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Can someone explain how transactions are not insanely cost prohibitive for Bitcoin with power consumption figures like those? Those numbers would suggest someth

Can someone explain how transactions are not insanely cost prohibitive for Bitcoin with power consumption figures like those? Those numbers would suggest something like >20 USD. Is it because most transactions in practice actually happen internally on exchanges that avoid putting every individual transaction on the blockchain? I have limited knowledge of Bitcoin so maybe not quite "explain like I'm five"... but close. :)

tuankiet65 6y ago
The whole point of Bitcoin mining is to produce a block, which contains a bunch of transactions. The Bitcoin network dictates that each block's SHA256 hash starts with a certain number of zeroes, so the only way to achieve this is to brute force the block data until you find the "winning" block which hashes to a number of zeroes. Once someone finds a winning block, they're rewarded with a number of Bitcoin. This subsidies the cost that goes into mining that block. However the reward halves after every 210k blocks, so as the reward goes down, miners will prefer to only include transactions with high fee. Eventually the true cost of mining will reflect in the transaction fee. And to add to the "it costs 657.6kWh to process a transaction": energy is used to produce a block, which contains an arbitrarily defined number of transactions. Right now, Bitcoin Core limits each block to 1MB, which works out to about 2k transactions per block. If Bitcoin Core were to increase the limit to say 10MB, the energy used to produce a block doesn't change, but the energy used to process a transaction goes down tenfold.
- mlyle 6y ago
  > And to add to the "it costs 657.6kWh to process a transaction": energy is used to produce a block, which contains an arbitrarily defined number of transactions. Right now, Bitcoin Core limits each block to 1MB, which works out to about 2k transactions per block. If Bitcoin Core were to increase the limit to say 10MB, the energy used to produce a block doesn't change, but the energy used to process a transaction goes down tenfold. Oh, it could be somewhat improved. Then it'd be "only" 65 kilowatt hours, compared to ~1 watt-hour for conventional payment networks. (And, this assumes that the increase in bitcoin price doesn't cause more mining).
  - Anderkent 6y ago
    >Then it'd be "only" 65 kilowatt hours, compared to ~1 watt-hour for conventional payment networks. Sure, and? You get other benefits, those might not be relevant for you in which case keep using conventional payment networks. But if things like counterparty risk of your payment processor come into your calculations, even $10 dollars a transaction migth be a good deal.
    - aseipp 6y ago
      The entire point of this subthread you're responding to is that the cost of transactions is so energy intensive that those "other benefits" are null and void. It's called an externality. It doesn't matter if you'd pay $10 for it if the cost imposed is too great. There are a lot of things people would absolutely pay for that we don't allow, because of that. Dumb weird fantasies about decentralization or counterparty risk or whatever don't actually matter if the energy cost is that high. It's just not important enough. Sorry.
      - Anderkent 6y ago
        > It's called an externality. It doesn't matter if you'd pay $10 for it if the cost imposed is too great The cost imposed is proportional to the fee, since the fee has to pay for the electricity used to mine the transaction. And $10 of electricity is just... not a lot to worry about. If you believe the electricity consumption in general has huge externalities, you have bigger problems than mining, and once you address those the mining cost/diffiuclty will adjust
        mlyle 6y ago
        > The cost imposed is proportional to the fee, since the fee has to pay for the electricity used to mine the transaction. No. Miners get rewards for mining blocks, which pay for 80%. Transaction fees don't pay for the electricity used in a transaction: not even close. > If you believe the electricity consumption in general has huge externalities Well, sure, I believe that electricity is artificially cheap. I also believe that spending $50+ of electricity per transaction done is absolutely nuts. And that amount is steadily increasing...
- autocorr 6y ago
  Thank you! That was a really helpful response. That makes a lot more sense that many transactions are included within a block. So effective transaction fees are likely in the few cents USD range. I've read that one issue with the latency of Bitcoin transactions is that many of the large miners from China have network issues. Would raising the block size to 10-100MB cause significant latency issues for transactions even if one could fit a lot more transactions into a single block?
  - tuankiet65 6y ago
    > Would raising the block size to 10-100MB cause significant latency issues for transactions even if one could fit a lot more transactions into a single block? There are two ways to understand your question so I'll just answer both of them: Fitting more transactions in a block leads to faster confirmation, and potentially lower fee. When a transaction gets into a block, the network confirms that the transaction is valid and can't be reversed. Right now each block can only fit ~2k transactions, and since a block can only be generated every 10 minutes, the mempool (backlog of unconfirmed transaction) is rather huge. This site shows how big it is: https://jochen-hoenicke.de/queue/ https://jochen-hoenicke.de/queue/. Miners are incentivized to only select transaction with high fee into the next block, which in turn incentivizes users to pay more fee to get their transaction to confirm faster. With bigger blocks, more transactions get confirmed quicker, which leads to lower fee. Bigger blocks however mean miners with slow internet connection are at a disadvantage. When a miner finds a winning block, they broadcast the block to as many nodes in the network as possible. After a while, a majority of nodes accepts that winning block, and the miner is eligible for the mining reward. If A finds the winning block 10 seconds after B, but A is able to propagate their block quicker than B, then it's possible that A's block is accepted and not B'. In reality, it's possible that B might still win the race, but the rule is: faster propagation => more chance of being accepted.
robbiep 6y ago
That is roughly what transaction costs are. In some camps this prohibits the technology ever becoming a widespread method of payment. If we’re going for decentralised currency and 10 exchanges control all the low fee movement stuff...
arcticbull 6y ago
Oh that’s inflation. The cost is socialized across the block reward. So long as there’s more new money coming in than block reward paying electric bills on the way out, the cost of a transaction is socialized efficiently. Elon’s $1.5B investment only lasted a total of 4 weeks. It’s already gone. It’s in the hands of Chinese coal produces now.
mrb 6y ago
«Can someone explain how transactions are not insanely cost prohibitive» Because the comments above yours are misleading. Transactions don't consume mining energy. Miners expend the same amount of energy regardless if they are validating 1 or 1000 transactions in a block.
- arcticbull 6y ago
  That’s some high class mental gymnastics though. Because if you divide the energy spent across the number of transactions you land back where you started. And if the energy was burned for 0 transaction capacity then the underlying would be worthless. Secure but worthless. So it doesn’t take much inference to realize that the value is in transactbility. You’ll have to explain to me why when mining a block of transactions, it doesn’t make sense to break that down on a per transaction basis with division. If the number of transactions in a block ever changes I’ll change my divisor. Until then the proof is on you isn’t it?
  - mrb 6y ago
    «it doesn’t make sense to break that down on a per transaction basis with division» Because the division result is meaningless as it just reflects how full a block was, not the cost of a transaction. Again: miners expend the same amount of energy regardless if they are validating 1 or 1000 transactions in a block. Exactly the same amount. And whatever math you might be doing doesn't account for batched transactions (1 tx, N outputs), lighting transactions, or off-chain transaction (think tx within a platform like an exchange).
    - arcticbull 6y ago
      > Again: miners expend the same amount of energy regardless if they are validating 1 or 1000 transactions in a block. For one that’s horrifyingly wasteful - you say it like it’s a good thing but it’s really not. And two, I’m describing the network as it exists today. That’s not dishonest; there’s no plan to increase the quantity of transactions per block. If it ever changes we can run the numbers again. But saying it’s a bad way to run the numbers is like saying there’s no cap on the number of bitcoins because the core team could just change the cap. Ok, and if they do, we’ll run the math again.

tuankiet65 6y ago

The whole point of Bitcoin mining is to produce a block, which contains a bunch of transactions. The Bitcoin network dictates that each block's SHA256 hash starts with a certain number of zeroes, so the only way to achieve this is to brute force the block data until you find the "winning" block which hashes to a number of zeroes. Once someone finds a winning block, they're rewarded with a number of Bitcoin. This subsidies the cost that goes into mining that block. However the reward halves after every 210k blocks, so as the reward goes down, miners will prefer to only include transactions with high fee. Eventually the true cost of mining will reflect in the transaction fee. And to add to the "it costs 657.6kWh to process a transaction": energy is used to produce a block, which contains an arbitrarily defined number of transactions. Right now, Bitcoin Core limits each block to 1MB, which works out to about 2k transactions per block. If Bitcoin Core were to increase the limit to say 10MB, the energy used to produce a block doesn't change, but the energy used to process a transaction goes down tenfold.

mlyle 6y ago
> And to add to the "it costs 657.6kWh to process a transaction": energy is used to produce a block, which contains an arbitrarily defined number of transactions. Right now, Bitcoin Core limits each block to 1MB, which works out to about 2k transactions per block. If Bitcoin Core were to increase the limit to say 10MB, the energy used to produce a block doesn't change, but the energy used to process a transaction goes down tenfold. Oh, it could be somewhat improved. Then it'd be "only" 65 kilowatt hours, compared to ~1 watt-hour for conventional payment networks. (And, this assumes that the increase in bitcoin price doesn't cause more mining).
- Anderkent 6y ago
  >Then it'd be "only" 65 kilowatt hours, compared to ~1 watt-hour for conventional payment networks. Sure, and? You get other benefits, those might not be relevant for you in which case keep using conventional payment networks. But if things like counterparty risk of your payment processor come into your calculations, even $10 dollars a transaction migth be a good deal.
  - aseipp 6y ago
    The entire point of this subthread you're responding to is that the cost of transactions is so energy intensive that those "other benefits" are null and void. It's called an externality. It doesn't matter if you'd pay $10 for it if the cost imposed is too great. There are a lot of things people would absolutely pay for that we don't allow, because of that. Dumb weird fantasies about decentralization or counterparty risk or whatever don't actually matter if the energy cost is that high. It's just not important enough. Sorry.
    - Anderkent 6y ago
      > It's called an externality. It doesn't matter if you'd pay $10 for it if the cost imposed is too great The cost imposed is proportional to the fee, since the fee has to pay for the electricity used to mine the transaction. And $10 of electricity is just... not a lot to worry about. If you believe the electricity consumption in general has huge externalities, you have bigger problems than mining, and once you address those the mining cost/diffiuclty will adjust
      - mlyle 6y ago
        > The cost imposed is proportional to the fee, since the fee has to pay for the electricity used to mine the transaction. No. Miners get rewards for mining blocks, which pay for 80%. Transaction fees don't pay for the electricity used in a transaction: not even close. > If you believe the electricity consumption in general has huge externalities Well, sure, I believe that electricity is artificially cheap. I also believe that spending $50+ of electricity per transaction done is absolutely nuts. And that amount is steadily increasing...
autocorr 6y ago
Thank you! That was a really helpful response. That makes a lot more sense that many transactions are included within a block. So effective transaction fees are likely in the few cents USD range. I've read that one issue with the latency of Bitcoin transactions is that many of the large miners from China have network issues. Would raising the block size to 10-100MB cause significant latency issues for transactions even if one could fit a lot more transactions into a single block?
- tuankiet65 6y ago
  > Would raising the block size to 10-100MB cause significant latency issues for transactions even if one could fit a lot more transactions into a single block? There are two ways to understand your question so I'll just answer both of them: Fitting more transactions in a block leads to faster confirmation, and potentially lower fee. When a transaction gets into a block, the network confirms that the transaction is valid and can't be reversed. Right now each block can only fit ~2k transactions, and since a block can only be generated every 10 minutes, the mempool (backlog of unconfirmed transaction) is rather huge. This site shows how big it is: https://jochen-hoenicke.de/queue/ https://jochen-hoenicke.de/queue/. Miners are incentivized to only select transaction with high fee into the next block, which in turn incentivizes users to pay more fee to get their transaction to confirm faster. With bigger blocks, more transactions get confirmed quicker, which leads to lower fee. Bigger blocks however mean miners with slow internet connection are at a disadvantage. When a miner finds a winning block, they broadcast the block to as many nodes in the network as possible. After a while, a majority of nodes accepts that winning block, and the miner is eligible for the mining reward. If A finds the winning block 10 seconds after B, but A is able to propagate their block quicker than B, then it's possible that A's block is accepted and not B'. In reality, it's possible that B might still win the race, but the rule is: faster propagation => more chance of being accepted.

robbiep 6y ago

That is roughly what transaction costs are. In some camps this prohibits the technology ever becoming a widespread method of payment. If we’re going for decentralised currency and 10 exchanges control all the low fee movement stuff...

arcticbull 6y ago

Oh that’s inflation. The cost is socialized across the block reward. So long as there’s more new money coming in than block reward paying electric bills on the way out, the cost of a transaction is socialized efficiently. Elon’s $1.5B investment only lasted a total of 4 weeks. It’s already gone. It’s in the hands of Chinese coal produces now.

mrb 6y ago

«Can someone explain how transactions are not insanely cost prohibitive» Because the comments above yours are misleading. Transactions don't consume mining energy. Miners expend the same amount of energy regardless if they are validating 1 or 1000 transactions in a block.

arcticbull 6y ago
That’s some high class mental gymnastics though. Because if you divide the energy spent across the number of transactions you land back where you started. And if the energy was burned for 0 transaction capacity then the underlying would be worthless. Secure but worthless. So it doesn’t take much inference to realize that the value is in transactbility. You’ll have to explain to me why when mining a block of transactions, it doesn’t make sense to break that down on a per transaction basis with division. If the number of transactions in a block ever changes I’ll change my divisor. Until then the proof is on you isn’t it?
- mrb 6y ago
  «it doesn’t make sense to break that down on a per transaction basis with division» Because the division result is meaningless as it just reflects how full a block was, not the cost of a transaction. Again: miners expend the same amount of energy regardless if they are validating 1 or 1000 transactions in a block. Exactly the same amount. And whatever math you might be doing doesn't account for batched transactions (1 tx, N outputs), lighting transactions, or off-chain transaction (think tx within a platform like an exchange).
  - arcticbull 6y ago
    > Again: miners expend the same amount of energy regardless if they are validating 1 or 1000 transactions in a block. For one that’s horrifyingly wasteful - you say it like it’s a good thing but it’s really not. And two, I’m describing the network as it exists today. That’s not dishonest; there’s no plan to increase the quantity of transactions per block. If it ever changes we can run the numbers again. But saying it’s a bad way to run the numbers is like saying there’s no cap on the number of bitcoins because the core team could just change the cap. Ok, and if they do, we’ll run the math again.