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Comment by enchiridion | Hacker News Reader

So, I'm going to choose to be an optimist when it comes to crypto energy consumption.

There has literally never been a more direct reward for efficient energy production.

It's actually a complete waste. All it produces is more security for the blockchain, which is of low marginal value. They could use that energy to produce something of actual value, like hydroponic food, or desalinated water, or run a data center, or literally anything else.

Aluminum smelting and concrete production both take an immense amount of energy.

Bitcoin has value that they can spend on doing all of this. You are falsely saying the only value it provides is blockchain security when im sure that isn’t even a reason they thought about when doing this. Its to produced more money for the government and hopefully that translates to better public infrastructure.

Bitcoin has value that they can spend on doing all of this.

Money doesn't directly convert into food. Someone still has to consume the energy to actually make things. By using energy to mine bitcoin to buy food, one is potentially doubling energy consumed.

Right now there's a chicken and egg problem where cheap power is not near things that need it.

Crypto mining will allow places with cheap power sources to build up energy production. Once that's established it's easier to build up infrastructure for things like data centers.

I think it's somewhat of a Tragedy of the Commons situation.

Everybody would benefit from power being built in remote places, but nobody wants to be the one to pay to build it there. I'm not seeing why crypto mining is any different though; it's a for-profit endeavor like anything else.

I’m sorry you don’t see that it has value. It has value to me. In fact, I need a secure, permissionless, censorship resistant, non-state backed value storage system more than I need hydroponic food or desalinated water. The problem is the disconnect between your wants/needs and the needs of others in the world. Waste is entirely in the eye of the beholder.

Are the benefits of proof of work worth the additional cost over other consensus algorithms, to you?

PoW keeps things fair, you have to spend money on hardware and energy or become irrelevant.

In other consensus systems like PoS, whoever has the most capital controls pretty much everything and has 0 incentive to sell what they get since they aren't really spending any energy for their cryptographic signature.

It literally says "rich gets richer" in the protocol which is fundamentally broken in my humble opinion.

Compute power requires money though, no? Whoever has the most capital now controls the BTC blockchain, which happens to be mostly miners in China. It’s a lot easier for me to stake ETH than to buy hundreds of GPUs.

And my reward is linear with how much I stake or put down, whereas with economies of scale in mining the reward is more like quadratic. Seems to me that with PoS the rich get richer linearly, with PoW the rich get richer ~quadratically.

If I spend 0.01% of what the Chinese miners spend on my mining setup, I’m not getting 0.01% of the rewards.

The thing is, let's say you spend 100M$ on mining equipment today, that equipment is worth a lot less in a year from now and is worth practically nothing in 5+ years, so you can't just sit on it, you have to keep spending. Likewise with electricity, it's not free, you have to source it and spend money on it.

So whatever Bitcoin reward you get barely covers your running cost + small profit margin. Imagine like you're running from a monster, you can't stop or you'll become irrelevant.

Whereas with ETH, I can buy 100M$ worth of it, I'll get say 5% back which means I'm making 5M$ every year, thing is I don't have any pressure to sell it whereas the poorer stakers will have to sell to cover their cost of living or other reasons, so over time the % of my stake in eth grows. Things get even worse when you include custodians into the mix, exchanges will have much larger wallets and get much larger rewards which they may not share with the actual holders or keep a small % for themselves.

The other consensus algorithms all follow the same consolidation logic of capitalism. Specifically, power consolidates year after year similar to banks, media companies, communication companies, etc. It looks to me like the PoS systems algorithmically codify this logic, and since the consolidation exists digitally, I would have a hard time coming up with a plan to break up the PoS oligopolies. The reason why the digital consolidation hurts people in the PoS system comes form the fact that consolidation of money in PoS directly relates to consolidation of actual voting power in those systems.

PoW on the other hand will lead to consolidation around inexpensive energy: volcanoes in El Salvador, hydro in some northern countries, solar somewhere else, etc. However, those places will have some abstract voting power in the Bitcoin world, but exchanges, people, node operators, and businesses also have abstract voting power to balance against the cheap energy locations.

I should mention that the upside of all of this is that we can now choose the option to have accessible digital banking around the world, and people who print money will have less of an impact on world affairs.

I've gradually come around to the side of PoW being important as layer 1, because it's as close as we're likely to get to Lockean labor theory of property being directly manifest rather than built on a legal-deeds-and-titles national framework, and that has an immediate effect of building trust out of speculative value. PoW can be made more efficient along some axes, but not all of them. As such it puts every economy in a Red Queen's race to do things with available energy and computing power that are of more value than speculation.

However, PoS has an important role as the layer for specific applications and markets, since it acts more like central banking with the tradeoffs of such.

You got it. PoW is critical for layer 1. Ongoing capital expenditure requirement is critical to prevent ancestral oligarchies. One cannot retain censorship resistance or decentralization with oligarchies.

Honestly, why do you need BTC? You can't actually buy a whole lot with it, and you gotta convert to real currencies do anything meaningful anyway, which defeats the whole argument.

A) Ensuring the time-value of my labor is not eroded by the state through inflation. Yes, there are day to day risks of fluctuations in value, but one just needs to compare the trend line of where BTC is going vs fiat currencies in the longer term. I’m not worried about 50% draw downs on an asset that appreciates > 100% pa.

B) ensuring that third parties like banks are unable to steal my funds. Through fees, charges, unauthorized transfers or just plain theft…

C) portability of funds around the globe, independent of foreign or domestic currency. Ever tried to wire funds globally on a weekend? Trade?

You are still looking at bitcoin like it’s a dollar bill. It’s not — it’s digital gold with more computational security than any system ever built by humanity.

A: Bitcoin has inflated 40% in value in the last month.

B: This is probably the strongest argument for Bitcoin and the original vision.

C: Sending BTC is immediate but since you can’t really use BTC to buy much (yet) you still need to sell and wait for funds to clear, which takes about as long as just wiring money.

When OP talks about "inflation" they're talking about the amount of money entering the money supply. Bitcoin didnt "inflate" even though it got more expensive. The price did, not the supply. The supply of BTC is algorithmically programmed and there will only ever be 21 million produced. You can't print more Bitcoin at will but a government can print their fiat currency, for better or worse.

Just a nit: there can be more than 21 million if the community forks and migrates over to a version where the algorithm has been changed.

That is not true, and is a trick to try to pollute the discussion about bcash or some other nonsense. There will only ever be 21 million coins in Bitcoin by definition. If there are more — for example fractional reserve “backed” tokens on EVM chains — or even chain fork scamcoins, these are not Bitcoin. Bitcoin is UTXOs on mainnet. And 21 millionth is produced near 2140.

Bitcoin is actually inherently shrinking in supply. Once the 21 million are created there can only be coin loss (via lost or destroyed wallets). And a deflationary currency is far from desirable.

I have heard lots of hand-waving arguments for why a deflationary currency is bad, but they have never made much sense to me.

A deflationary currency doesn’t mean no one will ever spend or invest. It simply means that there is less forced incentive to spend and consume in order to avoid inflation.

Inflationary currencies are like a tilted playing field, they artificially force savers to spend or invest in risky assets while skewing economic metrics to make the economy look better than it is.

While the gold standard was not deflationary, the relatively fixed supply resulted in strong stable economic growth until countries in Europe began secretly debasing their currencies in the run up to WWI.

Inflating fiat currencies gave the European countries the power to perpetuate the first endless war - I strongly believe if they had been forced to tax their citizens to pay for WWI instead of stealing the wealth of the people by inflation, the World wars would not have been so severe and so prolonged.

Since inflation and deflation are just monetary things, things like wages and asset values should move in lockstep with it, and this has historically been true. Wages go up over time, as do things like gold prices and stock indices, in dollar terms.

So why do governments prefer slight inflation? A slight amount of inflation first allows governments to print a bit more money than they're collecting, which allows them to spend a bit more. Comparatively, in a deflationary world, they would need to collect more taxes than they spend, which would be tough both politically and tough for balanced budgets, since government spending is useful.

Deflation would mean that you basically get a net worth bump just from holding on to cash. You would have a real, tangible benefit of not spending money but rather keeping it in a bank account. Money in a bank account does not contribute to productivity. Money spent, or invested in companies doing productive work, is preferable. To counter inflation you at the very least need to invest in something like a CD, which the bank can then use to loan out mortgages and the like, keeping the money flowing.

B) Bitcoin also has fees associated with it, not just when you convert it to or from fiat, but anytime you do a transaction. And I'm pretty sure Bitcoin has been stolen before. If you're purely talking about the state stealing it, well that's happened too; the US government has seized Bitcoin many times now.

There are now other cryptocurrencies that provide that without wasteful proof of work.

Ok, hold up. Energy usage is a good thing and provides security, actually. You can’t ditch the energy and retain security. I’m sorry, but PoS is a bad and the wrong model for censorship resistant, non-state stores of value.

That's simply not true. Proof of work is nothing but an extremely expensive to randomly select the entity that gets to finalize the next block. The system leaks value like a sieve. Either the miners have to be compensated by printing money--and devaluaing everyone else's holdings--or by the transaction fees of a system that has a hard practical and ideological limits on its transaction capacity.

Avalanche already provides a compelling and less wasteful alternative, and it might not even be the last word.

This idea that Bitcoin got it all just right has become a quasi-religious belief, fueled by the motivated reasoning of monetary interest and ideological fantasy.

Yes it is true! You still don’t get it, and I don’t think I can convince you. Energy = Security. This is an fundamental axiom. Security of transactional data grows with every block in a PoW chain. PoS finally breaks down to mutant PoW with stake grinding; among other oligarchical concerns. We must spend energy to sustain the hardest money humans have known. Yes, it is a deep ideology that a monetary network must incur ongoing continued capital investment! Everyone looking for a cheap n easy way out with PoS. No free lunch.

You're right that it is an axiom: "a statement or proposition which is regarded as being established, accepted, or self-evidently true."

There's nothing "hard" about money that requires a nation's worth of energy simply to continue to exist.

Proof of stake isn't fundamentally flawed, and proof of work isn't perfect. They both have many variations, and there's certainly many more to explore yet.

The only free lunch I see people pining for is the idea that they can squat on a wasteful, moribund asset, expecting it to be worth much more in the future.

I don't think want vs need is as subjective as you say.

I could assert that I need a Maserati and no other vehicle will fit my requirements, and it would be pretty easy for others to counter that either my supposed need is really a want, or the requirements are arbitrary and unnecessary.

Likewise I think your needs regarding crypto are more of a want. What would be the consequence if you didn't get that? Would you die? Would your quality of life significantly decrease? How did you live most of your life already without Bitcoin?

Life without bitcoin: one can watch as the value in the output of ones labor encoded in fiat decreases over time, punishing saving and devaluating our lives work; or One can opt-out of this and store it in something that does not, and rewards saving. It also has the benefit of security, integrity, audit ability, censorship resistance, transferable over arbitrary communication channels, etc. Most folks live paycheck to paycheck, and so don’t feel savings inflation and the cruelty that this implies.

This has been invented. If it didn’t exist now for some reason, it would significantly decrease quality of life — I would be powerless to watch my saving erode into nothing. I would be powerless when the state decided it wanted to adjust interest rates to be negative (again, attacking saving). I would be powerless when any state decided that another state should be disconnected from the legacy financial networks. I would be powerless when they payment card networks started enforcing morality de jour. It would be like being arrested - some liberty taken from the individual and make them beholden to the state.

They call it being “orange pilled”. Once you get it, there is no other option to avoid growing poor slowly.

> Once you get it, there is no other option to avoid growing poor slowly.

So holding stock in companies that, I don't know, actually produce something isn't an alternative? That just doesn't pass the sniff test.

Stock is good too, any asset to escape fiat; but it’s the currency properties of bitcoin that have advantages over it - like 24/7 market. Not to mention portability. Transferability. Self-custody.

The valuation of companies should reflect production, however any sensible extrapolations of thus in recent times are no different than speculation in cryptocurrencies. It’s all perception. That’s all money is — a shared delusion that something stores value.

Bitcoin subsidizes the creation of constant-output power sources (geothermal, nuclear) which are not usually economical for highly variable consumer/industrial power usage. Long-term, these sources will probably power the grid during peak hours and power Bitcoin hardware during off-peak.

It also subsidizes the use of dirty power sources. The greenwashing of Proof of Work cryptocurrencies is insane. It's using the same amount of electricity as Argentina.

https://www.vice.com/en/article/pkby7z/a-fossil-fuel-power-p...

Green energy sources are cheaper when you don’t have to scale demand hour by hour. The overwhelming majority of Bitcoin power usage is already green and that will only increase.

Claims like “Bitcoin uses more electricity than <some poor country that doesn’t use much electricity>.” are totally irrelevant. Good. I want humanity to climb the Kardashev scale. If we have an invention that can help fund the creation of billions of watts of efficient energy capacity then that’s great!

> The overwhelming majority of Bitcoin power usage is already green and that will only increase.

Is there any source for this, the first part, that it is currently powered overwhelmingly by green energy? Anything I can find suggests otherwise. And the part of the claim that Bitcoin will use a greater share of green energy in the future is not very meaningful if you expect that is also true of every other industry.

https://theconversation.com/bitcoin-isnt-getting-greener-fou...

https://www.infokreek.com/green-bitcoin-the-impact-and-impor...

https://medium.com/crypto-lucid/enough-with-bitcoins-greenwa...

https://www.motherjones.com/environment/2021/05/bitcoin-mini...

PC gaming alone uses the same amount, there are many useless activities (well the both provide entertainment) that could be stopped if you want lower energy usage for the world. Ban gaming and obviously ban fashions since that is close to catastrophic catastrophe regarding greenhouse gasses.

Yeah it's a really good point that additional security for the blockchain has low value. Really the total mining reward (txfees + subsidy) should adjust to offer just enough security. We now have the mechanisms in place to do something like that through DAOs, however it seems hopeless to apply that to Bitcoin, they are so resistant towards any change what so ever.

It's wild that it took the bitcoin subsidy less than 2 decades to become far too high proportional to it's externalities.

The counter argument here is that sound money is the foundation on which all other activities of value develop.

Yes, but it undermines the point of energy production, because the energy produced is not going to existing consumers of energy, it's going to feed the insatiable-by-design blockchain.

Imagine if there were a cryptocurrency based on proof-of-driving-things-between-cities with a mining reward, and Los Angeles invested in it. There would be an incredible incentive for expanding LA's highway infrastructure, and you'd expect LA to get a lot more highways, to but there would be no positive impact on actual commuters trying to use those highways to get around greater LA, and quite possibly a negative impact, because the more direct incentive is to use whatever highways are there - building more highways is an indirect incentive.

That analogy would hold if the additional energy produced for bitcoin mining had some negative impact on the existing energy infrastructure. It doesn't. If anything it creates an incentive for making energy production more efficient. The fact that energy is produced and consumed is not bad in itself. The Sun could be said to be "wasting" energy by sending it off into space.

> If anything it creates an incentive for making energy production more efficient.

How is this different from any other consumer of electricity? Every consumer wants to buy the cheapest electricity, and every producer wants to produce the most of it per energy input.

I'm not disputing that it creates an incentive for making energy production more efficient. It does! In the analogy I gave, there's definitely an incentive for building more highways ("There would be an incredible incentive for expanding LA's highway infrastructure") - it's just that this incentive is, at best, completely useless to existing commuters taking the highways.

I'm also not claiming that it's bad for energy to be produced and consumed. It's not! It's just irrelevant if you're looking to consume electricity, and someone else is producing and immediately consuming it. And it's bad for you as a consumer if production goes up and consumption goes up by even more.

I have no idea what your point is about the Sun.

This is true exactly to the degree that landmines reward efficient blood donation.

I mean it's not a perfect analogy, but I'd be willing to bet a lot of lessons from battlefield medicine has made it's way into civilian trauma care.

Yes, but that is not a sufficient justification for war.

The idea that bitcoin incentivizing efficient power generation because it consumes all that power somehow being a justification for bitcoin is entirely bananas.

If your concede that there's a trade off then there is a point where the efficiency gains outweigh the negative externalities.

I think it's unknowable right now where we will land, and as an optimist I choose to believe we will end up on the right side of the trade off, based on the apparent efficiency of market forces.

Why is this a more direct reward than generating energy to sell?

In mining, revenue = efficiency * potential energy * BTC per unit produced energy

In selling energy, revenue = efficiency * potential energy * USD per unit produced energy

I don’t see the difference, other than the fact the former just adds to the pool of required energy (it’s strictly additive to the energy produced by the second)

Transporting power is extremely expensive and infeasible over large distances. So power needs to be generated near industry or homes. However, cryptocurrency can be mined anywhere and then sold.

Well if imagine with selling energy, the profit equation has more terms, which are difficult to model correctly.

With crypto the only really question is how will the price of the currency affect the break even point for hardware cost (assuming all mined tokens are sold immediately).

It's a direct reward for energy production, which has always been well rewarded. There is no reason to think PoW mining in any way rewards efficient energy production more so than any other use of energy.

> There has literally never been a more direct reward for efficient energy production.

Not having to pay for the inefficiency in producing the energy you actually needs seems to be... more direct?

> There has literally never been a more direct reward for efficient energy production.

Yeah, too bad this happens not long after we discovered that energy production creates massive issues with regards to our future on this planet.

"Efficient" energy production in practice today is energy production that maximizes externalized costs.

There has literally never been a more clear and obvious way to waste energy for no reason, something which is happening at scale, during a time of energy crisis.

This has Easter Island written all over it.

'Hey, let's use all our resources to build Giant Heads! The person with the most heads gets to be the King!'.

But it s like there's ONLY the reward. You imagine if there was a way to make gold with electricity? We d live in the dark just to get more of it...

Well, not exactly. There is the utility of enabling the chain.

And there is nothing stopping us from extracting gold using electricity. It's in basically all soil and sea water. Sure there are some required materials, but I'd water a guess that those materials are no harder to obtain than GPUs.

The only thing that stops this reckless mining are the forces of the market, and the same is true with crypto. Crypto miners tend to be extremely frugal, and I doubt any are any who are doing unprofitable mining in expectation of crypto going up.

Now from a crypto maximalist perspective, which I don't necessarily hold, isn't the cost of the electricity worth having a decentralized currency which enables all sort of different markets?

Crypto is always held up as wasteful in terms of energy, but I'd be curious to see the energy cost in comparison to current payment processing systems.

If anyone is interested, Visa reports that their payments network (and supporting infrastructure) uses 740,000 Gigajoules[0] in a year.

Can’t quite find a one for one measurement for Bitcoin, but due note this is the energy needs of all of Visa’s operations and they process in excess 100 billion transactions a year and Bitcoin (in 2020) averaged around 300,000 transactions a day[1].

If interested there is this[2] digiconomist article with more numbers (no clue as to the veracity of them).

[0]: https://usa.visa.com/dam/VCOM/download/corporate-responsibil.... [1]: https://www.blockchain.com/charts/n-transactions [2]: https://digiconomist.net/bitcoin-energy-consumption/

So let's do the rough math and figure out the comparison

300k per day is around 100 million transactions per year, three orders of magnitude less than Visa.

BTC uses 110 terawatt hours per year right now[0], which is 396,000,000 gigajoules, a three order of magnitude difference in the other direction. Assuming everything scales nicely, if Bitcoin were the size of visa it would use ~6 orders of magnitude more energy.

OK, so that is way worse than I thought. I'm still not sold on the idea that it's a bad thing, but it's nice to put numbers to the situation.

[0] https://www.google.com/amp/s/hbr.org/amp/2021/05/how-much-en...

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