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This blog post does a great job explaining some of the economics behind mining and why it is not wasteful, in the context of showing proof-of-stake is nonsensic

by nadaviv 10y ago

This blog post does a great job explaining some of the economics behind mining and why it is not wasteful, in the context of showing proof-of-stake is nonsensical: "Long Live Proof-of-Work, Long Live Mining" http://www.truthcoin.info/blog/pow-and-mining/ http://www.truthcoin.info/blog/pow-and-mining/ And the follow-up post: "Nothing is Cheaper than Proof of Work" http://www.truthcoin.info/blog/pow-cheapest/ http://www.truthcoin.info/blog/pow-cheapest/ Both are highly recommended read, but a quick TL;DR: if you're going to incentivize the security to of your network with $X of rewards, then up to (and probably very near to) $X would be necessarily "wasted" to obtain that reward. And these incentives and security model are not "waste" in any way - they're the entire premise behind blockchain systems! edit: removed quotes from truthcoin.info, added tl;dr

pfraze 10y ago
Explain this for me, because I don't feel Truthcoin's argument holds: Truthcoin claims that any money system will cause the exact same resource expenditure, no matter what method you use. That resource cost is equal to the value of the coin. According to the argument, Proof-of-Work is merely the most direct and obvious expenditure of the resource cost. That may be a fine argument against Proof-of-Stake; I'm not conversant enough with PoS to say. But how does that argument hold compared to the cost of traditional banking? Truthcoin seems to explain away traditional banking by saying it incurs rent, and "rent is incompatible with p2p currency." Do I have that right? Even if the "rent" charged by a traditional bank was equal to the dollar-cost of PoW, the resource-expenditure will not be nearly as high. In PoW, the participants are burning fuel to reach the cost (expending resources). In traditional banking, the fee of the trade is what creates the cost. The actual question is, whether the traditional banking infrastructure burns through the same amount of resources as PoW does. Does it? For that matter, while it's a clean economic argument to say that participants will spend up-to-the-value-of BtC to mine it, that's not a correct measurement of the resource-cost of BtC, because many different parties are mining in competition. Therefore, isn't it more accurate to say that the resource-cost expended is up-to-the-value-of BtC for each participant?
- rspeer 10y ago
  > Therefore, isn't it more accurate to say that the resource-cost expended is up-to-the-value-of BtC for each participant? That's the same. Each participant is getting bitcoins. Otherwise they wouldn't be mining. But other than that, I agree with you that Truthcoin's argument is incredibly contorted. They're considering the fact that some people can profit from financial services to be as "wasteful" as spending actual fuel.
  - pfraze 10y ago
    I'm unsure whether the cost of resource expenditure really tracks that closely with the BtC value. Let's just assume BtC trade value against USD stays stable forever. For the BTC-value to equal the value of mined resources, If a BtC is worth $100 at time of mining, then the entire network would only be allowed to spend $100 trying to mine it. Let's say there's only 100 miners right now. If they all had equal mining power, then they'd mine a coin 1/100th of the time, and be incentivized to spend only $1 each per coin. Then this premise would hold. The problem is, each miner can increase its odds by increasing the resources spent. So, everybody is incentivized to drive their expenditure higher than $1. Any time a miner makes a short term gamble, or finds a way to externalize their resource cost, they'll spend more than $1, and win. For that matter, would a miner have enough information to know that $1 is the correct upper bound? Not only does that require a perfect measure of the entire network's computing power, it assumes BtC is value-stable. The fact that BtC keeps gaining value against the dollar means that miners ought to be speculating their gamble against a potential future value.
SamBam 10y ago
That seems to assume a perfectly-efficient currency, one whose value is always directly proportional to the work invested. But there's no evidence that BitCoin actually works that way. I have no guarantee that I would spend the same cost to mine one Big Mac's-worth of BC as I would to buy a Big Mac, because the price fluctuates wildly due to all sorts of other factors such as hoarding, worries about forking, etc etc.

by nadaviv 10y ago

pfraze 10y ago

Explain this for me, because I don't feel Truthcoin's argument holds: Truthcoin claims that any money system will cause the exact same resource expenditure, no matter what method you use. That resource cost is equal to the value of the coin. According to the argument, Proof-of-Work is merely the most direct and obvious expenditure of the resource cost. That may be a fine argument against Proof-of-Stake; I'm not conversant enough with PoS to say. But how does that argument hold compared to the cost of traditional banking? Truthcoin seems to explain away traditional banking by saying it incurs rent, and "rent is incompatible with p2p currency." Do I have that right? Even if the "rent" charged by a traditional bank was equal to the dollar-cost of PoW, the resource-expenditure will not be nearly as high. In PoW, the participants are burning fuel to reach the cost (expending resources). In traditional banking, the fee of the trade is what creates the cost. The actual question is, whether the traditional banking infrastructure burns through the same amount of resources as PoW does. Does it? For that matter, while it's a clean economic argument to say that participants will spend up-to-the-value-of BtC to mine it, that's not a correct measurement of the resource-cost of BtC, because many different parties are mining in competition. Therefore, isn't it more accurate to say that the resource-cost expended is up-to-the-value-of BtC for each participant?

rspeer 10y ago
> Therefore, isn't it more accurate to say that the resource-cost expended is up-to-the-value-of BtC for each participant? That's the same. Each participant is getting bitcoins. Otherwise they wouldn't be mining. But other than that, I agree with you that Truthcoin's argument is incredibly contorted. They're considering the fact that some people can profit from financial services to be as "wasteful" as spending actual fuel.
- pfraze 10y ago
  I'm unsure whether the cost of resource expenditure really tracks that closely with the BtC value. Let's just assume BtC trade value against USD stays stable forever. For the BTC-value to equal the value of mined resources, If a BtC is worth $100 at time of mining, then the entire network would only be allowed to spend $100 trying to mine it. Let's say there's only 100 miners right now. If they all had equal mining power, then they'd mine a coin 1/100th of the time, and be incentivized to spend only $1 each per coin. Then this premise would hold. The problem is, each miner can increase its odds by increasing the resources spent. So, everybody is incentivized to drive their expenditure higher than $1. Any time a miner makes a short term gamble, or finds a way to externalize their resource cost, they'll spend more than $1, and win. For that matter, would a miner have enough information to know that $1 is the correct upper bound? Not only does that require a perfect measure of the entire network's computing power, it assumes BtC is value-stable. The fact that BtC keeps gaining value against the dollar means that miners ought to be speculating their gamble against a potential future value.

SamBam 10y ago

That seems to assume a perfectly-efficient currency, one whose value is always directly proportional to the work invested. But there's no evidence that BitCoin actually works that way. I have no guarantee that I would spend the same cost to mine one Big Mac's-worth of BC as I would to buy a Big Mac, because the price fluctuates wildly due to all sorts of other factors such as hoarding, worries about forking, etc etc.