9 ms·

Eventually Proof of Work WILL kill Bitcoin - but I have to admit this may be decades out in the future. Right now, most of the mining is financed via inflation

Eventually Proof of Work WILL kill Bitcoin - but I have to admit this may be decades out in the future. Right now, most of the mining is financed via inflation. But as this comes to an end, eventually, the cost of mining will be borne by anyone making transactions on the network through tx fees. Somebody has to pay the electricity bill on all these ASICs. EDIT: One could try to argue that high transaction costs are not a problem because nobody wants to trade bitcoin, people just hodl it. Cool. But if that's what people will do, then the money raised through transaction fees will not be enough to support a sufficient hash rate to protect the network. I wrote about all this two years ago already: https://www.konstantinschubert.com/2018/11/28/proof-of-stake-will-kill-proof-of-work.html https://www.konstantinschubert.com/2018/11/28/proof-of-stake...

thebean11 6y ago
What's your take on off chain solutions like lightning as a solution to the high tx fees?
- konschubert 6y ago
  It doesn't solve the fundamental cost problem with Proof of Work: - If people pay high effective tx fees, it's shit because, well, it's expensive. - If people pay low effective tx fees (through lightning or block size increase or whatever) then, as soon as inflation ends, the money won't be enough to pay for a sufficient hash rate.
  - tromp 6y ago
    PoW doesn't need inflation to end.
    - hanniabu 6y ago
      That's not what the parent said
      - tromp 6y ago
        Unfortunately, one cannot see the edit history of posts.
  - pitaj 6y ago
    What about BCH, where they're increased the block size so many smaller transaction fees can still build up to a large reward for miners?
  - Vadoff 6y ago
    Writing to the block should be expensive. But there won't be a problem because it'll only be used to settle Lightning Network transactions very infrequently, and could be massive amounts... not for small transactions.
    - konschubert 6y ago
      Sure, but that’s a scenario where the usage of bitcoin is high and the total amount of money on tax fees is small compared to the market cap of bitcoin. This means hash rate will be low compared to the market cap, and the necessary capital for a double spend attack may be worth it. Maybe it’s all less of an issue because bitcoin will develop a network of trust that can replace the block chain. But then, why not go with something like Stellar right away.
- twox2 6y ago
  Sure that works, but AFAIK it's a far cry from the decentralization we were promised in the white paper.
eric_cc 6y ago
I just don't see it. Bitcoin could be forked to no longer use PoW if it became an existential threat.
- zadler 6y ago
  Bitcoin will continue to use PoW while the main chain transaction fees are enough to buy adequate security for the network. This could be a very long time, or indefinite if it continues on it’s current trajectory. And if it does, then some governments will almost certainly take an interest in mining as a way to generate revenue from available energy, as Venezuela is already doing.
- flixic 6y ago
  Migrating from PoW took about 2-3 years for Ethereum, required massive changes to economic model, and developing all new clients. Ethereum leadership is still somewhat centralized, so this did not lead to multiple competing forks. Doing the same for Bitcoin would be very hard, and if it simply follows Ethereum's footsteps, then it is unclear why even use Bitcoin. But -- I hope we see this fork sooner rather than later. Bitcoin miners will have no economic incentive to capture back the CO2 produced.
  - bhaak 6y ago
    I disagree that it would be (technologically) hard for Bitcoin to transition to a PoS (disregarding that we don't have yet conclusive proof if any PoS model actually works long time). Ethereum is built to a spec. That's why the different client developers had to coordinate their work. This is not the case with Bitcoin. There, the official client is the de-facto spec you have to comply with if you develop another client. The bigger problem is that the current narrative of Bitcoin heavily discourage hard forks. Transitioning to PoS would be a social task with Bitcoin, not a technical one. Also note that Ethereum was promised from the beginning to transition to PoS, they just didn't expect to take this long.
    - TearsInTheRain 6y ago
      Its a social task they already failed with the segwit fiasco. PoS would probably be worse
nootropicat 6y ago
Define 'kill'. ETC has been 51% attacked multiple times and it still exists. It's very possible some people are going to mine btc on their personal hardware even in 2100. The only caveat is the difficulty adjustment algorithm, as it's potentially possible for btc to become stuck at an extremely high difficulty. For 'kill' as in 'stops being big and important' I think it's going to happen relatively soon, mostly agreeing with your article. Bitcoin already lost its past domination in users and total fees paid to ethereum, the only missing part is for eth to actually monetize that by fully switching from PoW to PoS. When eth stakers start making even billions annually while btc buyers lose billions annually to mining, btc losing its first place is only a matter of time. After that, PoW is going to be widely discredited and viewed as obsolete.
- flixic 6y ago
  Everything I know about cryptocurrencies makes me think you and parent are completely right, and PoW cannot work without inflation (or even with very low inflation, that does not justify the cost of running hardware in the absence of transactions). Just relying on transaction fees should lead to downward spiral of use, where fees are way too high to maintain use, or network security is too low to protect value. I'd like to hear from Bitcoin proponents where we are wrong in our thinking. What assumptions are incorrect? Is there a flaw in economic reasoning? If not, what is being done with Bitcoin to address this existential risk for Bitcoin?
  - DennisP 6y ago
    There's actually research out of Princeton, that says blockchains destabilize if the rewards are dominated by fees. https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf https://www.cs.princeton.edu/~arvindn/publications/mining_CC...
    - aeternum 6y ago
      These researchers really need to re-evaluate their assumptions: >Figure 2: Illustration of Mining Gaps. Miners will only mine when the instantaneous expected reward exceeds the instantaneous cost This makes no sense, rational actors generally consider discounted future cash flows, not just instantaneous reward. Perhaps the quality of the paper is explained by the researchers following this strategy and only working on 15th and 30th of every month (when their salaries are remitted to their bank account representing an instantaneous reward).
hollerith 6y ago
>Eventually Proof of Work WILL kill Bitcoin - but I have to admit this may be decades out in the future. I always thought the hardwired reward for mining, namely, X btc every 10 minutes, is the cause of Bitcoin's wasting electricity. The electricity used is roughly proportional to the hashrate, which in turn is roughly proportional to the price of btc -- until the next halving, which I think is more than one year but less than 2 years from now. These halvings of the reward every 2 years (which occur on a schedule set before Bitcoin was launched all those years ago) will some time in the next 10 years (which is 5 halving, representing a reduction in the reward by a factor of 2 * 2 * 2 * 2 * 2 == 32) or 12 years bring the Bitcoin network's electricity usage down low enough that a reasonable person will no longer avoid Bitcoin out of worry that it is bad for the global climate. Note that this mining reward doled out every 10 minutes is not a transaction fee. E.g., neither of the transacting parties (i.e., neither the sender nor the receiver) pays it. So tell me again what will eventually kill Bitcoin.
- konschubert 6y ago
  If the hash rate goes down as you predict, then the network will become insecure. Double-spending attacks will destroy the trust in the network and people will stop relying on it.
- DennisP 6y ago
  Bitcoin halvings are every four years. The third one happened in May this year.
  - hollerith 6y ago
    I accept and appreciate the correction.
rudolph9 6y ago
Personally I like the approach the Cardano community has taken, working towards interoperability with pow and pos https://medium.com/@schwartz4live/invitation-for-community-discussion-4c310a2e0ac9 https://medium.com/@schwartz4live/invitation-for-community-d... Congrats to the Eth folks though, this really was a big undertaking.
eMGm4D0zgUAVXc7 6y ago
> Eventually Proof of Work WILL kill Bitcoin [..] > Right now, most of the mining is financed via inflation. But as this comes to an end, eventually, the cost of mining will be borne by anyone making transactions on the network through tx fees. > Somebody has to pay the electricity bill on all these ASICs. This is just wrong. If the award available to miners decreases due to lack of inflation they will use less power-consuming hardware. If that still results in loss due to electricity cost then miners will leave the market until the amount of miners in the market is equal to the amount of tx-fees available. In other words: This is a market with supply and demand. If one decreases the other also goes down until they're balanced. It won't just make the market disappear! So even if almost nobody was willing to pay any tx-fees and there was no inflation then Bitcoin would still be running. It may just move back to running in the background on consumer hardware which was bought for other purposes instead of having giant mining data centers. This also means that mining isn't going to infinitely waste energy: The demand for energy cannot go higher than the offer of tx fees / block reward. So there is a finite upper boundary to Bitcoin's power consumption. I think a finite upper boundary is enough to justify its existence, the precise value of such a constant is arbitrary so you might as well not waste your time in arguing if it is too high or too low and instead be happy that there IS a boundary :)
- tylersmith 6y ago
  You're just explaining the steps of the parent's scenario. The chain must keep accumulating work faster than any adversary could keep up with or everyone's money is at risk because the state never fully finalizes.
  - capnorange 6y ago
    everyone's money is not at risk -- only the people who are transacting. There are also tools to know a estimate a good number of confirmations needed.
    - tylersmith 6y ago
      Everyone's money is the result of transactions, all transactions are at risk of being reorged, so everyone's money is at risk. Those tools don't work in this chain death scenario of dwindling hash rate.
ENGNR 6y ago
I think the most interesting development is the increasing amount of Bitcoin being wrapped in Ethereum, somewhat validating the store of value idea, I could see it giving Bitcoin some legs But... is it like sports memorabilia at that point, the value is all perception rather than utility and could one day just.. collapse
- konschubert 6y ago
  Interesting! How are they wrapped? Do ppl trade bitcoin on ethereum without actually using the bitcoin blockchain?
  - theocs 6y ago
    They trade a token, sometimes called a stablecoin, that represent BTC as its underlying value. Primarily two extremes for how this is done: Centralized, like WBTC (https://coinlist.co/help/what-is-wrapped-bitcoin-wbtc https://coinlist.co/help/what-is-wrapped-bitcoin-wbtc), and decentralized, like tBTC (https://defirate.com/tbtc/ https://defirate.com/tbtc/)
    - codehalo 6y ago
      Besides the extremes, there's the pragmatic in the middle - interoperability in general. RenVM supports Bitcoin and many other coins on multiple hosts, not just Ethereum (eg. Polkadot): https://renproject.io https://renproject.io https://mainnet.renproject.io https://mainnet.renproject.io
      - xur17 6y ago
        I'm not convinced RenVM is really in the middle in its current state. Currently the core team holds all of the keys for the over $300M in Bitcoin stored by their project [0]. I'd take wbtc, which is held by a consortium of well known custodians in the space over that any day. [0] https://www.theblockcrypto.com/daily/76787/ren-bitcoin-wallet-decentralization https://www.theblockcrypto.com/daily/76787/ren-bitcoin-walle...
- 6y ago
Vadoff 6y ago
Lightning Network

thebean11 6y ago

What's your take on off chain solutions like lightning as a solution to the high tx fees?

konschubert 6y ago
It doesn't solve the fundamental cost problem with Proof of Work: - If people pay high effective tx fees, it's shit because, well, it's expensive. - If people pay low effective tx fees (through lightning or block size increase or whatever) then, as soon as inflation ends, the money won't be enough to pay for a sufficient hash rate.
- tromp 6y ago
  PoW doesn't need inflation to end.
  - hanniabu 6y ago
    That's not what the parent said
    - tromp 6y ago
      Unfortunately, one cannot see the edit history of posts.
- pitaj 6y ago
  What about BCH, where they're increased the block size so many smaller transaction fees can still build up to a large reward for miners?
- Vadoff 6y ago
  Writing to the block should be expensive. But there won't be a problem because it'll only be used to settle Lightning Network transactions very infrequently, and could be massive amounts... not for small transactions.
  - konschubert 6y ago
    Sure, but that’s a scenario where the usage of bitcoin is high and the total amount of money on tax fees is small compared to the market cap of bitcoin. This means hash rate will be low compared to the market cap, and the necessary capital for a double spend attack may be worth it. Maybe it’s all less of an issue because bitcoin will develop a network of trust that can replace the block chain. But then, why not go with something like Stellar right away.
twox2 6y ago
Sure that works, but AFAIK it's a far cry from the decentralization we were promised in the white paper.

eric_cc 6y ago

I just don't see it. Bitcoin could be forked to no longer use PoW if it became an existential threat.

zadler 6y ago
Bitcoin will continue to use PoW while the main chain transaction fees are enough to buy adequate security for the network. This could be a very long time, or indefinite if it continues on it’s current trajectory. And if it does, then some governments will almost certainly take an interest in mining as a way to generate revenue from available energy, as Venezuela is already doing.
flixic 6y ago
Migrating from PoW took about 2-3 years for Ethereum, required massive changes to economic model, and developing all new clients. Ethereum leadership is still somewhat centralized, so this did not lead to multiple competing forks. Doing the same for Bitcoin would be very hard, and if it simply follows Ethereum's footsteps, then it is unclear why even use Bitcoin. But -- I hope we see this fork sooner rather than later. Bitcoin miners will have no economic incentive to capture back the CO2 produced.
- bhaak 6y ago
  I disagree that it would be (technologically) hard for Bitcoin to transition to a PoS (disregarding that we don't have yet conclusive proof if any PoS model actually works long time). Ethereum is built to a spec. That's why the different client developers had to coordinate their work. This is not the case with Bitcoin. There, the official client is the de-facto spec you have to comply with if you develop another client. The bigger problem is that the current narrative of Bitcoin heavily discourage hard forks. Transitioning to PoS would be a social task with Bitcoin, not a technical one. Also note that Ethereum was promised from the beginning to transition to PoS, they just didn't expect to take this long.
  - TearsInTheRain 6y ago
    Its a social task they already failed with the segwit fiasco. PoS would probably be worse

nootropicat 6y ago

Define 'kill'. ETC has been 51% attacked multiple times and it still exists. It's very possible some people are going to mine btc on their personal hardware even in 2100. The only caveat is the difficulty adjustment algorithm, as it's potentially possible for btc to become stuck at an extremely high difficulty. For 'kill' as in 'stops being big and important' I think it's going to happen relatively soon, mostly agreeing with your article. Bitcoin already lost its past domination in users and total fees paid to ethereum, the only missing part is for eth to actually monetize that by fully switching from PoW to PoS. When eth stakers start making even billions annually while btc buyers lose billions annually to mining, btc losing its first place is only a matter of time. After that, PoW is going to be widely discredited and viewed as obsolete.

flixic 6y ago
Everything I know about cryptocurrencies makes me think you and parent are completely right, and PoW cannot work without inflation (or even with very low inflation, that does not justify the cost of running hardware in the absence of transactions). Just relying on transaction fees should lead to downward spiral of use, where fees are way too high to maintain use, or network security is too low to protect value. I'd like to hear from Bitcoin proponents where we are wrong in our thinking. What assumptions are incorrect? Is there a flaw in economic reasoning? If not, what is being done with Bitcoin to address this existential risk for Bitcoin?
- DennisP 6y ago
  There's actually research out of Princeton, that says blockchains destabilize if the rewards are dominated by fees. https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf https://www.cs.princeton.edu/~arvindn/publications/mining_CC...
  - aeternum 6y ago
    These researchers really need to re-evaluate their assumptions: >Figure 2: Illustration of Mining Gaps. Miners will only mine when the instantaneous expected reward exceeds the instantaneous cost This makes no sense, rational actors generally consider discounted future cash flows, not just instantaneous reward. Perhaps the quality of the paper is explained by the researchers following this strategy and only working on 15th and 30th of every month (when their salaries are remitted to their bank account representing an instantaneous reward).

hollerith 6y ago

>Eventually Proof of Work WILL kill Bitcoin - but I have to admit this may be decades out in the future. I always thought the hardwired reward for mining, namely, X btc every 10 minutes, is the cause of Bitcoin's wasting electricity. The electricity used is roughly proportional to the hashrate, which in turn is roughly proportional to the price of btc -- until the next halving, which I think is more than one year but less than 2 years from now. These halvings of the reward every 2 years (which occur on a schedule set before Bitcoin was launched all those years ago) will some time in the next 10 years (which is 5 halving, representing a reduction in the reward by a factor of 2 * 2 * 2 * 2 * 2 == 32) or 12 years bring the Bitcoin network's electricity usage down low enough that a reasonable person will no longer avoid Bitcoin out of worry that it is bad for the global climate. Note that this mining reward doled out every 10 minutes is not a transaction fee. E.g., neither of the transacting parties (i.e., neither the sender nor the receiver) pays it. So tell me again what will eventually kill Bitcoin.

konschubert 6y ago
If the hash rate goes down as you predict, then the network will become insecure. Double-spending attacks will destroy the trust in the network and people will stop relying on it.
DennisP 6y ago
Bitcoin halvings are every four years. The third one happened in May this year.
- hollerith 6y ago
  I accept and appreciate the correction.

rudolph9 6y ago

Personally I like the approach the Cardano community has taken, working towards interoperability with pow and pos https://medium.com/@schwartz4live/invitation-for-community-discussion-4c310a2e0ac9 https://medium.com/@schwartz4live/invitation-for-community-d... Congrats to the Eth folks though, this really was a big undertaking.

eMGm4D0zgUAVXc7 6y ago

> Eventually Proof of Work WILL kill Bitcoin [..] > Right now, most of the mining is financed via inflation. But as this comes to an end, eventually, the cost of mining will be borne by anyone making transactions on the network through tx fees. > Somebody has to pay the electricity bill on all these ASICs. This is just wrong. If the award available to miners decreases due to lack of inflation they will use less power-consuming hardware. If that still results in loss due to electricity cost then miners will leave the market until the amount of miners in the market is equal to the amount of tx-fees available. In other words: This is a market with supply and demand. If one decreases the other also goes down until they're balanced. It won't just make the market disappear! So even if almost nobody was willing to pay any tx-fees and there was no inflation then Bitcoin would still be running. It may just move back to running in the background on consumer hardware which was bought for other purposes instead of having giant mining data centers. This also means that mining isn't going to infinitely waste energy: The demand for energy cannot go higher than the offer of tx fees / block reward. So there is a finite upper boundary to Bitcoin's power consumption. I think a finite upper boundary is enough to justify its existence, the precise value of such a constant is arbitrary so you might as well not waste your time in arguing if it is too high or too low and instead be happy that there IS a boundary :)

tylersmith 6y ago
You're just explaining the steps of the parent's scenario. The chain must keep accumulating work faster than any adversary could keep up with or everyone's money is at risk because the state never fully finalizes.
- capnorange 6y ago
  everyone's money is not at risk -- only the people who are transacting. There are also tools to know a estimate a good number of confirmations needed.
  - tylersmith 6y ago
    Everyone's money is the result of transactions, all transactions are at risk of being reorged, so everyone's money is at risk. Those tools don't work in this chain death scenario of dwindling hash rate.

ENGNR 6y ago

I think the most interesting development is the increasing amount of Bitcoin being wrapped in Ethereum, somewhat validating the store of value idea, I could see it giving Bitcoin some legs But... is it like sports memorabilia at that point, the value is all perception rather than utility and could one day just.. collapse

konschubert 6y ago
Interesting! How are they wrapped? Do ppl trade bitcoin on ethereum without actually using the bitcoin blockchain?
- theocs 6y ago
  They trade a token, sometimes called a stablecoin, that represent BTC as its underlying value. Primarily two extremes for how this is done: Centralized, like WBTC (https://coinlist.co/help/what-is-wrapped-bitcoin-wbtc https://coinlist.co/help/what-is-wrapped-bitcoin-wbtc), and decentralized, like tBTC (https://defirate.com/tbtc/ https://defirate.com/tbtc/)
  - codehalo 6y ago
    Besides the extremes, there's the pragmatic in the middle - interoperability in general. RenVM supports Bitcoin and many other coins on multiple hosts, not just Ethereum (eg. Polkadot): https://renproject.io https://renproject.io https://mainnet.renproject.io https://mainnet.renproject.io
    - xur17 6y ago
      I'm not convinced RenVM is really in the middle in its current state. Currently the core team holds all of the keys for the over $300M in Bitcoin stored by their project [0]. I'd take wbtc, which is held by a consortium of well known custodians in the space over that any day. [0] https://www.theblockcrypto.com/daily/76787/ren-bitcoin-wallet-decentralization https://www.theblockcrypto.com/daily/76787/ren-bitcoin-walle...
6y ago

Vadoff 6y ago

Lightning Network