The problem with Bitcoin miners
paulbutler.org
paulbutler.org
The accountants wouldn't believe us when we told them that the machines were worthless after only 6 months.
We’re talking about significant 100x-1,000x improvements in efficiency and profitability.
To stay competitive, these improvements in efficiency made it necessary for miners to upgrade mining equipment every 3-6 months.
Because of its closeness to silicon fabrication and cheap energy, China emerged as the de facto place to set up these mining farms. Those previous 100x-1,000x improvements are no longer possible.
The development of mining hardware caught up with Moore’s law.
This is the observation that transistors in a dense integrated circuit doubles about every two years.
It would be fair to assume ~2x improvements in mining every ~2 years.
This would mean that mining equipment would now have a longer shelf life, and no longer be obsolete in a few months.
In practice that would never happen because by the time miners are done with the cards they'd be too out of date for machine learning or other general compute workloads, and useless for budget gamers because of the lack of display outputs. It's really a shame how much power and silicon is being wasted on cryptomining.
But as you say, whether they'd be useful for rendering once their crypto-life is over is debatable.
Compute power is compute power. Everyone in the world wants more for their task.
Think of something as direct as a cell phone modem. The batteries last as long as they do because a ton of the low level modem behavior is done in accelerator blocks direct in hardware, and the DSPs just route data between the blocks and manage the higher level protocols.
If you devoted extra area to some other algorithm, it would be a big cost for no benefit. Put that logic on some other ASIC and buy that one instead.
In general what you want to do is design the algorithms differently. There's a few reasons to do this. Firstly your new coin probably doesn't want to run best on hardware which is already used by a bigger coin, especially bitcoin, because then there's a massive attack vector just looming over you as the existing miners could just turn a fraction of their processing power towards your network and destroy it easily. This means you generally want to come up with a novel proof of work function which is not easily computed by existing miners. The best form of this is using a completely different hardware resource.
Secondly (and apart from the few large coins which generally got to this idea first, competing with the first point), if you care about keeping your miners distributed in terms of ownership and control, it helps if said algorithm is tuned for some general purpose bit of hardware your users are already likely to have for some other purpose. Ethereum's PoW was expliticly designed to be optimal for GPUs (because computing it is memory-bandwidth limited), and Monero's was designed to be optimal for CPUs. Chia's system was optimised for storage space instead of compute power. Lower-effort clones (e.g. dogecoin) tend to at least change the hashing algorithm used at little to provide some protection, but to a lesser degree (e.g. Ethereum is probably safe from attacks by bitcoin miners, Monero is probably safe from ethereum miners, but while dogecoin is probably safe from attacks by bitcoin miners, it's not safe from the other larger coins, and especially bitcoin forks have actually been attacked by bitcoin miners).
(your last point however is valid nonetheless, the scenario of large blocks of capacity jumping between networks and how deliberate algorithm design tweaks might offer some protection)
The tools available today support such rapid design/test cycles.
I guess that explains why GPUs are so cheap and plentiful.
Or perhaps they're mining another crypto currency.
It's been over 7 years since mining on anything except ASICs is a guaranteeing a loss.
Most people are, but many major mining operations are not.
If power is free then any hashrate is profitable. With "typical" power prices you basically need ASICs. In the middle there are myriad possibilities, and many miners have access to very cheap power (eg during hydro gluts in monsoons).
As an example, the AMD Radeon HD 7870XT[1]. It gets 346 Mh/s for bitcoin, which is $0.00004308/day[2]. It gets 14.5 Mh/s for ethereum, which is $0.3508/day[3]. So you get 8000x more by mining ethereum.
[1] https://technical.city/en/video/Radeon-HD-7870-XT
[2] https://www.cryptocompare.com/mining/calculator/btc?HashingP...
[3] https://www.cryptocompare.com/mining/calculator/eth?HashingP...
And we don't know if it's unique to his situation or for any miner at a certain scale.
Although most miners will know people who they can trade face to face with if they don't care about taxes and don't want KYC.
If the accountant's salary depends on being assuaged, this should hardly be a problem: the accountant will then just tell you that he does not believe this to be a good idea, and give reasons for his judgement.
Wikipedia gives a list of the other ways: https://en.wikipedia.org/wiki/Depreciation#Methods_for_depre...
(I also vaguely remember a lot of people screaming bloody murder about how it's unfair to oil wells to get accelerated depreciation.)
Of course there are, and they should actually be using them. But then fundraising would be harder. They are cheating on accounting, in order to raise equity capital, and hoping that the price of bitcoin will go up in the future and cover the losses.
IIRC, tax authorities carefully regulate how quickly you are allowed to depreciate. The reason is that with depreciation you reduce your profit, and pay less in taxes. There is thus an incentive for firms to tweak depreciation and pull it forward, to either concentrate it in relatively more profitable years, or generally push tax payment further back into the future.
To counteract that, tax authorities often specify an upper limit on how much you may depreciate every year. These limits often distinguish by type of asset, and allow for faster depreciation for shorter-lived assets, but I could imagine that the tax code makes no provision for ultra-short-lived crypto mining equipment.
I think that’s overstating it. You’re always going to depreciate to 100% eventually[1], so faster depreciation just means you realize a loss (and reduce the tax bill) sooner rather than later.
[1] or sell for actual value, in which case you adjust the books to the actual loss of value which may before or less than the depreciation formula estimated.
Not sure how relevant it is to the issue described in the article: depreciations that are too small, thus front loading profits - but it might be that the tax code prohibits larger depreciations.
If a crypto-miner becomes unprofitable to run, selling it for less than the "after depreciation basis" effectively accelerates the depreciation.
> I don’t think it ends well.
That last line renders your whole point about the author simply being interested in the economics of mining for the sake of mining (rather than economic sustainability of the practice) inaccurate as well as making you a hypocrite!
The argument falls apart without Bitcoin stagnating into obscurity, so the same point is (less) obviously implied.
Some investors are constrained in what kind of assets they can invest in, so buying stocks of Bitcoin miners might seem like a reasonable proxy for buying Bitcoin outright (similar to how some investors looking for gold exposure actually buy gold mining stocks). The point of this article is that that strategy might be inferior to buying Bitcoin outright because the stocks are overvalued compared to their intrinsic capability of producing Bitcoin (note how Bitcoin price predictions aren't even discussed). It's a classical value-based investment thesis that might lead to the opposite conclusion at different stock prices.
The author says that he holds short positions, and I can imagine that he's probably used derivatives to hedge out BTC price movement risk and purely bet on his thesis that those miners' stocks will perform worse than the price of Bitcoin itself.
What the article is saying is that standard accounting practices might obfuscate miners true profitability over the lifetime of depreciable hardware. My argument is basically that, as I believe PoW is guaranteed to be unsustainable in the long run, all of the miners who are eventually left "holding the bag" when the music stops (and by holding the bag I mean have invested millions in mining equipment that is suddenly worthless) will be unprofitable at that point.
To argue it somewhat differently: systems like Ethereum have essentially come to the same conclusion I have, and will be phasing mining out altogether for PoS. The reason Bitcoin isn't doing that is because miners have considerable more power over the direction of the protocol. Which might be fine if PoW we're long-term sustainable, but it's not.
Its fine though, as long as those investors find new investors who only care about revenues. The actual company is a conduit, the revenues still occur but nobody had been asking what happens to the actual money. Lucrative game.
Good article, calls for nothing except FYI to investors.
The article details this basically pointing out that c-suite payouts are high and this is currently being tolerated but maybe by ignorance
With POW on general purpose CPUs, anyone can rent cloud processing to mine for short bursts in a way that's just not possible for attacks on bitcoin.
1. If a cryptocurrency is dominated by specialized miners, then you have a centralization effect as the majority hash-rate can be more controlled by monopolies that can take advantage of their economies of scale. Because mining is mostly done by companies at scale, it is easier for governments to impose regulations on miners and control the type of transactions that are allowed to be verified.
2. Vendors accepting cryptocurrency can always choose their own level of risk by deciding how many blocks to wait before accepting a transaction. This allows them to "wait out" temporary attacks.
I would say that the permanent miner takeover as described #1 is an order of magnitude more threatening than the temporary attacks as you've described. But it is still quite an issue.
Specialized hardware will depreciate if it is tied to a cryptocurrency that has been attacked. So miners are incentivized not to attack, lest they devalue the resell value of their hardware. Note that this advantage doesn't really apply to GPU-mined cryptocurrencies.
The only powers they have are to censor transactions, conduct denial of service and (if they have over 50%) conduct a double spend attack.
What you are describing in #1 is a government takeover of miners.
Definitely a nit pick, but what are we here for if not for that?
And introduces even more inefficiencies into the entire system as now we have to spend that time waiting for transactions to clear
I've noticed a trend on HN where people say mining is bad for the environment, but can often poorly articulate the details. This, in my opinion, means they are just rehashing the same disinformation in articles that all point to the same sources (cambridge or digiconomist).
Quotes like "Bitcoin mining uses more energy than [country X]", "That green energy could be used for other things", and "It provides no intrinsic value" have all be waylaid years ago, but keep getting brought back up.
Some industries are more polluting than others, but we should be doing everything in our power to reduce the pollution. Bitcoin (POW) is intentionally wasteful.
I'd also like to point out that:
1. Most of the energy generated today is lost because it is unused. This is called "rejected energy". Having the option to not let so much energy get rejected is an efficiency gain for us, and should be prioritised before we shut down manufacturing and services because of energy use/emissions.
2. Mining is done at the knife's edge of margin cost. Lots of miners buy energy from suppliers at severely discounted prices (due to lack of demand) and scale up and down depending on the supply of energy. The days that you need to keep your miner online and hashing for 24/7 have passed us by years ago. These days, even an S9 miner can still be profitable if you have near-free electricity at your disposal.
3. Bitcoin mining enables the construction of renewable power plants in locations that are currently unaffordable to build.
2. No argument there, energy price is one of the main costs in a mining op.
3. This seems like a minor win. What happens to these plants when the miner moves to a new region? They’ll become unprofitable again and shutdown. Which means waste again.
I'm not sure how separation of money and state works. If you have taxes, they're not really all that separate. If you don't have taxes, you can't have much of a state, can you?
Most crypto types seem to want very low or zero taxes, it's unclear how social programs and large scale infrastructure is going to work.
The harsh judgement that it is an environmental disaster rests on these points:
1. The network does a little bookkeeping work, but around 1 billion times less efficient than necessary, just to achieve the defining characteristic of crypto, "trustlessness" or the lack of a central authority.
2. The incentive system is such that by design and ineluctably around one third or so of mining rewards will be wasted on electricity and electro waste.
Other industries work hard to minimise their energy waste, and often impressively successfully, by the way. Bitcoin mining cannot.
(Note: Bitcoin could become 99% more energy efficient overnight (plus minus two weeks), of course, if all the mining pools banded together and took 99% of their hash power offline. After the next difficulty adjustment, BTC would be exactly the same, but waste 99% less energy. If only this coordination problem could be solved, maybe with some kind of ... central authority?)
Mining specialization is against the purpose of cryptocurrency mining because it gives specialized attackers (a centralized group) power over the rest of the stakeholders (not just owners, but users).
It is common to make analogous mistakes when considering biological evolution.
The opportunity for miners to collude is completely offset by the fact that if they try to leverage their equipment somehow to delay or otherwise impact the main chain, you can just choose to mine instead to make better profits. Thus far there hasn’t been a single effective counter-play for miners that isn’t just “mine more Bitcoins and thus further secure the network” that isn’t just day trading with extra steps.
Also who are these centralized miners anymore? Pools are centralized, but I’m a nobody who can mine profitably with very little capital involved. I can submit whatever block template I want. I haven’t been invited to any meetings.
Replace any currency with any power generation you want.
In prison, its the work of smuggling that stores economic value in cigarettes. In a gold based system, its the work of mining elements out of the earth that stores economic value in base metals. In a peer to peer network, its the work of electricity(of any kind whatsoever, clean or polluting) that stores economic value on a fair distributed ledger.
Money is about storage of work, and quite frankly the weaker the money used to store energy, the more lethargic and rusted the whole economic system gets. Fiat, i.e. "proof of wasted energy" just does a lot of work and lets it evaporate in economic terms leaving the entire society that uses it in constant need of more and more fiat because that energy, that work done, keeps dissipating.
It doesn't matter what money is: seashells, carved rai stones, arrowheads, cigarettes, ramen, non-livable apartment homes sold solely for wealth storage, luxury cars, art, gold, printed paper with your uncle sam's face and "guarantee" stamped on it, centralized entry in a private database, decentralized entry on a public blockchain. Society needs money in order to achieve higher levels of cooperation. Might as well use the strongest form of money that exists. And as far as I know, it aint proof of wasted electricity, i.e. fiat.
In other words, it’s a question of “useful work,” not just “work.” And this is an especially important question in light of the fact that a lot of energy used to mine cryptocurrency is produced in environmentally harmful ways.
Since I'm not going to be giving away the answer, I want you to at least ask yourself:
Does the practice of pressing buttons and printing dollars provide value at the value the units represent?
And since your concern seems to be the environmental cost of bitcoin mining, what are the environmental costs to pressing buttons on a computer adding dollars into a digital dollar network along with running printers to create a few sheets of paper money?
Are there any environmental costs beyond the electricity that runs the printers and the computer and the trees cut down to print the money on?
If so what would those environment costs be and where would they be coming from?
If not, where is the value of that dollar coming from to begin with?
> I don't want to share the answer
I'm not here to win arguments. No. I wont be "getting to the point" because I'm going to keep it for later.
If inflation was non existent or radically less than what it is today would people be so keen to invest their money in companies or spend so much time and effort trying to hoard money for the future?
People who are into Bitcoin talk about inflation like it's a bug but I think it is a feature.
There's the question of when new money enters the world, who gets to have it? Should it be randomly distributed, or should one guy in charge of the money printer get to keep most of it for himself and all his friends, lie about having done that, and then gaslight people to say all of that was okay anyway?
Which is mostly caused by humanity using fossil energy to boost the output of the economy.
An economy that expends the energy on so many more things than just enabling people to be fed and live modestly comfortable lives. An economy that is thus harmful as it entirely neglects the urgent crisis.
Humanity is at a point where we ought to think about actually cooling down the economy to drastically reduce our emissions until industries and energy generation will slowly turn to being climate neutral.
The much decried deflation is precisely what would be the better dynamic for the economy in this situation, rather than an inflation dynamic that virtually turbo charges the system.
I'm aware that this is a bold statement, but I wouldn't be surprised if in some 50-100 years Bitcoin were to turn out as the fundamental technology that enabled humanity to overcome the crisis, despite consuming resources that right now appear to many as wasted.
To make it blunt: yes, I absolutely think that in our current situation inflation _is_ a bug. Possibly a fatal one.
As it stands our current civilisation is a ponzi scheme that relies on constant technological innovation in order to sustain itself. This constant technological innovation is partly fueled by the deterioration of value built into the money system.
When I said it was a feature not a bug I was talking about it from a nation state perspective. The problem with the Bitcoin community is that they don't acknowledge the indirect benefits of fiat that they benefit from so they are blinded to the potential benefits to the environment that Bitcoin could provide.
The same question is asked by any gold miner or oil driller. Depending on the price others are willing to pay, sometimes it's worth it and sometimes it's not. When a barrel of oil goes above $80 people want to start fracking again. When it's below that, they stop.
>Nobody is getting fed, housed, or clothed when mining cryptocurrencies, nor is it improving business productivity in some way.
This statement is just not true. Just as the mining of gold creates jobs for the miners, the equipment manufacturers, the logistics personnel, the security personnel, and allows those people to clothe house and feed their families, so it is with Bitcoin mining. Powerplants and the internet are built, operated and maintained by real people with families, you know.
Your last paragraph justifies the work because the people involved in the process get paid and therefore can feed, clothe, and house themselves. But that proves too much: there is a lot of economic activity that is arguably wasteful or immoral that people get paid for. Economic bubbles generate jobs, but once the speculation finally ends and the waste is revealed, those jobs disappear.
And gold mining is devastating to the environment, arguably much moreso than a lot of the electricity generated for bitcoin.
Since it preserved value for millennia, there is a good chance it will keep doing so. Unlike government-emitted currency, which devalues at the behest of politicians.
Central banks are relying on gold for its scarcity, especially relative to said government currency.
If you can find evidence of a single central banker saying “we need it because [some economic reason]” then that would be a significant discovery. Norway, for example, keeps zero gold in its central bank, and yet, their finance system is unquestionably healthy.
> This increase in money supply may be necessary to stave off economic turmoil but at the cost of devaluing the currency. Gold, by contrast, is a finite physical commodity whose supply can’t easily be added to. As such, it is a natural hedge against inflation.
> As gold carries no credit or counterparty risks, it serves as a source of trust in a country, and in all economic environments, making it one of the most crucial reserve assets worldwide, alongside government bonds.
> Gold’s inverse relationship with the US dollar, another major reserve asset, is an added element to its appeal. When the dollar dips in value, gold typically rises, enabling central banks to protect their reserves at times of market volatility.
https://www.reuters.com/article/sponsored/why-central-banks-...
> The signatories confirm that gold remains an important element of global monetary reserves, as it continues to provide asset diversification benefits and none of them currently has plans to sell significant amounts of gold.
https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr1907...
This means that when the music stops, someone ends up holding a big bag of nothing, since there's no backstop.
When the music stops, your account in the global open distributed ledger is stored in hundreds of thousands of harddrives distributed evenly throughout the entire free world.
And when the music starts again, your account is still exactly where it was when it stopped, available to you wherever you want to go in the free world.
I don't see why this is a problem, but if you want to use this as an argument, then go for it.
("Actual value" in dollar terms I assume? correct me if I'm wrong)
Current iterations of crypto have a cost to produce, which makes it valuable on the upswing since it is scarce. But there is nothing to catch it on the downswing, unless it is backed by some assets, and then you have to trust the backer, much like you have to trust any government. At least you can vote out a government though.
Melting gold down would require more energy, not less and is a step in the initial mining of gold, not "getting the energy back."
Not sure what you were getting at here
Thats not new at all. We've used it for decades now it only leads to boom and bust cycles, while pushing the power of work done into the hands of people who didn't do the work.
Thats a feature not a bug. Not your keys not your coin. Neither scammers nor government can take it from you without you voluntarily giving it up.
Which makes "proof of a monopoly on the use of violence" obsolete since no amount of force can pry it from your dead body.
For example, you hold 100 bitcoins. Randall Munroe's wrench hacker holds you up for bitcoin because he knows you have some. You give him 0.1 from an address. He lets you go. You keep 99.9 of your bitcoins, but your attacker thinks he took got the whole bag.
Lack of provability means the attacker may never believe you, in which case you’re now dead as well as broke.
If someone has a monopoly on violence, they can pre-commit to massive retribution against anyone who does this. They also get to define what money is, and have a reason to want to.
If nobody has a monopoly on violence, nobody is working minimum wage at Wendy’s because there is neither a minimum wage nor a Wendy’s nor a society capable of supporting a Wendy’s.
And so are you. Doesn't matter if you don't actually have a bitcoin. Lack of provability means the attacker says you have a bitcoin so therefore you have a bitcoin.
You are pinata by decree of the assailant and nothing else. Therefore due to the
> Lack of provability means the attacker may never believe you, in which case you’re now dead as well as broke.
... regardless of whether or not you owned any bitcoin.
Which means everyone regardless of owning or hating bitcoin are now dead because gangmembers say everyone they say so has bitcoin now has bitcoin. I guess we're all dead.
---
> If someone has a monopoly on violence, they can pre-commit to massive retribution against anyone who does this. They also get to define what money is, and have a reason to want to.
And they can also decree who is evil and must be purified. Wether its afghanis, or uyghurs, or jews. They can also decree users with names staring with ben need to be tickle tortured for 20 years.
> If nobody has a monopoly on violence, nobody is working minimum wage at Wendy’s because there is neither a minimum wage nor a Wendy’s nor a society capable of supporting a Wendy’s.
You're getting into economic theory here, which theorists have written volumes of books about, but the short of this is that you're reaching for conclusions without any supporting arguments.
Keep in mind, no one knows if this rock prints money or if that other rock prints money. One of the rocks you've been told can print money but you dont know which one. How many rocks are you going to whack? or maybe its just easier to drive an uber and make money.
Keeping your crypto holdings secret would appear to be basic OpSec, just as one would do if you had to carry significant cash, precious metals, gemstones...
Hard to brag about your holdings on social media if you're not allowed to tell anyone, though.
What exactly do you think a scam is?
That’s a very short list.
What do you call it when someone offers goods or services, but does not deliver them? Or delivers less than advertised? Or sends official-looking demands for payment of parking/speeding fines without due authority? Or sends a fake invoice, based on a real invoice, at the time a customer is expecting and for the amount expected, but with a different receiver?
I would call each of things “scams”.
All of them have happened.
A good system needs a way to make people whole when they have been wronged.
Also the Ethereum DAO debacle proves that crypto needed less than ten years for "too big to fail" (preferential treatment for the sufficiently influential) to materialize and essentially undermine all promises of cryptocurrency. You can get your money back when you're scammed or hacked, provided you have enough influential friends.
No there isn't, because you don't know how much I have. I can always give up some and claim I gave up everything. To do what you claim you literally need to be omniscient. And if you are, then at that point you wouldn't be prying it from me.
See my comment to someone else posting https://xkcd.com/538/.
For the vast majority of people, it's not too hard to make an educated guess about their wealth based on their house, their car, the area they live, their lifestyle, their age, their job, etc. For most people, this information isn't hard to find. If you're torturing them to give you access to their crypto wallets, and they give up less than you expected, you just keep torturing. You may argue that people should be protective of this information, but they aren't and will probably never be.
(As an aside, I don't actually believe torture is a viable large-scale threat to cryptocurrency. Pointlessness is though.)
Which means gang members are suddenly going to torture anyone who lives in Beverly Hills because they must have a bitcoin.
Assuming you are on tech worker salary, you should be buying guns to protect yourself from these gang members who are coming after the bitcoin they assert you have which they know you do because they said so.
Also keep in mind, some of the poorest people are the ones that yolo invest in crypto and post instagrams of lambos they rent. Gang members are gonna have one heck of a time trying to get those people's bitcoin before realizing the upside down toothless crypto guru actually controls nothing and is actually deep in the red. Which is to say, public appearances are not indicative of true wealth.
So here's the question, what metrics are you looking for as a torturer looking for torture acquired bitcoin? Lambos on instagram? Three story homes in beverly hills? Jpegs of a monkey on a twitter profile?
The reason I say that trying to pry bitcoin out of someone that has it properly guarded is like walking around the earth tapping rocks hoping to find one that turns into gold is because it requires mind reading technology that hasn't been invented. Its a losing game that puts the assailant at legal risk for close to little chance of winning anything at all. Huge downside, practically zero upside.
I'll admit to one thing though. We are going to see more and more and more of these torturers or scammers or crypto criminals and they are going to try harder and harder and harder. But again, properly defended means huge downsides and practically zero upside for them. But its not gonna stop them from trying, and its not gonna stop the hordes of scammers and torturers and crypto criminals from coming.
Pretty much.
Or you could hire some people to do the security for you. Naturally they will want some money.
But now you’re scaring all the people around you because the security answers to you alone, and you’re scared yourself because the people richer than you have more and better security, and people without enough to hire any security keep disappearing — some dead, some just leave because it’s unsafe — and so you all decide to hire them collectively and pay collectively and oh look you’ve invented taxation and a police force and now you don’t need a trustless payment system but you do need an accountant.
100 people in a room. All of them might have bitcoin. None might have bitcoin. One might have bitcoin. Five might have bitcoin. 99 might have bitcoin. Two might have bitcoin. One guy might have heard of bitcoin.
Good luck rubber hosing their bitcoin.
> Thats a feature not a bug.
This is a hilarious admission that cryptocurrency is designed for malicious actors. Anyone altruistic would consider lack of recourse for scam victims to be at least an unfortunate consequence of the system design. But a “feature”? Only the scammer or their associate would view it like that
Proof-of-work requires, by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin. It's really just simple arbitrage: if the value of Bitcoin goes up, but the electricity cost doesn't, then you have essentially 2 different prices for 1 good, which should attract more miners to spend more money on electricity. And, indeed, this is exactly what has happened.
The problem, of course, is that if it takes an Argentina's worth of electricity to run Bitcoin now, how does the world manage if Bitcoin has a 10 or 100 times greater market cap? Obviously it can't, and world governments would rightly shut it all down before the majority of our electric output went to mining BTC.
There is simply no way around this issue if you're on a proof-of-work system, and given that, it's so easy to see that BTC is guaranteed to fail at some point. It's like we're on a train rushing towards a bridge that's out, and everyone can see the bridge is out, but somehow we've convinced a large number of people that we'll "jump the gap" when we get there.
For one example, I really appreciate Lyn Alden's analysis [1]
When it comes to mining BTC, it really doesn't matter much how miners are paid: through block rewards, transaction fees or some other sort of "security fee". Miners spend money on electricity, and get BTC in return. Furthermore, it's, again by design, a competitive system: those who are able to mine faster (i.e. are spending more on electricity, on average) will win the "block contests" faster and get more BTC.
All other arguments are just "yada yada yada" unless you are somehow arguing that electricity spend is no longer proportional to chance of mining a block, at which point I'd argue that's probably no longer proof-of-work.
This is not a hard concept. If I'm an idiot (which is totally a valid proposition), somebody should be able to explain how a proof-of-work system can get around this "arbitrage problem" very simply - it shouldn't take pages and pages and pages of circular argument.
The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount.
Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees).
The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity.
> making sweeping statements here
The sweeping statements that poster made are the results of a microeconomics analysis.
There is a large & "efficient" market competing for bitcoin mining rewards by buying more electricity.
This is tapping into laws of economics on the level of supply/demand curves: Well studied scenarios that become more accurate the more efficient the market is.
Yes.
>Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees).
Yes.
>The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity.
No.
You're conflating two different things here: A reward-dominated bitcoin and a fee-dominated bitcoin.
The reward takes money from bitcoin owners in the form of inflation. It decreases the market cap by increasing supply.
The fees take money directly from bitcoin users.
In the reward-dominated case, miners are funded by new demand for bitcoin, which props the market cap up. In the Fee-dominated case, miners are funded by bitcoin users who compete with each other for limited bandwidth. In either case, the money being given to miners by these two parties is always greater than or equal to the money spent on mining (power, hardware).
What we've seen so far is a reward-dominated bitcoin in which demand is very high and the market cap increases as the block reward decreases. I predict the demand will stabilize and the reward will continue to decrease. This means there will be less mining. Eventually the reward will asymptotically trend to zero in which case bitcoin will become fee-dominated.
Fees are dependent on the supply/demand for bitcoin bandwidth (the supply is a static 1MB/10 mins), not market cap or price.
And the fundamental idea behind proof-of-work that they amount of work you're "proving" must be enough to make double-spend attacks infeasible. If the electricity cost to mine a block is low enough compared to the value that could be gained by a double-spend attack (which is of course comparable to total BTC market cap), then the network is not secure.
It does matter. Block rewards are a transfer of value from bitcoin owners, which increases as people BUY bitcoin. Block fees increase as people USE bitcoin. Those are two separate things. What we are seeing now is mining that goes far beyond the mining necessary to secure the network, and that's due to (temporary?) speculative demand which increases the value of the block reward.
>And the fundamental idea behind proof-of-work that they amount of work you're "proving" must be enough to make double-spend attacks infeasible.
well, infeasible by a single antagonistic party. There's also the cost associated with the depreciation of the hardware. Even if mining somehow required no electricity, then the network would still be secure because there is some Time-Value cost associated with owning computer hardware.
>If the electricity cost to mine a block is low enough compared to the value that could be gained by a double-spend attack (which is of course comparable to total BTC market cap), then the network is not secure.
I agree. I think bitcoin will eventually succumb to selfish mining attacks.
"It does matter."
Miner do not care, so it does not matter.
This is amazing to watch. hn_throwaway_99 complains that he only gets handwaving and circular arguments against this, only to get multiple answers which are exactly that.
Mining will always spend a large chunk (>50%? depends on the complete distribution of efficiency off all miners) of rewards on electricity. A quick search shows this to be 0.5% of all electricity used in the world. If Bitcoin price goes up 10x right now, this would shortly increase to around 5%.
But, there is also a thing that miners still have to pay electricity in dollars or whatever, so they are forced to sell on exchanges. This creates a downwards pressure on Bitcoin price.
Currently this could be somewhere around $billion per month. So, you need a billion a month of fresh sucker money, just for the bitcoin price to stay the same.
There's some dependence in the fees, since they'll be paid in Bitcoin, and that there's still the odd new Bitcoin being made, but you're still being paid per transaction, unrelated to the value of the bitcoins in the transaction
People will enter the market which pushes up the difficulty / electricity and hardware consumption until profits are brought back down to a normal level.
If the price goes down and it costs more electricity to produce a Bitcoin that is economically viable, people will leave because the juice isn’t worth the squeeze.
So the same relationship works inversed too - difficulty to mine and electricity consumption is related to market cap / price from an econ perspective. I agree with your point on Bitcoin hype, but the production side is just economics and people trying to make a buck if there is money on the table.
At the end of the day, it's a very simple calculation for them: electricity costs in, Bitcoin value out. No matter where their Bitcoin reward comes from, they will not (for long anyway) spend more on BTC then they are rewarded.
> If the market cap of bitcoin stays the same, then the mining reward in terms of energy will decrease.
NO! The simple rules of arbitrage would ensure that more miners would be incentivized to beef up their electricity spend to mind faster to win the reward (again, block rewards or transaction fees, doesn't matter).
Bringing back in transaction fees-- I don't think anyone really knows what they will be, but it will be a long time until the dynamics of that are more important than the dynamics of the block reward halving and the market cap.
Miners care about where their bitcoin comes from. Let's imagine the case where 100% of their income comes from the block reward and 0% from fees (seeing as this is nearly the case right now):
1. the block rewards are getting CUT IN HALF every once and a while. If the price of bitcoin stays the constant, their rewards in terms of dollars will be CUT IN HALF. The only way for their income (the upper limit on they can spend on electricity, hardware, etc.) to increase is for the price to increase by more than DOUBLE every time the mining reward gets cut in half.
2. the block rewards increase the supply of bitcoin, decreasing the market cap/price over time. It depends on the emission schedule. Even if the block reward was a constant 1 bitcoin per block, then you would just have a different (logarithmic) inflation/block reward graph with the same characteristics.
Let's say tomorrow, the income is cut in half. All of a sudden, most of these miners would become unprofitable and stop. However as a result, the cost of mining will go back down to 0.5 BTC. It's a self balancing system but that also means that it's fundamentally flawed for reasons mentions by previous commenters in this thread.
True, but the hypothesis in your original comment, that energy expenditure will equal Bitcoin total market cap, does not follow. As other commenters here note, with each block reward halving, the energy required to mine a new block becomes more and more decoupled from the price of Bitcoin itself. In the distant future when block rewards are minimal and fees make up the majority of miners' rewards, only miners who can utilise the cheapest sources of energy will be able to mine profitably, which in the "negligible-block-reward" era will be for the lowest fees. And people making transactions will not pay more fees than they need to, so the existence of miners able to mine profitably for lower fees will in turn bring down average fees. I think all of this should be uncontroversial; it simply follows from the Bitcoin protocol and the work of Adam Smith.
So, given these incentives and Bitcoin's difficulty adjustment mechanism, in the future the only miners capable of making profit from mining will be those with access to the cheapest forms of energy. Anyone who can mine for marginally lower cost is going to push out other miners. This will likely mean the majority of the energy used for Bitcoin mining will come from otherwise wasted energy - such as flare gas, remote hydro not economical to transmit to where people actually live, excess wind and solar supply when demand don't line up, that kind of thing. (And, as an aside, it's probably not going to involve burning lots of oil and gas, since these are more useful to humans in other ways and will therefore cost more.) Obviously more efficient hardware will have the same effect, so there will also be an incentive there. In the end it will have very little to do with Bitcoin market cap and far more to do with the availability across time and space of cheap energy.
Only to a point. Since a limited number of transactions can fit into a block, users competing to get their transactions mined in a timely manner will drive the fees up. That price point can be well above the cost of many forms of energy.
So as long as Bitcoin is still valued and there are enough people wanting to make transactions, there will still be miners burning useful energy.
Care to share any of them here? I'm not that knowledgeable about BTC so I have no idea whether or not you're right, but I'd love to learn more.
Proof of work in Bitcoin requires computation of a thing called a Nonce. If a miner gets the right Nonce while hashing, they get that block's reward. The electricity value expended on mining that block is proportional to the total amount of hashes being performed by miners in the network at the time. There is no "design" for requiring the cost of this power be equal to anything directly related to the market capitalization of Bitcoin, which really means how much Bitcoin is worth compared to other markets, such as USD. Are they linked to each other through human action and decision processes? Certainly. Is it coded in the chain? No.
> It's really just simple arbitrage: if the value of Bitcoin goes up, but the electricity cost doesn't, then you have essentially 2 different prices for 1 good, which should attract more miners to spend more money on electricity.
If the electricity cost doesn't go up, then the number of Nonce being computed will only go up if more miners join the effort. If they don't, the network is still operational, and produces the same amount of new coin every so often. What is NOT obvious here is that the technology for increasing the mining rates is always increasing, so the clowns will continue to pay to upgrade their hardware over time to save on electrical costs and engage in competition with the technology. The exchange rate for Bitcoin may be related to the technological "power" that is required to keep the network running and producing new coins, but less directly so related to the amount of power burned.
> Furthermore, it's, again by design, a competitive system
By design, Humans compete. The Bitcoin blockchain could be mined and run by two clowns in a tent if nobody else cared. It's not coded to be competitive, it's coded to be cooperative. This means the the amount of power spent on mining and running the network is a cooperative function. The amount of money spent on developing and producing faster hardware is a competitive function. The two together produce something that is chaotic and interesting.
Bitcoin does have a downside, and that is that it is a viral thing that cannot be taken down by any one person or organization. It would take 51% of those running the network to cause it to fork into two. It would take an impossibility to halt it. Maybe this scares some people and maybe it makes some people excited about the possibilities. Either way, we're going to need Fusion to run it in the future.
> Either way, we're going to need Fusion to run it in the future.
In my understanding, the economics of Bitcoin mean that eventually mining will be performed with predominantly waste energy, which is by definition that which has no other practical use. The existence of a practical use for the energy other than for mining will push its price higher than is economical to use for Bitcoin mining, because other miners using waste energy will be able to pay less to mine the next block. It's likely that energy for Bitcoin mining will come from sources like heat from flare gas, currently just burned at oil refineries and released as photons into the night sky, leaving Earth forever. Or energy from wind turbines or solar panels during periods of low demand. Or a hydroelectric dam 1000s of km from civilisation willing to pay the transmission costs to use it. Or, heck, even heat extracted from sewage in Vegas hotels, if it's enough to run a steam turbine. Basically anywhere where otherwise useless energy can be extracted in quantities sufficient for mining. I don't think, given the costs of the infrastructure likely required for fusion, we'll be seeing it employed for Bitcoin mining long term.
This is one of the aspects of Bitcoin I find most beautiful - it monetises waste.
Here's one key difference between many if not most large scale industrial processes and Bitcoin mining.
Admittedly I don't know much about battery efficiency, so there may be other more efficient uses. Hydroponics lighting?
Where "waste energy" is difficult to access and available only in trickles, it's surely very unsuitable for bitcoin mining, which is energy intensive.
Frankly, there are far more pressing issues than making more bitcoin.
Sure, there’s conceivably times of low demand when some energy would otherwise go unused. But a “ hydroelectric dam 1000s of km from civilisation”? Heat extractors in Vegas hotels? You’re imagining a fantasy world.
Further, what you’re ignoring is that none of this is “waste”. It’s already being stored or used. Finding new demand for it simply makes it more expensive for existing users.
Turned off wind turbines at times of surplus. They tell us that nope, it is not (yet) being used or stored.
> Finding new demand for it simply makes it more expensive for existing users.
It's not that simple. It could very well be the case that selling a portion of energy that otherwise has no demand to a buyer of last resort enables the business to be profitable. Not selling this portion of energy would mean that the operator would have to charge their other customers more in order to be profitable.
So it could in fact make things less expensive indeed.
The way I see it though, unless anyone is shorting cryptocurrency with 100% of their net worth I think they are at some level expressing that the world is not so clear cut. Sometimes meme stocks win before you run out of runway.
The market can stay insolvent longer than the investor.
That's not true, it's at most, equal to the printing rate of bitcoins (coinbase transactions)
This is mostly true, but I think you're conflating a couple different things here. At market equilibrium, you would think it would look like the cost of power + hw depreciation = crypto price * (block reward + fees).
>if it takes an Argentina's worth of electricity to run Bitcoin now
It might be justified if bitcoin could replace the traditional financial system (think about how inefficient that is), but I do not think it can.
>how does the world manage if Bitcoin has a 10 or 100 times greater market cap?
I don't think bitcoin's market cap can multiply by a factor of 10 or 100
Bitcoin is already way more inefficient than the current financial system. Just compare cost per transaction between Bitcoin and Visa, for example. People seem to think that Bitcoin will somehow replace the entirety of the financial system when it's not even designed to do that and only really handles transactions.
All these non-mining nodes have no real effect over decentralization, as they can't counter a 51% attack.
That would be the case if price doesn't vary much over time. But marketcap is current supply * current price, while the large majority of current supply was mined when bitcoin was WAY cheaper and thus much less electricity was spent on it.
The second is proportional to the current Bitcoin price, the first one, who cares.
It's a well designed incentive system; it will keep Bitcoin running as long as people find it useful, and it won't eat the world.
It need not be illegal. Short Bitcoin, preform double spend attack between addresses you own, profit.
The value of the gear is just a question of the future profits it can generate. If that future revenue is less than what you get from the great short then it’s profitable. And that’s assuming you can’t reuse the same equipment for some other purpose.
It requires you to borrow bitcoins from someone -> sell them -> do the attack -> buy them back -> and then return them.
If you could borrow enough bitcoin, and gain enough hash, and crash the price enough for it to be profitable, it could possibly kill Bitcoin. Seems like an insane gamble to me though.
That said if I where writing a story I would have the protagonist gain the hashing power first, something strands their assets such as increased electricity prices making mining unprofitable or a next generation of hardware coming out etc. Then they come up with the idea of a big short.
But you can only double spend coins you already control, so at this point you would control 51% of global SHA2 hash and have a bunch of bitcoin that you would be double spending?
Who would accept that as payment? What incentive would you have to do something like that since you would be taking a massive loss?
Maybe as a government attack?
Bold claim.
> Proof-of-work requires, by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin
False statement (as it ignores the bitcoin emission schedule and transaction fees).
> The problem, of course, is that if it takes an Argentina's worth of electricity to run Bitcoin now, how does the world manage if Bitcoin has a 10 or 100 times greater market cap? Obviously it can't, and world governments would rightly shut it all down before the majority of our electric output went to mining BTC.
Constructing an irrelevant hypothetical based on the initial false statement.
> simply no way around this issue if you're on a proof-of-work system, and given that, it's so easy to see that BTC is guaranteed to fail at some point
More bold declarative statements with nothing to back them up.
Learn more here: https://en.bitcoin.it/wiki/Controlled_supply
Your argument is not mathematical at all. It assumes first that bitcoin needs to appreciate 10-100 times current value. And second, that political willpower exists to then shut it down purely because of energy usage. Neither of those conditions are mathematically guaranteed, nor are they even in the realm of mathematics. I won't even address the underlying assumption that energy usage is unilaterally bad.
One possible outcome, for example, is that bitcoin just hovers around its current price for a long time. If feels like every discussion on bitcoin is made of people who either think that it must either take over the world or must go to zero.
Yes, I totally agree, the crux of my argument is really just "in a proof-of-work system, it is undeniable that electricity spend is proportional to total network market cap", so if the market cap doesn't change, then things can certainly putter along.
That said, if the idea is that more and more of the world's economy will be represented by BTC transactions, which these days is pretty much what every person who owns BTC believes, then the market cap can't stay static. I also have a very difficult time believing that if the market cap did stay static for 10 years or so that people wouldn't start to realize "the jig is up".
But yes, I totally concede, if the market cap doesn't rise, current electricity spend doesn't need to rise either.
The other reason some "true believers" (or, as I refer to them, insane cultists) invest in Bitcoin is because they believe it will be "the world's currency", i.e. that it will replace major currencies like the dollar. But, were that to occur, it's market cap would skyrocket, at which point it would require a planet-and-a-half's worth of energy to stay secure, which is also not happening.
Ehm, either that or the price of energy increases or the percentage of reward per block mined to mcap decreases.
Today, miners are getting paid about $1.5 billion per month. If they like money, they will keep adding new miners and run them until they all in total spend less than, but close to that amount.
So, $1.5 billion per month of fresh money needed to offset this pressure on Bitcoin price.
There goes the argument that Bitcoin is a good "store of value."
I agree. As far as I understood the issue was not with the money spent on energy but with the energy spent, no?
> So, $1.5 billion per month of fresh money needed to offset this pressure on Bitcoin price.
If I understand correctly, you're saying that BTC inflation is a problem and I believe this is true, both in the economic and ecological sense.
But there was no way in 2009 to foresee the optimal inflation rate (halving every 4 years isn't too bad actually) and modifying it now defeats the founding principles of BTC, so it'd be a big no no. So it was kind of a trade off and will continue to be, every 4 years a bit less though unless we hit hyperbitcoinization.
From an economic point of view the investment into bitcoin is only ever relative to other assets and most of them inflate far more (relative to their mcap).
> require a planet-and-a-half's worth of energy to stay secure, which is also not happening
But what are the implications if it does?
Bitcoin is a zero sum ecosystem, minus mining fees. So it's a net negative sum by some $20-30m per day in electricity and hardware costs.
Why would it stabilize around this particular value?
For bitcoin, 90% of all bitcoin has already been mined. So the remaining dilution for all time is in total just about 11%, and the current annual rate is 1.8% inflation. Compare this to gold, which has 2% inflation and no max supply. There are also technological innovations that could inflate gold much faster, e.g. asteroid mining. Compared to USD as measured by CPI is 8%, and the Fed's own target for CPI inflation is 2% annually, so this is much higher than bitcoin and also unbounded total dilution.
BTC experiences 1.7% money supply growth p.a. until the next halving, and it had deflation on the way up to $60k. BTC had 100% inflation since then, obviously, way worse than fiat.
Fiat had massive money supply growth since the GFC, but virtually no inflation until now (which can be explained by supply chain problems due to COVID, war, and too loose fiscal policy (Biden's stimulus arguably too large, after Obama's was too small)).
Satoshi consensus doesn't care about the numeric value of Bitcoin at all. It cares about the value of the transactions conveyed by bitcoin.
Satoshi consensus is the observation that if the energy required to fork the network and roll back a transaction costs $X, then it's financially non-viable for someone to roll back a set of transactions that is worth less than $X. That's all. If the value transacted on bitcoin increases above $X, then it is potentially financially worth it to attack the network, unless the amount of energy expended increases accordingly. So the value of the transactions is directly tied to the (value of the) energy expenditure.
As a side note, there is no automatic mechanism built into bitcoin that ties these two values together. The assumption is that the value increases and the rewards decrease and it all sort of works out (especially if the network transitions to transaction fees instead of inflation-based block rewards). But there is no mechanism that it must, and if the value dropped really hard all of a sudden, for example, it might suddenly be more viable to attack the network. Attacker energy cost will significantly decrease as rational actor miners realize they're taking a loss and turn off their mining hardware, miner energy expenditure will decrease, which decreases the energy (and cost) required for attackers to fork and roll back transactions.
It's an interesting variation of the "frisbee on the roof" attack, like a "fire all the janitors and then shit on the floor" attack. Nobody ever wants to go back into that business because there's shit all over the floor, but without any customers there's no money to hire janitors either. The network now enters a terminally unrecoverable state, without manual intervention from outside actors.
In practice, users of bitcoin would simply wait a longer time for more block confirmations, namely if you estimated the cost of a double spend attack was $X you would just wait for block confirmations with a total of more than $X of fees + block rewards such that the transaction you are confirming is deep enough in the blockchain to not be economical to include in the double spend attack. Note that the slowness of difficulty adjustments is also a defense here against the further problem of $X decreasing very quickly such that a transaction you had already confirmed becomes viable to attack. Because difficulty changes only every 2016 blocks, if all mining stopped and $X theoretically became 0, in practice you won't get to the next difficulty as no new blocks would be found, so $X in practice wouldn't move.
The amount of electricity is not proportional to the market cap. It's proportional to the difficulty. You can create a copy of bitcoin where the difficulty is keep very low and add a very big amount of transactions and be very easy to make fake blocks and forks and other nasty stuff. The difficulty is adjusted to keep the time to find a block somewhat constant.
One problem to handle a bigger marketcap is the block size. One solutions is to increase the block size, another is to use a secondary chain. I'd like to increase the size, but most people prefer the other.
Also, when you add the energy that goes directly from sun light to soy beans, I think that we are in Argentina still using a little more more energy than bitcoin.
>Also, when you add the energy that goes directly from sun light to soy beans, I think that we are in Argentina still using a little more more energy than bitcoin.
This is a non-sequitur. The point of using Argentina is to illustrate that in verifying transactions, Bitcoin uses as much energy as millions of people lighting their homes, watching television, running air-conditioning, heating water, charging their phones, etc etc etc. Nobody is claiming that Bitcoin consumes more metabolic energy or solar energy, OP's just highlighting that Bitcoin's electricity costs are potentially unsustainable.
But the difficulty is proportional to the amount of miners, which is proportional to the profitability of mining, which is proportional to the price, which the market cap is proportional to (i.e. price x supply). So electricity is indirectly proportional to the market cap.
> One solutions is to increase the block size, another is to use a secondary chain.
Those solutions don't address the energy spent on mining, they just allow more people to transact. The former means more transactions (more fees), the latter means fewer but more expensive on-chain transactions (more fees). Either way I believe the block reward (and thus the amount of energy miners will throw at getting that reward) will be roughly the same, it'll be a function of how much people value and want to use bitcoin.
You just confused the amount of electricity it takes to mine one block, vs, the amount of total electricity all miners spend.
And the total amount of electricity is indeed proportional to the market cap. (with a constant of proportionality being halved every 4 years).
As the original poster said, it is ridiculous that we still have to debate this.
Further, the existence of proof-of-stake coins at all means that decentralized exchanges exist, which makes it impossible to ever kill proof-of-work in a legislative sense. Even if you killed fiat exchange for $SHITCOIN entirely, once there is a coin that has sufficient value, people will be happy to have bitcoin instead of USD, or trade to Bitcoin and then over to USD. You can either ban them all entirely, or you have to live with both PoW and PoS together.
Unfortunately, crypto is a memeplex, it's like a corporation, it's a self-reinforcing living entity that supports itself (maintains homeostasis) through a series of rules and incentives, and now that it's been created it can't be easily killed. Every individual is financially incentivized to keep playing their part, so everyone would have to collectively agree to not make money by taking part, and as people fall out the incentives become steeper and steeper to participate. Would you mine on your card for $100 a day? $1000 a day?
We will just have to live with destroying our planet, because now that it's been created it's virtually impossible to kill. That was the whole point. With apologies to Alien: it’s biologically engineered to be a survivor... the perfect predator (of certain other memeplexes - meaning, states and state-backed currencies, which are also self-sustaining memeplexes with their own rules and incentives). That was the stated goal of the design, and it works! There's no "off button", otherwise it would be trivial for "statists" to push it. There is no "oops we forgot to add a limit to the paperclip maximizer" or "don't kill the people who try to stop paperclip maximization" button either. People whose livelihoods depend on crypto are highly incentivized to come up with ways (like PoS) to keep it going even if the outcomes of the overall system becomes undesirable. The day it became legitimized by the SEC, it certainly became impossible to stop it. Now you will have Wall Street money fighting you too.
You wanted an unstoppable decentralized cryptopunk future with assassination markets, that's exactly what it does. It wouldn't be unstoppable if individual or collective action (like that of a state or other group of individuals) could stop it, and it was designed knowing that people would try to stop it. All according to keikaku.
(cue the gif from dr strangelove of general turgidson's horrified realization of what he's just said)
most new PoS chains do just fine because validators are owned by VCs that want to grow the network. whether they can successfully decentralize is an open question but the bootstrap problem is solved
it's solved if your only holders consist of trusted parties, which is a trivial (but unrealistic) solution to a lot of crypto problems ;)
it seems entirely certain that cryptos that are not VC backed will launch in the future. It happens almost daily actually.
this is a stronger guarantor of safety than PoW for every chain aside from ones that dominate their computing platform (BTC/ETH). anon miners will eat a naive network and move on.
And if you are requiring trust between parties... you might as well simply have an auditable database instead of requiring staking or mining at all.
(requiring oracular knowledge (external to the system) that other VCs have a financial stake is still a trust-based system... and they could still sell that to someone who doesn't, and fuck you over, and your knowledge that they won't do that for social or contractual reasons is still oracular knowledge. You haven't solved anything, you've just created an oracle that everyone agrees to trust, which is a trivial solution to almost all challenges within crypto.)
"it's actually impossible to start new networks from scratch based on proof-of-stake" is simply incorrect. almost all crypto networks will start this way.
You have to factor in the amortized cost of specialized hardware over it's lifetime, and a few other factors. But it's a good approximation.
BTC tried to solve this with diminishing rewards for mining. The problem is BTC's market cap doubled far faster than the rewards halved.
But I think you are wrong at the high end. If BTC was worth 100x tomorrow, the current miners cannot just push a button and draw 100x the power. I think governments would be far more likely to ban new rigs, but may let grandfathered rigs continue to operate. If that's the case, I can see miners becoming quite profitable.
This seems irrational given the ever increasing efficiency of hashes per energy.
Building codes are an excellent example of this. It's perfectly legal to maintain, sell, lease, etc. a building that would be illegal to build today.
Haha, get it, minor?
That's why I don't believe in any crypto that doesn't at least have a path to switching to PoS (or some non PoW system).
My working theory is that a system could be devised that re-defines Proof of Work to align with some demonstratable real world physical benefit like planting a tree or recycling waste or placing a renewable kwh on the grid. Yes there are tremendous process invention challenges on a Manhattan Project level scale but the stakes seem able to justify a Moonshot approach.
Mining under existing Proof of Work conditions is a weird arbitrage at scale of physical compute cycle cost/performance and raw electrical overheads measured against the perceived speculative value of the minting benefits returned.
Even reducing mining to a barebones fintech set of transactions would make sense at this point. A single Cash (as proof-of-work) account where each miner adjusts their relative position in real time in response to market conditions. An opensource code as law snapshot Lottery system that mimics the existing minting benefit and proportional voting rights distributions on chain. Yes it interrupts the purely distributed zero trust consensus mechanism, but, there are other compatible mitigation and trust designs, and, as an overall step change, the ability to grow without consuming nation state level power resources in this day and age is well worth the tradeoff -- if not absolutely mandatory.
Also on HN the other day [1]
frankenst1 reply to mondoveneziano :
START QUOTE > For Bitcoin, the most popular one, on the order of 100.000.000.000.000.000.000 of hashes get calculated to mine a single block, multiple trillion per second. Within ten minutes, only a single one of those 100.000.000.000.000.000.000 hashes is actually used, depending entirely on luck. The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.
You need to dig through 1 million gram of ore to find 1 gram of gold, depending entirely on luck. The rest is thrown away entirely. The energy is of course not lost but was necessary to find something of value (which also creates a lower price boundary). In contrast to gold, Bitcoin mining ensures provably fair probability of winning, has a tremendously lower barrier of entry, provides incentives to be run on renewable energy and produces far less waste. END QUOTE
Indeed, this is the whole idea behind specialized mining rigs. These rigs essentially lower the cost of electricity for a given hash rate.
But assuming other miners have access to the same equipment, in the competitive system that is proof-of-work they will just bump up their usage of electricity until the point that, again, it no longer makes sense for them to do so because they'd be spending more than the rewards that they get in return.
BTC marginally improves upon gold as a value store, it’s trade able as a hard asset across national borders in real time.
Time will tell if BTC is as durable as gold.
The cost to secure the Bitcoin network is a function of the market capitalization. If the market cap increases so will the cost of securing the network.
If Bitcoin market cap continues to increase, the resources required to secure the network will start to crowd out other economic activity.
I feel like we are seeing the first glimpse of this with the chip shortages.
Bitcoin was the proof of concept, but it to me seems 100% obvious and inevitable that something else will replace it (if crypto continues to exist, which I believe it will) -- ESPECIALLY since the whole point of money is fungibility-in-practice.
This premise isn't true. Funny you have this big confident argument when you're wrong about the basics.
The electricity expended is proportional to the value of mined bitcoins plus transaction fees. Note that the mining rate goes down over time, approaching zero.
As BTC price goes up, the network starts to yield larger mining profits in total (in fiat terms) and this creates an incentive for people to launch new miners to absorb the surplus profits... The increased competition then causes an increase in mining difficulty which reduces the profit margins back to what they were before the increase but now there are more miners in the network with more total hash power which are consuming more electricity in total. The equilibrium point is the point where most miners are teetering on the edge of unprofitability.
One interesting thing to note, however, is that while increases in the price create an incentive for more miners to join the network, the Bitcoin network itself does not require so many miners to exist to support itself at those higher price levels. If you assume a hypothetical scenario were all governments around the world required a license to mine Bitcoin and limited the number of machines allowed in total, then price could keep going up without an increase in the total number of miners. This would be very convenient for existing miners as they would be able to earn more profits without having to buy more machines as the price increases.
The fact that this obviously negative-sum game has been profitable for miners in the long run is proof that our current monetary system is broken. If our monetary system was efficient and becoming more so, it would be unprofitable to run so many miners. Bitcoin profits from the inefficiency of monetary system whilst revealing to us the fiat system's negative-sum nature. As dumb and unethical as this all seems, it is the smartest investment to make in the context of our current system.
I suspect that Bitcoin saves more electricity than it wastes by turning the world economy into a giant squidgame... It attracts capital towards it instead of towards other economic activities which would end up consuming more electricity... Those other activities would certainly have made better use of the electricity (since, unlike BTC mining, they would have provided tangible value to people in return) but Bitcoin doesn't care about people's well being. It profits from the destruction of opportunities and the concentration of wealth. Poor people consume less electricity. Bitcoin saves electricity by ensuring that poor people stay poor by soaking up all the excess capital so that it doesn't get invested in real economic activities which would bring people out of poverty.
I'd amend that to read: Proof-of-work requires, by design, that the money wasted on electricity and electro waste is proportional to the total market cap of Bitcoin times the mining reward (currently 6.25 BTC per block).
This seems like it could be an alternative to classical proof of work that at the very least, isn't actively harmful to society. But I'm unsure if it offers the same security guarantees.
They can regulate it otherwise, e.g. demand that miners use their own source of green electricity, and make other type of mining illegal, or demand that less than 1% of the total electricity production of the country is used in mining, outlaw the rest and fine illegal operations, etc. It doesn't have to be completely banned everywhere.
> BTC is guaranteed to fail at some point
You'd have to define what "fail" means here, especially given that many proponents of BTC argue in its favor for different (and often contradictory) purposes. What's the failing scenario you're talking about, once mining takes all the electricity it can (be it 100% of production or whatever regulations still allow it to take)?
How is this different from any other good or service? Is it bad only for bitcoin?
> The problem, of course, is that if it takes an Argentina's worth of electricity to run Bitcoin now, how does the world manage if Bitcoin has a 10 or 100 times greater market cap? Obviously it can't, and world governments would rightly shut it all down before the majority of our electric output went to mining BTC.
What is the problem with it? Do you know why oil has the price it has and why we built all the enormous infra structure to extract it? Because it is useful, and we can kinda measure it by its market cap. If the market cap of bitcoin is huge, that means that...... its usefulness is huge (or you can argue it is a bubble, but then it's a different argument). So the higher the market cap the more useful it is, and its a good thing. The profit and loss is what will tell if we are "wasting" resources or not, if it is profitable, then that means that people value bitcoin more than the electricity it uses, that is not a problem.
Problem solved.
This article should be like a tweet: “Watch out for MinerCo, their depreciation schedule looks wonky, I’m short!”
And then maybe footnote if it’s not obvious.
But it’s Movie Trailer Voice: “The Problem with BitCoin Miners”.
Wait there is one problem that so exceeds in importance all the other pros and cons that it’s The Problem?
Oh no you’re short some companies and want people to sell them. Jim Cramer’s got to retire someday.
Money is a network good, and Bitcoin has the best network. It will continue to grow whether you like it or not. Bitcoin isn’t like some other cryptocurrency that formed around a founder or company. There is nothing and one no one to attack. It just… exists and will continue to exist until something comes along that is 10x or 100x better.
The problem for those that oppose Bitcoin is that none of them are capable of building something better at the problems that Bitcoin addresses.
Well... until someone forks it to change the consensus algorithm, right? Or the programmers decide to make the change globally? Or the miners want a different consensus algorithm to make their mining more profitable? Or... Or... Or...
Other cryptocurrencies get around this by being more centralized. This includes Ethereum. These other blockchains make it significantly more difficult and costly to run nodes, which means fewer nodes run, mostly by large corporations so that they can exert control and fork the chains all the time.
Bitcoin is different. Anyone can run a node on an old laptop. There are tens of thousand of public nodes worldwide, who knows how many private ones. If miners ran a fork to change consensus rules, the nodes would just reject the blocks and the miners just waste electricity.
No offense, but it's the most incurious form of argument on a website dedicated to curiosity.
"On March 11, 2013, Bitcoin experienced a technical crisis. Versions 0.7 and 0.8 of the software diverged from each other in behavior due to a bug, causing the block chain to “fork” into two.
The optimal course of action (and, in retrospect, the only one that avoided serious risks to the system) was first proposed and justified 16 minutes later, and the developers reached consensus on it a mere 20–25 minutes after that. Shortly thereafter — barely an hour after the discovery of the fork — the crisis response had effectively and successfully concluded.
Without the central co-ordination of the Bitcoin Core developers and the strong trust that the community places in them, it is inconceivable that adopting this counterintuitive solution could have been successfully accomplished."
[1] https://freedom-to-tinker.com/2015/07/28/analyzing-the-2013-...
Secondly, this is 9 years ago and the Bitcoin network has grown quite a bit since then, meaning back then it was quite a bit smaller undertaking in getting the majority of the network to adapt the bug fix than it would be today. The core developers are also very paranoid about introducing these bugs which you can see for yourself by browsing the open PRs and verifying that anything that even remotely touches the consensus code is very heavily scrutinized.
"Really nice bitcoins you have there, it would be a shame if a anyone did a 51% attack on them."
Uh... because your comment is just straight up wrong?
For instance, miners don't have a vote or a say at all, unlike proof of stake systems. If a miner changes the consensus algorithm, that is forking bitcoin, but bitcoin itself goes on unchanged.
Of any significantly large site there will be a distribution of people for whatever reasons.
Who is to say who is "the smartest" ?
Perhaps people from the industry so people that share lingo, but most people here are definitely not “smart”.
And that still leaves out the possibility that regulators get involved and exert their authority to change the rules - which may be the most likely outcome of all.
The article is about how bitcoin mining companies may go down mostly because there is too much competition in that space and because bitcoin’s price isn’t going up so fast anymore.
That sounds plausible. It doesn’t herald the end of bitcoin, just that at some point there’ll be less people mining it. Which sounds like a good thing.
Its okay if we control all the supply because we have it in the premine to our friends and they have the best interest in keeping Ethereum safe.
In contrast for POW you have to be able to source specialized hardware and an electricity supply cheap enough to make the hardware profitable, both of which are much more noticable to the outside world.
The second, probably more important way, is that validators in PoS can decide to ignore or slash a particular validators stake. This can't be done in PoW because the hashes are fungible and stake is not.
PoS is inherently self referential. To know the state at time N you must agree to a subjective view of validators within at least some subjectivity period of N. PoW has no such requirement and a chain of headers needs no additional information to verify.
> If a malicious group gets 51% of PoS ETH you can fork the chain to a new one that removes the malicious actor stake.
This kind of censorship is exactly what I mean. You can't fork away a PoW miners hasherate without blowing up everyone's hashrate. The fact that this may be wanted in some form is one reason many protocols are better off with PoS, but it's still a censorship vector that isn't available in PoW.
You're arguing reasons that PoS censorship points are ideal not that they don't exist.
Considering that the weak subjectivity period is so long (months), having to sync "out of band" is not really a big deal.
And unlike PoW, where you need to wait some confirmations to make up for network latency, with PoS you have actual finality assuming no 33% attack, which can be detected and punished.
> This kind of censorship is exactly what I mean. You can't fork away a PoW miners hasherate without blowing up everyone's hashrate. The fact that this may be wanted in some form is one reason many protocols are better off with PoS, but it's still a censorship vector that isn't available in PoW.
> You're arguing reasons that PoS censorship points are ideal not that they don't exist.
PoS or PoW aren't any more or less hard forkable. Any network can be hard forked (ie people agreeing to run new software with new rules) if people agree so. This is basically the social consensus, which is always above any other kind of consensus.
The "censorship" that you mention here is not a matter of a network currently being PoW or PoS. You could hard fork Bitcoin to PoS and take away some people's money (therefore they couldn't validate) if peopled agreed to do so.
There are two types of censorship, which are being confused here
A) Miners/validators censoring certain addresses (not allowing their TXs to go through) B) Not allowing certain people to become miners/validators
A is the real problem. However B can lead to A so it's also important.
In a PoW network where a malicious actor is doing A and has a lot of hardware and money to buy new hardware, you can't fix your network even with hardforks (outside of moving to PoS)
In a PoS if people agree to do so, they can hard fork and keep everything the same but take away their stake.
Now, your point is that people can do B via hardforks that take away people's stake. True but that is kind of irrelevant. With hardforks you can do whatever you want, steal anybodies money, switch the network to whatever validation system, etc. But why would people care about your hardfork? It's all about what hardfork people agree is the one that matters. Which is not something technical, is something social.
Needing to do it at all, at the beginning, means there is no mathematically pure way to validate the consensus state and nobody can affect the concensus unless it's rooted in this initial distribution.
> In a PoW network where a malicious actor is doing A and has a lot of hardware and money to buy new hardware, you can't fix your network even with hardforks (outside of moving to PoS)
Yes, this is exactly the censorship that is available in PoS and not PoW. I help minority PoW protocols integrate PoS features for this reason, and it's also the reason there will always be PoW chains. Because some social networks demand uncensorable participation that can't be selectively hard forked away.
You also need to validate the software binary or source code out of bound at the beginning, so having to additionally validate out of bound the state makes little difference.
> Yes, this is exactly the censorship that is available in PoS and not PoW. I help minority PoW protocols integrate PoS features for this reason, and it's also the reason there will always be PoW chains. Because some social networks demand uncensorable participation that can't be selectively hard forked away.
As I said, a PoW chain isn't any more resistant to censorship via hardforks. You can literally hardfork a PoW chain into a PoS chain. It is impossible to make anything secure or whatever if you consider hardforks as something an attacker can execute at will and force people to move to the new fork.
Energy is expensive. That's the point. A functioning world economy can't just exist in magic-computer-land, where it's just made up numbers in some madman's COBOL database. It has to have a tie to reality to work properly, and achieve worldwide consensus on the true price of energy and thereby other assets.
I'm sorry but this is almost certainly wrong. I mine at home and my cost is 22k per btc mined. I have a 1 generarion older equipment than they do, and my electricity is probably 3-4 times the price they are having. You should redo your math and look for errors.
Keep in mind that these are companies that made a big bet when Bitcoin was in the 50-65k range that it would keep going up. They planned their expansion based on that scenario, so it's not that crazy that they allowed their margins to get so slim.
the other weird accounting thing: in 2021, bitcoin miners started stockpiling unsold bitcoin.
This was new behaviour. Miners didn't hold onto cryptos for ages in the ten years previously - maybe for a short time, but then they sold it.
I can find no sensible reason for this, except that there aren't enough actual dollars in the crypto market to sell the bitcoins without crashing the market.
(I ask coiners about this from time to time. Most answers are some more complicated version of "there aren't enough actual dollars not to crash the market." Some of them confidently state that miners have magically transmuted some time in June 2021 from uncompromising economic agents into bitcoin moon boys, who are sure it'll go to a million. I don't believe them.)
The miners have tended to borrow against the bitcoins - from other companies in the crypto industry. Because they all know they're all in this together.
One thing that will be interesting is what happens when they do start selling hoarded bitcoin (and unless a new source of capital appears, they will need to). RIOT already quietly sold $9M of cryptocurrencies in Q1 of this year. Given the mining hardware they have already ordered, I suspect they’ll be doing more of that into an already distressed market.
Hmm. Well, on the one hand, he is putting his money where his mouth is. On the other hand, this could be prime evidence of motivated reasoning. The author has also submitted his own article to HN it seems. Reading the analysis, it makes sense, but I'm not experienced in analysing company financials. Other people I respect/trust who have a good track record don't feel this way about the companies in question.
I think, in general, shorting volatile assets is a pretty fraught undertaking. There could be a Gamestop style short squeeze fueled by Crypto bros for example. There could be a purchase announcement that could spike the price. ARK could decide to buy a large stake. All these things could lose you a lot of money for 'no good reason'.
I find in cases like this it can be useful to go and check the primary sources. Of course, it's impossible to re-blind yourself having already read the analysis.
> Last year, one MARA executive earned over $220 million in cash and stock-based compensation, in a year when the company’s total revenue was $150 million.
The author helpfully links the SEC filing they've taken this number from, and it would appear to be accurate, though one detail the author glosses over is that this is 99% stock. I'm not sure how that affects your analysis.
(I hold no position in this company)
I think most of the risk could be mitigated by holding bitcoin while shorting the miners.
OTOH, there is huge volatility in the miner stock price due to bitcoin price swings. I'm saying to counter that volatility risk by holding bitcoin.
> I don't think memers would focus on bitcoin mining funds. The memers focus on cryptocurrencies themselves, not on boring corporate miners.
For example, here's a post on r/WallStreetBets [1] trying to hype up RIOT and MARA, and I could find a dozen more just by googling. If you think meme stock frenzy won't take something because it's boring/old school, I have some shorts in a brick and mortar overpriced video game store I would like to sell you.
[1] https://www.reddit.com/r/wallstreetbets/comments/qp0vn8/riot...
Gamestop is a bit different. Gamestop was hyped based on I don't know what, maybe hype alone. The point is there was nothing to hedge with. With RIOT and MARA, they're hyped based on the idea that bitcoin will go up, which gives an obvious hedge.
A proper insurance to limit the losses in case of huge increase in the asset price should be implemented with options or other financial instruments specially designed for this.
You're right though that this isn't a foolproof way to eliminate large risks. I'm very far from an expert in this area; I've never done any shorting or options trading.
You also need to estimate the Bitcoin price over the next two years.
And you probably need to estimate the bitcoin hash rate over the next two years.
Good luck.
Obviously, the price of bitcoin over those two years would be very important to your income and assuming a price of 60k (where it was a few months ago) would result in a very different outcome than the same calculation with the current price of 30k. Bitcoin has been very volatile since basically forever, so it is very difficult to predict of your scheme would be profitable.
https://balkaninsight.com/2021/05/12/in-north-kosovo-mining-...
https://bankwatch.org/beyond-fossil-fuels/the-energy-sector-...
No it wouldn't. The electricity cost is a factor, but it's not that significant compared to the capital cost of the equipment, the price of which fluctuates depending on the expected profit.
You can also see this with GPUs, but it's far more pronounced with Bitcoin mining hardware which has no other use.
You will find that it's not possible to actually order stuff from bitmain when mining is profitable at their list prices.
It's almost as if they just run the machines themselves when it's profitable, and deliver orders when that is more profitable than using them.
So there is effectively a "spot" price for the machines where sellers who have inventory try to extract as much value as they can. Thus, the capital cost is more significant than electrical. (Obviously within reason, but paying 5 cents or 10 cents per kw/h is less relevant than capital cost)
I should say though, after the 2018 crash S9s could be had in bulk for $100 each, where they were selling for over $3000 only months earlier. So maybe the flood of these out there makes my experience outdated.
TL;DR: Just dont.
https://www.epa.gov/greenvehicles/greenhouse-gas-emissions-t...
Go get your mining rig, my dude. The median number of cars in American households is 1.88 so you have lots of room to play.
But unless you can find free electricity (like at work or school), it usually isn't worth it. You also have to factor in the failure rates at keeping a computer running 24/7 at max cycles.
But in your case you're probably not so much making money from the "free electricity" as reducing the potential loss on the cost of installing and maintaining the system?
Oh, they'll happily accept the power I'm generating... They just won't pay me for it.
> your summertime production doesn't much exceed consumption then you have a big shortfall in the rest of the year
Indeed, that's the case with most homes who invested into solar power. Most of them are planned precisely so they'll generate just enough energy to cover their yearly comsumption.
Mine is set up to generate as much energy as possible. I just installed as many panels as possible.
> Here (Germany) there are limits on what the network will accept so people play elaborate games of trading off battery charging vs selling across the day, with one eye on the weather forecast.
That's interesting, I didn't know that. Everything I've read about the german solar power system made me think it was perfect: you could just generate as much power as you wanted and get paid for it. I had no idea people had to play those games. Why can't the network accept the power?
> But in your case you're probably not so much making money from the "free electricity" as reducing the potential loss on the cost of installing and maintaining the system?
In my case the equipment has already more than paid for itself. I generate more power than I consume almost all year long and my energy bill is almost zero. Maintenance costs have been minimal so far.
When I generate more power than I consume, they give me expiring kWh credits. I don't want these credits to accumulate under any circumstances since I'm already generating surplus at almost all times. So it's in my interest to increase my energy consumption: anything else means giving them energy for free. So I set up a miner.
The network can but it doesn't want to for a variety of reasons.
Solar too. Solar powered miners let you literally monetize the sun.
As an analogy, the sticky part of lottery tickets is, people will reliably participate with their own money; others complain; nothing changes as people do it again anyway. Opportunistic planners take advantage of the "I see food" people, make glossy lottery tickets and pay a premium to food store managers to sell those lottery tickets; more people complain.
Can we identify the systems parts in play here, to create enough context to actually decide what is important, what is unstoppable, and what might be a rational, thinking response to all of this going on ?
If you want to make a statement about the nature of bitcoin, I would consider an "equilibrium" situation where:
* The cost of specialized hardware is stable (e.g. what are the economies of scale as t->infinity ?)
* The price of bitcoin in terms of energy (BTC/watt hr) is stable
* Miners are rational actors
It seems to me like the most concerning aspect of cryptocurrency mining is that the hashrate is dependent on externalities like the price of bitcoin, rather than the necessary hashrate to defeat a 51% attack.
What is the mechanism that will make this happen?
The catch was that the companies took the feed-in tariff (the government subsidy for generating renewable electricity), and that you needed to commit to having the panels on your house for a minimum number of years (making it unviable if you rented, or planned to move in a few years).
In the mid-2010s the UK changed how the subsidies worked, changing from the feed-in scheme where you were paid per unit of electricity generated (regardless of if you consumed that energy or sent it back to the electricity grid) to the Smart Export Guarantee, where you are only paid for the electricity that you sent back to the grid. According to Wikipedia [0] this caused many of the companies operating the "free solar panels" schemes to go out of business.
[0] https://en.wikipedia.org/wiki/Feed-in_tariffs_in_the_United_...
The reason solar panel manufacturers don't go into the power generation business is because building a solar plant is a political problem, while building solar panels is a technological problem. It's not their core expertise.
[1] In locations that need more electricity, have regulators that will favor you over coal-burning and gas-burning incumbents, and where you can deal with the NIMBYs.
[2] It should be obvious when you consider that economies of scale mean that utility solar will always be cheaper than rooftop solar for on-grid homes.
Not really. Panel lifetimes are measured in decades and the break-even point is usually around a decade, less if daytime utility power is expensive. They're not high volume money printers but they'll eventually pay for themselves (including their carbon usage during production).
Solar works mathematically because the Sun is constantly bombarding the Earth with energy. Rooftop solar increases the efficiency of otherwise wasted acreage of rooftops of buildings. Not only can they offset energy use of the stuff inside the building but the rooftop shade is that much less cooling needed for the building.
My point is that daytime utility power that comes from a solar farm will always be cheaper then rooftop solar. Because it takes a lot less labor to deploy solar at utility-scale, than to bolt it to your roof.
The only reason rooftop solar can currently be cost-efficient[1] is if its competing with expensive sources of energy generation. If it has to compete with cheap sources (utility solar), it's not cost-efficient.
[1] Or if you're receiving subsidies for the energy you sell back to the grid.
If you ignore the cost of maintaining the grid between A and B, yes and if you ignore the value of people having storage in their house being able to optimise their in house consumptions to match the solar production, yes (this would be possible with pricing signals but it is not done, also there are slight psychological differences for the user) and if you ignore communities having access to power in case the electricity grid is under attack due to foreign invasion, yes.
If your house is off-grid, and you have to invest tens of thousands of dollars into battery capacity, your economics will look worse then the grid's economics.
Because if batteries were a cost-efficient way to deal with solar's intermittent generation, every utility in the world would be tripping over itself to order batteries by the TWH.
They, uh, aren't.
I also can't optimize my energy usage around the sun. I'm not home when the sun is shining. I don't have an AC. I don't run heat most of the year. I need electricity for lights (Because it's dark), and appliances (which I use when it's dark, because that's when I'm home).
I would a lot of on-site storage to get me through the days when it gets dark before I'm home. This is not cost-efficient. It would be cost-efficient if my entire town could aggregate their generation and usage... At utility scale.
Yes but building new solar causes new grid cost.
> Because if batteries were a cost-efficient way to deal with solar's intermittent generation, every utility in the world would be tripping over itself to order batteries by the TWH.
They are cost efficient in Germany. So i am not to familiar with other countries situation.
> I also can't optimize my energy usage around the sun.
With batteries you could do that more.
Both have a role to play. Another reason for solar is that people rather invest $10000 in their house then $5000 in shares of a grid scale solar installation. So while it might not be capital efficient it unlocks more capital investment for the green transition. From an economic view roof top solar is a jobs program where well paying trade jobs are created all over the country.
How many GWH of capacity have they deployed?
And isn't it the country where a KWH costs 33 cents?
Given that solar produces electricity at ~2 cents per KWH, this seems pretty damning.
[1] Are you sure you're not confusing this with minute-over-minute smoothing, which requires ~two orders of magnitude less battery capacity?
Yes. https://www.vb-bordesholm.de/batteriespeicher.html
> Are you sure you're not confusing this with minute-over-minute smoothing, which requires ~two orders of magnitude less battery capacity?
Yes, Frequenzregelmarkt (minute over minute smoothing) and the normal electricity capacity trades happen in two separate markets in Germany right now. Allowing battery storage to take part in both markets is one of the goals of the current coalition government. Since this happened before that change and the article mentions it being involved supplying a city decoupled from the long distance energy transmission it is legally impossible that this battery installation just did minute over minute smoothing.
> How many GWH of capacity have they deployed?
4,5 GWh [1] out of which 1GWh is grid scale and industrial use.
> And isn't it the country where a KWH costs 33 cents?
For normal consumers, yes. Industrial users have a lot lower rates. A lot of this is taxes and similar stuff too. I found conflicting numbers on the precise details but 9-12ct are the used for producing the energy (including profits and investments of those companies), 8-9ct are used for the network (including profits and investments of those companies). The rest are taxes or other kinds of levys.
[1] https://www.pv-magazine.de/2022/03/15/rekordjahr-im-speicher...
Also, if one company was making the majority of bitcoin ASICs, they'd be at risk of gaining the ability to do a 51% attack, right? Which would reduce confidence in the network I guess.
I don't own any of this stuff because bitcoin seems fundamentally bad for the planet and a pain to manage, but I don't think we should assume these things are necessarily irrational purchases just because we don't like them.
If you can take advantage of some of those and don't mind that the money isn't being generated so much as taken from other people then it's a great idea.
one is the cost of the hardware. 2000$ is not enough for latest generation ASIC miners. It just isn't. You want the latest generation ones. We are probably talking 10k+ for something decent.
The second one is the cost of power. People like to talk shit about the environmental impact of bitcoin and stuff, but the reality is that the bitcoin you mine is worth less than the power you are using in most places around the world. Bitcoin mining is profitable in areas where the cost of power is heavily subsidized (it's free real estate meme) or you can easily generate power yourself (solar, wind, thermal, etc). So, if the cost of power is > value of mined bitcoin, it does not make sense to mine it
The third part is mining pools. You can build all the rigs you want, but the reality is that most bitcoin is mined by mining pools. So you will have to join one of those pools if you want to have a steady guaranteed small income.
So to answer your question: depending where you are for an investment of X this could be profitable (medium/long term) but you need to understand more about the cost of the hardware, cost of power and dynamic of mining pools to actually pull this off (so for a noob, you're better off just buying 2000$ of BTC, holding for 2 years and selling. sorry noob. The wild west era of bitcoin mining is long behind us)
1. The author fails to explain clearly that what we call mining "mining" is a distributed form of transaction processing, in which transaction fees are earned via proof-of-work. Currently most of the transaction fees come from block rewards, but transaction fees are in fact set by competition based on the marginal cost of computation.
2. By design, Bitcoin's block rewards have always been meant to be temporary, as explained by Satoshi Nakamoto in his/her/their paper. I mean, the rewards are halving on a fixed schedule, and everyone knows that eventually there will be no more rewards. The only purpose of the block rewards was -- and is -- to provide a temporary incentive for jump-starting Bitcoin's transaction processing network.
3. As the rewards go to zero, Bitcoin transaction fees will fluctuate. They will be determined by competition based on the marginal cost of computation. My expectation is that Bitcoin transaction fees will go up over time.
4. Many transaction processors, i.e., "miners," are convinced that Bitcoin eventually will have a market capitalization similar to that of gold (~$12T, give or take), so they are hoarding their share of block rewards. Many investors in these operations are convinced too. Some in fact are willing to lose money processing transactions to get the block rewards.
2/3. Sure, but see #1.
4. Sure, but the author is pointing out that the cost of buying BTC exposure via these companies is higher than just buying BTC by a lot. It almost seems like a short position of these companies combined with a long position on BTC is a solid bet over a long term horizon.
The investors also get transaction processing infrastructure, including software and facilities, and a team, not just exposure to BTC. Perhaps they see future value in building that infrastructure now.
> It almost seems like a short position of these companies combined with a long position on BTC is a solid bet over a long term horizon.
If you think that's a solid bet, you're of course welcome to go ahead and make it!
The miners who profit will be the ones extracting energy from places where it is otherwise useless, or less in demand.
Also, if miners started selling equipment to buy Bitcoin it would simply make mining more profitable to the point where the average miner would profit again. It's a basic equilibrium and the ominous "I don't think this ends well," has less direct connections the arguments in the piece than it does the author's disclosed financial interest in seeing mining companies fail.
To be fair, it may be the case that mining is currently over allocated, but implying that the practice is going to totally collapse is about as hyperbolic as any NFT shilling crypto bro telling you his decentralized Pokemon card knock off is the epitome of finance type get-up this site is so apt to complain about.
You see there are some valid economic reasons why CBOT and several other exchanges allow the shorting of bitcoin without making those contracts tied to bitcoin.
If any of you want to bet anyway on bitcoin do not buy mining rigs, think of it this way it represents a business we all are familiar with...
Buy domains to speculate and base the business model paying for it on ad revenue off of the websites with each domain name buy.
Its the same dam economic trends and same long term bad result
These companies have been ridiculously lousy investments. Borderline scams, when you look at executive compensation.
How do you figure? Much of the (featured) article is centered around hashrate to bitcoin production ratios over time. Literally one the central features of bitcoin.
the author gives the oil analogy. the oil wells themselves have very similar economics to mining. it's the relationship between these similar operations and the investors which sets them apart more than the activity they're involved in.
It dropped to $25k for like... what feels like a split second and people are still FOMOing into it, running it up to $30k (unless it's some kind of manipulation by whales to trap people's money... who really knows?)
are they thought? What's untethered from reality is the understanding of how bitcoin work. Everyone wants to throw in 100$ and wake up to millions in 5 years. That just does not work anymore.
One can model all costs involved when it comes to mining and can make a decision based on cost vs expected profit. Bitcoin (and cryptocurrencies) are not vending machines. The math to model this is harder and there is a lot more uncertainty. Can it be done? Probably. Will we have winners and losers in the mining game? of course.
Economics is a social activity, not an abstract property of an asset or instrument. If the body of people using or interacting with bitcoin are fundamentally misguided about its economic properties, then the economics of bitcoin itself are fundamentally misguided ("unreal").
As I read it, the article's point was this: the economics behind large mining initiatives are bunk (it would be more profitable to simply buy bitcoin at current prices using the same capital). Simultaneously, it is true that bitcoin's mining activity is a supporting factor in its valuation. In other words, bitcoin is doing the economic equivalent of the toothpick trick: two supposedly supporting factors are actually mutually vulnerable to the same outside pressure (the availability of gullible investors, or lack thereof).
The Bitcoin network in particular uses more electricty than Argentina. Defenders will point out that it's majority renewable. That's intellectually dishonest because Bitcoin is simply chasing cheap power and hydro power is among the cheapest. Bitcoin miners will happily use coal if it's sufficiently cheap. Also, use of certain renewables comes at the expense of other people. In the Hudson Valley, miners have raised the electricty prices for other residents in those towns.
Bitcoins transactions consume an enormous amount of electricity.
Defenders will also claim we'll move to Proof of Stake ("PoS") over Proof of Waste but this too is a myth. For one, Bitcoin's massive computational and electricity waste is key to defending the network. I don't know what happens when we run out of coins to mine. Also, if it's as simple as that, why haven't we simply moved to PoS for everything?
PoS ultimately is a rich-gets-richer scenario is why. It's really no different to the Luna anchor stakers getting 20% returns at the expense of everyone else who comes along later.
And for all of this waste we get what? Transactions that can only be guaranteed if they're entirely contained within the network because as soon as you want to include something outside of that (eg converting crypto to or from cash) you've just added the same trust issue that is intrinsic to every traditional financial transaction.
And what fuels this continued mass delusion is the fabric of American beliefs that every American is just a temporarily embarassed millionaire [1].
[1]; https://www.goodreads.com/quotes/328134-john-steinbeck-once-...
If bitcoin miners are chasing cheap power (which I believe they are), then it shouldn't be possible for miners to increase the price of power in a fixed area, as they would immediately migrate elsewhere where power is cheaper. You can't have it both ways. Interestingly, the cheapest power is where supply completely dwarfs demand. Bitcoin miners should ultimately migrate to those areas of stranded power, and thus under optimal conditions bitcoin miners shouldn't compete with any other buyer of energy-- it would only be efficient to preform bitcoin mining for the lowest possible cost of energy where there is no other customer. It is largely looking like renewables would fit that bill, as the era of low hanging fossil fuels is long gone (aside from government subsidies).
There are lots of other uses for surplus power eg Aluminium smelters, desalination plants, decarbonization machines, cracking H20.
Um, no. That presumes there is somewhere cheaper to move, for one. If powers costs $0.08/kWh in one place and the next best option is $0.12/kWh then even if you assume no moving costs you've got all that headroom before it even makes sense to move.
But consider the concrete example of Pittsburgh [1] (emphasis added):
> A few years ago, miners “descended upon” the city of Plattsburgh, New York, about a hundred and fifty miles north of Albany, which gets much of its electricity from hydroelectric dams on the St. Lawrence River. The power is relatively inexpensive, but, once Plattsburgh uses up its allotment, it has to purchase more at higher rates. Bitcoin mining drove up the cost of electricity in the city so dramatically that, in 2018, Plattsburgh enacted a moratorium on new mining operations.
[1]: https://www.newyorker.com/news/daily-comment/why-bitcoin-is-...
If you assume this isn't the case, then the original comment I was responding to would imply that bitcoin mining is raising the price of energy for the entire world. At 0.5% of global energy consumption, this seems pretty unrealistic. The overhead of moving is obviously not zero, but my point is mostly that bitcoin miners will in general tend to flow to where there is cheaper and less demand for electricity. This in general should cause less tension between where energy is needed. More modern regulated bitcoin miners will generally only exist where there are periods of excess power, eg from wind or solar. They will often sell to the grid operator the ability to interrupt their power when electricity becomes scarce. I completely agree that miners shouldn't be sucking up subsidized hydro power, but also that hydro power shouldn't be subsidized in the first place.
If that logic were sound, I struggle to see how the price of any fungible good could ever increase in response to demand. There is some energy price at which the profitability of mining becomes marginal. Won't the amount of mining grow until all the electricity cheaper than that is being wasted calculating hashes?
> Won't the amount of mining grow until all the electricity cheaper than that is being wasted calculating hashes?
No, there is an upper bound (negating transaction fees, which are negligable) in that the cost of the energy used will never be larger than the block reward times the bitcoin price. There are estimates that this actually isn't a large enough market for the situations where bitcoin mining is actually a very beneficial consumer in terms of environmental concerns-- e.g to consume all of the methane flare gas (that would otherwise be burned off).
This would be true only if people and Bitcoin miners bid in the same market. They do not.
If a BitCoin mining company has x year contract with an utility at some fixed price then they get that electricity at that rate. This has an disproportionate impact on the price consumers have to pay. To meet consumer demands electricity suppliers buy electricity from electricity producers. If BitCoin miners have contracts for all electricity generated in a region cheaper then x cents per unit that means that electricity suppliers can only begin to meet their customers demand with electricity more expensive than x. This means it might be necessary to buy electricity from really expensive sources (for example far away sources) they wouldn't have to rely upon with the cheaper then x electricity was available.
The fact that the cheaper then x electricity producers could get more money if they wouldn't have signed long term contracts is in an environment with multiple such sellers a tragedy of the commons like situation which can not be fixed by the market alone. What makes it even worse is that perverse incentives exist where a company by selling all their cheap electricity to miners can keep assets which would otherwise be stranded (coal power plants) produce electricity at a premium rate because electricity supplies must meet the customer household demands.
This is a tremendously valuable problem to solve for some.
This [1] estimates the annual Bitcoin energy consumption at 145TWh. If the Bitcoin network were a country it would rank 25 in the world by energy consumption [2].
The cost of that electricity is hard to estimate but if you use a ballpark of $0.10/kWh that puts the cost of the Bitcoin network at almost $15 billion annually just for the electricity.
[1]: https://ccaf.io/cbeci/index
[2]: https://en.wikipedia.org/wiki/List_of_countries_by_electrici...
More modern blockchains do use PoS for the most part -- Solana, Cardano, Polkadot, Cosmos, Avalanche, NEAR, etc. Just Bitcoin in particular is unlikely to make such a major change.
> PoS ultimately is a rich-gets-richer scenario is why.
In well-designed PoS systems, anyone can stake (perhaps with delegation) and access the same rate of return. If everyone stakes, noone is actually getting richer after we adjust for dilution.
This is fine in a vacuum where no one needs the money they make staking, but someone who is not rich is presumably staking to make money that they will spend on food/clothing/shelter. The wealthy can stake indefinitely.
Are you under the assumption that crypto is supposed to be socialist somehow?
E.g. Food. Create a new proof-of-food based crypto. Poof! Literally solved world hunger right there.
The vast majority, like 99%+, of all crypto projects fail.
Anyway, so far there's: Foodcoin (https://coinmarketcap.com/currencies/food/), TE-Food (https://coinmarketcap.com/currencies/te-food/), and probably a dozen other scams.
Let me give you an analogy to what you said "After seeing that Google and Apple have market caps of a trillion dollars, it dawns on me that we can stimulate massive investment and efficiency just by making a publicly traded company focused on that thing. If we make a food-based public company, poof, world hunger solved".
Just because bitcoin has a huge amount of money in it does not mean all cryptos will succeed. Just because google has a trillion dollar market cap does not mean every publicly listed company will.
And secondly I was joking, but clearly my attempt at humor failed as I also got at least one downvote.
I look forward to the government-issued "Agriculture-coin" issued to farmers that show they grow a certain amount and follow certain standards: https://en.wikipedia.org/wiki/Agricultural_subsidy#United_St...
There will be more: https://henvic.dev/posts/bitcoin/#scarcity
They'll find a way to convince more suckers to adopt the shitcoin.
If you subdivide something, that doesn't make more of it.
That's like saying "in the future the linux kernel could be insecure, because the devs could add a keylogger"
>> That's like saying "in the future the linux kernel could be insecure, because the devs could add a keylogger"
This is just informal fallacy. Is increasing hard cap immediate threat to btc ? I don't think it is.
Bitcoin has so many other unsurmountable obstacles, that it's "monetary policy" is irrelevant.
How does a company who spends 31k mining BTC that is currently worth 30k and pays their executives tens of millions in compensation work out in the long run?
So the question is not: how does a company ... work out in the long run? the question is: which company actually does things in a sane manner and will survive to be a dominant player in the space once the dust settles?
If someone were to talk to you about the cost of printing and distributing books and how much X costs and depreciation over 10 years, you as an ebook seller would laugh them out of the room. Sure there are things that still apply across all businesses, but people seen to dance around the fact that the reason why depreciation model does not work for bitcoin mining is that it's highly correlated to advances that were made in the mining hardware + the huge role the cost of power (geographical location in the end) has on the whole profitability of things.
Mining needs hardware, which loses value as new hardware is released and mining gets harder. Thus, it depreciates over time.
Exactly, that's the whole point of the article.
On an actually uncapped Bitcoin instance, Blocks (Block size) and transaction fees will grow exponentially, rendering all such “Bitcoin is environmentally terrible” and “Miners aren’t profitable” calculations absurdly wrong.
Other instances exist that are chugging along flawlessly and are set to help miners grow their revenue with on-chain transaction fees growth: DYOR.
Of course, BTC Maxis lead by companies set to profit from such an artificial limit on Bitcoin (hint: they often peddle L2 solutions) would hate for you or anyone to understand and study those facts.
It’s like someone saying “Look at how wasteful this car limited to 20MPH is! All cars are wasteful!”. No, not all cars, especially that the original design explicitly said to scale the engine as more speed is needed.
Crypto is still very, very, early. I assure you of that.
-) Did your article discuss miner profit from finding Bitcoin?
-) Did you mention that Bitcoin’s emission halves and will eventually end?
-) Did you mention that miners profit from including transactions?
-) Did you mention that transactions become the SOLE source of income once all Bitcoin is mined in around a century from now?
-) Did you mention that BTC is a version of Bitcoin which allows only for a maximum of 200k transactions every ten minutes?
-) Did you mention that the original design should allow for millions (and billions 30 years from now) of transactions every ten minutes?
-) Would such a huge number of transactions processed render miners more profitable than your calculation?
-) Would revenue from fees be much higher than the 1-2% you mentioned miners currently do?
-) Does omitting the above facts render your article possibly half-factual?
This makes it seem like it was some sort of 50/50 split, but in reality it was more like 99/1. A tiny group split off to do their own thing while "normal" bitcoin is just chugging along with unchanged block size. It's all fine and well that Satoshi may have wanted something different for block sizes, but he hasn't been involved in bitcoin development for over a decade now so his wishes are pretty irrelevant. Right now, the vast majority of "bitcoin" value is in the original one and speculating about how things could be different is just the crypto version of "world peace is easy if we all could just get along".
So when you discuss miners, on a network DESIGNED to emit less Bitcoin and change to transaction fees down the line, it’s ultra important to note that this actually working vehicle exists and the same miners protecting the speculative vehicle are also protecting the working one. And when calculating for the working one, miners are set to be some of the richest businesses on the planet, even when ALL Bitcoin has been already mined, a 100 years from now.
All in all, the chance that a crypto mining company becomes one of the richest businesses on the planet is slim and the chance that that company will be one of the mining companies already existing is slimmer still. Buyer beware when investing in the current crop.
In reality most bitcoin owners/users were the silent majority, and the "default" option was to do nothing, so they did nothing.
>speculating about how things could be different is just the crypto version of "world peace is easy if we all could just get along".
bitcoin's current blocksize/transaction fees are basicially an artificial problem that could be fixed with a minor storage/bandwidth tradeoff. It's more like "world hunger could be solved if we produce more food and stop limiting ourselves with insane protectionist trade policies".
You're still ignoring the practical for the theoretical.
"Ethereum is ok because proof of stake will solve problem X."
"Is proof of stake currently in use?"
"Well, no, but it will be soon/someday/eventually."
I agree that bitcoin should use an adjustable block size, but I'm not exactly sure that this logic follows. Can you explain this to me? If the network could handle more transactions per block, wouldn't the fees per transaction just decrease?
When you on the other hand can process millions of transactions every block (and scalable as needed), you’ll charge far less per transaction while still allowing miners to generate a huge (and ever growing) revenue, while also enabling most of the planet to transact next to free.
From an environmental perspective, if you divide the hash rate environmental impact on a mere 200k transactions every ten minute, the carbon foot print per transaction would seem absurdly high. Do the same calculating for millions of transactions every ten minutes, and you’ll arrive at a far better environmentally friendly figure.
If you measure value as a consequence of utility, they’re certainly far more valuable than BTC (BSV however is a corp coin and has weird copyrights so I wouldn’t touch it with a stick).
There would be an equilibrium where the fee is worth the marginal cost of mining it
shawabawa3 already explained it "There would be an equilibrium where the fee is worth the marginal cost of mining it"
The miner has cost X and wants profit Y. He adds those together and now the price is X+Y. Someone wants his transaction on the blockchain, he is going to pay X+Y unless there is a miner that offers an even lower rate.
You're making the assumption that the block reward is high enough to make transaction fees irrelevant, which is a trivial observation and not what we are interested in talking about here.
Ofc there will be miners who make much larger blocks no matter what, but it comes down to how urgent is your tx?
To maintain current mining hash power, as the mining reward halves away to zero, every transaction would have to incur around $100 in fees.
> still allowing miners to generate a huge (and ever growing) revenue, while also enabling most of the planet to transact next to free
If blocks would grow 10x, the blockchain would grow about 50GB per month, every human being could do around 10 transactions in their lifetime, and those would cost around $10 each. I don't see how huge and growing revenue for miners is compatible with "next to free" transactions.
Ethereum, with a bigger blocksize had transaction fees going up to $3,500 a couple of weeks ago. A larger blocksize is not the answer.
https://web3isgoinggreat.com/?id=popular-nft-mint-spikes-eth...
Currently, the blockchain is 405 GB and grows by about 5 GB per month. In your proposal, that will go up exponentially?
https://satoshi.nakamotoinstitute.org/posts/bitcointalk/485/
He/she asked, in effect: How do you plan to deal with the blockchain growing exponentially instead of linearly? And how much acceleration do you think is reasonable?
At any rate, the suggestion was for one increase, not an infinite sequence of increases, which your suggested exponential growth amounts to.
This doesn't make any sense.
If anything were to make mining more profitable, we would see even more miners come online.
There is no scenario in which Bitcoin mining becomes less environmentally terrible by paying more money to miners. Those payments incentivize more miners to come online and, if significant enough, would encourage miners to bring older, less efficient equipment online relative to today's rates.
That’s the argument behind unlimited on-chain transactions.
As for what’s feasible and evidence on it, I assure you, Edison had no clue that the internet will one day be born out of his electricity inventions and that it will be mostly used for porn, so sit back, relax and enjoy the next 100 years of untold human history.
As for what’s feasible and evidence on it, I assure you, Edison had no clue
that the internet will one day be born out of his electricity inventions and
that it will be mostly used for porn, so sit back, relax and enjoy the next
100 years of untold human history.
you've got a lot of faith in "most world governments and taxing authorities". here in the US, i look at other countries who include in their tax statements a breakdown of where all your tax bill is going. that looks like a thing those other citizens benefit from, so please tell me: how can i vote this into effect here?
Because central banks and banks didn’t exist when we were on metal standards…
2MB is far too small, but it would be a gross mistake to overcorrect by removing the cap entirely.
See, for example: https://www.gsd.inesc-id.pt/~ler/docencia/rcs1314/papers/P2P...
> On an actually uncapped Bitcoin instance, Blocks (Block size) and transaction fees will grow exponentially
Transaction fees would drop to zero. The fee is a bid in an auction for scarce block space. If block space is not scarce then the winning bid is always zero.
If you’re interested in some work being done on such larger blocks, you’ll enjoy this presentation: