5 ms·

Nations and corporations already compete at finding means of cheap or sustainable energy production. How does Bitcoin provide an efficiency here? Furthermore,

by hudon 8y ago

Nations and corporations already compete at finding means of cheap or sustainable energy production. How does Bitcoin provide an efficiency here? Furthermore, if we can't find a stable use case for the blockchain and there are no more greater fools investing--the bubble collapses and all the ASICs end up in landfills--does society suddenly stop innovating in energy production? Can you point me to any good literature on this? I don't understand the point.

hndamien 8y ago
I'm not saying anything about finding cheap electricity. And the greater fool theory isn't true as you could apply this theory to fiat money as well (except it is more foolish since new money is constantly created without the consent of the holders). The point is that the free market and algorithm finds an efficient equilibrium between what the users value it at (which is a reflection of its utility to them), what it costs to secure the network in relation to the reward paid for it. In these costs are electricity costs, for which miners will find the most efficient means such that they are profitable. The energy prices are determined by the economic actors producing it. The will charge what the market will bear such that they are profitable and competitive. All this is a wonderfully efficient system except for the fact that the externality you are worried about (pollution from energy production) is not accounted for anywhere in the system. In fact, it is almost incentivised, since it is likely that I can produce dirty power cheaper than I can clean power (although this is changing). If you did account for this, dirty power would become more expensive, miner using it would disappear or choose clean energy. Hence, the problem is not "It uses too much energy! So wasteful!!!!" The problem is "We don't account for externalities!!!! So bad!!!"
- hudon 8y ago
  Actually, recent research found that even when considering externalities, proof-of-work is considered wasteful: "Another issue relates to the negative externalities arising in proof-of-work blockchains. First, as shown above, when choosing individually optimal computing capacity, miners fail to internalise the negative externality their investment generates for other miners by increasing difficulty. This implies that equilibrium capacity acquisition in proof-of-work mining is excessive. Second, proof-of-work mining generates greenhouse-effect negative externalities, whose order of magnitude is significant. As of January 2018, the electricity consumed for Bitcoin mining was equal to the electricity consumption of over 3,400,000 US households, with an average consumption per transaction of around 300 KWh. Pigovian taxation could curb overinvestment in mining, but it might also be difficult to put in place, given the international decentralisation of mining." source: https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2017/wp_tse_817.pdf https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/...
  - hndamien 8y ago
    I fail to see your point here. I'm not sure how much clearer I can be. "proof-of-work mining generates greenhouse-effect negative externalities" is incorrect. Power production creates these externalities, and they are unaccounted for.
    - hudon 8y ago
      You’re proposing we fix energy production instead of fixing Bitcoin AFAIU. However, until we know how to do that OR until we have strong use cases for Bitcoin, why not put tight controls on proof-of-work mining to reduce electricity consumption? The “let the market find equilibrium” philosophy is reckless when we’re talking about global environmental concerns IMO.
      - hndamien 8y ago
        No, I am suggesting that the only problem here is accounting. If you have a price on carbon, the rest will sort itself out. The lack of this cost being accounted for creates the false equilibrium where we plunder the environment to efficiently meet our needs within an otherwise well designed economic system - that is only made better by Bitcoin.
        notahacker 8y ago
        I think when you have a technology which creates the same amount of power demand as all the people and industry in Peru, and rewards people for locating this demand in the part of the world with the cheapest dirtiest coal fired power and zero energy tax, it's disingenuous in the extreme to pretend it's not a huge part of the problem because hypothetical global carbon taxes might solve wider problems. Crypto mining is part of the externalities accounting problem, and for that matter one of the chief motivating factors behind crypto currency adoption has the idea of being able to avoid things like carbon taxes and energy quotas...
        hndamien 8y ago

by hudon 8y ago

hndamien 8y ago

I'm not saying anything about finding cheap electricity. And the greater fool theory isn't true as you could apply this theory to fiat money as well (except it is more foolish since new money is constantly created without the consent of the holders). The point is that the free market and algorithm finds an efficient equilibrium between what the users value it at (which is a reflection of its utility to them), what it costs to secure the network in relation to the reward paid for it. In these costs are electricity costs, for which miners will find the most efficient means such that they are profitable. The energy prices are determined by the economic actors producing it. The will charge what the market will bear such that they are profitable and competitive. All this is a wonderfully efficient system except for the fact that the externality you are worried about (pollution from energy production) is not accounted for anywhere in the system. In fact, it is almost incentivised, since it is likely that I can produce dirty power cheaper than I can clean power (although this is changing). If you did account for this, dirty power would become more expensive, miner using it would disappear or choose clean energy. Hence, the problem is not "It uses too much energy! So wasteful!!!!" The problem is "We don't account for externalities!!!! So bad!!!"

hudon 8y ago
Actually, recent research found that even when considering externalities, proof-of-work is considered wasteful: "Another issue relates to the negative externalities arising in proof-of-work blockchains. First, as shown above, when choosing individually optimal computing capacity, miners fail to internalise the negative externality their investment generates for other miners by increasing difficulty. This implies that equilibrium capacity acquisition in proof-of-work mining is excessive. Second, proof-of-work mining generates greenhouse-effect negative externalities, whose order of magnitude is significant. As of January 2018, the electricity consumed for Bitcoin mining was equal to the electricity consumption of over 3,400,000 US households, with an average consumption per transaction of around 300 KWh. Pigovian taxation could curb overinvestment in mining, but it might also be difficult to put in place, given the international decentralisation of mining." source: https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2017/wp_tse_817.pdf https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/...
- hndamien 8y ago
  I fail to see your point here. I'm not sure how much clearer I can be. "proof-of-work mining generates greenhouse-effect negative externalities" is incorrect. Power production creates these externalities, and they are unaccounted for.
  - hudon 8y ago
    You’re proposing we fix energy production instead of fixing Bitcoin AFAIU. However, until we know how to do that OR until we have strong use cases for Bitcoin, why not put tight controls on proof-of-work mining to reduce electricity consumption? The “let the market find equilibrium” philosophy is reckless when we’re talking about global environmental concerns IMO.
    - hndamien 8y ago
      No, I am suggesting that the only problem here is accounting. If you have a price on carbon, the rest will sort itself out. The lack of this cost being accounted for creates the false equilibrium where we plunder the environment to efficiently meet our needs within an otherwise well designed economic system - that is only made better by Bitcoin.
      - notahacker 8y ago
        I think when you have a technology which creates the same amount of power demand as all the people and industry in Peru, and rewards people for locating this demand in the part of the world with the cheapest dirtiest coal fired power and zero energy tax, it's disingenuous in the extreme to pretend it's not a huge part of the problem because hypothetical global carbon taxes might solve wider problems. Crypto mining is part of the externalities accounting problem, and for that matter one of the chief motivating factors behind crypto currency adoption has the idea of being able to avoid things like carbon taxes and energy quotas...
        hndamien 8y ago