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Comment by spir | Hacker News Reader

Mining revenue is the network cost of running the Bitcoin network.

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.

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Proof of stake is as equally expensive as proof of work. The trick is that both of based on burning money, proof of work burns by using CPU cycles while proof of stake burns through lost interest.

http://www.truthcoin.info/blog/pow-cheapest/ gives a nice discussion of how this works.

The problem is that the claim that nothing is as cheap as proof of work as made in that article is only applicable if you think cryptocurrencies have value in a way that is comparable to tangible goods in reality, like the electricity they burn to have proof of work.

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.

You can have whatever values you want, but it remains a fact that cryptocurrencies can be sold for real money and they can be lent at interest using "DeFi" so forgone interest is a real thing that can be calculated.

To bring $1 worth of US currency into existence, it only costs a fraction of that amount.

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.

> To bring $1 worth of US currency into existence, it only costs a fraction of that amount.

> 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.

I wasn't confident enough to declare bitcoin is equivalent to, say, gold. But it sounds like you are, so maybe that is correct - bitcoin is just as bad as gold, or conversely, gold is just as bad as bitcoin. We observe that fiat currency has mostly driven out metal currency, and I'm inclined to think that is because it is more efficient in using resources.

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.

You're probably using mainstream economics while coiners are using crackpot Austrian economics. Of course you can't convince them.

Nobody would be mining any crypto if their cost was exactly equal to their revenue. This fundamental misconception might be the reason why you can't convince anyone that crypto currency is a "virus".

In any efficient market, profits approach zero. I don't see the relevance of saying "well, actually, there is some profit". That profit is the mechanism that drives the mining cost to match the value of the currency, isn't it? Please explain more about what you think I am missing, because it sounds like you are just referencing the mechanism that causes the problem.

Speculation is a thing. Not only could users be mining for zero profit, they could be mining at a loss but expecting speculative gains in the future.

It just takes some funding to do this. Its not out of the question.

The consensus part of 'Proof of Stake' systems is crazy complicated, and there really has been no simple way of doing it determined yet. It's still very much an experiment.

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.

> The millions per day paid to Ethereum miners will stop being paid, forever.

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?

...it's both.

Or you could just continue to use fiat and credit.

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