Resources are being utterly and completely wasted on mining bitcoins
colorfulwolf.com
colorfulwolf.com
Except for the guarantee of uniqueness. Which is one of the most powerful invariants against corruption and government-sponsored inflation, goals which are worth these effort.
Using gold as a store of value is useful, otherwise we wouldn't do it.
There are a few more actually: gold is one of the least putrescible materials out there (it's one of the least reactive elements available and as one of the royal metals very few acids can attack it), it has a distinctive look, and it has a very high density (most denser metals were only discovered in or after the 19th century, and are generally more valuable) which makes it easy to differentiate pure and impure golds (such as fake coinage). It also used to strike a good balance between rarity (which ensures the market won't be flooded) and availability (which actually made it usable as money).
Of course, most of this broke down as new, very productive, mines were found (e.g. in South America) and mining techniques improved. And nowadays we have the opposite issue: gold mining output declines, and is unable to follow the value growth of the world itself. This is one of the reasons why most countries moved first to fractional gold standards and then to convertible currency.
“Yes, but the last thousand years may have been atypical.”
Gold does not have much intrinsic value (not actually correct anymore, in our modern world gold is used quite a bit in industrial contexts): apart from being shiny, before the 19th century there wasn't much it could be used for. The vast majority of its value was extrinsic and pretty much arbitrary, in its use as part of monetary exchange systems.
The same can be said of diamond, by the way.
Diamonds, in some way, are the "anti-gold." There is a great game-theoretic reason for why something as completely worthless as diamonds make great engagement rings though: They are something expensive to the male (so he can't repeat the process of proposing very often) - but worthless to the female (so she can't be accused of being a gold digger) - and at the same time sparkly and easy to show off.
Gold is not rare either. Please re-read my comment, it's about intrinsic and extrinsic value, especially across history. Before modern industrial usages, diamond was all but useless (even worse than gold, if anything) and all of its valuation was extrinsic.
And much like gold's, diamond's intrinsic value has risen in modern times with industrial uses.
> Diamonds, in some way, are the "anti-gold."
Most definitely not. If you want anti-gold, you should look at water instead.
What are some characteristics of a good money?
It's divisible. 1 oz. of gold is equal to two 1/2 oz. of gold. Two halves of a diamond are not equal to the intact whole.
It's fungible. Gold coins of the same weight are, for all intents and purposes, the same. The same cannot be said of diamonds or oil.
It resists deterioration/decomposition. (Self-explanatory).
Its rarity/weight/volume characteristics are manageable. You can buy an iPad with a reasonably sized gold coin. The same could not be said of bushels of wheat, lead, stone, oil, etc.
It is relatively easy to identify. This provides anti-counterfeit measures out of the box.
I'm not a gold bug (I own zero gold... not even jewelry), but I do appreciate that it makes complete and total sense that it was used for money for thousands of years. Should 1 oz. of gold be worth $1500? I don't know; I don't follow the market. I do know that gold is extremely valuable due to how well it serves as a medium of exchange, and due to that fact alone.
tl;dr Gold has intrinsic value: it makes a good medium of exchange.
The value of something is how much you can get in return for the thing from a purchaser that you can find. Even "value is what we agree it is" isn't really right, it's what you can concretely get for the thing. (For instance, the fact that a certain Magic the Gathering card is listed in some book for $20 is meaningless if you can't find anyone who will give you more than $5.) There is no other definition of value that's actually useful, but there are plenty of others out there that will lead you astray.
This is just a ruse used by governments as a pretext for inflation. It isn't necessary for money supply to 'keep up' with growth. As demand increases, the value of money goes up, and people simply use smaller units for exchange.
The result is exactly the same, you're just making the whole process more painful by rebadging money.
During deflation prices keep falling, which causes consumers to post-pone their purchases (tomorrow they'll be able to get that TV at a lower price so there's no point in buying it today) and investors sit on the money since they'll be more valuable tomorrow.
This is the exact opposite of inflation, which causes people to convert 'today' money into goods since tomorrow they'll buy less with it; it also causes investors to put money to good use or in interest-bearing accounts since otherwise they lose the value).
Therefore some economists argue that deflation might be even more dangerous than inflation because it discourages consumption and tends to have down-spiralling effects. (see http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation... ).
The alternative is inflation (and economic instability) as soon as people start generating income by producing money for basically nothing.
There are post-quantum algorithms that are computable on ordinary computers, but they're still under research and they'd make Bitcoin's data set considerably larger.
Could you elaborate which aspect of bitcoin has efficient quantum algorithms? The proof-of-work system requires you to invert hashes and quantum algorithms only give you a quadratic speed up (brute force takes time O(\sqrt{size of range}) rather than O(size of range)). Right now there is no quantum attack on SHA-256 (which is what Bitcoin uses).
There are post-quantum algorithms that are computable on ordinary computers, ...
This sounds interesting, but could you elaborate? What does it mean for a post-quantum algorithm to be computable on ordinary computers?
BitCoin uses public key cryptography for its digital signatures. That in turn relies on the difficulty of factoring large numbers, for which there are efficient quantum algorithms.
While this may be true, a scarce money system does produce better result than poorly managed fiat money systems. You won't see the kind of hyperinflation that we saw in Zimbabwe with the gold standard.
When people talk about "wasting resources", it's an indication they don't understand how Bitcoin works. One might as well complain about wasting resources on SSL when you could just send data in plaintext.
1) Save current time
2) "Precalculate" the current block
3) Wait until the 3601th second
4) Publish the block that you "calculate" in just 1 second
5) Profit??If it's just a majority of clients, then an attacker could just start up a million new client processes and outvote the existing network.
If we're talking a majority of unique IP addresses, then anyone with access to a large IP address block could outvote the network. This approach also wouldn't be feasible for IPv6, where IP addresses are not a scarce resource.
The Bitcoin approach is to define "a majority" as the majority that has the most computing power. Because computing power is always going to cost money, this guarantees that anyone wishing to subvert the network needs to outspend all the honest miners.
If you can think of another way of defining "a majority" without needing a lot of CPU resources, a lot of people would be interested in hearing your solution.
Let Bitcoins equal votes.
Set up a Bitcoin account for each option in the vote; send Bitcoins to the account associated with the option you prefer. Transaction verification acts as an electoral audit.
That sort of system would give power over the money supply to those invested in the currency, which seems to be exactly what the Bitcoin community wants.
You can't use bitcoins as votes to verify transactions, because until you verify the transaction chain, you don't know how many bitcoins anyone has.
This approach negates the incentive to create sham clients under a one-client-one-vote system; it has the same benefit over IP-based voting systems, or what have you. Voting with Bitcoins means that that every participant in the economy has a voting power equal to his account balance (if the Bitcoins are returned after voting) or the number of Bitcoins he both has and is willing to give up to affect the vote's outcome (if they are not returned). So those who are more invested in the Bitcoin economy would have more (or potentially more) power to determine the rules of the economy.
A large part of human endeavor is not about increasing value in the world, but rather increasing value for oneself, possibly with the side-effect of decreasing value for others. It's just the way we are.
I don't think bitcoin's purpose is to aggravate or ameliorate this pervasive problem. To me, the point of bitcoin is to shift economic power from the circles of people who presume to rule the rest of us with complex economic policies and regulation that ostensibly keep the economy stable and growing.
With or without bitcoin, the 'waste' from competition still going to be there, and I have no reason to think that the adoption of bitcoin is going to increase the total amount of 'waste'.
It's not just the way we are, it's the way we are under capitalism.
But I agree that the wastefulness of Bitcoin is nothing compared to the waste caused by capitalism as a whole.
What line of reasoning makes you think that humans are naturally unselfish and are made so only by an external economic system (which is itself created by humans)?
Judeo-Christian thought says that humans are naturally sinful and selfish. Evolution says that the fittest survive at the expense of others (though this may involve cooperation with related creatures). Who says we're all basically nice?
"But I agree that the wastefulness of Bitcoin is nothing compared to the waste caused by capitalism as a whole."
What system would you have instead of capitalism? If socialism or the like, can you give an example of when that has ever worked well? There are many counter-examples in history, you know. Workers sitting down doing nothing because the government quota said to only make 250 pairs of shoes today, etc.
At the risk of getting into a political debate, Spain in the 1930's?
https://secure.wikimedia.org/wikipedia/en/wiki/Spanish_Revol...
In theory, we don't "need" more than one of anything: one telecom provider, one computer maker, etc. And they could be more efficient if they didn't have to spend money on advertising, etc.
But the history of monopoly companies seems to show that without the need to compete, companies do not improve their product or its cost-efficiency. So it appears that the loss of efficiency created by having many companies reinvent the process to make a widget is outweighed by the efficiency gains each company makes in an effort to out-compete others. Hence, better, cheaper widgets for less money.
As to the value of social gaming companies, I think it's nearly nil, but apparently millions of other people disagree.
No, because you can't cryptographically enforce that all compatiable clients use only 1% of their available processing power.
If such a client took over the bitcoin network, somebody would use a patched version of that client that pretended to use only 1% of the computing power, but actually used all of it. There's no way the other clients could know, so the whole spiral would start anew.
1. http://bitcoinweekly.com/articles/the-wasted-electricity-obj...
2. http://bitcoinweekly.com/articles/the-wasted-electricity-obj...
So at a guess, the network is doing now around 7MW of electrical power, although there is room for a lot of efficiency improvement.
Let's say it's 20 years from now, the total size of the bitcoin economy is $1 trillion, and there are 10 million bitcoins in existence. (We could find the number of bitcoins exactly, but 10 million makes the math easy and it's within a factor of 2 of the ultimate limit. There are about 6 million coins right now.)
$1 trillion / 10 million coins = $100K per coin, so we can expect people to spend almost that much money to generate a coin.
The rate of coin production is currently 50 per 10 minutes, dropping in half every four years, giving us 9 coins per hour in 2031.
That's 78K coins per year, at $100K per coin, or $7.8 billion in computer time and energy spent per year.
Let's say half of that is energy, call it $4 billion, including the energy to make the dedicated mining computers. At ten cents per kilowatt-hour, we're talking 40 billion kilowatt-hours per year. Divide by the number of hours in the year and we get 4.5 gigawatts.
In other words, a $1 trillion bitcoin economy can be run on the output of roughly five typical nuclear power plants (assuming it's 20 years from now).
If we get to $1 trillion in only 12 years, energy usage will be four times higher, since coins will be worth about the same but four times as many will be generated per hour.
If people use custom ASICs to generate coins, they'll be costly but more energy-efficient, weighting expenditures more heavily on hardware than energy.
People can grant transaction fees to miners to make their transaction go through faster. If transaction fees become prevalent, resource usage will be higher, since there will be additional reward for completing blocks. But $7.8 billion is already almost one percent of the bitcoin economy. If the average bitcoin changes hands once per year with a one percent fee, or ten times per year with a 0.1 percent fee, we add $10 billion to mining rewards and approximately double our resource usage.
Edit: $1 trillion is about equal to the amount of U.S. currency in circulation: http://en.wikipedia.org/wiki/Money_supply
Here's how I see it playing out: eventually it will be too costly for most people to produce new bitcoins. Since nothing forces one to use bitcoins, bitcoin holders will cash them out, and the exchange rate will plummet. Deflationary panic? http://en.wikipedia.org/wiki/Deflation#Money_supply_side_def...
It's already difficult for individuals to produce bitcoins, but people have solved that by pooling their resources, getting regular rewards of fractional bitcoins.
My problem with bit coins is that early people who start mining have a greater advantage than later ones. While that's not the classic definition of a Ponzi scheme (in the classic definition, payouts at each round are funded by new participants), it is a feature bitcoin shares with them. If someone started mining bitcoin when it first started, they have a significant stash created by now. As people start to assign value to the virtual currency, these people are getting a significant proportion of value for simply being early adopters.
I'm not one of them but have no gripes with that. What you describe is also commonly known as the entrepreneurial taking-unknown-risks for an unknown-future-reward.
It's the same with government currencies -- the government/banking complex gets newly created money first, and gets to spend it when the new money supply still has the purchasing power of the old money supply, ie. before inflation. This is their bonus for successfully defending their monopoly on money creation. Not that I'm in favour of such a privilegue. Which is the appeal to a growing number of users: yes, early adopters may be rewarded in proportion to how early they adopted, BUT no-one can unilaterally create new Bitcoins at the push of a button or by signing some law and even the early adopters could not initially create more bitcoins or faster than prescribed by the open source peer to peer protocol.
I'd argue you're not exactly correct about the release path of currency in a fractional reserve system, although I don't disagree that elements are currently implemented in quite unfair ways. I'd also suggest, though, that government fiat currency works very much better than anything commodity based, or indeed than a partially fiat system that functions exactly like a commodity based system, as bitcoin does.
I don't know about that. Back in 2009 or 2010, Bitcoins were worth practically nothing and almost everyone predicted that they'd never be worth anything. And if no one mined, maybe Bitcoin would never have taken off (to the extent that it has) and it would still be worthless.
You're also actually assuming something that runs counter to the stated bitcoin model, as described in the FAQ (which seems to be down at the moment). That is that there's an investment in making bitcoins, which they would say is not so. The intent in burning cycles and power is simply to ensure security, while the value comes from faith in the currency. Hence, there is no investment in creation: the investment would instead be in accepting bitcoins in transactions, which iterates the pyramidal nature of the system.
Nobody wants to be sitting on a pile of this sort of cash at the end of the month, because they'll lose 10% of the pile of cash. The intended effect is to dramatically increase the velocity of the money, so that a small stock of it can sustain a very large flow.
I don't know enough about this stuff to sensibly evaluate the claims its proponents make for it.
Gesell's scheme does not destroy any of those things; it only destroys money. Money is not wealth. Money is just a way to facilitate cooperative ventures with people we don't know and trust. With money, I can cooperate with 200 other people to pay for an intercontinental flight, and with the hundreds of thousands of other people who drilled and refined the kerosene, aluminum, and other resources needed to keep us in the air.
But the money game has a lot of drawbacks. So it's sensible to experiment with it and see how we can improve it. Gesell's scheme was one such experiment. It was reported to be very effective at creating wealth by its proponents when it was tried.
Also, asking for a control group in an artsy fartsy field like economics is too much. Where is the control group that guides the decisions of the central banks? There is none! OMG GREAT DEPRESSION!
So you spend it.
Also, once the BTC expire, they don't disappear. They are made available for mining. This is possible because the block chain has full history.
For instance, let's say I wait until the literally last minute to spend my expiring bitcoins. I want to exchange my almost-expiring 10 BTC for $100. Would you accept this offer, knowing that those 10 BTC will vanish shortly after you accept them?
Once you exchange your 10 BTC, the expiry date is reset.
If inflation is defined as the rise in prices of goods, then bitcoin is deflating.
Some of the early adoptors of BitCoins have 1% of all the current BitCoins each.
First, they could simply mine more coins. For them to win almost all the (new) coins this way, they have to do almost all the mining. Say, 80% of it, although it's really a matter of what you mean by "almost all".
Second, they could collude and subvert transaction audit trails so that the Bitcoin system transfers ownership of all existing coins to them. For them to win all the (new and old) coins this way, they only have to do more than 50% of the mining.
So, if collusion is feasible, the second approach is easier; so let's forget about the first one for the moment.
The point at which the defectors, each using 2 orders of magnitude more CPU time, are doing more than 50% of the mining, is when they control more than about 0.9901% of the network's total raw computing power, because at that point, the cooperators control only 99.0099% of the network's total raw computing power, and the cooperators are using only 0.990099% of the network's total raw computing power to prevent counterfeiting.
If a single defector controls only, say, 0.5% of the network's computing power, they will get only about a third of the new bitcoins mined, and will not be able to subvert the network.
Only needing to have 0.99% of the network collude in defection to break the system is a pretty bad problem, but it's not nearly as bad as any single person being able to break the system.
Mining is securing the bitcoin network in the similar sense, as Fort Knox secures gold.
http://www.npr.org/blogs/money/2011/02/15/131934618/the-isla...
Cryptographic hashes are designed to have these exact properties. If we wanted to replace this with a "useful" calculation, you'd essentially need to create a new hashing algorithm that also had some practical use beyond hashing a set of data.
Given that creating good cryptographic hashing algorithms is hard enough, I suspect that creating one that is tied to a "useful" result is not feasible.
To solve this problem, the input has to be bitcoin transactions, rather than biologically-relevant amino acid sequences.
I guess the issue here is that calculated bitcoins don't contribute anything. The grid should be used for something useful such as folding proteins or even SETI for that matter.
It's fairly easy to throttle a bitcoin client.
But if they mean run slower but do the same amount of work that's not possible unless someone makes a dedicated chip to do the needed calculation.
I would only add that we're using a LOT of energy to create a fake (read: virtual) resource. The best part about virtual resources is that they don't use many real resources, but this one is the opposite.
Granted, it's a 1-time cost, but as the article notes, it could be created with a much lower 1-time cost.
A frequent mistake is to assume that all that processing power is used to make bitcoins hard to create. This is incorrect; the processing power is used to verify the block chain. The bitcoins created as part of each block are just a reward to make it profitable to participate in the network.
[EDIT] Since I'm getting downvoted, I'll answer my own question: $0.042 every 18 months.
For decades these senators continuously sabotaged measures to eliminate the paper Dollar and get the US entirely on dollar coins. The US is probably the last major economy to still be using paper for such small denominations.
However, in my recent and local experience, small-denomination paper is not so unheard of:
Country Smallest paper bill in USD PPP GDP/year
Argentina $2 0.50 $640B
Brazil 2 reais 1.26 $2200B
Uruguay $5 (now rare; usu.$10) 0.27 $41BIt'd be pretty interesting to get the total cost of printing, transport, and storage, and compare to the cost of maintaining a similar amount in bitcoins (which I calculated here: http://news.ycombinator.com/item?id=2602667).
http://www.enchantedlearning.com/math/money/bills/one/
I didn't count the $100 because I don't believe they're printed/circulated/destroyed/reprinted as heavily as the $1. Who knows about the 5, 10, 20 and 50.
I also don't think this $0.042 covers the labor cost of distributing, collecting, securely shredding and tracking the movement of all these bills through the system every 18 months.
In any case, it sounds like the bitcoin cost might be in a similar neighborhood to paper costs.
Hasn't it been talked to death already? Is there really anything new to say?
It's also a new and interesting intersection of technology, economy, and personal trust.
It's not that Bitcoin isn't new and interesting-- it is-- but that there is nothing new and interesting to say about it today that wasn't said (here) yesterday.
To be blunt, you're doing more harm than good by complaining about the discussion. For every person that cries "dupe", there are ten more who are grateful for that dupe. Dupes are a good thing.
And I'm not crying "dupe"-- it's not that people are re-posting an old article with evergreen content.
Instead, people are having the same conversation over and over again, making the same points, repeatedly. I don't think that's a good thing.
As something like Bitcoin becomes more popular, people will naturally have questions and concerns. Should they search for the answer before asking? Maybe, but it doesn't really matter if they don't. People are free to downvote them for asking. But they don't, and the resulting conversation becomes interesting for those who haven't seen its variants, such as me.
You've been a member of HN almost as long as I have. Haven't you noticed the destructive effects meta-discussion has on articles? If so, why are you perpetuating it?
Because I've also noticed the pernicious effect of waves of discussions like this that never die. Articles about Bitcoin (and other similar topics) come to dominate the front page for a while, and crowd out other, more interesting content.
I don't usually involve myself in meta-discussion, but this seemed like such an egregious example that I felt I ought to speak up.