in tax obligations.
Not sure how relevant it is to the issue described in the article: depreciations that are too small, thus front loading profits - but it might be that the tax code prohibits larger depreciations.
Aren't you allowed to keep separate books for "what we think our book value should effectively be regarded as" vs "what we're required by tax law to say it is"?
Follow-up: Keep in mind, the depreciation schedules can also understate how fast the good loses value. See also my lay explanation of why depreciation in tax law exists [1] and why it eventually gets resolved on sale or disposal[2].
Great point. Most profitable companies try to minimize their taxable profits, and the same rules that are in place to counteract that can have the effect of overstating the profitability of other firms.
I have one of the other top comments where I argue that PoW is fundamentally unsustainable, and I assure you I did read the article.
What the article is saying is that standard accounting practices might obfuscate miners true profitability over the lifetime of depreciable hardware. My argument is basically that, as I believe PoW is guaranteed to be unsustainable in the long run, all of the miners who are eventually left "holding the bag" when the music stops (and by holding the bag I mean have invested millions in mining equipment that is suddenly worthless) will be unprofitable at that point.
To argue it somewhat differently: systems like Ethereum have essentially come to the same conclusion I have, and will be phasing mining out altogether for PoS. The reason Bitcoin isn't doing that is because miners have considerable more power over the direction of the protocol. Which might be fine if PoW we're long-term sustainable, but it's not.
Fair enough, but I think the parent was right to object that the comments were not talking about mining in the context of the depreciation accounting issue that the article focuses on, but just giving their hot take on mining in general, and doing the latter (when the article's focus is something else) makes the forum worse.
What are you talking about!? You failed the simplest test of not reading the article! You didn't read the last line!
> I don’t think it ends well.
That last line renders your whole point about the author simply being interested in the economics of mining for the sake of mining (rather than economic sustainability of the practice) inaccurate as well as making you a hypocrite!
You seem confused - the it clearly refers to what he said in the previous para, namely that investors haven't been paying attention to what those companies actually do. That rarely ends well indeed, especially during times of rising interest rates.
It's still based on the assumption that Bitcoin is not a growth asset, and that those investors believe it is. If the investors believe it is a growth asset there is no problem - they knew exactly what they were buying into. In fact, it is probably a proxy for a Bitcoin ETF or outright ownership of coins; in that case it is doubly true they understand the risk.
The argument falls apart without Bitcoin stagnating into obscurity, so the same point is (less) obviously implied.
The hint is in the other part of the paragraph - investors were likely looking for exposure to Bitcoin (implying that they have positive expectations for its price).
Some investors are constrained in what kind of assets they can invest in, so buying stocks of Bitcoin miners might seem like a reasonable proxy for buying Bitcoin outright (similar to how some investors looking for gold exposure actually buy gold mining stocks). The point of this article is that that strategy might be inferior to buying Bitcoin outright because the stocks are overvalued compared to their intrinsic capability of producing Bitcoin (note how Bitcoin price predictions aren't even discussed). It's a classical value-based investment thesis that might lead to the opposite conclusion at different stock prices.
The author says that he holds short positions, and I can imagine that he's probably used derivatives to hedge out BTC price movement risk and purely bet on his thesis that those miners' stocks will perform worse than the price of Bitcoin itself.
Well then his point about Bitcoin not being guaranteed as a growth asset is irrelevant - that assumption applies to any investment derivative of Bitcoin or obviously, Bitcoin itself. The real argument is what the returns on mining stocks are compared to ownership, and the magnitude of that difference is what's important; there should be some difference (investors are paying for not having to custody Bitcoin, among whatever regulatory benefits they may get from using the stock market) and those benefits are not quantified in this article as far as I can tell.
What this guy's doing is called 'talking your book'. It's typical behaviour for shortsellers, they find a company that has some problems that the market hasn't realized yet, they quietly build up a short position and then go public with their report, trying to convince other investors of their idea, driving down the price and earning a return on their short position. It's not pro bono educational work.
I guess HN only has an appetite for financial advertising when its bearish on crypto. I don't understand why it should tolerate such pieces at all, but they love to hate crypto here by any means necessary.
Yeah publicly traded bitcoin mining companies are a very new phenomenom, and investors are undiscerning and being taken advantage of.
Its fine though, as long as those investors find new investors who only care about revenues. The actual company is a conduit, the revenues still occur but nobody had been asking what happens to the actual money. Lucrative game.
Good article, calls for nothing except FYI to investors.
I think it's abnormal for executives to get compensation > entire company revenue. I'm sure it happens in other industries from time to time but it seems like a sign of misinvestment to me.
Yes, and MARA has only been profitable in one quarter so far, if I read things correctly, and the author argues quite convincingly that even those profits are overstated insofar as the depreciations are understated, and things will quite likely turn worse. At the same time, extravagant salaries are being paid. That is how investors are being taken advantage of.
Mining is always a rat race against the rest of the network. Although this article makes me hopeful for alternative PoW solutions like RandomX[1] that seek to combat the advantages specialized mining hardware altogether.
1. If a cryptocurrency is dominated by specialized miners, then you have a centralization effect as the majority hash-rate can be more controlled by monopolies that can take advantage of their economies of scale. Because mining is mostly done by companies at scale, it is easier for governments to impose regulations on miners and control the type of transactions that are allowed to be verified.
2. Vendors accepting cryptocurrency can always choose their own level of risk by deciding how many blocks to wait before accepting a transaction. This allows them to "wait out" temporary attacks.
I would say that the permanent miner takeover as described #1 is an order of magnitude more threatening than the temporary attacks as you've described. But it is still quite an issue.
Specialized hardware will depreciate if it is tied to a cryptocurrency that has been attacked. So miners are incentivized not to attack, lest they devalue the resell value of their hardware. Note that this advantage doesn't really apply to GPU-mined cryptocurrencies.
"Vendors accepting cryptocurrency can always choose their own level of risk by deciding how many blocks to wait before accepting a transaction. This allows them to "wait out" temporary attacks."
And introduces even more inefficiencies into the entire system as now we have to spend that time waiting for transactions to clear
How is specialized mining hardware an environmental disaster? In what way is the bitcoin mining industry more harmful to the environment than a steel smelter, an aluminum factory, or wash dryers? How is it an environmental disaster if most of the hash rate is from green energy and it is also actively suppressing methane release?
I've noticed a trend on HN where people say mining is bad for the environment, but can often poorly articulate the details. This, in my opinion, means they are just rehashing the same disinformation in articles that all point to the same sources (cambridge or digiconomist).
Quotes like "Bitcoin mining uses more energy than [country X]", "That green energy could be used for other things", and "It provides no intrinsic value" have all be waylaid years ago, but keep getting brought back up.
- fossil fuels are used for Bitcoin mining
- Bitcoin mining needs a stable source of energy to run 24/7, something you won't get from eg a single wind mill
- building and maintaining renewable energy sources still has an environmental impact, the energy would be better used by something else than Bitcoin
- making chips and PCBs is an environmental disaster, the fact we are making so much useless ASICs is horrible
Some industries are more polluting than others, but we should be doing everything in our power to reduce the pollution. Bitcoin (POW) is intentionally wasteful.
I don't argue that Bitcoin mining uses fossil fuels. In fact, I'd still be a Bitcoin proponent if its Proof of Work uses solely fossil fuels, because the benefits of having separation between money and state is a solution for many of the problems we face today.
I'd also like to point out that:
1. Most of the energy generated today is lost because it is unused. This is called "rejected energy". Having the option to not let so much energy get rejected is an efficiency gain for us, and should be prioritised before we shut down manufacturing and services because of energy use/emissions.
2. Mining is done at the knife's edge of margin cost. Lots of miners buy energy from suppliers at severely discounted prices (due to lack of demand) and scale up and down depending on the supply of energy. The days that you need to keep your miner online and hashing for 24/7 have passed us by years ago. These days, even an S9 miner can still be profitable if you have near-free electricity at your disposal.
3. Bitcoin mining enables the construction of renewable power plants in locations that are currently unaffordable to build.
Bitcoin mining also enables keeping coal plants online that would otherwise be totally shut down.
I'm not sure how separation of money and state works. If you have taxes, they're not really all that separate. If you don't have taxes, you can't have much of a state, can you?
Most crypto types seem to want very low or zero taxes, it's unclear how social programs and large scale infrastructure is going to work.
1. Rejected energy is not surplus energy, but instead energy lost through inefficiencies in its production or use. How does bitcoin use this energy?
2. No argument there, energy price is one of the main costs in a mining op.
3. This seems like a minor win. What happens to these plants when the miner moves to a new region? They’ll become unprofitable again and shutdown. Which means waste again.
> How is specialized mining hardware an environmental disaster?
The harsh judgement that it is an environmental disaster rests on these points:
1. The network does a little bookkeeping work, but around 1 billion times less efficient than necessary, just to achieve the defining characteristic of crypto, "trustlessness" or the lack of a central authority.
2. The incentive system is such that by design and ineluctably around one third or so of mining rewards will be wasted on electricity and electro waste.
Other industries work hard to minimise their energy waste, and often impressively successfully, by the way. Bitcoin mining cannot.
(Note: Bitcoin could become 99% more energy efficient overnight (plus minus two weeks), of course, if all the mining pools banded together and took 99% of their hash power offline. After the next difficulty adjustment, BTC would be exactly the same, but waste 99% less energy. If only this coordination problem could be solved, maybe with some kind of ... central authority?)
The entirety of evolution and social progress is a neck to neck rat race run against a red queen. Blaming mining (of any kind, gold, diamonds, rare earth metals, oil, bitcoin) for being a rat race is like blaming you for being a mammal that uses oxygen. Yes you are a mammal that uses vital oxygen. So are all the other animals out there.
Cryptocurrency mining isn't analogous to Gold mining in this way. The purpose of cryptocurrency mining isn't to produce cryptocurrency, but rather to secure cryptocurrency transactions by making the order of transactions hard to reverse by any attacker. Mining produces cryptocurrency merely if it is designed to reward those who secure the network.
Mining specialization is against the purpose of cryptocurrency mining because it gives specialized attackers (a centralized group) power over the rest of the stakeholders (not just owners, but users).
I think you are confusing the ideal incentives of the system as designed, versus the actual dynamic incentives that the system produces. Purpose is almost irrelevant.
It is common to make analogous mistakes when considering biological evolution.
Except that Bitcoin miners have tried and failed to exercise any such power because it doesn’t exist. The most successful attack was creating a short-lived arbitrage opportunity between the massively pumped Bitcoin Cash and regular Bitcoin, which was able to slow down Bitcoin blocks as miners swapped chains until Bitcoin Cash backers either ran out of cash or dumped. All you had to do to not suffer from the attack was to just not do anything related to Bitcoin Cash. It was ultimately about extending the advantage of “ASIC Boost” miners by delaying a patch.
The opportunity for miners to collude is completely offset by the fact that if they try to leverage their equipment somehow to delay or otherwise impact the main chain, you can just choose to mine instead to make better profits. Thus far there hasn’t been a single effective counter-play for miners that isn’t just “mine more Bitcoins and thus further secure the network” that isn’t just day trading with extra steps.
Also who are these centralized miners anymore? Pools are centralized, but I’m a nobody who can mine profitably with very little capital involved. I can submit whatever block template I want. I haven’t been invited to any meetings.
Goes to show you that energy is the real base metal of the world. Whether you are mining bitcoin or gold, or drilling oil - the power rests in the hands whoever controls the energy to pull it out of the ground/air.
Exactly. You could use anything as currency. Prisoners use cigarettes or ramen. Its not about the product being mined so much as work being done, and therefore work being stored.
Replace any currency with any power generation you want.
In prison, its the work of smuggling that stores economic value in cigarettes.
In a gold based system, its the work of mining elements out of the earth that stores economic value in base metals.
In a peer to peer network, its the work of electricity(of any kind whatsoever, clean or polluting) that stores economic value on a fair distributed ledger.
Money is about storage of work, and quite frankly the weaker the money used to store energy, the more lethargic and rusted the whole economic system gets. Fiat, i.e. "proof of wasted energy" just does a lot of work and lets it evaporate in economic terms leaving the entire society that uses it in constant need of more and more fiat because that energy, that work done, keeps dissipating.
It doesn't matter what money is: seashells, carved rai stones, arrowheads, cigarettes, ramen, non-livable apartment homes sold solely for wealth storage, luxury cars, art, gold, printed paper with your uncle sam's face and "guarantee" stamped on it, centralized entry in a private database, decentralized entry on a public blockchain. Society needs money in order to achieve higher levels of cooperation. Might as well use the strongest form of money that exists. And as far as I know, it aint proof of wasted electricity, i.e. fiat.
I don’t think anyone disagrees that money is an exchange medium for work. The question is whether the practice of mining Bitcoin is work worth valuing for its own sake. Nobody is getting fed, housed, or clothed when mining cryptocurrencies, nor is it improving business productivity in some way.
In other words, it’s a question of “useful work,” not just “work.” And this is an especially important question in light of the fact that a lot of energy used to mine cryptocurrency is produced in environmentally harmful ways.
>The question is whether the practice of mining Bitcoin is work worth valuing for its own sake.
The same question is asked by any gold miner or oil driller. Depending on the price others are willing to pay, sometimes it's worth it and sometimes it's not. When a barrel of oil goes above $80 people want to start fracking again. When it's below that, they stop.
>Nobody is getting fed, housed, or clothed when mining cryptocurrencies, nor is it improving business productivity in some way.
This statement is just not true. Just as the mining of gold creates jobs for the miners, the equipment manufacturers, the logistics personnel, the security personnel, and allows those people to clothe house and feed their families, so it is with Bitcoin mining. Powerplants and the internet are built, operated and maintained by real people with families, you know.
Physical material mining and energy generation are useful work, except where the material being mined is overvalued - gold being a textbook example. Physical materials and energy can be used in manufacturing all sorts of goods that house or transport people or aid in manufacturing productivity (e.g. producing food). Cryptocurrency has no such inherent property.
Your last paragraph justifies the work because the people involved in the process get paid and therefore can feed, clothe, and house themselves. But that proves too much: there is a lot of economic activity that is arguably wasteful or immoral that people get paid for. Economic bubbles generate jobs, but once the speculation finally ends and the waste is revealed, those jobs disappear.
Yes, gold has the same problems. A tiny amount of it is used for manufacturing, the rest for hoarding. We don't even use it as a currency of exchange anymore, so I honestly have no idea why its price remains stubbornly high. Old religions die slowly, I guess.
Because it is a rare, malleable, and chemically inert metal, humanity attached a special significance to it.
Since it preserved value for millennia, there is a good chance it will keep doing so. Unlike government-emitted currency, which devalues at the behest of politicians.
Central banks are relying on gold for its scarcity, especially relative to said government currency.
You are simply restating the claim without an explanation as to how they rely on it. In what way do they use this gold on a day-to-day basis? And what do they expect to do with it later?
If you can find evidence of a single central banker saying “we need it because [some economic reason]” then that would be a significant discovery. Norway, for example, keeps zero gold in its central bank, and yet, their finance system is unquestionably healthy.
> This increase in money supply may be necessary to stave off economic turmoil but at the cost of devaluing the currency. Gold, by contrast, is a finite physical commodity whose supply can’t easily be added to. As such, it is a natural hedge against inflation.
> As gold carries no credit or counterparty risks, it serves as a source of trust in a country, and in all economic environments, making it one of the most crucial reserve assets worldwide, alongside government bonds.
> Gold’s inverse relationship with the US dollar, another major reserve asset, is an added element to its appeal. When the dollar dips in value, gold typically rises, enabling central banks to protect their reserves at times of market volatility.
You realize this was sponsored content "Paid for and posted by World Gold Council," right? Let's find an authoritative source in a government, as opposed to a trade group representing gold miners and sellers.
> The signatories confirm that gold remains an important element of global monetary reserves, as it continues to provide asset diversification benefits and none of them currently has plans to sell significant amounts of gold.
You asked a very good and important question. I don't want to share the answer, but know that it explains a very important topic on economic systems.
Since I'm not going to be giving away the answer, I want you to at least ask yourself:
Does the practice of pressing buttons and printing dollars provide value at the value the units represent?
And since your concern seems to be the environmental cost of bitcoin mining, what are the environmental costs to pressing buttons on a computer adding dollars into a digital dollar network along with running printers to create a few sheets of paper money?
Are there any environmental costs beyond the electricity that runs the printers and the computer and the trees cut down to print the money on?
If so what would those environment costs be and where would they be coming from?
If not, where is the value of that dollar coming from to begin with?
It definitely isn't improving business productivity. Nothing improves business productivity like fiat which has an ever expanding supply.
If inflation was non existent or radically less than what it is today would people be so keen to invest their money in companies or spend so much time and effort trying to hoard money for the future?
People who are into Bitcoin talk about inflation like it's a bug but I think it is a feature.
Which is mostly caused by humanity using fossil energy to boost the output of the economy.
An economy that expends the energy on so many more things than just enabling people to be fed and live modestly comfortable lives.
An economy that is thus harmful as it entirely neglects the urgent crisis.
Humanity is at a point where we ought to think about actually cooling down the economy to drastically reduce our emissions until industries and energy generation will slowly turn to being climate neutral.
The much decried deflation is precisely what would be the better dynamic for the economy in this situation, rather than an inflation dynamic that virtually turbo charges the system.
I'm aware that this is a bold statement, but I wouldn't be surprised if in some 50-100 years Bitcoin were to turn out as the fundamental technology that enabled humanity to overcome the crisis, despite consuming resources that right now appear to many as wasted.
To make it blunt: yes, I absolutely think that in our current situation inflation _is_ a bug. Possibly a fatal one.
As it stands our current civilisation is a ponzi scheme that relies on constant technological innovation in order to sustain itself. This constant technological innovation is partly fueled by the deterioration of value built into the money system.
When I said it was a feature not a bug I was talking about it from a nation state perspective. The problem with the Bitcoin community is that they don't acknowledge the indirect benefits of fiat that they benefit from so they are blinded to the potential benefits to the environment that Bitcoin could provide.
Bitcoin has inflation. One coin every ten minutes. Tic toc next block.
There's the question of when new money enters the world, who gets to have it? Should it be randomly distributed, or should one guy in charge of the money printer get to keep most of it for himself and all his friends, lie about having done that, and then gaslight people to say all of that was okay anyway?
When the music stops, your account in the global open distributed ledger is stored in hundreds of thousands of harddrives distributed evenly throughout the entire free world.
And when the music starts again, your account is still exactly where it was when it stopped, available to you wherever you want to go in the free world.
Assuming the music starts again. Not just in terms of whether anyone ever decides they want the money in your account again, but also in terms of whether you can actually restart the network again, if the music stopped particularly abruptly.
Actual value can be in anything that has functional usage in the case where the market crashes. It can be cheeseburgers, earrings, threat of force, paying your taxes, whatever is useful in the real world.
Current iterations of crypto have a cost to produce, which makes it valuable on the upswing since it is scarce. But there is nothing to catch it on the downswing, unless it is backed by some assets, and then you have to trust the backer, much like you have to trust any government. At least you can vote out a government though.
Energy has always been the real measure of wealth, whether that be in the form of human Labor: number of slaves or peasants you owned, number of workers you employed, amount of power you can generate from coal, and so on.
Yeah, but maybe we could do something more spectacular with the electricity - maybe run giant Tesla coils and reward who can create the longest / most durable / most spectacular / etc. sparking events . . .
Thats not new at all. We've used it for decades now it only leads to boom and bust cycles, while pushing the power of work done into the hands of people who didn't do the work.
Fiat is more of “proof of a monopoly on the use of violence”. You may not like the idea of relying on such a proof, but it has the important feature of still being both necessary and sufficient regardless of what system you use with it. That it isn’t present in Bitcoin is actually a reason why Bitcoin is a bad idea as a currency, because you can’t get your money back when you’re scammed.
I'm sure there exists an amount of force that can pry it from your living body though :)
Also the Ethereum DAO debacle proves that crypto needed less than ten years for "too big to fail" (preferential treatment for the sufficiently influential) to materialize and essentially undermine all promises of cryptocurrency. You can get your money back when you're scammed or hacked, provided you have enough influential friends.
> I'm sure there exists an amount of force that can pry it from your living body though :)
No there isn't, because you don't know how much I have. I can always give up some and claim I gave up everything. To do what you claim you literally need to be omniscient. And if you are, then at that point you wouldn't be prying it from me.
To be clear, I am assuming we're talking about the security of the system as it relates to its users in general, not you specifically. I'm completely happy to yield that you are entirely unassailable.
For the vast majority of people, it's not too hard to make an educated guess about their wealth based on their house, their car, the area they live, their lifestyle, their age, their job, etc. For most people, this information isn't hard to find. If you're torturing them to give you access to their crypto wallets, and they give up less than you expected, you just keep torturing. You may argue that people should be protective of this information, but they aren't and will probably never be.
(As an aside, I don't actually believe torture is a viable large-scale threat to cryptocurrency. Pointlessness is though.)
Ok got it. So a gangmember will torture you because you have bitcoin just because you drive a lexus, even if you might not control a single satoshi.
Which means gang members are suddenly going to torture anyone who lives in Beverly Hills because they must have a bitcoin.
Assuming you are on tech worker salary, you should be buying guns to protect yourself from these gang members who are coming after the bitcoin they assert you have which they know you do because they said so.
Also keep in mind, some of the poorest people are the ones that yolo invest in crypto and post instagrams of lambos they rent. Gang members are gonna have one heck of a time trying to get those people's bitcoin before realizing the upside down toothless crypto guru actually controls nothing and is actually deep in the red. Which is to say, public appearances are not indicative of true wealth.
So here's the question, what metrics are you looking for as a torturer looking for torture acquired bitcoin? Lambos on instagram? Three story homes in beverly hills? Jpegs of a monkey on a twitter profile?
The reason I say that trying to pry bitcoin out of someone that has it properly guarded is like walking around the earth tapping rocks hoping to find one that turns into gold is because it requires mind reading technology that hasn't been invented. Its a losing game that puts the assailant at legal risk for close to little chance of winning anything at all. Huge downside, practically zero upside.
I'll admit to one thing though. We are going to see more and more and more of these torturers or scammers or crypto criminals and they are going to try harder and harder and harder. But again, properly defended means huge downsides and practically zero upside for them. But its not gonna stop them from trying, and its not gonna stop the hordes of scammers and torturers and crypto criminals from coming.
> you should be buying guns to protect yourself from these gang members who are coming after the bitcoin they assert you have which they know you do because they said so.
Pretty much.
Or you could hire some people to do the security for you. Naturally they will want some money.
But now you’re scaring all the people around you because the security answers to you alone, and you’re scared yourself because the people richer than you have more and better security, and people without enough to hire any security keep disappearing — some dead, some just leave because it’s unsafe — and so you all decide to hire them collectively and pay collectively and oh look you’ve invented taxation and a police force and now you don’t need a trustless payment system but you do need an accountant.
Many people rely on loan providers and most loan providers depend on proof of assets being provided and most organizations that store information are vulnerable to hacking. So that's at least one weakness that is at least one massive vector.
>> because you can’t get your money back when you’re scammed.
> Thats a feature not a bug.
This is a hilarious admission that cryptocurrency is designed for malicious actors. Anyone altruistic would consider lack of recourse for scam victims to be at least an unfortunate consequence of the system design. But a “feature”? Only the scammer or their associate would view it like that
(Someone, I didn’t catch the username, posted “The Federal reserve and taxation”, but deleted it before I’d finished writing this. I think this response is worth posting even though they changed their mind):
That’s a very short list.
What do you call it when someone offers goods or services, but does not deliver them? Or delivers less than advertised? Or sends official-looking demands for payment of parking/speeding fines without due authority? Or sends a fake invoice, based on a real invoice, at the time a customer is expecting and for the amount expected, but with a different receiver?
I would call each of things “scams”.
All of them have happened.
A good system needs a way to make people whole when they have been wronged.
100 people in a room. All of them might have bitcoin. None might have bitcoin. One might have bitcoin. Five might have bitcoin. 99 might have bitcoin. Two might have bitcoin. One guy might have heard of bitcoin.
Which is why you store just a little in one address to "give up". And store the rest elsewhere. And never tell anyone how much you really have.
For example, you hold 100 bitcoins. Randall Munroe's wrench hacker holds you up for bitcoin because he knows you have some. You give him 0.1 from an address. He lets you go. You keep 99.9 of your bitcoins, but your attacker thinks he took got the whole bag.
Because the universe is full of "not a pinata"'s. If an attacker is blindfolded swinging their baseball bats hoping to hit one, its utterly futile on the attackers time spent on earth. They are infinitely better off working at wendy's on minimum wage.
You’re a piñata if the attacker says you are, not just because you’re broke.
Lack of provability means the attacker may never believe you, in which case you’re now dead as well as broke.
If someone has a monopoly on violence, they can pre-commit to massive retribution against anyone who does this. They also get to define what money is, and have a reason to want to.
If nobody has a monopoly on violence, nobody is working minimum wage at Wendy’s because there is neither a minimum wage nor a Wendy’s nor a society capable of supporting a Wendy’s.
> You’re a piñata if the attacker says you are, not just because you’re broke.
And so are you. Doesn't matter if you don't actually have a bitcoin. Lack of provability means the attacker says you have a bitcoin so therefore you have a bitcoin.
You are pinata by decree of the assailant and nothing else. Therefore due to the
> Lack of provability means the attacker may never believe you, in which case you’re now dead as well as broke.
... regardless of whether or not you owned any bitcoin.
Which means everyone regardless of owning or hating bitcoin are now dead because gangmembers say everyone they say so has bitcoin now has bitcoin. I guess we're all dead.
---
> If someone has a monopoly on violence, they can pre-commit to massive retribution against anyone who does this. They also get to define what money is, and have a reason to want to.
And they can also decree who is evil and must be purified. Wether its afghanis, or uyghurs, or jews. They can also decree users with names staring with ben need to be tickle tortured for 20 years.
> If nobody has a monopoly on violence, nobody is working minimum wage at Wendy’s because there is neither a minimum wage nor a Wendy’s nor a society capable of supporting a Wendy’s.
You're getting into economic theory here, which theorists have written volumes of books about, but the short of this is that you're reaching for conclusions without any supporting arguments.
> For example, you hold 100 bitcoins. Randall Munroe's wrench hacker holds you up for bitcoin because he knows you have some. You give him 0.1 from an address.
Keeping your crypto holdings secret would appear to be basic OpSec, just as one would do if you had to carry significant cash, precious metals, gemstones...
Hard to brag about your holdings on social media if you're not allowed to tell anyone, though.
It's not like these folks don't know you can have multiple wallets. How many whacks to the head would you or your family have to suffer before you admit you have more coins somewhere?
Or better question. How many whacks on a rock would an "attacker" have to make before they decide its not going to print any money and they are just wasting their life?
Keep in mind, no one knows if this rock prints money or if that other rock prints money. One of the rocks you've been told can print money but you dont know which one. How many rocks are you going to whack? or maybe its just easier to drive an uber and make money.
Proof-of-work is so obviously, undeniably, mathematically guaranteed to be a crypto dead-end, that I'm gobsmacked we're still having discussions like this.
Proof-of-work requires, by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin. It's really just simple arbitrage: if the value of Bitcoin goes up, but the electricity cost doesn't, then you have essentially 2 different prices for 1 good, which should attract more miners to spend more money on electricity. And, indeed, this is exactly what has happened.
The problem, of course, is that if it takes an Argentina's worth of electricity to run Bitcoin now, how does the world manage if Bitcoin has a 10 or 100 times greater market cap? Obviously it can't, and world governments would rightly shut it all down before the majority of our electric output went to mining BTC.
There is simply no way around this issue if you're on a proof-of-work system, and given that, it's so easy to see that BTC is guaranteed to fail at some point. It's like we're on a train rushing towards a bridge that's out, and everyone can see the bridge is out, but somehow we've convinced a large number of people that we'll "jump the gap" when we get there.
You are making very bold statements ("of course", "obviously") on a topic that has been deeply analyzed over the years without any decisive conclusions.
For one example, I really appreciate Lyn Alden's analysis [1]
I'm making bold statements because I've read reams and reams of treatises on the topic, and every single one ignores some basic, simple, fundamental truths that are inherent to a proof-of-work system. I certainly don't believe I'm particularly smarter than average, and there are definitely other people saying the same thing I am, and certainly much smarter people than I have realized this issue and are transitioning other cryptocurrencies to other proof systems, but I have come to believe that many people are content to keep the music going, even if they know it's going to stop at some point.
When it comes to mining BTC, it really doesn't matter much how miners are paid: through block rewards, transaction fees or some other sort of "security fee". Miners spend money on electricity, and get BTC in return. Furthermore, it's, again by design, a competitive system: those who are able to mine faster (i.e. are spending more on electricity, on average) will win the "block contests" faster and get more BTC.
All other arguments are just "yada yada yada" unless you are somehow arguing that electricity spend is no longer proportional to chance of mining a block, at which point I'd argue that's probably no longer proof-of-work.
This is not a hard concept. If I'm an idiot (which is totally a valid proposition), somebody should be able to explain how a proof-of-work system can get around this "arbitrage problem" very simply - it shouldn't take pages and pages and pages of circular argument.
You're making sweeping statements here, when in reality it depends on both the block reward AND the price of bitcoin. Currently, the block reward has decreased as the price of bitcoin has increased. If the market cap of bitcoin stays the same, then the mining reward in terms of energy will decrease.
Argh!!! I get this kind of response all the time, and it's frustrating for one simple reason: miners certainly DO NOT CARE where their reward comes from: block rewards, transaction fees, whatever.
At the end of the day, it's a very simple calculation for them: electricity costs in, Bitcoin value out. No matter where their Bitcoin reward comes from, they will not (for long anyway) spend more on BTC then they are rewarded.
> If the market cap of bitcoin stays the same, then the mining reward in terms of energy will decrease.
NO! The simple rules of arbitrage would ensure that more miners would be incentivized to beef up their electricity spend to mind faster to win the reward (again, block rewards or transaction fees, doesn't matter).
Miners care about where their bitcoin comes from. Let's imagine the case where 100% of their income comes from the block reward and 0% from fees (seeing as this is nearly the case right now):
1. the block rewards are getting CUT IN HALF every once and a while. If the price of bitcoin stays the constant, their rewards in terms of dollars will be CUT IN HALF. The only way for their income (the upper limit on they can spend on electricity, hardware, etc.) to increase is for the price to increase by more than DOUBLE every time the mining reward gets cut in half.
2. the block rewards increase the supply of bitcoin, decreasing the market cap/price over time. It depends on the emission schedule. Even if the block reward was a constant 1 bitcoin per block, then you would just have a different (logarithmic) inflation/block reward graph with the same characteristics.
Let's say 100% of income comes from block rewards of 1 BTC. If it costs 0.5 BTC to mine a block then miners will beef up their mining capacity so they can mine more. In a vacuum, this would be great, but because of how mining works (winner takes all), the cost of mining would go up as the number of miners increases. This will keep happening until the cost to mine is close to or equal to 1 BTC (and because of currency conversion, the cost might even exceed 1 BTC today but miners are hoping that the price goes up so they can sell at a profit).
Let's say tomorrow, the income is cut in half. All of a sudden, most of these miners would become unprofitable and stop. However as a result, the cost of mining will go back down to 0.5 BTC. It's a self balancing system but that also means that it's fundamentally flawed for reasons mentions by previous commenters in this thread.
I think you are talking past each other. Leaving out transaction fees for a second (which are currently a very small percentage of the miner reward). The block reward is programmed to half every 4 years, taken alone this together with a fixed market cap would mean that the mining electricity spend would also half every 4 years. So the energy consumption of bitcoin will grow only so long as its market cap also doubles every 4 years. That's a tall order.
Bringing back in transaction fees-- I don't think anyone really knows what they will be, but it will be a long time until the dynamics of that are more important than the dynamics of the block reward halving and the market cap.
> At the end of the day, it's a very simple calculation for them: electricity costs in, Bitcoin value out. No matter where their Bitcoin reward comes from, they will not (for long anyway) spend more on BTC then they are rewarded.
True, but the hypothesis in your original comment, that energy expenditure will equal Bitcoin total market cap, does not follow. As other commenters here note, with each block reward halving, the energy required to mine a new block becomes more and more decoupled from the price of Bitcoin itself. In the distant future when block rewards are minimal and fees make up the majority of miners' rewards, only miners who can utilise the cheapest sources of energy will be able to mine profitably, which in the "negligible-block-reward" era will be for the lowest fees. And people making transactions will not pay more fees than they need to, so the existence of miners able to mine profitably for lower fees will in turn bring down average fees. I think all of this should be uncontroversial; it simply follows from the Bitcoin protocol and the work of Adam Smith.
So, given these incentives and Bitcoin's difficulty adjustment mechanism, in the future the only miners capable of making profit from mining will be those with access to the cheapest forms of energy. Anyone who can mine for marginally lower cost is going to push out other miners. This will likely mean the majority of the energy used for Bitcoin mining will come from otherwise wasted energy - such as flare gas, remote hydro not economical to transmit to where people actually live, excess wind and solar supply when demand don't line up, that kind of thing. (And, as an aside, it's probably not going to involve burning lots of oil and gas, since these are more useful to humans in other ways and will therefore cost more.) Obviously more efficient hardware will have the same effect, so there will also be an incentive there. In the end it will have very little to do with Bitcoin market cap and far more to do with the availability across time and space of cheap energy.
> And people making transactions will not pay more fees than they need to, so the existence of miners able to mine profitably for lower fees will in turn bring down average fees.
Only to a point. Since a limited number of transactions can fit into a block, users competing to get their transactions mined in a timely manner will drive the fees up. That price point can be well above the cost of many forms of energy.
So as long as Bitcoin is still valued and there are enough people wanting to make transactions, there will still be miners burning useful energy.
> depends on the block reward AND the price of bitcoin
The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount.
Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees).
The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity.
> making sweeping statements here
The sweeping statements that poster made are the results of a microeconomics analysis.
There is a large & "efficient" market competing for bitcoin mining rewards by buying more electricity.
This is tapping into laws of economics on the level of supply/demand curves: Well studied scenarios that become more accurate the more efficient the market is.
>The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount.
Yes.
>Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees).
Yes.
>The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity.
No.
You're conflating two different things here: A reward-dominated bitcoin and a fee-dominated bitcoin.
The reward takes money from bitcoin owners in the form of inflation. It decreases the market cap by increasing supply.
The fees take money directly from bitcoin users.
In the reward-dominated case, miners are funded by new demand for bitcoin, which props the market cap up. In the Fee-dominated case, miners are funded by bitcoin users who compete with each other for limited bandwidth. In either case, the money being given to miners by these two parties is always greater than or equal to the money spent on mining (power, hardware).
What we've seen so far is a reward-dominated bitcoin in which demand is very high and the market cap increases as the block reward decreases. I predict the demand will stabilize and the reward will continue to decrease. This means there will be less mining. Eventually the reward will asymptotically trend to zero in which case bitcoin will become fee-dominated.
Fees are dependent on the supply/demand for bitcoin bandwidth (the supply is a static 1MB/10 mins), not market cap or price.
It's weird how so many of the arguments against what I've originally written pretend that it matters whether the reward comes from a block reward or transactions fees. It does not matter. Certainly miners don't care how they get paid - for them they have a simple calculation of "bitcoin value I get out must be greater that electricity cost I spend".
And the fundamental idea behind proof-of-work that they amount of work you're "proving" must be enough to make double-spend attacks infeasible. If the electricity cost to mine a block is low enough compared to the value that could be gained by a double-spend attack (which is of course comparable to total BTC market cap), then the network is not secure.
>It's weird how so many of the arguments against what I've originally written pretend that it matters whether the reward comes from a block reward or transactions fees. It does not matter.
It does matter. Block rewards are a transfer of value from bitcoin owners, which increases as people BUY bitcoin. Block fees increase as people USE bitcoin. Those are two separate things. What we are seeing now is mining that goes far beyond the mining necessary to secure the network, and that's due to (temporary?) speculative demand which increases the value of the block reward.
>And the fundamental idea behind proof-of-work that they amount of work you're "proving" must be enough to make double-spend attacks infeasible.
well, infeasible by a single antagonistic party. There's also the cost associated with the depreciation of the hardware. Even if mining somehow required no electricity, then the network would still be secure because there is some Time-Value cost associated with owning computer hardware.
>If the electricity cost to mine a block is low enough compared to the value that could be gained by a double-spend attack (which is of course comparable to total BTC market cap), then the network is not secure.
I agree. I think bitcoin will eventually succumb to selfish mining attacks.
"It's weird how so many of the arguments against what I've originally written pretend that it matters whether the reward comes from a block reward or transactions fees. It does not matter."
"It does matter."
Miner do not care, so it does not matter.
This is amazing to watch. hn_throwaway_99 complains that he only gets handwaving and circular arguments against this, only to get multiple answers which are exactly that.
Mining will always spend a large chunk (>50%? depends on the complete distribution of efficiency off all miners) of rewards on electricity. A quick search shows this to be 0.5% of all electricity used in the world. If Bitcoin price goes up 10x right now, this would shortly increase to around 5%.
But, there is also a thing that miners still have to pay electricity in dollars or whatever, so they are forced to sell on exchanges. This creates a downwards pressure on Bitcoin price.
Currently this could be somewhere around $billion per month. So, you need a billion a month of fresh sucker money, just for the bitcoin price to stay the same.
Aren't the fees dependent on the velocity of Bitcoin, and not the market cap?
There's some dependence in the fees, since they'll be paid in Bitcoin, and that there's still the odd new Bitcoin being made, but you're still being paid per transaction, unrelated to the value of the bitcoins in the transaction
You're right that there isn't a direct causal relationship between fees and market cap, but I think the ratio between them is important. If miner revenue becomes a tiny fraction of market cap, 51% attacks become a very real threat. Then the community would need to do something to increase the ratio, such as establishing a permanent block reward.
I agree. In fact, some cryptocurrencies like have implemented constant "tail emission" block rewards. The problem is that this scares off investors and speculators because there's not as much scarcity.
When market cap / price goes up, more people enter the market to mine until supernormal profits are gone - This is the relationship being discussed.
People will enter the market which pushes up the difficulty / electricity and hardware consumption until profits are brought back down to a normal level.
People will always enter the market (to produce) if there is a difference between the price of a Bitcoin and the cost to produce a Bitcoin (electricity, equipment etc).
If the price goes down and it costs more electricity to produce a Bitcoin that is economically viable, people will leave because the juice isn’t worth the squeeze.
So the same relationship works inversed too - difficulty to mine and electricity consumption is related to market cap / price from an econ perspective. I agree with your point on Bitcoin hype, but the production side is just economics and people trying to make a buck if there is money on the table.
Upon a second reading of parent poster's comment, there's nothing much to debate the conclusion but mostly debating the degree of certainty of the conclusion, which is a much lower bar.
The way I see it though, unless anyone is shorting cryptocurrency with 100% of their net worth I think they are at some level expressing that the world is not so clear cut. Sometimes meme stocks win before you run out of runway.
> Proof-of-work requires, by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin.
Proof of work in Bitcoin requires computation of a thing called a Nonce. If a miner gets the right Nonce while hashing, they get that block's reward. The electricity value expended on mining that block is proportional to the total amount of hashes being performed by miners in the network at the time. There is no "design" for requiring the cost of this power be equal to anything directly related to the market capitalization of Bitcoin, which really means how much Bitcoin is worth compared to other markets, such as USD. Are they linked to each other through human action and decision processes? Certainly. Is it coded in the chain? No.
> It's really just simple arbitrage: if the value of Bitcoin goes up, but the electricity cost doesn't, then you have essentially 2 different prices for 1 good, which should attract more miners to spend more money on electricity.
If the electricity cost doesn't go up, then the number of Nonce being computed will only go up if more miners join the effort. If they don't, the network is still operational, and produces the same amount of new coin every so often. What is NOT obvious here is that the technology for increasing the mining rates is always increasing, so the clowns will continue to pay to upgrade their hardware over time to save on electrical costs and engage in competition with the technology. The exchange rate for Bitcoin may be related to the technological "power" that is required to keep the network running and producing new coins, but less directly so related to the amount of power burned.
> Furthermore, it's, again by design, a competitive system
By design, Humans compete. The Bitcoin blockchain could be mined and run by two clowns in a tent if nobody else cared. It's not coded to be competitive, it's coded to be cooperative. This means the the amount of power spent on mining and running the network is a cooperative function. The amount of money spent on developing and producing faster hardware is a competitive function. The two together produce something that is chaotic and interesting.
Bitcoin does have a downside, and that is that it is a viral thing that cannot be taken down by any one person or organization. It would take 51% of those running the network to cause it to fork into two. It would take an impossibility to halt it. Maybe this scares some people and maybe it makes some people excited about the possibilities. Either way, we're going to need Fusion to run it in the future.
Most of what you said I agree with, but not your last point:
> Either way, we're going to need Fusion to run it in the future.
In my understanding, the economics of Bitcoin mean that eventually mining will be performed with predominantly waste energy, which is by definition that which has no other practical use. The existence of a practical use for the energy other than for mining will push its price higher than is economical to use for Bitcoin mining, because other miners using waste energy will be able to pay less to mine the next block. It's likely that energy for Bitcoin mining will come from sources like heat from flare gas, currently just burned at oil refineries and released as photons into the night sky, leaving Earth forever. Or energy from wind turbines or solar panels during periods of low demand. Or a hydroelectric dam 1000s of km from civilisation willing to pay the transmission costs to use it. Or, heck, even heat extracted from sewage in Vegas hotels, if it's enough to run a steam turbine. Basically anywhere where otherwise useless energy can be extracted in quantities sufficient for mining. I don't think, given the costs of the infrastructure likely required for fusion, we'll be seeing it employed for Bitcoin mining long term.
This is one of the aspects of Bitcoin I find most beautiful - it monetises waste.
Ehm.... "waste energy"? I'm not sure there is such a thing. If it can be harvested and used, why should it be used for Bitcoin instead of... well, anything else?
Because energy (at least currently) can not be easily transported, to where it can be used. Factories can not easily move to power plants due perhaps increased supply chain cost or labor cost. Whereas Bitcoin mining can be moved anywhere with a shed and an internet connection.
Aluminum smelters are specifically sited to be near low cost power plants. Refined aluminum is essentially a storable and somewhat portable form of energy.
I still don't see the prerogative for bitcoin. Yes, most industrial processes are inefficient and we can and should reclaim lost energy. There are many ways to do this, and many purposes. Charging batteries seems the most reasonable: making the energy stable and portable.
Admittedly I don't know much about battery efficiency, so there may be other more efficient uses. Hydroponics lighting?
Where "waste energy" is difficult to access and available only in trickles, it's surely very unsuitable for bitcoin mining, which is energy intensive.
Frankly, there are far more pressing issues than making more bitcoin.
Who exactly do you think is going to be building the expensive infrastructure necessary to capture this low-value waste energy?
Sure, there’s conceivably times of low demand when some energy would otherwise go unused. But a “ hydroelectric dam 1000s of km from civilisation”? Heat extractors in Vegas hotels? You’re imagining a fantasy world.
Further, what you’re ignoring is that none of this is “waste”. It’s already being stored or used. Finding new demand for it simply makes it more expensive for existing users.
> ... none of this is “waste”. It’s already being stored or used.
Turned off wind turbines at times of surplus. They tell us that nope, it is not (yet) being used or stored.
> Finding new demand for it simply makes it more expensive for existing users.
It's not that simple. It could very well be the case that selling a portion of energy that otherwise has no demand to a buyer of last resort enables the business to be profitable. Not selling this portion of energy would mean that the operator would have to charge their other customers more in order to be profitable.
So it could in fact make things less expensive indeed.
> mathematically guaranteed to be a crypto dead-end
Your argument is not mathematical at all. It assumes first that bitcoin needs to appreciate 10-100 times current value. And second, that political willpower exists to then shut it down purely because of energy usage. Neither of those conditions are mathematically guaranteed, nor are they even in the realm of mathematics. I won't even address the underlying assumption that energy usage is unilaterally bad.
One possible outcome, for example, is that bitcoin just hovers around its current price for a long time. If feels like every discussion on bitcoin is made of people who either think that it must either take over the world or must go to zero.
OK, of all the comments I've seen trying to refute what I've written, yours is the only one I've seen that at least makes sense.
Yes, I totally agree, the crux of my argument is really just "in a proof-of-work system, it is undeniable that electricity spend is proportional to total network market cap", so if the market cap doesn't change, then things can certainly putter along.
That said, if the idea is that more and more of the world's economy will be represented by BTC transactions, which these days is pretty much what every person who owns BTC believes, then the market cap can't stay static. I also have a very difficult time believing that if the market cap did stay static for 10 years or so that people wouldn't start to realize "the jig is up".
But yes, I totally concede, if the market cap doesn't rise, current electricity spend doesn't need to rise either.
By "the jig is up" I mean that the vast majority of reason people invest in Bitcoin is as a speculative investment. If it stays flat for 10 years, it loses its appeal as a speculative investment, and then would collapse.
The other reason some "true believers" (or, as I refer to them, insane cultists) invest in Bitcoin is because they believe it will be "the world's currency", i.e. that it will replace major currencies like the dollar. But, were that to occur, it's market cap would skyrocket, at which point it would require a planet-and-a-half's worth of energy to stay secure, which is also not happening.
No, total dollar amount of electricity expenses spent on mining does not depend on the price of electricity.
Today, miners are getting paid about $1.5 billion per month. If they like money, they will keep adding new miners and run them until they all in total spend less than, but close to that amount.
So, $1.5 billion per month of fresh money needed to offset this pressure on Bitcoin price.
There goes the argument that Bitcoin is a good "store of value."
> total dollar amount of electricity expenses spent on mining does not depend on the price of electricity
I agree. As far as I understood the issue was not with the money spent on energy but with the energy spent, no?
> So, $1.5 billion per month of fresh money needed to offset this pressure on Bitcoin price.
If I understand correctly, you're saying that BTC inflation is a problem and I believe this is true, both in the economic and ecological sense.
But there was no way in 2009 to foresee the optimal inflation rate (halving every 4 years isn't too bad actually) and modifying it now defeats the founding principles of BTC, so it'd be a big no no. So it was kind of a trade off and will continue to be, every 4 years a bit less though unless we hit hyperbitcoinization.
From an economic point of view the investment into bitcoin is only ever relative to other assets and most of them inflate far more (relative to their mcap).
The end of mining is the end of bitcoin. If there are no miners contributing to create the network consensus, then anyone can come in with a 51% attack and destroy the integrity of the block chain.
> Your argument is not mathematical at all. It assumes first that bitcoin needs to appreciate 10-100 times current value
Satoshi consensus doesn't care about the numeric value of Bitcoin at all. It cares about the value of the transactions conveyed by bitcoin.
Satoshi consensus is the observation that if the energy required to fork the network and roll back a transaction costs $X, then it's financially non-viable for someone to roll back a set of transactions that is worth less than $X. That's all. If the value transacted on bitcoin increases above $X, then it is potentially financially worth it to attack the network, unless the amount of energy expended increases accordingly. So the value of the transactions is directly tied to the (value of the) energy expenditure.
As a side note, there is no automatic mechanism built into bitcoin that ties these two values together. The assumption is that the value increases and the rewards decrease and it all sort of works out (especially if the network transitions to transaction fees instead of inflation-based block rewards). But there is no mechanism that it must, and if the value dropped really hard all of a sudden, for example, it might suddenly be more viable to attack the network. Attacker energy cost will significantly decrease as rational actor miners realize they're taking a loss and turn off their mining hardware, miner energy expenditure will decrease, which decreases the energy (and cost) required for attackers to fork and roll back transactions.
It's an interesting variation of the "frisbee on the roof" attack, like a "fire all the janitors and then shit on the floor" attack. Nobody ever wants to go back into that business because there's shit all over the floor, but without any customers there's no money to hire janitors either. The network now enters a terminally unrecoverable state, without manual intervention from outside actors.
> if the value dropped really hard all of a sudden, for example, it might suddenly be more viable to attack the network
In practice, users of bitcoin would simply wait a longer time for more block confirmations, namely if you estimated the cost of a double spend attack was $X you would just wait for block confirmations with a total of more than $X of fees + block rewards such that the transaction you are confirming is deep enough in the blockchain to not be economical to include in the double spend attack. Note that the slowness of difficulty adjustments is also a defense here against the further problem of $X decreasing very quickly such that a transaction you had already confirmed becomes viable to attack. Because difficulty changes only every 2016 blocks, if all mining stopped and $X theoretically became 0, in practice you won't get to the next difficulty as no new blocks would be found, so $X in practice wouldn't move.
The inflation due to bitcoin mining is already smaller than other systems that are widely considered stable. Note that I don't think bitcoin will actually be stable, but I think inflationary pressures are almost insignificant as a factor that would drive it to collapsing.
For bitcoin, 90% of all bitcoin has already been mined. So the remaining dilution for all time is in total just about 11%, and the current annual rate is 1.8% inflation. Compare this to gold, which has 2% inflation and no max supply. There are also technological innovations that could inflate gold much faster, e.g. asteroid mining. Compared to USD as measured by CPI is 8%, and the Fed's own target for CPI inflation is 2% annually, so this is much higher than bitcoin and also unbounded total dilution.
Don't confuse money supply growth and inflation. (Unless you're a monetarist, of course, but their doctrine has been quite convincingly refuted over the last decade and a half.) Inflation is change in the price of real goods.
BTC experiences 1.7% money supply growth p.a. until the next halving, and it had deflation on the way up to $60k. BTC had 100% inflation since then, obviously, way worse than fiat.
Fiat had massive money supply growth since the GFC, but virtually no inflation until now (which can be explained by supply chain problems due to COVID, war, and too loose fiscal policy (Biden's stimulus arguably too large, after Obama's was too small)).
You're wrong. Block rewards halve every 4 years. Next halving is in 2 years. This means that electricity use funded by block rewards trends to zero. Miners earn also transaction fees, which will gradually replace block rewards in the long term. Transaction fees are revenue from utility.
It's a well designed incentive system; it will keep Bitcoin running as long as people find it useful, and it won't eat the world.
The issue is total transaction fees must be kept high enough to avoid miners defecting into double spend attacks. That would be easy if people where using it as a high turnover currency, but if people want to use it as a long term store of value transaction fees can quickly become many orders of magnitude smaller than the value stored in Bitcoins.
It need not be illegal. Short Bitcoin, preform double spend attack between addresses you own, profit.
This is the same conclusion I came to. Bitcoin's incentive structure makes sense if the users of it gain value by being able to use it as a common medium of exchange. If you look at the money that e.g. mastercard and visa pull in, it makes sense that you could sustain bitcoin off of that indefinitely. It could also conceivable result in a relatively lower market cap if people do not in fact save money in bitcoin, reducing the threat of 51% attacks. As a store of value, the incentives no longer make sense: for the 'store of value', it must be deflationary, thus mining cannot produce new coins indefinitely. But it also cannot be too expensive: if just keeping your coins requires paying a significant percentage of the value of them to secure them on an ongoing basis, you're ultimately losing in just the same way as someone in an inflationary coin does. There's also no particular mechanism which makes sure said price is actually correct: ultimately you need to figure out how much mining is 'enough', and also realistically have some mechanism to spread those costs out evenly amongst holders of bitcoin, lest it become a tragedy of the commons where no-one wants to contribute.
We don't know what will happen. These problems and potential solutions have been hashed for years, but we'll have to just wait and see. You'll have to just believe that the economic incentive the preserve all the value will result in a solution.
51% attacks work on arbitrarily long timescales. Though obviously you can still do short double spend attacks at some probability with less hashing power.
An attempt to rewrite the ledger with a 51% attack would be detected almost immediately. The Bitcoin in the rewritten ledger would quickly become worthless, including that belonging to the keys owned by the attacker. All that mining gear used to perform the attack would then be worthless too. This doesn't seem to me like a profitable attack vector once you consider the complete picture.
Shorting Bitcoin doesn’t require you to ever own any Bitcoin. It does require a counter party(s) that would pay out.
The value of the gear is just a question of the future profits it can generate. If that future revenue is less than what you get from the great short then it’s profitable. And that’s assuming you can’t reuse the same equipment for some other purpose.
It requires you to borrow bitcoins from someone -> sell them -> do the attack -> buy them back -> and then return them.
If you could borrow enough bitcoin, and gain enough hash, and crash the price enough for it to be profitable, it could possibly kill Bitcoin. Seems like an insane gamble to me though.
That said if I where writing a story I would have the protagonist gain the hashing power first, something strands their assets such as increased electricity prices making mining unprofitable or a next generation of hardware coming out etc. Then they come up with the idea of a big short.
But you can only double spend coins you already control, so at this point you would control 51% of global SHA2 hash and have a bunch of bitcoin that you would be double spending?
Who would accept that as payment? What incentive would you have to do something like that since you would be taking a massive loss?
I think you are the first person I have read to say this, but I totally agree.
The cost to secure the Bitcoin network is a function of the market capitalization. If the market cap increases so will the cost of securing the network.
If Bitcoin market cap continues to increase, the resources required to secure the network will start to crowd out other economic activity.
I feel like we are seeing the first glimpse of this with the chip shortages.
>Proof-of-work requires, by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin.
This is mostly true, but I think you're conflating a couple different things here. At market equilibrium, you would think it would look like the cost of power + hw depreciation = crypto price * (block reward + fees).
>if it takes an Argentina's worth of electricity to run Bitcoin now
It might be justified if bitcoin could replace the traditional financial system (think about how inefficient that is), but I do not think it can.
>how does the world manage if Bitcoin has a 10 or 100 times greater market cap?
I don't think bitcoin's market cap can multiply by a factor of 10 or 100
> It might be justified if bitcoin could replace the traditional financial system (think about how inefficient that is), but I do not think it can.
Bitcoin is already way more inefficient than the current financial system. Just compare cost per transaction between Bitcoin and Visa, for example. People seem to think that Bitcoin will somehow replace the entirety of the financial system when it's not even designed to do that and only really handles transactions.
Yes. The fees are mostly due to bitcoin's unreasonable 1MB blocksize constraint. Most other cryptocurrencies do not have this problem because they make a more reasonable throughput to bandwidth/storage tradeoff
It's neither reasonable or rational. As technology improves, the cost of bandwidth and storage decrease, and latency decreases. Rationally block size and block time should reflect that.
Without some way to squash history, I don’t see how it’s possible to fix this. The bitcoin chain is currently 400gb. If we bumped it up to 10mb blocks we would be looking at several terabytes while still not being anywhere near big enough to handle real transactions.
Fully agree with your analysis. Other's have nitpicked your exact words but your point is totally correct: There is a cap of how much Bitcoin price can increase, at least before multiple halvenings. If it increases above this cap, the mining power usage will become so absurd that external forces will come into play (regulations, and very negative perception once people realize that it's absurd).
That's why I don't believe in any crypto that doesn't at least have a path to switching to PoS (or some non PoW system).
> Proof-of-work is so obviously, undeniably, mathematically guaranteed to be a crypto dead-end
Bold claim.
> Proof-of-work requires, by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin
False statement (as it ignores the bitcoin emission schedule and transaction fees).
> The problem, of course, is that if it takes an Argentina's worth of electricity to run Bitcoin now, how does the world manage if Bitcoin has a 10 or 100 times greater market cap? Obviously it can't, and world governments would rightly shut it all down before the majority of our electric output went to mining BTC.
Constructing an irrelevant hypothetical based on the initial false statement.
> simply no way around this issue if you're on a proof-of-work system, and given that, it's so easy to see that BTC is guaranteed to fail at some point
More bold declarative statements with nothing to back them up.
Such a good point. I get that it's tempting for people to hold on to the idea of Proof-of-Work because it was 100% necessary to get the idea of crypto off the ground, but this is like people holding on to the idea of burning coal to run trains forever.
Bitcoin was the proof of concept, but it to me seems 100% obvious and inevitable that something else will replace it (if crypto continues to exist, which I believe it will) -- ESPECIALLY since the whole point of money is fungibility-in-practice.
> The problem, of course, is that if it takes an Argentina's worth of electricity to run Bitcoin now, how does the world manage if Bitcoin has a 10 or 100 times greater market cap?
The amount of electricity is not proportional to the market cap. It's proportional to the difficulty. You can create a copy of bitcoin where the difficulty is keep very low and add a very big amount of transactions and be very easy to make fake blocks and forks and other nasty stuff. The difficulty is adjusted to keep the time to find a block somewhat constant.
One problem to handle a bigger marketcap is the block size. One solutions is to increase the block size, another is to use a secondary chain. I'd like to increase the size, but most people prefer the other.
Also, when you add the energy that goes directly from sun light to soy beans, I think that we are in Argentina still using a little more more energy than bitcoin.
>The amount of electricity is not proportional to the market cap
This misses the point of the argument, which is to say that if the market cap of bitcoin goes up, the marginal benefit of mining by definition goes up. This in turn drives up demand for electricity, until the marginal cost of additional mining units and associated power equilizes. That's not to say that there isn't a benefit to a more efficient proof-of-work scheme, as in theory if the scheme can support _all_ future and current transactions like the current banking system, then there's a cap on energy consumption. However, what OP points out is that the speculation and monetary utility of Bitcoin both act to increase power consumption due to basic economic forces.
>Also, when you add the energy that goes directly from sun light to soy beans, I think that we are in Argentina still using a little more more energy than bitcoin.
This is a non-sequitur. The point of using Argentina is to illustrate that in verifying transactions, Bitcoin uses as much energy as millions of people lighting their homes, watching television, running air-conditioning, heating water, charging their phones, etc etc etc. Nobody is claiming that Bitcoin consumes more metabolic energy or solar energy, OP's just highlighting that Bitcoin's electricity costs are potentially unsustainable.
> The amount of electricity is not proportional to the market cap. It's proportional to the difficulty.
But the difficulty is proportional to the amount of miners, which is proportional to the profitability of mining, which is proportional to the price, which the market cap is proportional to (i.e. price x supply). So electricity is indirectly proportional to the market cap.
> One solutions is to increase the block size, another is to use a secondary chain.
Those solutions don't address the energy spent on mining, they just allow more people to transact. The former means more transactions (more fees), the latter means fewer but more expensive on-chain transactions (more fees). Either way I believe the block reward (and thus the amount of energy miners will throw at getting that reward) will be roughly the same, it'll be a function of how much people value and want to use bitcoin.
> the electricity value expended on mining is proportional to the total market cap of Bitcoin
That would be the case if price doesn't vary much over time. But marketcap is current supply * current price, while the large majority of current supply was mined when bitcoin was WAY cheaper and thus much less electricity was spent on it.
> It's really just simple arbitrage: if the value of Bitcoin goes up, but the electricity cost doesn't, then you have essentially 2 different prices for 1 good, which should attract more miners to spend more money on electricity. And, indeed, this is exactly what has happened.
How is this different from any other good or service? Is it bad only for bitcoin?
> The problem, of course, is that if it takes an Argentina's worth of electricity to run Bitcoin now, how does the world manage if Bitcoin has a 10 or 100 times greater market cap? Obviously it can't, and world governments would rightly shut it all down before the majority of our electric output went to mining BTC.
What is the problem with it? Do you know why oil has the price it has and why we built all the enormous infra structure to extract it? Because it is useful, and we can kinda measure it by its market cap. If the market cap of bitcoin is huge, that means that...... its usefulness is huge (or you can argue it is a bubble, but then it's a different argument). So the higher the market cap the more useful it is, and its a good thing. The profit and loss is what will tell if we are "wasting" resources or not, if it is profitable, then that means that people value bitcoin more than the electricity it uses, that is not a problem.
Not only is there no way around it, but it's actually impossible to start new networks from scratch based on proof-of-stake due to the "nothing at stake" problem. If attackers don't care if their stake gets burned (because the value is low) then there's no longer an incentive for attackers not to validate on multiple chains at once (which is what staking is supposed to prevent). All new networks must go through a proof-of-work stage of evolution.
Further, the existence of proof-of-stake coins at all means that decentralized exchanges exist, which makes it impossible to ever kill proof-of-work in a legislative sense. Even if you killed fiat exchange for $SHITCOIN entirely, once there is a coin that has sufficient value, people will be happy to have bitcoin instead of USD, or trade to Bitcoin and then over to USD. You can either ban them all entirely, or you have to live with both PoW and PoS together.
Unfortunately, crypto is a memeplex, it's like a corporation, it's a self-reinforcing living entity that supports itself (maintains homeostasis) through a series of rules and incentives, and now that it's been created it can't be easily killed. Every individual is financially incentivized to keep playing their part, so everyone would have to collectively agree to not make money by taking part, and as people fall out the incentives become steeper and steeper to participate. Would you mine on your card for $100 a day? $1000 a day?
We will just have to live with destroying our planet, because now that it's been created it's virtually impossible to kill. That was the whole point. With apologies to Alien: it’s biologically engineered to be a survivor... the perfect predator (of certain other memeplexes - meaning, states and state-backed currencies, which are also self-sustaining memeplexes with their own rules and incentives). That was the stated goal of the design, and it works! There's no "off button", otherwise it would be trivial for "statists" to push it. There is no "oops we forgot to add a limit to the paperclip maximizer" or "don't kill the people who try to stop paperclip maximization" button either. People whose livelihoods depend on crypto are highly incentivized to come up with ways (like PoS) to keep it going even if the outcomes of the overall system becomes undesirable. The day it became legitimized by the SEC, it certainly became impossible to stop it. Now you will have Wall Street money fighting you too.
You wanted an unstoppable decentralized cryptopunk future with assassination markets, that's exactly what it does. It wouldn't be unstoppable if individual or collective action (like that of a state or other group of individuals) could stop it, and it was designed knowing that people would try to stop it. All according to keikaku.
(cue the gif from dr strangelove of general turgidson's horrified realization of what he's just said)
> it's actually impossible to start new networks from scratch based on proof-of-stake due to the "nothing at stake" problem. If attackers don't care if their stake gets burned (because the value is low)
most new PoS chains do just fine because validators are owned by VCs that want to grow the network. whether they can successfully decentralize is an open question but the bootstrap problem is solved
PoS investors burn their reputation if they double spend on any network they invest in.
this is a stronger guarantor of safety than PoW for every chain aside from ones that dominate their computing platform (BTC/ETH). anon miners will eat a naive network and move on.
yes, requiring external trust to exist between parties is a very effective strategy, I agree, but it's not a solution to the general problem where trustlessness is required.
And if you are requiring trust between parties... you might as well simply have an auditable database instead of requiring staking or mining at all.
(requiring oracular knowledge (external to the system) that other VCs have a financial stake is still a trust-based system... and they could still sell that to someone who doesn't, and fuck you over, and your knowledge that they won't do that for social or contractual reasons is still oracular knowledge. You haven't solved anything, you've just created an oracle that everyone agrees to trust, which is a trivial solution to almost all challenges within crypto.)
databases don't have the self-organizing infrastructure to eventually decentralize. vc tokens might.
"it's actually impossible to start new networks from scratch based on proof-of-stake" is simply incorrect. almost all crypto networks will start this way.
Agreed. This is obvious both empirically and analytically.
As BTC price goes up, the network starts to yield larger mining profits in total (in fiat terms) and this creates an incentive for people to launch new miners to absorb the surplus profits... The increased competition then causes an increase in mining difficulty which reduces the profit margins back to what they were before the increase but now there are more miners in the network with more total hash power which are consuming more electricity in total. The equilibrium point is the point where most miners are teetering on the edge of unprofitability.
One interesting thing to note, however, is that while increases in the price create an incentive for more miners to join the network, the Bitcoin network itself does not require so many miners to exist to support itself at those higher price levels. If you assume a hypothetical scenario were all governments around the world required a license to mine Bitcoin and limited the number of machines allowed in total, then price could keep going up without an increase in the total number of miners. This would be very convenient for existing miners as they would be able to earn more profits without having to buy more machines as the price increases.
The fact that this obviously negative-sum game has been profitable for miners in the long run is proof that our current monetary system is broken. If our monetary system was efficient and becoming more so, it would be unprofitable to run so many miners. Bitcoin profits from the inefficiency of monetary system whilst revealing to us the fiat system's negative-sum nature. As dumb and unethical as this all seems, it is the smartest investment to make in the context of our current system.
I suspect that Bitcoin saves more electricity than it wastes by turning the world economy into a giant squidgame... It attracts capital towards it instead of towards other economic activities which would end up consuming more electricity... Those other activities would certainly have made better use of the electricity (since, unlike BTC mining, they would have provided tangible value to people in return) but Bitcoin doesn't care about people's well being. It profits from the destruction of opportunities and the concentration of wealth. Poor people consume less electricity. Bitcoin saves electricity by ensuring that poor people stay poor by soaking up all the excess capital so that it doesn't get invested in real economic activities which would bring people out of poverty.
> world governments would rightly shut it all down before the majority of our electric output went to mining BTC
They can regulate it otherwise, e.g. demand that miners use their own source of green electricity, and make other type of mining illegal, or demand that less than 1% of the total electricity production of the country is used in mining, outlaw the rest and fine illegal operations, etc. It doesn't have to be completely banned everywhere.
> BTC is guaranteed to fail at some point
You'd have to define what "fail" means here, especially given that many proponents of BTC argue in its favor for different (and often contradictory) purposes. What's the failing scenario you're talking about, once mining takes all the electricity it can (be it 100% of production or whatever regulations still allow it to take)?
> by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin.
You have to factor in the amortized cost of specialized hardware over it's lifetime, and a few other factors. But it's a good approximation.
BTC tried to solve this with diminishing rewards for mining. The problem is BTC's market cap doubled far faster than the rewards halved.
But I think you are wrong at the high end. If BTC was worth 100x tomorrow, the current miners cannot just push a button and draw 100x the power. I think governments would be far more likely to ban new rigs, but may let grandfathered rigs continue to operate. If that's the case, I can see miners becoming quite profitable.
It's only irrational if you think the government cares about maximizing hashing efficiency. It's perfectly rational if you recognize that in most (western) legal systems there is a difference in the ease and acceptability of stopping someone from taking a new action and the allowing them to continue taking that same action. This is due to various legal underpinnings, but also makes perfect sense in that allowing someone to invest millions and then pulling the rug out from under them is very different from telling them they were never allowed to invest those millions in the first place.
Building codes are an excellent example of this. It's perfectly legal to maintain, sell, lease, etc. a building that would be illegal to build today.
I agree 100%, though I am interested in chains which are doing "Proof of useful work". I haven't looked into it too much, but I believe Banano participants run folding@home (https://en.wikipedia.org/wiki/Folding%40home) to secure their network.
This seems like it could be an alternative to classical proof of work that at the very least, isn't actively harmful to society. But I'm unsure if it offers the same security guarantees.
> Proof-of-work requires, by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin.
I'd amend that to read: Proof-of-work requires, by design, that the money wasted on electricity and electro waste is proportional to the total market cap of Bitcoin times the mining reward (currently 6.25 BTC per block).
What I don't understand though is once all bitcoins have been mined, doesn't that mean that transaction fees are then also required to be proportional to the bitcoin market cap and electricity usage value?
No, fee costs are based on supply and demand of block space. It's simple, miners just scoop the highest paying transactions into the next block. If there's congestion, people pay higher fees to expedite their transactions.
Yes but once there's no longer the financial insentive of bitcoin rewarded for mining, fees need to have the same insentive relative to bitcoin market cap? Otherwise double spending becomes the most profitable for miners surely.
To emphasize, it does not matter. Let's say we have some great new technology that enables us to get electricity for a tenth of what it currently costs. It just means miners will be willing to use 10 times more electricity to mine for a given amount of reward (and, for the umpteenth time, block rewards, transaction fee, whatever, doesn't matter - the BTC they get in return for being the first to mine a block).
Indeed, this is the whole idea behind specialized mining rigs. These rigs essentially lower the cost of electricity for a given hash rate.
But assuming other miners have access to the same equipment, in the competitive system that is proof-of-work they will just bump up their usage of electricity until the point that, again, it no longer makes sense for them to do so because they'd be spending more than the rewards that they get in return.
The use of mining for hashes in general seems such a completely arbitrary thing to select for Proof of Work. It may have suited the academic cryptography/CS mindset back when the whole thing was an intellectual exercise on whitepaper, but now, as a victim of its own success, it is a threatening technical debit burden.
My working theory is that a system could be devised that re-defines Proof of Work to align with some demonstratable real world physical benefit like planting a tree or recycling waste or placing a renewable kwh on the grid. Yes there are tremendous process invention challenges on a Manhattan Project level scale but the stakes seem able to justify a Moonshot approach.
Mining under existing Proof of Work conditions is a weird arbitrage at scale of physical compute cycle cost/performance and raw electrical overheads measured against the perceived speculative value of the minting benefits returned.
Even reducing mining to a barebones fintech set of transactions would make sense at this point. A single Cash (as proof-of-work) account where each miner adjusts their relative position in real time in response to market conditions. An opensource code as law snapshot Lottery system that mimics the existing minting benefit and proportional voting rights distributions on chain. Yes it interrupts the purely distributed zero trust consensus mechanism, but, there are other compatible mitigation and trust designs, and, as an overall step change, the ability to grow without consuming nation state level power resources in this day and age is well worth the tradeoff -- if not absolutely mandatory.
Also on HN the other day [1]
frankenst1 reply to mondoveneziano :
START QUOTE
> For Bitcoin, the most popular one, on the order of 100.000.000.000.000.000.000 of hashes get calculated to mine a single block, multiple trillion per second. Within ten minutes, only a single one of those 100.000.000.000.000.000.000 hashes is actually used, depending entirely on luck. The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.
You need to dig through 1 million gram of ore to find 1 gram of gold, depending entirely on luck. The rest is thrown away entirely. The energy is of course not lost but was necessary to find something of value (which also creates a lower price boundary). In contrast to gold, Bitcoin mining ensures provably fair probability of winning, has a tremendously lower barrier of entry, provides incentives to be run on renewable energy and produces far less waste.
END QUOTE
> Proof-of-work requires, by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin.
This premise isn't true. Funny you have this big confident argument when you're wrong about the basics.
The electricity expended is proportional to the value of mined bitcoins plus transaction fees. Note that the mining rate goes down over time, approaching zero.
After the each “halving” you should expect the energy expenditure would also halve by that same logic. The halving would could continue until the energy requirement is minor!
I think this is what we call “self-limiting”. Maybe miners are subsidizing their mining by BTC appreciation (though, it seems it’d be easier to just buy BTC), and if they are then some people are going to find new jobs when the price changes slope.
“Self-limiting” is a game-theoretic property, not an economic property. The point of the post is that there’s a fundamental economic unreality in how these mining companies are valued, and all signs (such as hearty executive bonuses) point to the fact that their leadership is aware and is emptying the bag before leaving others holding it.
The comments are yet another endless proof-of-work debate. Here’s the truth: none of this debate matters. Bitcoin isn’t going away, and it’s not changing consensus algorithm.
Money is a network good, and Bitcoin has the best network. It will continue to grow whether you like it or not. Bitcoin isn’t like some other cryptocurrency that formed around a founder or company. There is nothing and one no one to attack. It just… exists and will continue to exist until something comes along that is 10x or 100x better.
The problem for those that oppose Bitcoin is that none of them are capable of building something better at the problems that Bitcoin addresses.
The article is about how bitcoin mining companies may go down mostly because there is too much competition in that space and because bitcoin’s price isn’t going up so fast anymore.
That sounds plausible. It doesn’t herald the end of bitcoin, just that at some point there’ll be less people mining it. Which sounds like a good thing.
Yeah I was referring to the comments, not the article, because every Bitcoin article comments section devolves immediately into this no matter what the article is about.
> Bitcoin isn’t going away, and it’s not changing consensus algorithm.
Well... until someone forks it to change the consensus algorithm, right? Or the programmers decide to make the change globally? Or the miners want a different consensus algorithm to make their mining more profitable? Or... Or... Or...
No offense, but this demonstrates a lack of knowledge about Bitcoin’s history and nature. All of these things have been tried and failed. The core devs and the miners don’t control Bitcoin. The full nodes control Bitcoin. The only way to successfully fork Bitcoin is to convince all of the nodes to run the code.
Other cryptocurrencies get around this by being more centralized. This includes Ethereum. These other blockchains make it significantly more difficult and costly to run nodes, which means fewer nodes run, mostly by large corporations so that they can exert control and fork the chains all the time.
Bitcoin is different. Anyone can run a node on an old laptop. There are tens of thousand of public nodes worldwide, who knows how many private ones. If miners ran a fork to change consensus rules, the nodes would just reject the blocks and the miners just waste electricity.
I don't speak for HN, but why do bitcoin proponents always assume people to be ignorant on a website with some of the smartest people on the planet? I've never got this, and never will.
No offense, but it's the most incurious form of argument on a website dedicated to curiosity.
I don't think your original comment was curious but had a snarky tone and demonstrated a lack of knowledge about the history of Bitcoin and what has been tried. As GP pointed out, it's not as simple as miners choosing to follow a different consensus algorithm or block size because you also need to convince the rest of the network (or 51% of it at least) to follow these new rules. Immense amount of effort is put into Bitcoin improvement proposals to make changes to the network while keeping the protocol compatible with older versions of it.
I think your own ignorance of Bitcoin's history is showing. Centralized decision-making saved Bitcoin.
"On March 11, 2013, Bitcoin experienced a technical crisis. Versions 0.7 and 0.8 of the software diverged from each other in behavior due to a bug, causing the block chain to “fork” into two.
The optimal course of action (and, in retrospect, the only one that avoided serious risks to the system) was first proposed and justified 16 minutes later, and the developers reached consensus on it a mere 20–25 minutes after that. Shortly thereafter — barely an hour after the discovery of the fork — the crisis response had effectively and successfully concluded.
Without the central co-ordination of the Bitcoin Core developers and the strong trust that the community places in them, it is inconceivable that adopting this counterintuitive solution could have been successfully accomplished."
I think there is a major difference between consensus-breaking bug which unites the community in adopting a new change and a BIP which proposes a change to the network and modifies the consensus rules. But I fully agree with you that it is possible to reach a consensus about some change to the protocol but as the network grows it becomes harder and harder.
Secondly, this is 9 years ago and the Bitcoin network has grown quite a bit since then, meaning back then it was quite a bit smaller undertaking in getting the majority of the network to adapt the bug fix than it would be today. The core developers are also very paranoid about introducing these bugs which you can see for yourself by browsing the open PRs and verifying that anything that even remotely touches the consensus code is very heavily scrutinized.
I think the only thing that matters is the miners. If the miners decide they want a change (like more total BTC to mine, or more BTC per transaction, or removing the difficulty halving) they'll fork it themselves and force everyone to move with them.
"Really nice bitcoins you have there, it would be a shame if a anyone did a 51% attack on them."
> but why do bitcoin proponents always assume people to be ignorant on a website with some of the smartest people on the planet?
Uh... because your comment is just straight up wrong?
For instance, miners don't have a vote or a say at all, unlike proof of stake systems. If a miner changes the consensus algorithm, that is forking bitcoin, but bitcoin itself goes on unchanged.
Your romantic view of this site is unfounded. At least the comment you complain about had an argument you can respond to. All you've done is tersely generalize.
As an historical analysis this seems about right. History is not what will determine who controls a multi-party system, however. Those miners need the full nodes, and the full nodes need the miners. BC users (buyer, sellers, transactors) need both, and both miners and full nodes are worthless without a strong user base. Since there is no centralized, legally or regulatorily established governance mechanism for the whole, who controls BC will be determined by game theory applied to the real circumstances of the various stakeholder groups, and how they behave as groups. I don't know how that turns out, but it is not hard to imagine a scenario where, with mining concentrated in a small number of powerful players' hands, they can have enough authority to change the rules of the game.
And that still leaves out the possibility that regulators get involved and exert their authority to change the rules - which may be the most likely outcome of all.
One fork always wins. Once it wins it has network effect and which brings massive security to the that fork and so it is not the nature of Bitcoin to split into obscurity as you seem to think.
While I have heard a myriad of arguments against PoS, my opinion is that the ecological benefits alone are worth switching as soon as possible. We can continue to iterate on it to improve the negative sides, but we can’t afford to wait for a “perfect” replacement forever while PoW does such extreme harm.
The main feature of PoW over PoS is being completely objective and uncensorable. There will always be networks using it because of this even when most are using and better off with PoS.
How is PoW more objective or uncensorable than PoS? Both are vulnerable to 51% attacks. And in my opinion PoS is safer. If a malicious group gets 51% of PoS ETH you can fork the chain to a new one that removes the malicious actor stake. With PoW the most you can do is fork to something with a new mining algorithm. But that really only works against ASICs and to a certain extent. You're pretty much fucked in that scenario.
PoS is inherently self referential. To know the state at time N you must agree to a subjective view of validators within at least some subjectivity period of N. PoW has no such requirement and a chain of headers needs no additional information to verify.
> If a malicious group gets 51% of PoS ETH you can fork the chain to a new one that removes the malicious actor stake.
This kind of censorship is exactly what I mean. You can't fork away a PoW miners hasherate without blowing up everyone's hashrate. The fact that this may be wanted in some form is one reason many protocols are better off with PoS, but it's still a censorship vector that isn't available in PoW.
You're arguing reasons that PoS censorship points are ideal not that they don't exist.
> PoS is inherently self referential. To know the state at time N you must agree to a subjective view of validators within at least some subjectivity period of N. PoW has no such requirement and a chain of headers needs no additional information to verify.
Considering that the weak subjectivity period is so long (months), having to sync "out of band" is not really a big deal.
And unlike PoW, where you need to wait some confirmations to make up for network latency, with PoS you have actual finality assuming no 33% attack, which can be detected and punished.
> This kind of censorship is exactly what I mean. You can't fork away a PoW miners hasherate without blowing up everyone's hashrate. The fact that this may be wanted in some form is one reason many protocols are better off with PoS, but it's still a censorship vector that isn't available in PoW.
> You're arguing reasons that PoS censorship points are ideal not that they don't exist.
PoS or PoW aren't any more or less hard forkable. Any network can be hard forked (ie people agreeing to run new software with new rules) if people agree so. This is basically the social consensus, which is always above any other kind of consensus.
The "censorship" that you mention here is not a matter of a network currently being PoW or PoS. You could hard fork Bitcoin to PoS and take away some people's money (therefore they couldn't validate) if peopled agreed to do so.
There are two types of censorship, which are being confused here
A) Miners/validators censoring certain addresses (not allowing their TXs to go through)
B) Not allowing certain people to become miners/validators
A is the real problem. However B can lead to A so it's also important.
In a PoW network where a malicious actor is doing A and has a lot of hardware and money to buy new hardware, you can't fix your network even with hardforks (outside of moving to PoS)
In a PoS if people agree to do so, they can hard fork and keep everything the same but take away their stake.
Now, your point is that people can do B via hardforks that take away people's stake. True but that is kind of irrelevant. With hardforks you can do whatever you want, steal anybodies money, switch the network to whatever validation system, etc. But why would people care about your hardfork? It's all about what hardfork people agree is the one that matters. Which is not something technical, is something social.
> Considering that the weak subjectivity period is so long (months), having to sync "out of band" is not really a big deal.
Needing to do it at all, at the beginning, means there is no mathematically pure way to validate the consensus state and nobody can affect the concensus unless it's rooted in this initial distribution.
> In a PoW network where a malicious actor is doing A and has a lot of hardware and money to buy new hardware, you can't fix your network even with hardforks (outside of moving to PoS)
Yes, this is exactly the censorship that is available in PoS and not PoW. I help minority PoW protocols integrate PoS features for this reason, and it's also the reason there will always be PoW chains. Because some social networks demand uncensorable participation that can't be selectively hard forked away.
> Needing to do it at all, at the beginning, means there is no mathematically pure way to validate the consensus state and nobody can affect the concensus unless it's rooted in this initial distribution.
You also need to validate the software binary or source code out of bound at the beginning, so having to additionally validate out of bound the state makes little difference.
> Yes, this is exactly the censorship that is available in PoS and not PoW. I help minority PoW protocols integrate PoS features for this reason, and it's also the reason there will always be PoW chains. Because some social networks demand uncensorable participation that can't be selectively hard forked away.
As I said, a PoW chain isn't any more resistant to censorship via hardforks. You can literally hardfork a PoW chain into a PoS chain. It is impossible to make anything secure or whatever if you consider hardforks as something an attacker can execute at will and force people to move to the new fork.
Yeah, the most obvious externality of an ethereum validator is a few megabits of sustained internet traffic that makes it difficult to run on capped internet services. Otherwise it is just a matter of being able to buy the eth, setting up the node (cheap commodity pc hardware) and putting it in a corner in your home.
In contrast for POW you have to be able to source specialized hardware and an electricity supply cheap enough to make the hardware profitable, both of which are much more noticable to the outside world.
Which would either require an in protocol slashing event or a hard fork. In which case the fork with the broadest legitamacy would prevail (see the events around the Steem/Hive hard fork). Blockchains cannot escape being fundamentally social creatures with values and priorities and the communities around those chains will ultimately have the last word about their operation.
The first way is that it's subjective; you have to trust the initial source of the data to give you the correct validator set to use layer. This is a vector for censoring some stake.
The second, probably more important way, is that validators in PoS can decide to ignore or slash a particular validators stake. This can't be done in PoW because the hashes are fungible and stake is not.
AFAIK, the PoS in ethereum is structured that it is extremely hard to ignore a stake (you're vulnerable to slashing if you do), and that you are only vulnerable to slashing if you cheat (not if you are merely offline, at which point you just forego any rewards). Counteracting this requires a similar or greater amount than a PoW chain would require for similar effects (where a 51% attack can also simply refuse to build off of a particular miners blocks, thus effectively stopping their reward).
The electrical costs are not there to do harm. They are there to ground the economy in reality.
Energy is expensive. That's the point. A functioning world economy can't just exist in magic-computer-land, where it's just made up numbers in some madman's COBOL database. It has to have a tie to reality to work properly, and achieve worldwide consensus on the true price of energy and thereby other assets.
>Based on the reported hash rate and operational costs in Q1, at a current global hash rate of 225 EH/s, I estimate that MARA has a cost per coin mined of $21,000 and RIOT has a cost per coin mined of $31,000.
I'm sorry but this is almost certainly wrong. I mine at home and my cost is 22k per btc mined. I have a 1 generarion older equipment than they do, and my electricity is probably 3-4 times the price they are having. You should redo your math and look for errors.
Keep in mind that these are companies that made a big bet when Bitcoin was in the 50-65k range that it would keep going up. They planned their expansion based on that scenario, so it's not that crazy that they allowed their margins to get so slim.
nice to see an article about bitcoin mining's shonky accounting, and not about PoW itself.
the other weird accounting thing: in 2021, bitcoin miners started stockpiling unsold bitcoin.
This was new behaviour. Miners didn't hold onto cryptos for ages in the ten years previously - maybe for a short time, but then they sold it.
I can find no sensible reason for this, except that there aren't enough actual dollars in the crypto market to sell the bitcoins without crashing the market.
(I ask coiners about this from time to time. Most answers are some more complicated version of "there aren't enough actual dollars not to crash the market." Some of them confidently state that miners have magically transmuted some time in June 2021 from uncompromising economic agents into bitcoin moon boys, who are sure it'll go to a million. I don't believe them.)
The miners have tended to borrow against the bitcoins - from other companies in the crypto industry. Because they all know they're all in this together.
Thanks David, means a lot because I’m a fan of your work :)
One thing that will be interesting is what happens when they do start selling hoarded bitcoin (and unless a new source of capital appears, they will need to). RIOT already quietly sold $9M of cryptocurrencies in Q1 of this year. Given the mining hardware they have already ordered, I suspect they’ll be doing more of that into an already distressed market.
> Disclosure: I hold short positions in companies mentioned in this article. This is not financial advice.
Hmm. Well, on the one hand, he is putting his money where his mouth is. On the other hand, this could be prime evidence of motivated reasoning. The author has also submitted his own article to HN it seems. Reading the analysis, it makes sense, but I'm not experienced in analysing company financials. Other people I respect/trust who have a good track record don't feel this way about the companies in question.
I think, in general, shorting volatile assets is a pretty fraught undertaking. There could be a Gamestop style short squeeze fueled by Crypto bros for example. There could be a purchase announcement that could spike the price. ARK could decide to buy a large stake. All these things could lose you a lot of money for 'no good reason'.
> On the other hand, this could be prime evidence of motivated reasoning.
I find in cases like this it can be useful to go and check the primary sources. Of course, it's impossible to re-blind yourself having already read the analysis.
> Last year, one MARA executive earned over $220 million in cash and stock-based compensation, in a year when the company’s total revenue was $150 million.
The author helpfully links the SEC filing they've taken this number from, and it would appear to be accurate, though one detail the author glosses over is that this is 99% stock. I'm not sure how that affects your analysis.
>I think, in general, shorting volatile assets is a pretty fraught undertaking. There could be a Gamestop style short squeeze fueled by Crypto bros for example.
I think most of the risk could be mitigated by holding bitcoin while shorting the miners.
Holding bitcoins to protect against unacceptable losses with shorts is a very bad idea. Such holding assumes that increase in stock price for mining companies may only come from bitcoin price increase. Yet the companies are exposed to many other externalities like local electricity prices or regulation changes that are independent in general from bitcoin prices.
A proper insurance to limit the losses in case of huge increase in the asset price should be implemented with options or other financial instruments specially designed for this.
I don't see how electricity or regulation could make the price go up much. Electricity can only go to 0, it can't realistically go negative. It sounds like from the article, that hardware is a bigger cost than electricity. And if electricity goes significantly down, it'll go down for other miners as well, meaning they'll just get more competition over the same fixed amount of the bitcoin pie. The article points out that even if they mined all the unmined bitcoins at the same percent they're doing now, they still won't reach their market cap. So even if electricity is 0, they still can't make enough profit to hit their market cap.
You're right though that this isn't a foolproof way to eliminate large risks. I'm very far from an expert in this area; I've never done any shorting or options trading.
I don't think memers would focus on bitcoin mining funds. The memers focus on cryptocurrencies themselves, not on boring corporate miners. So I don't see how memers would affect the mining stock except to the extent that they affect bitcoin itself. So I don't expect much volatility from memers directly on the miners.
OTOH, there is huge volatility in the miner stock price due to bitcoin price swings. I'm saying to counter that volatility risk by holding bitcoin.
> I don't think memers would focus on bitcoin mining funds. The memers focus on cryptocurrencies themselves, not on boring corporate miners.
For example, here's a post on r/WallStreetBets [1] trying to hype up RIOT and MARA, and I could find a dozen more just by googling. If you think meme stock frenzy won't take something because it's boring/old school, I have some shorts in a brick and mortar overpriced video game store I would like to sell you.
You're right. Although it looks like they're hyping it purely on the idea the bitcoin will go up. So maybe buying bitcoin is still a good hedge.
Gamestop is a bit different. Gamestop was hyped based on I don't know what, maybe hype alone. The point is there was nothing to hedge with. With RIOT and MARA, they're hyped based on the idea that bitcoin will go up, which gives an obvious hedge.
Excuse me, I'm a crypto noob, but how much BTC could I make if I bought a dedicated mining rig for, say $2000 and let it run nonstop for two years? Would my investment be worth it? Could I cash out my earnings to fiat and have more money than my initial investment or otherwise generate a profit?
It is entirely impossible to say. First off, your electricity price will determine how much (if any) profit you'd make. Most bitcoins mines are in areas with very low electricity prices for this very reasons and if you are not, it might be outright impossible to profitably run a mining rig.
Obviously, the price of bitcoin over those two years would be very important to your income and assuming a price of 60k (where it was a few months ago) would result in a very different outcome than the same calculation with the current price of 30k. Bitcoin has been very volatile since basically forever, so it is very difficult to predict of your scheme would be profitable.
This is why Bitcoin miners located in Kosovo where electricity is "free". They're supposed to pay, but due to the political situation the power company can't disconnect deadbeat customers.
> First off, your electricity price will determine how much (if any) profit you'd make.
No it wouldn't. The electricity cost is a factor, but it's not that significant compared to the capital cost of the equipment, the price of which fluctuates depending on the expected profit.
You can also see this with GPUs, but it's far more pronounced with Bitcoin mining hardware which has no other use.
Source is doing it before, and being friends with people who have done it at scale. Just go ahead and try to do it.
You will find that it's not possible to actually order stuff from bitmain when mining is profitable at their list prices.
It's almost as if they just run the machines themselves when it's profitable, and deliver orders when that is more profitable than using them.
So there is effectively a "spot" price for the machines where sellers who have inventory try to extract as much value as they can. Thus, the capital cost is more significant than electrical. (Obviously within reason, but paying 5 cents or 10 cents per kw/h is less relevant than capital cost)
I should say though, after the 2018 crash S9s could be had in bulk for $100 each, where they were selling for over $3000 only months earlier. So maybe the flood of these out there makes my experience outdated.
Any company that could build hardware capable of turning a profit would use it themselves, instead of selling it to the public. Don't try to buy a money printer. Life isn't that easy.
It's profitable to sell shovels to gold miners. Mining the gold takes time, resources, and luck to be profitable. Selling just the shovels means you can make good money with far less luck. You can optimize costs, it's much harder to optimize luck.
There is arbitrage. It's possible that a hardware company might be located where electricity is expensive, or in an unfavorable regulatory or tax jurisdiction, such that they wouldn't directly profit from running the mining equipment, but someone in a better environment could. But yeah, this would be a small minority of situations.
This used to be the case in the UK. There were a few companies that would install solar panels on your roof, at no cost to you. You could use the electricity generated by the panels at no cost.
The catch was that the companies took the feed-in tariff (the government subsidy for generating renewable electricity), and that you needed to commit to having the panels on your house for a minimum number of years (making it unviable if you rented, or planned to move in a few years).
In the mid-2010s the UK changed how the subsidies worked, changing from the feed-in scheme where you were paid per unit of electricity generated (regardless of if you consumed that energy or sent it back to the electricity grid) to the Smart Export Guarantee, where you are only paid for the electricity that you sent back to the grid. According to Wikipedia [0] this caused many of the companies operating the "free solar panels" schemes to go out of business.
Utility solar deployment is a money printer[1], residential rooftop solar deployment is an expensive[2] fashion statement.
The reason solar panel manufacturers don't go into the power generation business is because building a solar plant is a political problem, while building solar panels is a technological problem. It's not their core expertise.
[1] In locations that need more electricity, have regulators that will favor you over coal-burning and gas-burning incumbents, and where you can deal with the NIMBYs.
[2] It should be obvious when you consider that economies of scale mean that utility solar will always be cheaper than rooftop solar for on-grid homes.
> residential rooftop solar deployment is an expensive[2] fashion statement.
Not really. Panel lifetimes are measured in decades and the break-even point is usually around a decade, less if daytime utility power is expensive. They're not high volume money printers but they'll eventually pay for themselves (including their carbon usage during production).
Solar works mathematically because the Sun is constantly bombarding the Earth with energy. Rooftop solar increases the efficiency of otherwise wasted acreage of rooftops of buildings. Not only can they offset energy use of the stuff inside the building but the rooftop shade is that much less cooling needed for the building.
My point is that daytime utility power that comes from a solar farm will always be cheaper then rooftop solar. Because it takes a lot less labor to deploy solar at utility-scale, than to bolt it to your roof.
The only reason rooftop solar can currently be cost-efficient[1] is if its competing with expensive sources of energy generation. If it has to compete with cheap sources (utility solar), it's not cost-efficient.
[1] Or if you're receiving subsidies for the energy you sell back to the grid.
> My point is that daytime utility power that comes from a solar farm will always be cheaper then rooftop solar.
If you ignore the cost of maintaining the grid between A and B, yes and if you ignore the value of people having storage in their house being able to optimise their in house consumptions to match the solar production, yes (this would be possible with pricing signals but it is not done, also there are slight psychological differences for the user) and if you ignore communities having access to power in case the electricity grid is under attack due to foreign invasion, yes.
If your house is still on-grid, you still have to pay all of the grid costs.
If your house is off-grid, and you have to invest tens of thousands of dollars into battery capacity, your economics will look worse then the grid's economics.
Because if batteries were a cost-efficient way to deal with solar's intermittent generation, every utility in the world would be tripping over itself to order batteries by the TWH.
They, uh, aren't.
I also can't optimize my energy usage around the sun. I'm not home when the sun is shining. I don't have an AC. I don't run heat most of the year. I need electricity for lights (Because it's dark), and appliances (which I use when it's dark, because that's when I'm home).
I would a lot of on-site storage to get me through the days when it gets dark before I'm home. This is not cost-efficient. It would be cost-efficient if my entire town could aggregate their generation and usage... At utility scale.
> If your house is still on-grid, you still have to pay all of the grid costs.
Yes but building new solar causes new grid cost.
> Because if batteries were a cost-efficient way to deal with solar's intermittent generation, every utility in the world would be tripping over itself to order batteries by the TWH.
They are cost efficient in Germany. So i am not to familiar with other countries situation.
> I also can't optimize my energy usage around the sun.
With batteries you could do that more.
Both have a role to play. Another reason for solar is that people rather invest $10000 in their house then $5000 in shares of a grid scale solar installation. So while it might not be capital efficient it unlocks more capital investment for the green transition. From an economic view roof top solar is a jobs program where well paying trade jobs are created all over the country.
> Are you sure you're not confusing this with minute-over-minute smoothing, which requires ~two orders of magnitude less battery capacity?
Yes, Frequenzregelmarkt (minute over minute smoothing) and the normal electricity capacity trades happen in two separate markets in Germany right now. Allowing battery storage to take part in both markets is one of the goals of the current coalition government. Since this happened before that change and the article mentions it being involved supplying a city decoupled from the long distance energy transmission it is legally impossible that this battery installation just did minute over minute smoothing.
> How many GWH of capacity have they deployed?
4,5 GWh [1] out of which 1GWh is grid scale and industrial use.
> And isn't it the country where a KWH costs 33 cents?
For normal consumers, yes. Industrial users have a lot lower rates. A lot of this is taxes and similar stuff too. I found conflicting numbers on the precise details but 9-12ct are the used for producing the energy (including profits and investments of those companies), 8-9ct are used for the network (including profits and investments of those companies). The rest are taxes or other kinds of levys.
This was/is exactly the business model of SolarCity and a lot of residential solar. The more general concept, sometimes called "Savings as a Service" or "Efficiency as a Service", is pretty ubiquitous in the energy space.
There's big risk that legislation will be passed that allows utilities to pay wholesale price for electricity generated by home solar instead of retail price. It's not profitable at that rate to put it on roofs, building solar farms makes much more sense.
The companies could be located in an area where electricity is too expensive to turn a profit (and they might be relying on the fact that the end users are individuals, and distributed, so maybe they expect the end users to slip between the cracks and find subsidies not intended to go to bitcoins).
Also, if one company was making the majority of bitcoin ASICs, they'd be at risk of gaining the ability to do a 51% attack, right? Which would reduce confidence in the network I guess.
I don't own any of this stuff because bitcoin seems fundamentally bad for the planet and a pain to manage, but I don't think we should assume these things are necessarily irrational purchases just because we don't like them.
Do you produce your electricity? (solar panels, windmills, coal factory…) If not you have to guess the energy price in your area over the next two years.
You also need to estimate the Bitcoin price over the next two years.
And you probably need to estimate the bitcoin hash rate over the next two years.
one is the cost of the hardware. 2000$ is not enough for latest generation ASIC miners. It just isn't. You want the latest generation ones. We are probably talking 10k+ for something decent.
The second one is the cost of power. People like to talk shit about the environmental impact of bitcoin and stuff, but the reality is that the bitcoin you mine is worth less than the power you are using in most places around the world. Bitcoin mining is profitable in areas where the cost of power is heavily subsidized (it's free real estate meme) or you can easily generate power yourself (solar, wind, thermal, etc). So, if the cost of power is > value of mined bitcoin, it does not make sense to mine it
The third part is mining pools. You can build all the rigs you want, but the reality is that most bitcoin is mined by mining pools. So you will have to join one of those pools if you want to have a steady guaranteed small income.
So to answer your question: depending where you are for an investment of X this could be profitable (medium/long term) but you need to understand more about the cost of the hardware, cost of power and dynamic of mining pools to actually pull this off (so for a noob, you're better off just buying 2000$ of BTC, holding for 2 years and selling. sorry noob. The wild west era of bitcoin mining is long behind us)
uhh - this is exactly "not systems thinking" .. it is an individual opportunistic thinking. Responses below link to broad societal effects, various environmental claims, appeals to morality and reason.. all of which intersect very little with the "I see food" diet implied by this question.
As an analogy, the sticky part of lottery tickets is, people will reliably participate with their own money; others complain; nothing changes as people do it again anyway. Opportunistic planners take advantage of the "I see food" people, make glossy lottery tickets and pay a premium to food store managers to sell those lottery tickets; more people complain.
Can we identify the systems parts in play here, to create enough context to actually decide what is important, what is unstoppable, and what might be a rational, thinking response to all of this going on ?
Good points, but I think that if you want to consider the "ethics" of cryptocurrency mining, you have to acknowledge that currently there is a lot of hype around crypto that will eventually go away. There are a lot of irrational actors.
If you want to make a statement about the nature of bitcoin, I would consider an "equilibrium" situation where:
* The cost of specialized hardware is stable (e.g. what are the economies of scale as t->infinity ?)
* The price of bitcoin in terms of energy (BTC/watt hr) is stable
* Miners are rational actors
It seems to me like the most concerning aspect of cryptocurrency mining is that the hashrate is dependent on externalities like the price of bitcoin, rather than the necessary hashrate to defeat a 51% attack.
But unless you can find free electricity (like at work or school), it usually isn't worth it. You also have to factor in the failure rates at keeping a computer running 24/7 at max cycles.
Stating the obvious, but if making money depends upon "free electricity" then it's an elaborate way to take money from whoever is paying that power bill.
Not always. In my country, they incentivize solar energy generation but don't actually pay us any money for it. They give us "kWH credits" that expire within one year if not consumed. So it's much better to dump all that surplus energy into a miner so it can be converted into actual money. If the power company doesn't like it, they can pay me real cash instead of bullshit credits.
I guess if the network/power company can't/won't accept surplus power then it hugely devalues the financial case for domestic solar, since if your summertime production doesn't much exceed consumption then you have a big shortfall in the rest of the year. Here (Germany) there are limits on what the network will accept so people play elaborate games of trading off battery charging vs selling across the day, with one eye on the weather forecast.
But in your case you're probably not so much making money from the "free electricity" as reducing the potential loss on the cost of installing and maintaining the system?
> network/power company can't/won't accept surplus power
Oh, they'll happily accept the power I'm generating... They just won't pay me for it.
> your summertime production doesn't much exceed consumption then you have a big shortfall in the rest of the year
Indeed, that's the case with most homes who invested into solar power. Most of them are planned precisely so they'll generate just enough energy to cover their yearly comsumption.
Mine is set up to generate as much energy as possible. I just installed as many panels as possible.
> Here (Germany) there are limits on what the network will accept so people play elaborate games of trading off battery charging vs selling across the day, with one eye on the weather forecast.
That's interesting, I didn't know that. Everything I've read about the german solar power system made me think it was perfect: you could just generate as much power as you wanted and get paid for it. I had no idea people had to play those games. Why can't the network accept the power?
> But in your case you're probably not so much making money from the "free electricity" as reducing the potential loss on the cost of installing and maintaining the system?
In my case the equipment has already more than paid for itself. I generate more power than I consume almost all year long and my energy bill is almost zero. Maintenance costs have been minimal so far.
When I generate more power than I consume, they give me expiring kWh credits. I don't want these credits to accumulate under any circumstances since I'm already generating surplus at almost all times. So it's in my interest to increase my energy consumption: anything else means giving them energy for free. So I set up a miner.
Ultimately you can do what you want ^^, but it's worth considering the environmental impact of what you're proposing. Say a mining rig uses 1kW - for 2 years non-stop that's 1kW for 17520 hours. If CO2/kWh is 0.85lbs, then that's 14892 lbs, or 6.75 tonnes! The average passenger vehicle emits 4.6 tonnes of CO2 per year - that's less than our hypothetical rig!
Other than those yahoos who recommissioned some coal-fired power plants not too long ago most mining operations are located in areas with surplus renewable energy methinks.
You'd be competing against others who steal their electricity or have it subsidised (including pollution, resource depletion, regulatory arbitrage, financial crime and other externalities).
If you can take advantage of some of those and don't mind that the money isn't being generated so much as taken from other people then it's a great idea.
This wholly depends on where you are getting energy and for how much. The "idea" around mining BTC is it's not free, you are exchanging Energy for BTC. If you live in Iceland where renewables are plentiful and cheap then you will likely make money, just about anywhere else though it's a gamble.
1. The author fails to explain clearly that what we call mining "mining" is a distributed form of transaction processing, in which transaction fees are earned via proof-of-work. Currently most of the transaction fees come from block rewards, but transaction fees are in fact set by competition based on the marginal cost of computation.
2. By design, Bitcoin's block rewards have always been meant to be temporary, as explained by Satoshi Nakamoto in his/her/their paper. I mean, the rewards are halving on a fixed schedule, and everyone knows that eventually there will be no more rewards. The only purpose of the block rewards was -- and is -- to provide a temporary incentive for jump-starting Bitcoin's transaction processing network.
3. As the rewards go to zero, Bitcoin transaction fees will fluctuate. They will be determined by competition based on the marginal cost of computation. My expectation is that Bitcoin transaction fees will go up over time.
4. Many transaction processors, i.e., "miners," are convinced that Bitcoin eventually will have a market capitalization similar to that of gold (~$12T, give or take), so they are hoarding their share of block rewards. Many investors in these operations are convinced too. Some in fact are willing to lose money processing transactions to get the block rewards.
1. The author points out that txn fees are tiny, 1% of the revenue. And they are unlikely to be significant during the depreciation period of the machines.
2/3. Sure, but see #1.
4. Sure, but the author is pointing out that the cost of buying BTC exposure via these companies is higher than just buying BTC by a lot. It almost seems like a short position of these companies combined with a long position on BTC is a solid bet over a long term horizon.
> Sure, but the author is pointing out that the cost of buying BTC exposure via these companies is higher than just buying BTC by a lot.
The investors also get transaction processing infrastructure, including software and facilities, and a team, not just exposure to BTC. Perhaps they see future value in building that infrastructure now.
> It almost seems like a short position of these companies combined with a long position on BTC is a solid bet over a long term horizon.
If you think that's a solid bet, you're of course welcome to go ahead and make it!
The obvious retort is that mining is competitive. If you are not taking advantage of cheap energy you are not a competitive miner. If you source your energy from high demand locations like cities you will fail.
The miners who profit will be the ones extracting energy from places where it is otherwise useless, or less in demand.
Also, if miners started selling equipment to buy Bitcoin it would simply make mining more profitable to the point where the average miner would profit again. It's a basic equilibrium and the ominous "I don't think this ends well," has less direct connections the arguments in the piece than it does the author's disclosed financial interest in seeing mining companies fail.
To be fair, it may be the case that mining is currently over allocated, but implying that the practice is going to totally collapse is about as hyperbolic as any NFT shilling crypto bro telling you his decentralized Pokemon card knock off is the epitome of finance type get-up this site is so apt to complain about.
Many of the same people who made millions swindling investors in copper mines and such have pulled the same truck in the crypto world. It seems there is plenty of dumb money around willing to play the same game over and over again. And yes, it never ends well.
I once explained the same points to someone who use to pop in here when his name was mentioned Calacanis when he bought some mining rigs several years ago.
You see there are some valid economic reasons why CBOT and several other exchanges allow the shorting of bitcoin without making those contracts tied to bitcoin.
If any of you want to bet anyway on bitcoin do not buy mining rigs, think of it this way it represents a business we all are familiar with...
Buy domains to speculate and base the business model paying for it on ad revenue off of the websites with each domain name buy.
Its the same dam economic trends and same long term bad result
TLDR people are throwing capital at mining companies because they want traditional financial access to bitcoin gains. Mining companies will reach their proper evaluation when a bitcoin spot ETF is available to investors.
This is a really excellent summary of just one among many sufficient reasons why bitcoin’s economics are fundamentally untethered from reality. Just the last points alone are condemning: no legitimate scheme in history has seen its executives cash out real money against such a small proportion of expected future earnings (in scrip).
This article has really nothing to do with Bitcoin itself. It is just a story how stupid investors are pouring money to companies that have the Bitcoin in its name, without really going through the business at all.
These companies have been ridiculously lousy investments. Borderline scams, when you look at executive compensation.
It has "nothing to do with Bitcoin itself" in the sense that it's about the economics of mining, which has everything to do with bitcoin and its valuation.
it's about the economics of mining _using an external source of capital_. the more significant interaction is not between the ASICs and the bitcoin rewards, but the companies and their investors. in that sense, it's more accurate to say it has "everything to do with public stock markets".
the author gives the oil analogy. the oil wells themselves have very similar economics to mining. it's the relationship between these similar operations and the investors which sets them apart more than the activity they're involved in.
> This article has really nothing to do with Bitcoin itself. It is just a story how stupid investors are pouring money to companies that have the Bitcoin in its name, without really going through the business at all.
How do you figure? Much of the (featured) article is centered around hashrate to bitcoin production ratios over time. Literally one the central features of bitcoin.
> bitcoin’s economics are fundamentally untethered from reality
are they thought? What's untethered from reality is the understanding of how bitcoin work. Everyone wants to throw in 100$ and wake up to millions in 5 years. That just does not work anymore.
One can model all costs involved when it comes to mining and can make a decision based on cost vs expected profit. Bitcoin (and cryptocurrencies) are not vending machines. The math to model this is harder and there is a lot more uncertainty. Can it be done? Probably. Will we have winners and losers in the mining game? of course.
> are they thought? What's untethered from reality is the understanding of how bitcoin work. Everyone wants to throw in 100$ and wake up to millions in 5 years. That just does not work anymore.
Economics is a social activity, not an abstract property of an asset or instrument. If the body of people using or interacting with bitcoin are fundamentally misguided about its economic properties, then the economics of bitcoin itself are fundamentally misguided ("unreal").
As I read it, the article's point was this: the economics behind large mining initiatives are bunk (it would be more profitable to simply buy bitcoin at current prices using the same capital). Simultaneously, it is true that bitcoin's mining activity is a supporting factor in its valuation. In other words, bitcoin is doing the economic equivalent of the toothpick trick: two supposedly supporting factors are actually mutually vulnerable to the same outside pressure (the availability of gullible investors, or lack thereof).
Given all of the "problems" surrounding BTC/crypto, when will they actually matter enough to make BTC/USD stop being $30k and go to $10k or $0?
It dropped to $25k for like... what feels like a split second and people are still FOMOing into it, running it up to $30k (unless it's some kind of manipulation by whales to trap people's money... who really knows?)
This is the eternal problem with all scams: the music doesn't stop until it stops, and anybody with accurate information about when is unlikely to be on "your" side.
It blows my mind how well-known all the problems there are with crypto and yet it's become so huge while solving virtually no problem other than avoiding laws about the movement of money and capital.
The Bitcoin network in particular uses more electricty than Argentina. Defenders will point out that it's majority renewable. That's intellectually dishonest because Bitcoin is simply chasing cheap power and hydro power is among the cheapest. Bitcoin miners will happily use coal if it's sufficiently cheap. Also, use of certain renewables comes at the expense of other people. In the Hudson Valley, miners have raised the electricty prices for other residents in those towns.
Bitcoins transactions consume an enormous amount of electricity.
Defenders will also claim we'll move to Proof of Stake ("PoS") over Proof of Waste but this too is a myth. For one, Bitcoin's massive computational and electricity waste is key to defending the network. I don't know what happens when we run out of coins to mine. Also, if it's as simple as that, why haven't we simply moved to PoS for everything?
PoS ultimately is a rich-gets-richer scenario is why. It's really no different to the Luna anchor stakers getting 20% returns at the expense of everyone else who comes along later.
And for all of this waste we get what? Transactions that can only be guaranteed if they're entirely contained within the network because as soon as you want to include something outside of that (eg converting crypto to or from cash) you've just added the same trust issue that is intrinsic to every traditional financial transaction.
And what fuels this continued mass delusion is the fabric of American beliefs that every American is just a temporarily embarassed millionaire [1].
This [1] estimates the annual Bitcoin energy consumption at 145TWh. If the Bitcoin network were a country it would rank 25 in the world by energy consumption [2].
The cost of that electricity is hard to estimate but if you use a ballpark of $0.10/kWh that puts the cost of the Bitcoin network at almost $15 billion annually just for the electricity.
> Also, if it's as simple as that, why haven't we simply moved to PoS for everything?
More modern blockchains do use PoS for the most part -- Solana, Cardano, Polkadot, Cosmos, Avalanche, NEAR, etc. Just Bitcoin in particular is unlikely to make such a major change.
> PoS ultimately is a rich-gets-richer scenario is why.
In well-designed PoS systems, anyone can stake (perhaps with delegation) and access the same rate of return. If everyone stakes, noone is actually getting richer after we adjust for dilution.
> In well-designed PoS systems, anyone can stake (perhaps with delegation) and access the same rate of return. If everyone stakes, noone is actually getting richer after we adjust for dilution.
This is fine in a vacuum where no one needs the money they make staking, but someone who is not rich is presumably staking to make money that they will spend on food/clothing/shelter. The wealthy can stake indefinitely.
Lockup periods aren't really inherent to PoS though. In Eth2 exits are rate limited, but they should be quick under normal conditions, and only delayed (for security reasons) if many stakers try to exit at once. For even greater liquidity, one can use a paltform like Lido, and just sell stETH at any time.
> That's intellectually dishonest because Bitcoin is simply chasing cheap power and hydro power is among the cheapest. Bitcoin miners will happily use coal if it's sufficiently cheap. Also, use of certain renewables comes at the expense of other people. In the Hudson Valley, miners have raised the electricty prices for other residents in those towns.
If bitcoin miners are chasing cheap power (which I believe they are), then it shouldn't be possible for miners to increase the price of power in a fixed area, as they would immediately migrate elsewhere where power is cheaper. You can't have it both ways. Interestingly, the cheapest power is where supply completely dwarfs demand. Bitcoin miners should ultimately migrate to those areas of stranded power, and thus under optimal conditions bitcoin miners shouldn't compete with any other buyer of energy-- it would only be efficient to preform bitcoin mining for the lowest possible cost of energy where there is no other customer. It is largely looking like renewables would fit that bill, as the era of low hanging fossil fuels is long gone (aside from government subsidies).
> If bitcoin miners are chasing cheap power ... then it shouldn't be possible for miners to increase the price of power in a fixed area as they would immediately migrate elsewhere where power is cheaper
Um, no. That presumes there is somewhere cheaper to move, for one. If powers costs $0.08/kWh in one place and the next best option is $0.12/kWh then even if you assume no moving costs you've got all that headroom before it even makes sense to move.
But consider the concrete example of Pittsburgh [1] (emphasis added):
> A few years ago, miners “descended upon” the city of Plattsburgh, New York, about a hundred and fifty miles north of Albany, which gets much of its electricity from hydroelectric dams on the St. Lawrence River. The power is relatively inexpensive, but, once Plattsburgh uses up its allotment, it has to purchase more at higher rates. Bitcoin mining drove up the cost of electricity in the city so dramatically that, in 2018, Plattsburgh enacted a moratorium on new mining operations.
> Um, no. That presumes there is somewhere cheaper to move, for one.
If you assume this isn't the case, then the original comment I was responding to would imply that bitcoin mining is raising the price of energy for the entire world. At 0.5% of global energy consumption, this seems pretty unrealistic. The overhead of moving is obviously not zero, but my point is mostly that bitcoin miners will in general tend to flow to where there is cheaper and less demand for electricity. This in general should cause less tension between where energy is needed. More modern regulated bitcoin miners will generally only exist where there are periods of excess power, eg from wind or solar. They will often sell to the grid operator the ability to interrupt their power when electricity becomes scarce. I completely agree that miners shouldn't be sucking up subsidized hydro power, but also that hydro power shouldn't be subsidized in the first place.
> If bitcoin miners are chasing cheap power ... then it shouldn't be possible for miners to increase the price of power in a fixed area as they would immediately migrate elsewhere where power is cheaper
This would be true only if people and Bitcoin miners bid in the same market. They do not.
If a BitCoin mining company has x year contract with an utility at some fixed price then they get that electricity at that rate. This has an disproportionate impact on the price consumers have to pay. To meet consumer demands electricity suppliers buy electricity from electricity producers. If BitCoin miners have contracts for all electricity generated in a region cheaper then x cents per unit that means that electricity suppliers can only begin to meet their customers demand with electricity more expensive than x. This means it might be necessary to buy electricity from really expensive sources (for example far away sources) they wouldn't have to rely upon with the cheaper then x electricity was available.
The fact that the cheaper then x electricity producers could get more money if they wouldn't have signed long term contracts is in an environment with multiple such sellers a tragedy of the commons like situation which can not be fixed by the market alone. What makes it even worse is that perverse incentives exist where a company by selling all their cheap electricity to miners can keep assets which would otherwise be stranded (coal power plants) produce electricity at a premium rate because electricity supplies must meet the customer household demands.
Yeah, that kind of contract is not really good. There are much better arrangements out there that leverage the fact that bitcoin mining is an interruptible load.
>If bitcoin miners are chasing cheap power... then it shouldn't be possible for miners to increase the price of power in a fixed area, as they would immediately migrate elsewhere where power is cheaper.
If that logic were sound, I struggle to see how the price of any fungible good could ever increase in response to demand. There is some energy price at which the profitability of mining becomes marginal. Won't the amount of mining grow until all the electricity cheaper than that is being wasted calculating hashes?
Are you sure that energy is a fungible good? Energy is neither free to transport, nor is demand for energy insensitive to location. If energy were fungible, you wouldn't see energy pricing that varies by an order of magnitude or more. Something like oil on the other hand is quite fungible, but kwh of electricity is not. Note that fungibility depends on the user: Bitcoin miners are fungible consumers, a house in Hudson Valley is not.
> Won't the amount of mining grow until all the electricity cheaper than that is being wasted calculating hashes?
No, there is an upper bound (negating transaction fees, which are negligable) in that the cost of the energy used will never be larger than the block reward times the bitcoin price. There are estimates that this actually isn't a large enough market for the situations where bitcoin mining is actually a very beneficial consumer in terms of environmental concerns-- e.g to consume all of the methane flare gas (that would otherwise be burned off).
Sure, but there are areas where it is not economical to actually make use of that power. For example, you could place a bitcoin mining solar powered installation in the middle of a desert where there would be no need for desalinized water and where there is no rail or road access needed for something like aluminum smelting. I think the evidence of bitcoin mining being powered by methane flare gas is irrefutable evidence of that: The methane flare gas just been being burned off for decades, it wasn't until bitcoin mining that there was a marketable use for this energy.
GP is probably referring to HEX which is one of the more shameless Ponzi coins. HEX is an Ethereum token so its "proof of wait" mechanism is not actually a consensus protocol. The name is a marketing gimmick that merely apes (pun intended) the PoX terminology.
Let me give you an analogy to what you said "After seeing that Google and Apple have market caps of a trillion dollars, it dawns on me that we can stimulate massive investment and efficiency just by making a publicly traded company focused on that thing. If we make a food-based public company, poof, world hunger solved".
Just because bitcoin has a huge amount of money in it does not mean all cryptos will succeed. Just because google has a trillion dollar market cap does not mean every publicly listed company will.
I don't think your examples are quite what I was talking about. I was talking about where the coins are mined based on how much food you are growing or have harvested. A bit like Chia Coin, but instead of rewards based on disk space, it would be harvested food or something like that. Like with each bushel of corn you harvest there's a random chance you get a FoodCoin.
And secondly I was joking, but clearly my attempt at humor failed as I also got at least one downvote.
I was pretty sure it was a joke, but the manic enthusiasm for the impractical that I've seen the crypto ecosystem makes it hard to be certain sometimes.
There is a BIP process in place and there were many upgrades already done to the software that runs BTC nodes. But I don't really care for Bitcoin either way. It can never be a currency.
>> That's like saying "in the future the linux kernel could be insecure, because the devs could add a keylogger"
This is just informal fallacy.
Is increasing hard cap immediate threat to btc ? I don't think it is.
Bitcoin has so many other unsurmountable obstacles, that it's "monetary policy" is irrelevant.
In the future, we will all drink Gatorade and have a president wrestler. You see, I can also make stuff up. It may also happen! Saw a documentary about this already.
This should probably be titled something like "the problem with an accounting strategy that I made up, which some people might be using, I'm not sure".
Sure, maybe the books of these companies are not as cooked as implied in the article, but the question remains:
How does a company who spends 31k mining BTC that is currently worth 30k and pays their executives tens of millions in compensation work out in the long run?
here is the thing. there are good investments and bad investments. good execution strategies and bad execution strategies. i have no doubt that a lot of these companies will go belly up. happens in every new domain where there is a lot of uncertainty and FUD.
So the question is not: how does a company ... work out in the long run? the question is: which company actually does things in a sane manner and will survive to be a dominant player in the space once the dust settles?
LOL, Financial derivatives are the exactly problem with the markets today that I'm calling out. Everyone is trying to figure out how to make a "trade" that will make money. The last thing I'm going to do is enter into a financial contract that can be short squeezed and margin called.
Operating cashflow and depreciation curves are the most basic accounting principles out there, the author did not make anything up - he is applying a logical analysis to publicly available data.
sorry, but what works for the printing press does not work for ebooks.
If someone were to talk to you about the cost of printing and distributing books and how much X costs and depreciation over 10 years, you as an ebook seller would laugh them out of the room. Sure there are things that still apply across all businesses, but people seen to dance around the fact that the reason why depreciation model does not work for bitcoin mining is that it's highly correlated to advances that were made in the mining hardware + the huge role the cost of power (geographical location in the end) has on the whole profitability of things.
the point is that you cannot compare apples to oranges and the constraints around bitcoin are NOT the same constraints like the ones around a vending machine. (so that applying the same model is probably a flawed approach)
You misunderstood the vending machine analogy. The author argues that mining hardware is NOT like a vending machine, in terms of depreciation. Mining hardware becomes less productive over its lifespan, whereas a vending machine stays about the same until its broken. The author argues that these companies are applying the traditional “vending machine” depreciation even though, as you pointed out, it does not apply. And that’s the entire crux of how they’re overvaluing themselves.
What renders this whole calculation wrong is that it doesn’t account for transaction fees AND transaction fees growth which was also supposed to be growing exponentially, had Bitcoin not been artificially limited to ~ 2 MB blocks every ten minutes.
On an actually uncapped Bitcoin instance, Blocks (Block size) and transaction fees will grow exponentially, rendering all such “Bitcoin is environmentally terrible” and “Miners aren’t profitable” calculations absurdly wrong.
Other instances exist that are chugging along flawlessly and are set to help miners grow their revenue with on-chain transaction fees growth: DYOR.
Of course, BTC Maxis lead by companies set to profit from such an artificial limit on Bitcoin (hint: they often peddle L2 solutions) would hate for you or anyone to understand and study those facts.
It's not possible to have an uncapped block size. As blocks get larger they take longer to propagate through the network. Longer propagation means more forks, which means more work is wasted on forks which do not become canonical, which lowers the effective hash rate of the network and therefore the threshold for a 51% attack.
2MB is far too small, but it would be a gross mistake to overcorrect by removing the cap entirely.
> On an actually uncapped Bitcoin instance, Blocks (Block size) and transaction fees will grow exponentially
Transaction fees would drop to zero. The fee is a bid in an auction for scarce block space. If block space is not scarce then the winning bid is always zero.
> On an actually uncapped Bitcoin instance, Blocks (Block size) and transaction fees will grow exponentially, rendering all such “Bitcoin is environmentally terrible” and “Miners aren’t profitable” calculations absurdly wrong.
This doesn't make any sense.
If anything were to make mining more profitable, we would see even more miners come online.
There is no scenario in which Bitcoin mining becomes less environmentally terrible by paying more money to miners. Those payments incentivize more miners to come online and, if significant enough, would encourage miners to bring older, less efficient equipment online relative to today's rates.
If transactions scale enough for you to be able to shut down most bank branches, end commutes for all banking and central banking employees, shut down all credit card companies and their offices and terminals, turn off ATMs, end printing physical paper money and minting money, just to mention a few, I think the environment will be way, way better off.
That’s the argument behind unlimited on-chain transactions.
There's no evidence that any of that would be technically feasible. And hypothetically even if it was technically feasible, the nation states which have taxing authority and hold an effective monopoly on violence would never permit it.
Most world governments and taxing authorities work for their populace, they could be easily voted out if people saw what other nations are benefiting from such innovation.
As for what’s feasible and evidence on it, I assure you, Edison had no clue that the internet will one day be born out of his electricity inventions and that it will be mostly used for porn, so sit back, relax and enjoy the next 100 years of untold human history.
As for what’s feasible and evidence on it, I assure you, Edison had no clue
that the internet will one day be born out of his electricity inventions and
that it will be mostly used for porn, so sit back, relax and enjoy the next
100 years of untold human history.
This is a statement of faith. As such expecting it to win an argument involving logic is doomed to fail. You may be believe it but I and many others have no reason to.
> Most world governments and taxing authorities work for their populace, they could be easily voted out if people saw what other nations are benefiting from such innovation.
you've got a lot of faith in "most world governments and taxing authorities". here in the US, i look at other countries who include in their tax statements a breakdown of where all your tax bill is going. that looks like a thing those other citizens benefit from, so please tell me: how can i vote this into effect here?
As a voter, why would I do something so stupid as to put my country's economy under the control of a Ponzi scheme invented by incompetent programmers? That's just delusional, makes no sense at all.
>What renders this whole calculation wrong is that it doesn’t account for transaction fees AND transaction fees growth which was also supposed to be growing exponentially, had Bitcoin not been artificially limited to ~ 2 MB blocks every ten minutes
I agree that bitcoin should use an adjustable block size, but I'm not exactly sure that this logic follows. Can you explain this to me? If the network could handle more transactions per block, wouldn't the fees per transaction just decrease?
Correct, the fees would decrease, but when when you can only process 200k transactions every ten minutes, there’s an upper limit of how much people are willing to pay before it becomes absurdly expensive. This reached almost $100 in the 2017 rush. It’s unsustainable and renders the network unusable for most of the planet.
When you on the other hand can process millions of transactions every block (and scalable as needed), you’ll charge far less per transaction while still allowing miners to generate a huge (and ever growing) revenue, while also enabling most of the planet to transact next to free.
From an environmental perspective, if you divide the hash rate environmental impact on a mere 200k transactions every ten minute, the carbon foot print per transaction would seem absurdly high. Do the same calculating for millions of transactions every ten minutes, and you’ll arrive at a far better environmentally friendly figure.
So currently every transaction costs around $101, of which $1 visible in transaction fees, and $100 invisible in mining reward (aka seignorage, leading to money supply growth of 1.7% p.a.).
To maintain current mining hash power, as the mining reward halves away to zero, every transaction would have to incur around $100 in fees.
> still allowing miners to generate a huge (and ever growing) revenue, while also enabling most of the planet to transact next to free
If blocks would grow 10x, the blockchain would grow about 50GB per month, every human being could do around 10 transactions in their lifetime, and those would cost around $10 each. I don't see how huge and growing revenue for miners is compatible with "next to free" transactions.
That was an interesting talk, thanks. Looks like with some optimisations they could support blocks of around 100 MB, yielding around 500 transactions per second. Would mean though that the blockchain grows by a few hundred GB every month.
Just to clarify your number, an average Bitcoin block (currently) has about 2000 transactions, each of which, be it a transaction for half a cent, or a billion dollars, cost around $3 each. What you described is what happened when Bitcoin was actually being adopted by people, the mempool, that is, transactions not added to the latest block, started to fill up, and the market took hold and people who offered more to transact were included in the block. You don't have to offer more for the transaction and your transaction will sit in the mempool forever. Offering more is simply a way to expedite your transaction.
In my experience, BTC has more "brand recognition" amongst uninformed investors who are more concerned with "number go up" technology than digital cash technology
If you measure value by the thing Bitcoin came to replace (fiat), your vision will be distorted.
If you measure value as a consequence of utility, they’re certainly far more valuable than BTC (BSV however is a corp coin and has weird copyrights so I wouldn’t touch it with a stick).
Miners still have to choose to include your tx. The risk of losing during two blocks being mined goes up as blocksize does (longer to transmit across the network), so you still have to incentivize the miner to include your tx.
Ofc there will be miners who make much larger blocks no matter what, but it comes down to how urgent is your tx?
Unless miners start colluding their strategy will become "include every possible transaction with fee greater than $0." which means fees will settle at the smallest possible value greater than 0.
Yeah sure, everything I buy costs the smallest possible value greater than zero.
shawabawa3 already explained it "There would be an equilibrium where the fee is worth the marginal cost of mining it"
The miner has cost X and wants profit Y. He adds those together and now the price is X+Y. Someone wants his transaction on the blockchain, he is going to pay X+Y unless there is a miner that offers an even lower rate.
You're making the assumption that the block reward is high enough to make transaction fees irrelevant, which is a trivial observation and not what we are interested in talking about here.
There is no cost to adding a transaction to your block if its size is uncapped. Once a miner completes a block why wouldn't they maximize the profit they can make on it?
If we assume no blockreward then the fees will be whatever motivates miners to include your transaction. If the fee was zero, then no miner would even bother.
You either misunderstood the parent or are being deliberately disingenuous.
He/she asked, in effect: How do you plan to deal with the blockchain growing exponentially instead of linearly? And how much acceleration do you think is reasonable?
I needed to clarify that it wasn’t my proposal, as to how to gradually approach this, test nets are already deployed on many of the uncapped networks, I believe you’ll enjoy this great presentation by Peter Rizun and Andrew Stone, they’re far smarter than I’ll ever be:
https://youtu.be/5SJm2ep3X_M
Strictly speaking it wasn't his, it was the originator of that thread, jgarzik, and satoshi replied "We can phase in a change later if we get closer to needing it.", which doesn't strike me as a ringing endorsement.
At any rate, the suggestion was for one increase, not an infinite sequence of increases, which your suggested exponential growth amounts to.
These uncapped forks do exist, they’re the reason the whole community split in 2017; so when those “analysis” articles ignore them and ignore the fact that the white paper and Bitcoin’s creator explicitly called for on-chain growth and scaling, they’re being either dishonest or ignorant.
It’s like someone saying “Look at how wasteful this car limited to 20MPH is! All cars are wasteful!”. No, not all cars, especially that the original design explicitly said to scale the engine as more speed is needed.
> they’re the reason the whole community split in 2017
This makes it seem like it was some sort of 50/50 split, but in reality it was more like 99/1. A tiny group split off to do their own thing while "normal" bitcoin is just chugging along with unchanged block size. It's all fine and well that Satoshi may have wanted something different for block sizes, but he hasn't been involved in bitcoin development for over a decade now so his wishes are pretty irrelevant. Right now, the vast majority of "bitcoin" value is in the original one and speculating about how things could be different is just the crypto version of "world peace is easy if we all could just get along".
>This makes it seem like it was some sort of 50/50 split, but in reality it was more like 99/1
In reality most bitcoin owners/users were the silent majority, and the "default" option was to do nothing, so they did nothing.
>speculating about how things could be different is just the crypto version of "world peace is easy if we all could just get along".
bitcoin's current blocksize/transaction fees are basicially an artificial problem that could be fixed with a minor storage/bandwidth tradeoff. It's more like "world hunger could be solved if we produce more food and stop limiting ourselves with insane protectionist trade policies".
But you make it seem as if it’s a done tale, as if there were no bad actors, no companies set to profit from selling their own “Layer 2” solutions, no censorship, etc. Reality is, even if the whole planet (not only the 99% of the community you claim) were set on a broken vehicle which they can barely drive but just speculate on, it won’t be long before most realize that this is just that, a broken vehicle meant for speculation and has nothing to do with peer to peer electronic cash, you know, Bitcoin.
So when you discuss miners, on a network DESIGNED to emit less Bitcoin and change to transaction fees down the line, it’s ultra important to note that this actually working vehicle exists and the same miners protecting the speculative vehicle are also protecting the working one. And when calculating for the working one, miners are set to be some of the richest businesses on the planet, even when ALL Bitcoin has been already mined, a 100 years from now.
Perhaps, if and only if bitcoin manages to win out against the traditional banking system AND the governments of the world do not regulate miners into oblivion. Even if some form of cryptocurrency does win out against the combined might of traditional banking and governments, let's hope for the sake of these mining companies that the winning currency is one that both depends on Proof of Work (I can stake PoS chains just fine from a raspberry pi, after all) and also requires hashing of the type supported by the current equipment of the miners.
All in all, the chance that a crypto mining company becomes one of the richest businesses on the planet is slim and the chance that that company will be one of the mining companies already existing is slimmer still. Buyer beware when investing in the current crop.
As someone who is more familiar with BCH rhetoric, I can tell you that what the parent comment is referring to is not mining companies but rather LN relay node operators and other "services"
I don't see how any of this undermines the post. What “uncapped fork” could these big miners switch to that would give them anywhere near the revenue they have today?
I won’t point you to any, but you should dig deeper into the 2017 block size wars and understand why the community forked then and how, avoid the commercially appealing answers and the laser eyes.
I assume you're alluding to bitcoin cash. I don't see what it has to do with any of this, given that the aggregate transaction fees are not enough for big fish like the ones my article to migrate to at scale.
When you discuss miners, on a network DESIGNED to emit less Bitcoin and change to transaction fees down the line, it’s ultra important to note that this actually working vehicle exists and the same miners protecting the speculative vehicle are also protecting the actually working one. And when calculating for the working one, miners are set to be some of the richest businesses on the planet, even when ALL Bitcoin has been already mined, a 100 years from now, because of transaction fees.
Crypto is still very, very, early. I assure you of that.
This article is about bitcoin miners. What I'm struggling to understand is, what does any of that have to do with bitcoin miners? Are you just wishing I'd pump BCH or something?
I've seen this pattern play out online and offline countless times. A perennial favorite is dialog patterned like so
"Ethereum is ok because proof of stake will solve problem X."
"Is proof of stake currently in use?"
"Well, no, but it will be soon/someday/eventually."
I call it crypto-wishful thinking, but only for lack of a better name.
The accountants wouldn't believe us when we told them that the machines were worthless after only 6 months.