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As a cryptocurrency-confused individual, I read articles like this and wonder how I'm supposed to assign any meaning to the "value" being created here, and by b

As a cryptocurrency-confused individual, I read articles like this and wonder how I'm supposed to assign any meaning to the "value" being created here, and by blockchain PoW in general. So this company is buying a bunch of wafers... He's converting the value of the wafers into value on blockchain, I guess? Because I can't help but interpret these things as "some people are wasting a lot of electricity, and you should pay them for it!" But, I'm open to a better explanation.

izuchukwu 9y ago
Perhaps it might help to consider it equivalent to one converting the value of picks and buckets into value in gold. Just as the picks and buckets are worth what they’re worth, the gold is worth what someone else is willing to pay.
- greghatch 9y ago
  This analogy is great, thanks.
gambiting 9y ago
Why are banknotes worth anything? They are just pieces of paper with some ink on them, after all. They are "worth" something, because people are willing to do work or trade you stuff for them. The same with mining bitcoin - instead of printing banknotes, you make a "thing" that you can then trade for services and objects, because people want to have that "thing"(this part is crucial). Most importantly, people are willing to trade that "thing" for real actual dollars, and hence the mining craze.
- amalag 9y ago
  Do you see people printing banknotes out of feathers or some other randomly expensive material? No, and similarly mining bitcoin is some randomly expensive process. The process of securing a "coin" can be done very cheaply with minimal computing cost and the world will shift to that.
  - gambiting 9y ago
    The issue is not that the process has to be expensive. You are correct - we could generate billions of crypto coins within couple hours and beat bitcoin right away. But people want bitcoin. The same why people are willing to pay the price for a labour-intensive painting that took years to make over an identical reproduction that took 5 minutes to print.
    - amalag 9y ago
      This is now shifting the goalposts. Before it was PoW is necessary to secure the network. Now it is we don't need PoW but it is artisanal.
- Ologn 9y ago
  > Why are banknotes worth anything? Until 1971 dollars were worth something because they could be converted into one of the thousands of tons of gold bars the US stores at Fort Knox (and elsewhere). Then a magic wand was waved over the printing presses at the US Treasury and they began to attain value for no reason. This magic has now spread to Bitcoin, Ethereum, and even cryptocoins like Dogecoin, whose creator has stated that the coin was created as a joke. If the dollar never needed gold convertibility, why did they ever have convertibility in the first place? Why does the government spend a lot of money to store thousands of tons of unneeded gold at Fort Knox etc.? There is a magic to the dollar - because if a panic ever causes its power to wane too much, Trump only has to utter six magical words to let it regain its power - "the convertibility window is open again". How many thousands of tons of gold, governments, armies etc. stand behind Bitcoin?
  - bigiain 9y ago
    So there's apparently 1.65 billion US dollars in unnamed bank accounts behind Tether... Cough - yeah, right...
  - stephen_g 9y ago
    Convertibility has always been based on a fundamental misunderstanding of money, and always fails because it's a flawed concept (and requires fixed exchange rates, which is always a bad idea). Money has always been based more on representing debt than actually having intrinsic value (that misunderstanding comes from the barter myth, that pre-money economies had markets that used barder, which there is little anthropological evidence for - see Debt: The First 5000 Years for a pretty good overview). As for now, the US dollar has a baseline demand because all business and income in the US requires taxes to be paid to the Government in US dollars, and all spending by the Government happens in dollars. The rest of the domestic economy emerges out of that, just as market economies always have. The value of the dollar is effectively ultimately 'backed' by the goods and services produced by the US economy. Herein lies the problem with convertibility - why would we expect that the amount of gold the Fed corresponds to the size of the economy? It won't, so the value will always diverge and hence how the system failed (more than once).
- hjrnunes 9y ago
  The reason banknotes are worth anything is because you need them to pay taxes and fees to your/a sovereign. They literally entitle you to pay the corresponding amount of taxes and/or fees (e.g. for market transactions) to the sovereign, which you cannot pay otherwise. Hence why they are not mere pieces of paper with ink anymore a stock share or bond is: they're titles - the value is in what they entitle you to, not the physical substract they're on. Bitcoin doesn't entitle you to anything other than creating a new ledger entry in the distributed ledger book that is the blockchain. Except unlike most ledger books, the Bitcoin blockchain does not record transfers of actual property between parties - it records the transfer of abstract numbers (which cannot be property in and of themselves).
quickthrower2 9y ago
> "some people are wasting a lot of electricity, and you should pay them for it!" Hard question to answer. Is it a waste? Compared to having one centralised miner plodding along at zero difficulty, yes. But it depends what new tech/ideas comes out of all this blockchain stuff. Are particle accelerators a waste?
- chris_wot 9y ago
  Particle accelerators have a direct benefit. Miners, IMHO, do not provide direct benefits, only indirect ones.
  - quickthrower2 9y ago
    True, I wasn't making the direct/indirect distinction. Maybe I should have, as I got whipped.
amalag 9y ago
PoW will go away. Noone will entrust their wealth to miners. There are plenty of other ways to achieve consensus and coins are moving away from PoW. But we are still not done with the Bitcoin bubble.
- KaoruAoiShiho 9y ago
  I have a feeling PoS will not be seen as credible as PoW.
  - amalag 9y ago
    There are still more consensus algorithms that PoS and PoW.
peterjlee 9y ago
Anything can have "value" if someone is willing to pay for it. The US dollar is just a piece of paper if nobody is willing to exchange anything for it. Cryptocurrency has value because some speculator is willing to pay for it because they think it'll be worth more in the future.
- qeternity 9y ago
  Price != Value "Price is what you pay, value is what you get." Warren Buffett
  - monob 9y ago
    You have use value and exchange value. Exchange value is most often price, but it is in reality the vector of the equivalent amount of goods and services you will receive for a unit of some good or service. The point of money is that it collapses all exchange values to two vectors, one for selling to money, one for buying with money. The downside of money is that it hides many very obvious relationships. In a topical case, that the cost of video cards has essentially stayed constant when expressed as etherium units. tl;dr: money lets you calculate prices as n, exchange values needs n^2.
21 9y ago
This is definitely creating value for TSMC shareholders, and for it's country (taxes).
kjullien 9y ago
A blockchain is a history of every transaction ever made on it. To make sure it is accurate (PoW) cryptos use hashing power (they solve equations basically). This is where "mining rigs" come into play but are only a small part of a broader ecosystem :) They don't really "bring" value in (nothing really does actually), that's entirely up to what the consumer is willing to pay for it (what HE values it at) EDIT: sorry about the cryptos=cryptocurrencies thing :S

izuchukwu 9y ago

Perhaps it might help to consider it equivalent to one converting the value of picks and buckets into value in gold. Just as the picks and buckets are worth what they’re worth, the gold is worth what someone else is willing to pay.

greghatch 9y ago
This analogy is great, thanks.

gambiting 9y ago

Why are banknotes worth anything? They are just pieces of paper with some ink on them, after all. They are "worth" something, because people are willing to do work or trade you stuff for them. The same with mining bitcoin - instead of printing banknotes, you make a "thing" that you can then trade for services and objects, because people want to have that "thing"(this part is crucial). Most importantly, people are willing to trade that "thing" for real actual dollars, and hence the mining craze.

amalag 9y ago
Do you see people printing banknotes out of feathers or some other randomly expensive material? No, and similarly mining bitcoin is some randomly expensive process. The process of securing a "coin" can be done very cheaply with minimal computing cost and the world will shift to that.
- gambiting 9y ago
  The issue is not that the process has to be expensive. You are correct - we could generate billions of crypto coins within couple hours and beat bitcoin right away. But people want bitcoin. The same why people are willing to pay the price for a labour-intensive painting that took years to make over an identical reproduction that took 5 minutes to print.
  - amalag 9y ago
    This is now shifting the goalposts. Before it was PoW is necessary to secure the network. Now it is we don't need PoW but it is artisanal.
Ologn 9y ago
> Why are banknotes worth anything? Until 1971 dollars were worth something because they could be converted into one of the thousands of tons of gold bars the US stores at Fort Knox (and elsewhere). Then a magic wand was waved over the printing presses at the US Treasury and they began to attain value for no reason. This magic has now spread to Bitcoin, Ethereum, and even cryptocoins like Dogecoin, whose creator has stated that the coin was created as a joke. If the dollar never needed gold convertibility, why did they ever have convertibility in the first place? Why does the government spend a lot of money to store thousands of tons of unneeded gold at Fort Knox etc.? There is a magic to the dollar - because if a panic ever causes its power to wane too much, Trump only has to utter six magical words to let it regain its power - "the convertibility window is open again". How many thousands of tons of gold, governments, armies etc. stand behind Bitcoin?
- bigiain 9y ago
  So there's apparently 1.65 billion US dollars in unnamed bank accounts behind Tether... Cough - yeah, right...
- stephen_g 9y ago
  Convertibility has always been based on a fundamental misunderstanding of money, and always fails because it's a flawed concept (and requires fixed exchange rates, which is always a bad idea). Money has always been based more on representing debt than actually having intrinsic value (that misunderstanding comes from the barter myth, that pre-money economies had markets that used barder, which there is little anthropological evidence for - see Debt: The First 5000 Years for a pretty good overview). As for now, the US dollar has a baseline demand because all business and income in the US requires taxes to be paid to the Government in US dollars, and all spending by the Government happens in dollars. The rest of the domestic economy emerges out of that, just as market economies always have. The value of the dollar is effectively ultimately 'backed' by the goods and services produced by the US economy. Herein lies the problem with convertibility - why would we expect that the amount of gold the Fed corresponds to the size of the economy? It won't, so the value will always diverge and hence how the system failed (more than once).
hjrnunes 9y ago
The reason banknotes are worth anything is because you need them to pay taxes and fees to your/a sovereign. They literally entitle you to pay the corresponding amount of taxes and/or fees (e.g. for market transactions) to the sovereign, which you cannot pay otherwise. Hence why they are not mere pieces of paper with ink anymore a stock share or bond is: they're titles - the value is in what they entitle you to, not the physical substract they're on. Bitcoin doesn't entitle you to anything other than creating a new ledger entry in the distributed ledger book that is the blockchain. Except unlike most ledger books, the Bitcoin blockchain does not record transfers of actual property between parties - it records the transfer of abstract numbers (which cannot be property in and of themselves).

quickthrower2 9y ago

> "some people are wasting a lot of electricity, and you should pay them for it!" Hard question to answer. Is it a waste? Compared to having one centralised miner plodding along at zero difficulty, yes. But it depends what new tech/ideas comes out of all this blockchain stuff. Are particle accelerators a waste?

chris_wot 9y ago
Particle accelerators have a direct benefit. Miners, IMHO, do not provide direct benefits, only indirect ones.
- quickthrower2 9y ago
  True, I wasn't making the direct/indirect distinction. Maybe I should have, as I got whipped.

amalag 9y ago

PoW will go away. Noone will entrust their wealth to miners. There are plenty of other ways to achieve consensus and coins are moving away from PoW. But we are still not done with the Bitcoin bubble.

KaoruAoiShiho 9y ago
I have a feeling PoS will not be seen as credible as PoW.
- amalag 9y ago
  There are still more consensus algorithms that PoS and PoW.

peterjlee 9y ago

Anything can have "value" if someone is willing to pay for it. The US dollar is just a piece of paper if nobody is willing to exchange anything for it. Cryptocurrency has value because some speculator is willing to pay for it because they think it'll be worth more in the future.

qeternity 9y ago
Price != Value "Price is what you pay, value is what you get." Warren Buffett
- monob 9y ago
  You have use value and exchange value. Exchange value is most often price, but it is in reality the vector of the equivalent amount of goods and services you will receive for a unit of some good or service. The point of money is that it collapses all exchange values to two vectors, one for selling to money, one for buying with money. The downside of money is that it hides many very obvious relationships. In a topical case, that the cost of video cards has essentially stayed constant when expressed as etherium units. tl;dr: money lets you calculate prices as n, exchange values needs n^2.

21 9y ago

This is definitely creating value for TSMC shareholders, and for it's country (taxes).

kjullien 9y ago

A blockchain is a history of every transaction ever made on it. To make sure it is accurate (PoW) cryptos use hashing power (they solve equations basically). This is where "mining rigs" come into play but are only a small part of a broader ecosystem :) They don't really "bring" value in (nothing really does actually), that's entirely up to what the consumer is willing to pay for it (what HE values it at) EDIT: sorry about the cryptos=cryptocurrencies thing :S