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> The bitcoin mining industry will end once the electricity (and hardware) becomes more expensive than the value of mined bitcoins You do not understand minin

by VMG 9y ago

> The bitcoin mining industry will end once the electricity (and hardware) becomes more expensive than the value of mined bitcoins You do not understand mining difficulty adjustment

beat 9y ago
Apparently not. Care to enlighten me? Because seriously, .1% of global electricity consumption, if that number is accurate, is expensive. Are we going to go up from there, or down, and how does it relate to a long-term stable bitcoin exchange rate, relative to mainstream reserve currencies? If we're in a speculative bubble (we are), it justifies the mining. But bitcoin will never, ever be a viable global currency if it's deflating 500% a year, like it is right now. Mainstream reserve currencies are designed and carefully regulated to inflate at 1-4% or so, slowly losing value - inflation encourages investment, because sitting on cash hurts. What could someone invest their bitcoins in that could justify giving up the possibility of a 500% annual return just for the techno-equivalent of stuffing them in a mattress? Bitcoin mining, apparently. See where I'm going with this? Investing outrageous sums in bitcoin mining makes sense when it's a massive deflationary bubble. It makes almost no sense at all when it's slowly inflating like a grownup currency does.
- ianai 9y ago
  There’s not a currency out there that costs .12% of co2 to print. Pretty sure the former currency backers (gold, silver) don’t either. That factor alone is reason enough to not use it.
  - Anderkent 9y ago
    You must also consider the cost of storing, moving and exchanging, and guaranteeing the currency. Printing on its own is useless. How many mainframes keep track of money at banks? How much paper is used for ledgers? What % of internet traffic is about moving money? How many vans of cash move through cities to fill ATMs?
    - beat 9y ago
      Some years ago, I worked at the Federal Reserve, on a system that moved $100B (billion!) a DAY, on a pretty reasonable server farm. Yes, there's a fair bit of energy committed to the existing financial system, but it's moving far, far more actual value with many orders of magnitude more actual exchanges than bitcoin is going.
      - VMG 9y ago
        The Federal Reserve is doing something completely different than Bitcoin is doing.
        beat 9y ago
        Yeah. It's providing a useful, widely accepted, and stable currency. But I'm addressing the argument that the energy consumption for bitcoin mining and the energy consumption of the mainstream financial system is directly comparable (they're not).
- Anderkent 9y ago
  > Apparently not. Care to enlighten me? Because seriously, .1% of global electricity consumption, if that number is accurate, is expensive. Are we going to go up from there, or down, and how does it relate to a long-term stable bitcoin exchange rate, relative to mainstream reserve currencies? The electricity cost of mining bitcoin is directly related to the transaction fees, once all bitcoins are mined. This is because if mining is very profitable (transaction fees >> electricity cost), more people are incentivised to mine, thus raising the hash rate and difficulty, thus making mining more expensive. If mining is very unprofitable (transaction fees << electricity cost), people turn off their machines, hashpower and electricity cost drop, and mining becomes easier. Thus if successful BTC has ~300k on-chain transactions a day, transaction pays average $1 in transaction fees, you expect ~$300k of electricity to be used a day. -- No one expects BTC to keep deflating 500% once it reaches saturation. Currently all of BTC value is speculative - based on the 0.1% change it'll become successful and be worth $MOON, against the 99.9% change it'll fail and be worth 0. In the end-game scenario where it's an established global exchange network, with all the coins available already mined, it's only as deflationary as other currencies are inflationary. The 'inflation causes investment' theory only applies to investment that has expected return of 1-2%; given that the stock market return is estimated at ~7%, and yet people still hold cash, it seems hard to believe that inflation has significant impact on investment.
  - beat 9y ago
    Holding cash is part of the risk/return/liquidity triangle. All investment functions against this triangle - cash is extremely low risk, and maximally liquid, at the cost of a slight negative return. (Contrast this to, say, angel investment, which has near-maximum potential returns, but very high risk and near-zero liquidity.) And contrast the low risk / high liquidity / near zero return behavior of cash with bitcoin. With bitcoin, you have very high risk (speculative bubble) / limited liquidity (can't be used for most transactions, must exchange) / absurdly high returns. It is in no way like cash. It's pure speculation. A medium of exchange needs to behave like cash. It needs to be highly stable and highly liquid. Bitcoin is neither. So if the intent of bitcoin is to replace cash (and cash-equivalents like credit cards), it's doing an absolutely shitty job of it, and will continue to do so until the price stabilizes. As for inflation's impact on investment... read the WSJ or Forbes regularly for what the mainstream financial industry thinks about that. They're absolutely inflation-phobic. I'm old enough to remember late-1970s stagflation, which made basic investments like real estate totally absurd and nearly wrecked the economy. No one wants to go back to that. But if there's one thing worse than high inflation, it's deflation - when cash actually increases in value. It radically disincentivizes investment, when you can just stuff cash in a mattress and make a real return doing so. Why take a risk if you can make money without it?
- ufo 9y ago
  If mining becomes unprofitable, miners will stop mining and the total network hashrate will go down. The protocol will adjust by making mining easier, until it balances out at one block being mined every 10 min. In a competitive market we should expect that mining costs (energy consumption) would converge to the mining reward, which is currently at 12.5 bitcoin per block. (I don't know how competitive mining really is at this moment though) Of course, it is important to remember that if the mining difficulty becomes too low it gets cheaper to launch a 51% attack on the network.
  - beat 9y ago
    That's a tragedy of the commons problem. No one is incentivized to mine less. The price then sets itself against the cost of hardware arms racing and electricity.
- VMG 9y ago
  If Bitcoin becomes too expensive to mine, the difficulty adjusts downward until it becomes cheap enough again. https://en.bitcoin.it/wiki/Difficulty https://en.bitcoin.it/wiki/Difficulty You are correct that people have a higher incentive to obtain Bitcoin than to spend it. It doesn't follow that there is no incentive to obtain it.

by VMG 9y ago

> The bitcoin mining industry will end once the electricity (and hardware) becomes more expensive than the value of mined bitcoins You do not understand mining difficulty adjustment

beat 9y ago

Apparently not. Care to enlighten me? Because seriously, .1% of global electricity consumption, if that number is accurate, is expensive. Are we going to go up from there, or down, and how does it relate to a long-term stable bitcoin exchange rate, relative to mainstream reserve currencies? If we're in a speculative bubble (we are), it justifies the mining. But bitcoin will never, ever be a viable global currency if it's deflating 500% a year, like it is right now. Mainstream reserve currencies are designed and carefully regulated to inflate at 1-4% or so, slowly losing value - inflation encourages investment, because sitting on cash hurts. What could someone invest their bitcoins in that could justify giving up the possibility of a 500% annual return just for the techno-equivalent of stuffing them in a mattress? Bitcoin mining, apparently. See where I'm going with this? Investing outrageous sums in bitcoin mining makes sense when it's a massive deflationary bubble. It makes almost no sense at all when it's slowly inflating like a grownup currency does.

ianai 9y ago
There’s not a currency out there that costs .12% of co2 to print. Pretty sure the former currency backers (gold, silver) don’t either. That factor alone is reason enough to not use it.
- Anderkent 9y ago
  You must also consider the cost of storing, moving and exchanging, and guaranteeing the currency. Printing on its own is useless. How many mainframes keep track of money at banks? How much paper is used for ledgers? What % of internet traffic is about moving money? How many vans of cash move through cities to fill ATMs?
  - beat 9y ago
    Some years ago, I worked at the Federal Reserve, on a system that moved $100B (billion!) a DAY, on a pretty reasonable server farm. Yes, there's a fair bit of energy committed to the existing financial system, but it's moving far, far more actual value with many orders of magnitude more actual exchanges than bitcoin is going.
    - VMG 9y ago
      The Federal Reserve is doing something completely different than Bitcoin is doing.
      - beat 9y ago
        Yeah. It's providing a useful, widely accepted, and stable currency. But I'm addressing the argument that the energy consumption for bitcoin mining and the energy consumption of the mainstream financial system is directly comparable (they're not).
Anderkent 9y ago
> Apparently not. Care to enlighten me? Because seriously, .1% of global electricity consumption, if that number is accurate, is expensive. Are we going to go up from there, or down, and how does it relate to a long-term stable bitcoin exchange rate, relative to mainstream reserve currencies? The electricity cost of mining bitcoin is directly related to the transaction fees, once all bitcoins are mined. This is because if mining is very profitable (transaction fees >> electricity cost), more people are incentivised to mine, thus raising the hash rate and difficulty, thus making mining more expensive. If mining is very unprofitable (transaction fees << electricity cost), people turn off their machines, hashpower and electricity cost drop, and mining becomes easier. Thus if successful BTC has ~300k on-chain transactions a day, transaction pays average $1 in transaction fees, you expect ~$300k of electricity to be used a day. -- No one expects BTC to keep deflating 500% once it reaches saturation. Currently all of BTC value is speculative - based on the 0.1% change it'll become successful and be worth $MOON, against the 99.9% change it'll fail and be worth 0. In the end-game scenario where it's an established global exchange network, with all the coins available already mined, it's only as deflationary as other currencies are inflationary. The 'inflation causes investment' theory only applies to investment that has expected return of 1-2%; given that the stock market return is estimated at ~7%, and yet people still hold cash, it seems hard to believe that inflation has significant impact on investment.
- beat 9y ago
  Holding cash is part of the risk/return/liquidity triangle. All investment functions against this triangle - cash is extremely low risk, and maximally liquid, at the cost of a slight negative return. (Contrast this to, say, angel investment, which has near-maximum potential returns, but very high risk and near-zero liquidity.) And contrast the low risk / high liquidity / near zero return behavior of cash with bitcoin. With bitcoin, you have very high risk (speculative bubble) / limited liquidity (can't be used for most transactions, must exchange) / absurdly high returns. It is in no way like cash. It's pure speculation. A medium of exchange needs to behave like cash. It needs to be highly stable and highly liquid. Bitcoin is neither. So if the intent of bitcoin is to replace cash (and cash-equivalents like credit cards), it's doing an absolutely shitty job of it, and will continue to do so until the price stabilizes. As for inflation's impact on investment... read the WSJ or Forbes regularly for what the mainstream financial industry thinks about that. They're absolutely inflation-phobic. I'm old enough to remember late-1970s stagflation, which made basic investments like real estate totally absurd and nearly wrecked the economy. No one wants to go back to that. But if there's one thing worse than high inflation, it's deflation - when cash actually increases in value. It radically disincentivizes investment, when you can just stuff cash in a mattress and make a real return doing so. Why take a risk if you can make money without it?
ufo 9y ago
If mining becomes unprofitable, miners will stop mining and the total network hashrate will go down. The protocol will adjust by making mining easier, until it balances out at one block being mined every 10 min. In a competitive market we should expect that mining costs (energy consumption) would converge to the mining reward, which is currently at 12.5 bitcoin per block. (I don't know how competitive mining really is at this moment though) Of course, it is important to remember that if the mining difficulty becomes too low it gets cheaper to launch a 51% attack on the network.
- beat 9y ago
  That's a tragedy of the commons problem. No one is incentivized to mine less. The price then sets itself against the cost of hardware arms racing and electricity.
VMG 9y ago
If Bitcoin becomes too expensive to mine, the difficulty adjusts downward until it becomes cheap enough again. https://en.bitcoin.it/wiki/Difficulty https://en.bitcoin.it/wiki/Difficulty You are correct that people have a higher incentive to obtain Bitcoin than to spend it. It doesn't follow that there is no incentive to obtain it.