4 ms·

Miners more or less entirely pay the cost with the blockreward which means the users pay way way less fees for their Tx than it would actually cost in energy.

by noxer 7y ago

Miners more or less entirely pay the cost with the blockreward which means the users pay way way less fees for their Tx than it would actually cost in energy. If we assume max 7Tx/s 1 block can hold 4200 Tx One block gets the miner 12.5 BTCs that's a 0.003 BTC "subvention" per Tx that would otherwise have to be pais as fee. In other words the cost is paid by inflation which hurts most who holds and not who uses it. People don't care about a little inflation because the price gains where way way over that. But in the long run this system can not work. Every halving requires the BTC price to at least double (assuming the same mining cost). Problem is mining cost goes only up the halving is finite it goes to zero blockreward. Since the price can't go to infinite it's obvious that this system has to crash at some point we just don't know when.

maxerickson 7y ago
There's some question of what a crash looks like. If the block reward goes away but there are enough fees to cover a reasonable difficulty, the crash will just be the end of the enormous investment in chasing the block reward, the network might still be secure enough to be usable. I haven't checked the math, but this article says the block reward is ~$45 per transaction, vs ~$0.70 in fees: https://cryptoslate.com/each-transaction-costs-the-bitcoin-network-45-large-improvements-needed-to-beat-visa/ https://cryptoslate.com/each-transaction-costs-the-bitcoin-n... If that is the case, it seems likely there will be a devastating crash next time the reward halves.
- trickstra 7y ago
  We will see in May.
- noxer 7y ago
  BTC can survive if the price at lest doubles before or after the halving. This is what happened in the past. It can happen again maybe even multiple times but certainly not forever.
  - maxerickson 7y ago
    A doubling leads to the rewards staying about the same. Whether that needs to happen for bitcoin to survive is not at all obvious. It would likely be sufficient for bitcoin to survive, it just isn't clear that it is necessary, maybe ⅓ of the reward would keep folks interested.
    - noxer 7y ago
      It probably needs more than doubling in the long run. For the following reasons. Price is measured in USD and USD is inflationary so its purchasing power drops and BTC needs double the purchasing power not double the USD "value number" The reward being constant would in the long run reduce the margins used as profit but also stop the re-investing of said profit to creating new hardware (ASICs) etc. That would stop or slow down the growth of hash/energy ratio which would make 51% attacks cheaper over time if we assume all other hardware on this planet keeps getting better and more. Also keep in mind that BTC "only" doubling ever 4 year would significantly under perform most peoples expectation so if it's even lower, interest probably goes down rapidly as well which could trigger the collapse.
trickstra 7y ago
Miners are not paying their electricity bills with bitcoin (most of them). It's the other buyers, that buy the bitcoins from the miner in exchange for dollars, that in fact pay the bills. And those are willing to pay the current price of electricity required to create the block. And mining costs have gone down before. It's when bitcoin's price falls making mining unprofitable, so some miners stop, which lowers the difficulty, which makes mining profitable again at lower level - mining costs decreased to match the price.
- noxer 7y ago
  That's word juggling whether the miners pay with bitcoins or sell bitcoins and pay with fiat is totally irrelevant. Fact is, mining is paid with the block reward. Bitcoin pays itself by "printing" itself. The value that goes to whom sells the energy/hardware is extracted from every bitcoin in existence via inflation. Unlike with Fiat the inflation rate is hard-coded and declines so hyperinflation isn't a problem but then gain inflation will stop and then user will have to pay for the bitcoin network. Which currently would costs several thousandth USD per minute in energy alone. That true, mining cost can go down and it did but in the long run it can (must) only go up. If we assume after block reward is gone or very low, fees pay miners less so most miners stop and difficulty is adjusted then we have a imminent 51% attack risk. Low difficultly, bankrupt miners, mark flooded with cheap mining hardware and suddenly drooping energy prices are the perfect conditions for such an attack. Once attacked the price drops pushes more miners out of business and attacks are even cheaper. A crash is inevitable.
  - trickstra 7y ago
    If you are so sure, you are welcome to make some money on it by shorting bitcoin before the halving which is in May. And no, it's not word juggling, the value of money comes from the people who exchange things for money. Here they exchange either electricity, or USD for it. Miners are paying their bills by selling virtual tokens, if those tokens didn't have any value for anybody, they wouldn't be able to sell them. Whether the token comes from block reward or transaction fees doesn't change anything on the fact that somebody gave up USD to get the token. > Bitcoin pays itself by "printing itself" Kinda ironic now after FED printed more money in one week than the whole Bitcoin economy is worth. I'd rather have the printing controlled by math, than any person.

by noxer 7y ago

maxerickson 7y ago

There's some question of what a crash looks like. If the block reward goes away but there are enough fees to cover a reasonable difficulty, the crash will just be the end of the enormous investment in chasing the block reward, the network might still be secure enough to be usable. I haven't checked the math, but this article says the block reward is ~$45 per transaction, vs ~$0.70 in fees: https://cryptoslate.com/each-transaction-costs-the-bitcoin-network-45-large-improvements-needed-to-beat-visa/ https://cryptoslate.com/each-transaction-costs-the-bitcoin-n... If that is the case, it seems likely there will be a devastating crash next time the reward halves.

trickstra 7y ago
We will see in May.
noxer 7y ago
BTC can survive if the price at lest doubles before or after the halving. This is what happened in the past. It can happen again maybe even multiple times but certainly not forever.
- maxerickson 7y ago
  A doubling leads to the rewards staying about the same. Whether that needs to happen for bitcoin to survive is not at all obvious. It would likely be sufficient for bitcoin to survive, it just isn't clear that it is necessary, maybe ⅓ of the reward would keep folks interested.
  - noxer 7y ago
    It probably needs more than doubling in the long run. For the following reasons. Price is measured in USD and USD is inflationary so its purchasing power drops and BTC needs double the purchasing power not double the USD "value number" The reward being constant would in the long run reduce the margins used as profit but also stop the re-investing of said profit to creating new hardware (ASICs) etc. That would stop or slow down the growth of hash/energy ratio which would make 51% attacks cheaper over time if we assume all other hardware on this planet keeps getting better and more. Also keep in mind that BTC "only" doubling ever 4 year would significantly under perform most peoples expectation so if it's even lower, interest probably goes down rapidly as well which could trigger the collapse.

trickstra 7y ago

Miners are not paying their electricity bills with bitcoin (most of them). It's the other buyers, that buy the bitcoins from the miner in exchange for dollars, that in fact pay the bills. And those are willing to pay the current price of electricity required to create the block. And mining costs have gone down before. It's when bitcoin's price falls making mining unprofitable, so some miners stop, which lowers the difficulty, which makes mining profitable again at lower level - mining costs decreased to match the price.

noxer 7y ago
That's word juggling whether the miners pay with bitcoins or sell bitcoins and pay with fiat is totally irrelevant. Fact is, mining is paid with the block reward. Bitcoin pays itself by "printing" itself. The value that goes to whom sells the energy/hardware is extracted from every bitcoin in existence via inflation. Unlike with Fiat the inflation rate is hard-coded and declines so hyperinflation isn't a problem but then gain inflation will stop and then user will have to pay for the bitcoin network. Which currently would costs several thousandth USD per minute in energy alone. That true, mining cost can go down and it did but in the long run it can (must) only go up. If we assume after block reward is gone or very low, fees pay miners less so most miners stop and difficulty is adjusted then we have a imminent 51% attack risk. Low difficultly, bankrupt miners, mark flooded with cheap mining hardware and suddenly drooping energy prices are the perfect conditions for such an attack. Once attacked the price drops pushes more miners out of business and attacks are even cheaper. A crash is inevitable.
- trickstra 7y ago
  If you are so sure, you are welcome to make some money on it by shorting bitcoin before the halving which is in May. And no, it's not word juggling, the value of money comes from the people who exchange things for money. Here they exchange either electricity, or USD for it. Miners are paying their bills by selling virtual tokens, if those tokens didn't have any value for anybody, they wouldn't be able to sell them. Whether the token comes from block reward or transaction fees doesn't change anything on the fact that somebody gave up USD to get the token. > Bitcoin pays itself by "printing itself" Kinda ironic now after FED printed more money in one week than the whole Bitcoin economy is worth. I'd rather have the printing controlled by math, than any person.