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Comment by danblick | Hacker News Reader

The main reason I don't own any bitcoin is that I don't think the economics of mining make sense in the long term.

Specifically: bitcoin depends on distributed mining power in order to prevent individual miners from being able to manipulate the blockchain.

However, if you accept that (1) there are economies of scale in mining, and (2) miners are rational and will only mine when they can make a profit, then I see no reason to believe mining power should stay "distributed" rather than develop into a monopoly.

I realize this hasn't happened yet, but I don't think it makes sense to base a currency on such shaky foundations.

The basic argument is also made in the paper discussed here:

https://www.cryptocoinsnews.com/declining-profitability-for-...

also:

https://arxiv.org/abs/1603.05240

http://ieeexplore.ieee.org/abstract/document/7789434/

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> I realize this hasn't happened yet

Don't be so sure... there are already mining pools that collectively control far more than 50% of the network's mining capacity. This is supposed to be existentially problematic for bitcoin, but the majority sentiment appears to be ¯\_(ツ)_/¯

The situation reminds me a little bit of the Keynesian beauty contest: what matters isn't what I think of bitcoin, it's what other people think.

Do I think the average person buying bitcoin today is even aware of these problems? Not a bit. Are they going to wise up soon? Probably not.

So maybe it makes sense to bet that Bitcoin will be popular and unaffected by these issues for a while. (I mean, you can still use it to buy heroin, right? Growth potential.)

On the other hand, ignoring the long-term problems feels a little like knowingly buying into a pyramid scheme.

Exactly, markets are based in perception. Doesn't matter what is the true value of anything, it depends what majority thinks. To quote GOT "Power lies where we think it lies".

To be clear, at this time no single pool has >50%, and your concern is that a minimum of 6 pools would need to collude to achieve >50% of hashrate. No?

Source: https://blockchain.info/pools

My concern is that in the long term you'll see more and more consolidation of mining power, because economic forces will tend to push things in that direction. (That's what the articles I linked to above are saying.)

At some point, it might not take "collusion" to manipulate the currency because somebody will be able to do it unilaterally.

Obviously there's some collection of pools that control more than 50% of the capacity, how could there not be?

The question is how many are needed to control more than 50%, and how likely they are to collude.

I think you're being too conservative.

I plan to leave if hashrate distribution starts to look too consolidated. If one entity gets close to 51%, the security of the chain is compromised and we move on.

Right now Bitcoin is cool for a whole lot of reasons, discounting it because maybe possibly someday it will fail is silly.

Economies of scale usually have limits. For example, hydroelectric power is cheap but each dam has limited capacity.

AFAIK Bitcoin mining is currently distributed across China, Iceland, Oregon/Washington USA, and the Republic of Georgia.

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