Bitcoin Mining’s Three Body Problem
aniccaresearch.tech
aniccaresearch.tech
> Bitcoin mining is a complex phenomenon that connects hardware and software, the energy and financial markets. Invisible rules govern every aspect of it. The performance of an individual operation is determined by various external factors that are often hard to quantify and almost impossible to forecast.
It stated that Bitcoin mining as a whole, is a complex social-economical-computational-environmental phenomenon with a huge number of moving parts and uncertainties. The most fascinating fact to me, is the direct impact of climate cycle in southern China on the mining industry, almost with a mythical tone found in some Sci-Fi novels. While Bitcoin is a highly artificial and technical construct, but its yield can be severely affected by weather, some Bitcoin miners even routinely migrate their operation according to seasonal changes like the nomadic groups of the past. The flood seasons are visible on the Bitcoin hash rate chart, and even dominates the date of trade shows and R&D schedule of new mining rigs.
> May-October is the flood season in Southwest China. It is also a festival period for mining businesses as the large supply of surplus hydro capacity significantly cuts down miners’ operating expenses. For small-medium scale miners, the flood season can reduce the cost by as much as 40%. For large miners who own proprietary facilities, the flood season electricity cost is practically negligible. Over 80% of the miners in Xinjiang, Inner Mongolia will migrate in flocks to Sichuan, Yunnan, and Guizhou to take advantage of the discount, and they move back or sell their equipment after the dry season arrives in November.
> Gradually, the industry structured itself around these climate patterns. Like ancient rituals, every year before the flood season arrives, major mining conferences get organized in Sichuan’s capital Chengdu. Some facilities are only open to external customers during the flood season. Manufacturers plan their new product release right before it arrives. Miners race to source the latest and greatest machines in bulk.
Considering climate (weather) aspects is one of the strategic decisions about how to conduct the business in this case.
When electricity is expensive, it's still worth running the most of the equipment you already own, but it isn't worth buying more.
Hence, you wouldn't expect much seasonal variation in hashrate.
I think this is a common misconception. People don't need to continually invest in mining hardware to keep it going. The entire Bitcoin network could technically be run off a single Rasberry Pi. The network hash rate is only so high because the ROI is there, but without it, people would still be mining.
Case in point, there are plenty of long forgotten altcoins out there that people are mining just for fun. At the end of the day your computer is no different from an expensive space heater. Might as well mine some crypto with it.
Or, you know, you could just turn the computer off while you're not actively using it. It saves you money and does a small little good thing for the environment too.
The environmental impact is also negligible if the power you're using is coming from solar or wind.
"100% efficiency" should be the Carnot's theorem efficiency limit...
Some founders of altcoins apparently don't understand this and try to buy hashpower to artificially increase the hashrate, hoping to increase the price of their coins. If there is no demand for their coins, an ASIC farm is no different from a Rasberry Pi.
(But, isn't there some majority attack? So maybe I want an ASIC farm as a way to protect my investment...)
This is exactly why there was no effect on bitcoin price when the reward rate halved. The value of the coin drives mining behavior, not the other way around.
An altcoin that has insufficient hashrate is highly vulnerable to attacks and if its price were to rise, those attacks would become profitable.
Therefore, you need enough hashrate to make attacks unprofitable right away. A Raspberry Pi is not going to cut it.
It uses primarily renewable resources or is repurposing pollution directly. This is the only economical way to mine. The vast majority of mining power is done this way, upwards of 80%. How much energy is being used is a purposeful misdirection.
There are several valid points of criticism against Bitcoin. I wish more effort is put into it to criticize it along those fronts.
Nonsense, every bitcoin mined is unnecessary for the environment.
For as long as bitcoin miners fight, tooth and nail, to hash incrementally more efficiently than their competitors, it will be prohibitively expensive for most actors to reverse transactions.
Bitcoin Gold: https://cointelegraph.com/news/bitcoin-gold-blockchain-hit-b...
Vertcoin: https://www.coindesk.com/the-vertcoin-cryptocurrency-just-go...
Ethereum Classic: https://cointelegraph.com/news/ethereum-classic-51-attack-th...
Google is happy to show you more.
The potential losses are huge (especially for exchanges etc.) from double spend attacks, and the value of a cryptocurrency is very much dependent on users' confidence in its resistance to attacks.
However I am confident based on previous events that BCH prices will trend strongly downward when news of the next successful 51% attack is released.
If it's not profitable, it is unlikely to happen. If Hashrate was to drop significantly without commensurate price drops, attacks will happen and then the price will drop to compensate.
However, if the network is unstable, then that balance will lose value in real terms or even become worthless.
A 51% attack only lets people steal money by taking back recent transactions and sending them elsewhere. Transactions that have been received a long time ago are generally safe. (An attacker can reach further back in time if they run the 51% attack longer or with even more hashpower.)
51% lets you rewrite arbitrarily-deep history, limited only by how much time you're willing to spend on the attack. You have more hash strength than the rest of the network combined! You pick some ancient block and start building blocks off of it, and the very definition of a 51% attack is that your new fork will eventually outgrow the "real" fork.
Double spends are possible well before 51%. Even a 10% attacker has the ability to (sometimes) double-spend. A 10% attacker can try to double-spend transactions and has a certain chance of being able to. The chance of success decreases exponentially, the deeper in the chain the target transaction is. However, for a high-enough value transaction, attempting to double spend it can have a higher EV than the mining revenue you lose out on by mining honestly.
However there are obviously diminishing returns for such an attack. The alt coin value drops drastically when users find out about the attack and flee to more secure currencies.
i mean... it wouldn't be a space heater if it wasn't crunching pointless numbers...
kind of reminds me of how FAANG job interviews require memorizing not-very-useful algo stuff to weed out people who "aren't motivated enough" to study that stuff for the interview¹... "proof-of-motivation" if you will. it serves a purpose, but requires "burning" a lot of ultimately pointless effort
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1. at least that's what people say about them, never interviewed there myself
That said, IMO Proof of Work is indistinguishable from Proof of Stake with extra steps. And considering the massive environmental externality of Bitcoin mining, I want to see the major nations heavily tax, if not completely outlaw, Proof of Work mining.
For Bitcoin to continue to act as a decentralized currency ledger (with "settlement assurance"), then the network hash rate must remain high.
Nobody is arguing that the code couldn't run on one processor, only that cryptocurrencies conceptually depend on this high hash rate
You could pay $384k to hire miners to 51% attack BTC right now (that is, if NiceHash had the capacity). If you cut the hash rate that much the cost would be only $400 or so.
Does it sound like a secure trustless currency if anyone can pay $400 to gain 51% majority?
EDIT: 51% attack != rewrite blockchain
Also people may misinterpret 'rewriting history' as the ability to to change coins sent from A -> B to A -> C. Which it is not.
Not saying an attack still isn't bad, but let's be clear what the extent of the damage could and could not be.
2: If you are A (and regardless of whether you're also C) and you sent money to B during the 400$/hr (less than a high-profile lawyer, and probably faster to boot) attack, then yes, changing coins sent from A -> B to A -> C is exactly what you can do.
If we cut the hash rate tenfold, which is definitely significant, you'd still need to find someone who has hundreds of thousands of dollars of motivation to perform an attack. Having that motivation is hard when it takes a huge amount of double spending all at once, the attack will damage the integrity of the coin, and clients can be modified to be highly resistant to it.
No, it's $400,000 per hour.
0.009 BTC/PH/day to buy from NiceHash (https://www.nicehash.com/algorithm/sha256)
100,000 PH/day total hashrate of BTC network (https://www.blockchain.com/charts/hash-rate)
That's 450 BTC/day to buy 50% of the hash rate (as if you even could, that in itself is a ridiculous notion - NiceHash says they have only 300 PH).
Or 18.75 BTC/hour. Or $185,000/hour.
Of course, you're not going to buy 50% of the network's currently running hash power. You'd likely need closer to 100% of the network's current hash power to gain 51%. So, $400,000/hr.
I mean really, does it pass any sort of common sense test that you could 51% the bitcoin network for $400 per hour?
> If you cut the hash rate that much the cost would be only $400 or so.
> during an attack which costs 400k per hour
> under your proposal [of reducing the hash rate by a factor of 1000]
Perhaps I should have been more explicit, but it certainly isn't necessary.
> So, $400,000/hr.
Which, if the hash rate was "1/1000 of what it is today", would be reduced to 400$/hr.
Furthermore, any blocks that were mined under high hashpower still need the same hashpower to be re-mined. A one-time reduction in network hash power doesn’t make previously mined blocks easier to mine.
0.009 BTC/PH/day to buy from NiceHash (https://www.nicehash.com/algorithm/sha256)
100,000 PH/day total hashrate of BTC network (https://www.blockchain.com/charts/hash-rate)
That's 450 BTC/day to buy 50% of the hash rate (as if you even could, that in itself is a ridiculous notion - NiceHash says they have only 300 PH).
Or 18.75 BTC/hour. Or $185,000/hour.
Of course, you're not going to buy 50% of the network's currently running hash power. You'd likely need closer to 100% of the network's current hash power to gain 51%.
In most of the US, at least, you want AC and not heat at least 7-8 months out of the year, if not more.
Those altcoins that have become worthless and are mined "just for fun" are only protected by the fact that they are worthless. Any attack would be a waste of resources. You could still attack them "just for fun" of course...
This happens on a micro scale every day, when two people "solve" the next block at the same time. Inevitably, one of those forked chains gets longer and the other one is abandoned or "orphaned".
Can you expand on that? What would be the incentive for the miners then? What happens when all blocks are mined?
Regardless though my point about space heaters was that 'being warm' is enough incentive for some people to mine crypto.
Pedantically, a rpi wouldn't meet the target interblock time because of minimum difficulty.
But a system using a single 2014 era 800w shoebox sized mining device could meet minimum difficulty on its own.
But can that be done practically? At some point you lose the ability to tell which of the forks is 'Bitcoin' and which are 'pretender' altcoins.
I can imagine a future where you run a chain for 6 months on a Pi then someone turns up with an ASIC and writes a new 6 month history and calls it Bitcoin instead. The risks of shenanigans would be huge.
That's a bit of a naive view. It's like saying, we don't need this expensive security vault in our bank, we could just store it all in a shed.
the proof of work is crucial to the proper functioning of bitcoin, and if the only miners were running on a raspberry pie anyone could come along and do a >50% attack stealing what they want.
If the hashrate ever collapses isn't the whole system at risk?
This has been false for probably a decade or more. Pretty much any modern processor has dramatically lower power consumption when not under load through a combination of things like clock adjustment, powering off cores, and even dynamically adjusting voltage. This is part of why smartphones have battery life measured in dozens of hours instead of 1-4 hours.
This bit is funny imo:
But in late 2019, the National Development and Reform Commission (NDRC) removed mining from a list of activities to be eliminated. Note that the NDRC also oversees the energy industry. Massive amounts of hydropower squandered during flood season is a longstanding issue. The officials are beginning to realize that Bitcoin mining is a highly effective way of transforming excess local capacity into a global digital commodity.
One point of view would be that speculation and greed of bitcoin hodl-er fanboys is subsidizing China's renewables industry...
In the Bitcoin mining world (SHA256), miners like to have BCH, BSV and other alternatives. Altcoins allows them to diversify. That's why these chains will never die. They always have mining support.
What if you ran a business that spends billions per year on network cost, then somebody told you they could reduce it by 98% and make it a flat cost, forever. That's proof of stake.
Ethereum launches the first phase of proof of stake this year. When Ethereum v1.5 launches in ~18 to 24 months, Ethereum's network cost will undergo such a transformation. The millions per day paid to Ethereum miners will stop being paid, forever. It's a ~98% cost reduction in perpetuity.
Do you mean paid _by_ Ethereum miners?
The network pays miners rewards (which will continue under proof of stake, ie the cost _to the network_). The miners pay the cost of running their mining (eg electricity and hardware costs), which is what will be reduced by proof of stake.
Am I understanding this correctly?
http://www.truthcoin.info/blog/pow-cheapest/ gives a nice discussion of how this works.
I don’t. Your “lost interest“ on a currency that has nothing beyond speculative value is literally worthless to me. The increased energy production and subsequent pollution that proof of work costs, however, has a real value and does real damage to the environment.
Proof of work currencies need to be shut down, for environmental impact reasons if nothing else. You keep playing with your speculative assets all you want. I don’t subscribe to the idea but it doesn’t bother me, until you start damaging the real world with it. Then I have to insist you stop.
Proof of work on the other hand is an order or magnitude simpler, and has worked for the past 10 years and is pretty battle hardened at this point with everyone trying to attack it. I don't know how well the 'consensus nodes' would fair under the same pressure.
But to bring $1 worth of bitcoin into existence, it costs $1.
So, it seems obvious to me hash based currency is a virus that is many orders of magnitude less efficient, but many people seem impossible to convince of this.
It just takes some funding to do this. Its not out of the question.
> But to bring $1 worth of bitcoin into existence, it costs $1.
But this just says the seigniorage value of creating bitcoins is 0. It doesn't say the total value of creating bitcoins is 0 -- they might continue to produce value after being created!
For example, the situation you describe applies in full to actual physical currencies. The Somali shilling trades at the (quite low) cost of printing the paper note. But the existence of the shilling still has value; it enables commerce in Somalia.
Economies operating on a basis of metal currency, or cowry shell currency, also have this feature - pretty much by definition, the trade value of the currency is mostly just the cost of producing it. (For coins, the trade value is usually slightly higher.) But every time a trade occurs, gains from trade are produced, so the currency constantly generates additional value just by being in use.
As you say, currency constantly generates value. It is useful. But -100% of the face value is a large burden to start with. How large, relatively speaking? Well, I don't know exactly what to compare it to, but intuitively the value of currency would be related to interest rates, which have been really low for quite a while in the developed world.
Why should that happen? After the initial very diverse mining, it only ever got more concentrated to places with cheap energy. The place my change but there will always be an optimum place.
"The more transparent something was, the more mysterious it seemed. The universe itself was transparent; as long as you were sufficiently sharp-eyed, you could see as far as you liked. But the farther you looked, the more mysterious it became." ——Liu Cixin "Three Body Problem"