Let's call this cycle A and cycle B.
If A is too hard, miners drop out, cycle B gets easier, miners flood back, cycle A gets harder.
This results in the hard cycle getting longer and the easy cycle getting shorter.
This isn't completely critical as there is I believe a small damping effect, so it isn't completely lethal to bitcoin, but a key thing about bitcoin mining is that whether other people are mining or not doesn't actually affect your own profitiability.
Other people dropping out doesn't actually mean you get more bitcoins per hour/watt, it only affects the next difficulty adjustment as a secondary effect.
The best miners are doing so with near free electricity, either with things like subsidized solar, or energy acquired from things like nat gas that'd otherwise get flared, or hydroelectric power that exists too far from civilization to have a demand otherwise.
If your miner is plugged into the grid, you're probably doing it wrong.
I guess you could share the power supply and cooling infra, but I am dubious the savings are enough to have half your silicon idle all the time.
Mining ASICs (Bitcoin, etc.) cannot be repurposed…they’re hardwired for a single hash algorithm and lack matrix math needed for neural networks.
Your mining rate is simply your hash rate vs the hash difficulty.
Conceptually, it's analoglous to rolling random numbers in (0,1) until you get to a number smaller than 1/X, where X is large.
How long it takes you to do that, isn't dependent on how many other people are also trying to do that, if you get 1 hit per hour, then lots of other people getting hits doesn't actually stop you getting your 1 hit per hour.
Now, that's not quite the whole truth, as there's a small amount of time needed for propagation of the previous chain, but with an average hit globally of ~10 minutes, that's not actually a big factor.
What could happen to incentivise people is increased fees if blocks get less common due to dropped miners, there'd be more competition to get into blocks if they start filling up.
That combined with the fixed costs such as depreciation as othes mentioned, keeps the risk of this form of failure to a minimum.
As a non-American, it's hard not to notice that it's not future generations. It's everyone using dollars.
And since your country will be invaded if you try not using dollars to trade oil, and everyone needs oil (transport, food/fertilizers, medicine synthesis), then it's literally the whole world paying.
Which incentives USA to print money, because they only shoulder a small part of that burden.
Mining Bitcoin requires both hardware and electricity, and the cheapest electricity is solar. There isn't any severe scarcity of the raw materials to make solar panels, or of sunlight, so Bitcoin miners can buy as many solar panels as they want and it would only increase the economies of scale for producing them for other purposes too.
Solar has inconsistent output. There is none at night and it varies based on weather during the day. Mining hardware wants a fixed constant amount of power. The logical thing for miners to do is to somewhat overbuild the amount of generation they need and then sell any surplus to the grid, and sell to the grid during the day and buy it back at night. The same incentives hold if the miners and the generators are two different parties, and the result is to increase the amount of generation capacity by more than the amount of consumption and have "too cheap to meter" during periods of above-average generation. (You were never going to get "too cheap to meter" during periods when generation is low and demand is high.) And even during short periods when demand significantly outstrips supply, then their incentive is to stop operating those few days out of the year because the spot price of electricity makes mining unprofitable then, which allows the generation capacity installed to do mining be used to support the rest of the grid and inhibits the price of electricity from rising above the point where mining becomes unprofitable even for people who already have mining hardware. It's basically a buffer that buys electricity when it's cheap and sells when it's expensive.
Bitcoin has a volatile price. When the price is high, miners buy hardware and increase or pay someone else to increase generation capacity. When the price declines, the mining hardware becomes idle but the power generation capacity still generates fungible electricity that can be used for any other purpose. The result is that miners pay to install a lot of generation capacity during the boom, and have the incentive to prioritize investing in more generation rather than newer/more efficient mining hardware because it's the thing that's still worth something if the price declines, and that generation capacity then gets offloaded into the grid during the bust, with the result that grid prices go up some during the boom and down by even more during the bust. By the next boom some of the generation added last time has already been sold to non-miners or locked into long-term contracts so now they're back to adding new capacity again.
"Incentive to fund increases in generation capacity but then not use all of it" has what effect on average prices?
One thing we do not lack is demand for more energy.
Please tell me where I can get unlimited solar panels for free. I'll rent a truck and be there straight away.
> One thing we do not lack is demand for more energy.
Market demand is the willingness and ability to pay money for something. If the demand was actually unlimited then why isn't there either a Dyson sphere around the sun already or a 0% unemployment rate from everyone having a job building one?
Most significantly that the increased demand due to mining will result in grid operators investing in proportional new capacity to offset it over a reasonable time scale. Instead of just driving up prices due to basic supply/demand.
Also that miners are only consuming electricity when renewables dominate the mix. Otherwise they're responsible for more CO2 emissions to do something useless.
Plus in markets like Texas, miners also manage to get subsidies intended for actually useful customers like factories to go offline at peak times. So ratepayers are essentially paying protection money so they won't over stress the grid by performing their useless work.
In a world where bitcoin miners had to install new solar capacity to entirely offset their peak usage and sell back to the grid any excess then sure, seems like that wouldn't be a big societal net negative like it is right now.
If anyone can buy a piece of land, plop down some solar panels and start selling power to the grid, that's what happens whenever the market price gets higher than the cost of doing it. If they can't, that seems more like a regulatory problem than a Bitcoin problem.
> Also that miners are only consuming electricity when renewables dominate the mix. Otherwise they're responsible for more CO2 emissions to do something useless.
~100% of new net generation capacity in the US is renewables and that seems poised to continue for economic reasons. Adding some new nuclear could also make sense in an amenable political environment (some new data centers are trying to build it) but that also doesn't emit CO2.
> Plus in markets like Texas, miners also manage to get subsidies intended for actually useful customers like factories to go offline at peak times. So ratepayers are essentially paying protection money so they won't over stress the grid by performing their useless work.
Those "subsidies" (really discounts) exist because the cost of supplying power 100% of the time is dramatically higher than the cost of supplying it 99% of the time, so you pay less if you only need it 99% of the time and the power company gets to choose when.
Having more customers that can do that allows the grid to supply power to everyone for less money. You install some solar panels whose average generation can support a Bitcoin mining operation + X number of homes. When the output is half of normal for an extended period of time, the Bitcoin mining operation cuts out and "half of normal output from twice as many panels" can power all of the homes. Without the mining operation buying half the typical output there would only be half as many panels to begin with and then you would need something like natural gas peaker plants to power the other half of the homes when solar generation is low, which both costs more and emits more CO2.
> In a world where bitcoin miners had to install new solar capacity to entirely offset their peak usage and sell back to the grid any excess then sure, seems like that wouldn't be a big societal net negative like it is right now.
If you care about CO2 then you do a carbon tax or similar (and then refund all the money to the public as checks so it doesn't damage the economy), at which point that's exactly what happens, only it happens for everybody and not just Bitcoin miners, which is what you want anyway.
You can also increase economies of scale by building out solar farms, and using them for something useful, instead of wasting it on guessing random hashes.
Saying that wasting energy is fine as long as you get it cleanly doesn't change the fact that you're still wasting it.
I have been paying for my VPN with lightning payments; it takes less than one second to go through.
One is a quick summary of the current balance in a channel. A new transaction is created each time the balance in the channel changes. It's somewhat cheap to put on the blockchain (And the main saving is that you only need to post the final update when you close the channel), but venerable to one side putting an old stale transaction onto the blockchain to profit.
The other transaction forms a chain of proof for current state, invalidating previous balance update transactions. It's somewhat expensive to post, as it will pull in the whole history.
Both peers need to continually watch the chain (or contract a 3rd party to watch) to make sure the other peer isn't cheating by posted a stale balance transaction. These special transactions are time locked, so once one is posted, you have like 24 hours to post the proof transaction and reverse it.
The point is that it is resistant to censorship, it is pseudonymous, and so on (all the other bitcoin attributes apply)
> What's the point of it all in this case?
Lightning is an L2 protocol, highly scalable and used for low cost payment in Bitcoin. Level 1 networks are almost never used for user transactions: your credit card payments do not go over fedwire, etc. Bitcoin protocol is not scalable to serve worldwide money transfer needs; Lightning is. And with the cost of a penny per transaction or so.
> Why not just use regular currency?
There are a lot of frictions in the current banking systems, because money laundering, because drugs, because whatever. Getting $5-$10k in regular currency while on an overseas trip can be a major quest. With Lightning I can transfer that much (or more) in a few mouse clicks.
As a side note, I think the federales are already way too nosy regarding my use of my own money, so I want to give alternative options as much business as I can. My 2c.
Most people who use Lightning do not operate their own nodes; same as with other payment methods -- credit card users do not operate their own payment networks, people writing checks do not operate their own banks, etc.
It feels like we are talking across each other and I just do not get it.
1. can't allow an single village to operate purely on them, because they're too slow
2. or they're not decentralized, and the entire "democratic" angle dies with that
And then what's the point of cryptocurrencies for most people? Why not just use the "tradfi" and "fiat currencies" and use the money propping up cryptocurrencies to actually make the world a better place?
If we shut down all current cryptocurrencies and diverted resources used to actual productive uses, the world would probably end up with a net gain.
I'm just ranting. I would want cryptocurrencies to be amazing but right now they seem useful for people with cyberpunks fetishes, for criminals, and rarely, for actual regular people from fragile states (not rich people trying to exfiltrate wealth).
Maybe because otherwise for a significant portion of the world population their own fiat is the only game in town. And it sucks so much that the regular people are willing to break laws and risk fines, confiscations and occasionally prison just for keeping their savings in anything else, like a neighbor country fiat. Their govvies use their fiat as a transfer mechanism (which makes saving impossible) and thus must discourage any other savings vehicle; otherwise no fool will use their fiat.
I saw fiat rug pull twice in my first 25 years: once as an instant nationalization (a friendly radio announcement one night that your money is ... well ... not a money anymore) and, later, a hyperinflation that over 2 years wiped out savings. And being found with a less sucky fiat at home meant jail.
I was just a kid, did not have any savings and thus did not care that much. But an older generation lost everything. So yes, a lot of people will gladly use anonymous, permissionless money, drawdowns and other warts included.
Fedwire isn't a "level 1 network", it's an entirely different service with different end users and goals in mind. ACH isn't an "L2 protocol", but does orders of magnitude more transactions per second than Bitcoin.
It's like cryptobros don't understand the basics of the systems they're attempting to replace.
> Or that to scale everyone would need to store a petabyte size blockchain That is addressed in the whitepaper (SPVs and pruning)
For mining it is just necessary that it happens.
The amount of work in mining is way higher than is required to prevent another party from being able to overwhelm the Blockchain. It is that high because of the subsidy of the mining reward means if Bitcoin has a high value the reward is worth a lot.
This is factored in with the halving of the reward. Either the price will increase exponentially or the mining reward will drop. Causing mining to reduce to those who can be profitable from fees. Which rewards those who can mine most efficiently, it becomes a supply and demand calculation in a market where there are relatively low barriers for competitors.
Isn’t that exactly the point? Bitcoin incentivized wasting resources. It is, according to your own comment, unnecessary to use so much computing to keep bitcoin going. But it’s being used.
If Bitcoin were worth much less the network would still be secure even though the mining reward would only be enough to pay for a fraction of the current processing.
If Bitcoin does not double in value every four years, the mining reward will reduce in real world terms.
Claiming the mining resources required will be at the current level or higher perpetually requires also making the claim that you think that the value will increase exponentially forever.
Nothing increases exponentially forever.
The electricity demand (and here I mean the overall cost of the electricity, so improvements in $ per kilowatt just mean you need to use more electricity) in proof-of-work systems fundamentally scales linearly with the overall valuation of the coins in the network, which means proof-of-work systems can never scale as large as their fanboys would have you believe.
Adoption doesn't necessarily correlate completely with price. Price can increase without much adoption, due to speculation. In theory, adoption could also increase without much price increase.
Electricity isn't the only requirement for mining. Hardware is also required. Miners can't simply use lots of additional electricity if the hardware isn't there. Yes, new hardware can be manufactured, but it takes time.
The block reward decreases over time. If it's using Europe levels of electricity at time X, then after a block reward decrease, it'll use Europe/2 amount of electricity. This decreasing also disincentivizes manufacturing new hardware.
Miners can have different efficiencies, due to different types of hardware, and different types of electricity generation. So while the least efficient miner will be operating at near breakeven, the most efficient miner will be making much more profit. So while the least efficient miner will use $1M of electricity to mine a $1M coin, the most efficient miner will use less dollars of electricity.
Not really. A fundamental purpose for any currency is to act as a "store of value". There is no way for bitcoin to represent a store of value (i.e. value commensurate to real-world goods) for a larger and larger portion of society without the price skyrocketing, especially since Bitcoin is inherently deflationary with a max number of coins.
Regarding your other paragraphs, I think this is a fundamental misunderstanding of how proof-of-work is designed to protect the network. The entire idea behind POW is that the total amount of work must be in direct relationship to the total value of the coins in the network, or else coordinated attacks become possible. I see this misunderstanding all the time in "the block reward decreases over time" argument. It doesn't really matter if miners get their payoff from block rewards or mining fees - they must (on average, over time) get enough reward to make their mining activity worthwhile, and, again, by the inherent design of POW, they need to spend enough on mining to make 51% attacks not worth trying. Just think about how your "If it's using Europe levels of electricity at time X, then after a block reward decrease, it'll use Europe/2 amount of electricity" sentence doesn't make any sense, because eventually in 2140 or so there will be no block rewards, so according to your logic no electricity at all would be required to run the network.
There is simply no getting around the fact that resource costs need to grow linearly with the total value of the network in POW systems.
The total amount of work must be in direct relationship to the amount an attacker can gain from executing a 51% attack. It's not clear to me that if bitcoin doubles in price, an attacker can gain double the amount from a 51% attack. A 51% attack doesn't allow direct theft of other people's bitcoins. It allows double spend attacks, denial of service attacks, and through those, the ability to tank the price of bitcoin.
>Just think about how your "If it's using Europe levels of electricity at time X, then after a block reward decrease, it'll use Europe/2 amount of electricity" sentence doesn't make any sense, because eventually in 2140 or so there will be no block rewards, so according to your logic no electricity at all would be required to run the network.
It's possible for a block reward to be larger than necessary for security. In that case it can go through several halvings that purely improve efficiency without putting the network at risk. Yes, at some point, with a sufficiently large number of halvings, the network would be at risk, but that doesn't mean we can't have some efficiency gains before that happens. Your previous comment referred to bitcoin using more electricity than Argentina. That's a statement about how much electricity it's currently using, not a statement about how much electricity it needs to use to get the necessary amount of security. It might be possible to decrease the electricity usage while remaining sufficiently secure.
The block reward halving every 4 years means that in 3 halvings (8-12 years), miners will spend roughly the same on electricity at $1M/BTC as they do now at $125k/BTC.
Further, at historical rates of dollar devaluation, in a decade $1M will only be worth ~$500k today, and so really only roughly two halvings are required to even the electricity use between $125k/BTC and $1M/BTC
Competing for it is more of a game that has a cost to participate in.
Bitcoin's supply won't increase as costs go down, unlike other assets.
Um. That's a causative relationship, even if it's mediated, but it's still causative. And generally, the relationship is even more direct: the suppliers are quite reluctant to sell at the price lower than their costs unless they expect the prices go up soon enough™, so the lower boundaries for the prices exist.
As price per coin goes up, more folks will find mining profitable and invest in mining operations. Difficulty goes up until it's no longer attractive for anyone to add to the global hash rate.
As price per coin goes down, less of those operations are profitable and fewer new people will find it to be a good investment. Difficulty stays the same or goes down. Due to capital expenses, difficulty is more sticky in the downward direction than upwards.
There is of course some marginal price action in between where there is in theory selling pressure from miners when it's less profitable to mine (to fund operational expenses and debt), but I don't think it's super material to the overall market volume these days.
Which in normal times, are something taken for granted, but once it does happen, the edge case collapse the entire system.
edit: the earlier language is not exact, the scenario is an exponential drop of value that results in exponential drop in miner willing to mine until this discrepancy can be resolved. i.e. the system is not protected against extreme volatility (e.g. -99% over a block cycle)
The problem with BTC going down is that it's a double whammy of not only BTC going down but also the cost of its shovels going up
Before: BTC pays $100k but a shovel costs $300
Now: BTC pays $70k but a shovel costs $$??
Bitcoin asked the right questions but came back with the wrong answers
Especially since the "sell shovels during a gold rush" has been used to apply to nVidia
What does this mean, sorry?
> the edge case collapse the entire system.
If you mean that if it reaches a certain point, the entire system will collapse, it means you don't understand the difficulty adjustment. If it's too expensive to mine, then some miners leave, which makes blocktimes be longer, but not to worry because the consequence of that it just that difficulty will go down, which means that you need less hashrate to mine (and maybe some of those miners that leave will come back because it is profitable again for them). This means that it is essentially impossible for all miners to leave at the same time; some of them stay even if at a loss, and some of them are just hobbyists that can already feed their miners with solar power (so there's really no loss for them in leaving them connected).
In practice it’s not much of an issue because bitcoin is not use for commerce but it’s a store of value and it some of the trades are not even on chain.
Which is when exactly, and how likely is that to happen? It hasn't happened yet in ~14 years, but I guess "never say never". There is a lot of money saying it won't happen very soon though.
Those are now being driven by massive AI demand and are likely to remain so for the forseeable future. So how would costs go down?
The goal in proof of work is to find a block hash less than a given value. That value is determined by the network difficulty. The lower the value, the more difficult it is to find a block, and thus the more expensive it will be to mine.
Difficulty is adjusted once every two weeks to target an average block time of 10 minutes. If the average block time during the preceding 2 weeks is less than 10 minutes, it means that blocks were too easy to find (i.e. the difficulty was too low relative to total hash rate of the network). Conversely, if the average block time was greater than 10 minutes, the difficulty was too great.
This is how it the network has maintained a roughly 10 minute block time as the hash rate of the network has grown over the past 16 years. The difficulty (i.e. cost) of finding a block is constantly being adjusted.
(Obviously the equipment doesn't go away. You can start it again. But if you can't make a buck doing something, you won't do it.)
I probably should look this up in wikipedia first.
> Miners who successfully create a new block with a valid nonce can collect transaction fees from the included transactions and a fixed reward in bitcoins. To claim this reward, a special transaction called a coinbase is included in the block, with the miner as the payee. All bitcoins in existence have been created through this type of transaction. This reward is halved every 210,000 blocks until ₿21 million have been issued in total, which is expected to occur around the year 2140. Afterward, miners will only earn from transaction fees.
https://en.wikipedia.org/wiki/Bitcoin (emphasis mine)
Block reward stays constant, amount of work required (on average) to get a block reward is dynamic in order to make it so that total number of rewards given out over a length of time stays roughly constant.
So if too many block rewards are claimed in a given time frame, difficulty is increased to slow things down. If not enough are claimed then difficulty decreases to make it easier to get one.
> The power needed to get a given amount of money doubles whenever the reward is halved.
Yes, by that moment it does.
And some miners still stop mining if mining became too unprofitable.
And the difficulty will decrease because less miners are mining.
And the power needed to get a given amount of bitcoin will decrease. (Not necessarily to the level before halving, ofc)
Or your comment was about this part of the grandparent comment:
> keep minting at the predetermined rate
?
If so, I think you misunderstood what they were trying to say (or their wording was misleading). It's a predetermined rate. Not a constant rate. It's predetermined to be halved at (roughly) certain moments. Halving happens about every four years, and pouring more power into mining won't make it happen significantly sooner or later. That's what they were trying to say.
Burning $88k of carbon to run the world’s slowest payment network and produce a tiny corpus of data is stratospherically dumb.
The technological equivalent of raising a forest to produce a toothpick.
Just because “it works” (which is arguable in itself) doesn’t mean it isn’t stupid.
If you don’t have busts, at some point your system will abruptly/violently cease to exist.
Based on bitcoin cryptobros, you need a certain amount of independent miners for the 'quality' of bitcoins. A bitcoin miner if its a state, can operate with a loss a lot longer if not even infinit, than the decentralized normal people (who do not exist anyway).
It also creates a lot of pressure on miners if you do not run your gpus, yuou are also at a loss, which can break the mining for everyone if too many in parallel go offline, than go olnine again because difficulty droped to much.
And if it becomes to volatile, no one wants to risk it anymore
Bitcoin hasn't been viably mineable on GPUs for over ten years. It requires specialized hardware.
As such, mining is typically restricted to those with massive capital investment in a single-purpose, so you really won't see random offloading and onloading of that capacity. As long as it's marginally profitable (with capital investment being a sunk cost, this is the price where it's more than ongoing costs), those miners will keep their machines running.
Monero is the only cryptocurrency today that's at least trying to implement the original "one CPU, one vote" vision but nobody really cares about it since number doesn't go up.
I follow Bitcoin from a theoretical point of view and I find it fascinating.
Something that boggles my mind a lot is this: Bitcoin, which is somehow a bit "programmable", and Ethereum (which is definitely programmable) are basically the most correct computers on earth. Due to the consensus that needs to be reached by thousands+ of machines. Even if they're imperfect, ECC-less (for the most part), machines.
Now they may still run code with flaws: but they'll all run it exactly in the same way. If, say, a bit-flip occurs on a machine, that machine won't create a block or won't sign a transaction accepted by others. Not part of the consensus. That is wild.
Then the other thing which boggles my mind and which relates to your comment: the "selling pressure on the market" by Bitcoin miners is, no matter what they do, halved every four years. There were, 8 years ago, still 1800 Bitcoins mined per day. Today it's 450.
And in two years (we're midway before the next halving), it's going to be 225.
And Satoshi Nakamoto planned, from the very start.
Maybe it doesn't make sense (economically or from a security point of view: who's going to secure the network when there's not enough block reward anymore?).
But miners will mine 225 Bitcoins per day, not 450, in two years.
And that is totally fascinating.
I find it horrible: The damage done to the planet doesn't correlate with the number of transactions. It's maximizing uselessness.