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You are making very bold statements ("of course", "obviously") on a topic that has been deeply analyzed over the years without any decisive conclusions. For on

You are making very bold statements ("of course", "obviously") on a topic that has been deeply analyzed over the years without any decisive conclusions. For one example, I really appreciate Lyn Alden's analysis [1] [1] - https://www.lynalden.com/bitcoin-security-modeling/ https://www.lynalden.com/bitcoin-security-modeling/

hn_throwaway_99 4y ago
I'm making bold statements because I've read reams and reams of treatises on the topic, and every single one ignores some basic, simple, fundamental truths that are inherent to a proof-of-work system. I certainly don't believe I'm particularly smarter than average, and there are definitely other people saying the same thing I am, and certainly much smarter people than I have realized this issue and are transitioning other cryptocurrencies to other proof systems, but I have come to believe that many people are content to keep the music going, even if they know it's going to stop at some point. When it comes to mining BTC, it really doesn't matter much how miners are paid: through block rewards, transaction fees or some other sort of "security fee". Miners spend money on electricity, and get BTC in return. Furthermore, it's, again by design, a competitive system: those who are able to mine faster (i.e. are spending more on electricity, on average) will win the "block contests" faster and get more BTC. All other arguments are just "yada yada yada" unless you are somehow arguing that electricity spend is no longer proportional to chance of mining a block, at which point I'd argue that's probably no longer proof-of-work. This is not a hard concept. If I'm an idiot (which is totally a valid proposition), somebody should be able to explain how a proof-of-work system can get around this "arbitrage problem" very simply - it shouldn't take pages and pages and pages of circular argument.
- hihihihi1234 4y ago
  > I've read reams and reams of treatises on the topic Care to share any of them here? I'm not that knowledgeable about BTC so I have no idea whether or not you're right, but I'd love to learn more.
  - gverrilla 4y ago
    start with bitcoin whitepaper. but it is a very deep subject, and also full of liars and people with ill motivations
- cowtools 4y ago
  You're making sweeping statements here, when in reality it depends on both the block reward AND the price of bitcoin. Currently, the block reward has decreased as the price of bitcoin has increased. If the market cap of bitcoin stays the same, then the mining reward in terms of energy will decrease.
  - ThreeToZero 4y ago
    > depends on the block reward AND the price of bitcoin The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount. Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees). The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity. > making sweeping statements here The sweeping statements that poster made are the results of a microeconomics analysis. There is a large & "efficient" market competing for bitcoin mining rewards by buying more electricity. This is tapping into laws of economics on the level of supply/demand curves: Well studied scenarios that become more accurate the more efficient the market is.
    - cowtools 4y ago
      >The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount. Yes. >Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees). Yes. >The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity. No. You're conflating two different things here: A reward-dominated bitcoin and a fee-dominated bitcoin. The reward takes money from bitcoin owners in the form of inflation. It decreases the market cap by increasing supply. The fees take money directly from bitcoin users. In the reward-dominated case, miners are funded by new demand for bitcoin, which props the market cap up. In the Fee-dominated case, miners are funded by bitcoin users who compete with each other for limited bandwidth. In either case, the money being given to miners by these two parties is always greater than or equal to the money spent on mining (power, hardware). What we've seen so far is a reward-dominated bitcoin in which demand is very high and the market cap increases as the block reward decreases. I predict the demand will stabilize and the reward will continue to decrease. This means there will be less mining. Eventually the reward will asymptotically trend to zero in which case bitcoin will become fee-dominated. Fees are dependent on the supply/demand for bitcoin bandwidth (the supply is a static 1MB/10 mins), not market cap or price.
- kordlessagain 4y ago
  > Proof-of-work requires, by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin. Proof of work in Bitcoin requires computation of a thing called a Nonce. If a miner gets the right Nonce while hashing, they get that block's reward. The electricity value expended on mining that block is proportional to the total amount of hashes being performed by miners in the network at the time. There is no "design" for requiring the cost of this power be equal to anything directly related to the market capitalization of Bitcoin, which really means how much Bitcoin is worth compared to other markets, such as USD. Are they linked to each other through human action and decision processes? Certainly. Is it coded in the chain? No. > It's really just simple arbitrage: if the value of Bitcoin goes up, but the electricity cost doesn't, then you have essentially 2 different prices for 1 good, which should attract more miners to spend more money on electricity. If the electricity cost doesn't go up, then the number of Nonce being computed will only go up if more miners join the effort. If they don't, the network is still operational, and produces the same amount of new coin every so often. What is NOT obvious here is that the technology for increasing the mining rates is always increasing, so the clowns will continue to pay to upgrade their hardware over time to save on electrical costs and engage in competition with the technology. The exchange rate for Bitcoin may be related to the technological "power" that is required to keep the network running and producing new coins, but less directly so related to the amount of power burned. > Furthermore, it's, again by design, a competitive system By design, Humans compete. The Bitcoin blockchain could be mined and run by two clowns in a tent if nobody else cared. It's not coded to be competitive, it's coded to be cooperative. This means the the amount of power spent on mining and running the network is a cooperative function. The amount of money spent on developing and producing faster hardware is a competitive function. The two together produce something that is chaotic and interesting. Bitcoin does have a downside, and that is that it is a viral thing that cannot be taken down by any one person or organization. It would take 51% of those running the network to cause it to fork into two. It would take an impossibility to halt it. Maybe this scares some people and maybe it makes some people excited about the possibilities. Either way, we're going to need Fusion to run it in the future.
  - ssl232 4y ago
    Most of what you said I agree with, but not your last point: > Either way, we're going to need Fusion to run it in the future. In my understanding, the economics of Bitcoin mean that eventually mining will be performed with predominantly waste energy, which is by definition that which has no other practical use. The existence of a practical use for the energy other than for mining will push its price higher than is economical to use for Bitcoin mining, because other miners using waste energy will be able to pay less to mine the next block. It's likely that energy for Bitcoin mining will come from sources like heat from flare gas, currently just burned at oil refineries and released as photons into the night sky, leaving Earth forever. Or energy from wind turbines or solar panels during periods of low demand. Or a hydroelectric dam 1000s of km from civilisation willing to pay the transmission costs to use it. Or, heck, even heat extracted from sewage in Vegas hotels, if it's enough to run a steam turbine. Basically anywhere where otherwise useless energy can be extracted in quantities sufficient for mining. I don't think, given the costs of the infrastructure likely required for fusion, we'll be seeing it employed for Bitcoin mining long term. This is one of the aspects of Bitcoin I find most beautiful - it monetises waste.
- chillacy 4y ago
  Upon a second reading of parent poster's comment, there's nothing much to debate the conclusion but mostly debating the degree of certainty of the conclusion, which is a much lower bar. The way I see it though, unless anyone is shorting cryptocurrency with 100% of their net worth I think they are at some level expressing that the world is not so clear cut. Sometimes meme stocks win before you run out of runway.
  - mjevans 4y ago
    Knowledge something will fail eventually, and knowledge of exactly when it will are entirely different propositions. The market can stay insolvent longer than the investor.
    - FabHK 4y ago
      "The stock market can remain irrational a lot longer than you can remain solvent." https://quoteinvestigator.com/2011/08/09/remain-solvent/ https://quoteinvestigator.com/2011/08/09/remain-solvent/

hn_throwaway_99 4y ago

I'm making bold statements because I've read reams and reams of treatises on the topic, and every single one ignores some basic, simple, fundamental truths that are inherent to a proof-of-work system. I certainly don't believe I'm particularly smarter than average, and there are definitely other people saying the same thing I am, and certainly much smarter people than I have realized this issue and are transitioning other cryptocurrencies to other proof systems, but I have come to believe that many people are content to keep the music going, even if they know it's going to stop at some point. When it comes to mining BTC, it really doesn't matter much how miners are paid: through block rewards, transaction fees or some other sort of "security fee". Miners spend money on electricity, and get BTC in return. Furthermore, it's, again by design, a competitive system: those who are able to mine faster (i.e. are spending more on electricity, on average) will win the "block contests" faster and get more BTC. All other arguments are just "yada yada yada" unless you are somehow arguing that electricity spend is no longer proportional to chance of mining a block, at which point I'd argue that's probably no longer proof-of-work. This is not a hard concept. If I'm an idiot (which is totally a valid proposition), somebody should be able to explain how a proof-of-work system can get around this "arbitrage problem" very simply - it shouldn't take pages and pages and pages of circular argument.

hihihihi1234 4y ago
> I've read reams and reams of treatises on the topic Care to share any of them here? I'm not that knowledgeable about BTC so I have no idea whether or not you're right, but I'd love to learn more.
- gverrilla 4y ago
  start with bitcoin whitepaper. but it is a very deep subject, and also full of liars and people with ill motivations
cowtools 4y ago
You're making sweeping statements here, when in reality it depends on both the block reward AND the price of bitcoin. Currently, the block reward has decreased as the price of bitcoin has increased. If the market cap of bitcoin stays the same, then the mining reward in terms of energy will decrease.
- ThreeToZero 4y ago
  > depends on the block reward AND the price of bitcoin The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount. Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees). The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity. > making sweeping statements here The sweeping statements that poster made are the results of a microeconomics analysis. There is a large & "efficient" market competing for bitcoin mining rewards by buying more electricity. This is tapping into laws of economics on the level of supply/demand curves: Well studied scenarios that become more accurate the more efficient the market is.
  - cowtools 4y ago
    >The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount. Yes. >Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees). Yes. >The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity. No. You're conflating two different things here: A reward-dominated bitcoin and a fee-dominated bitcoin. The reward takes money from bitcoin owners in the form of inflation. It decreases the market cap by increasing supply. The fees take money directly from bitcoin users. In the reward-dominated case, miners are funded by new demand for bitcoin, which props the market cap up. In the Fee-dominated case, miners are funded by bitcoin users who compete with each other for limited bandwidth. In either case, the money being given to miners by these two parties is always greater than or equal to the money spent on mining (power, hardware). What we've seen so far is a reward-dominated bitcoin in which demand is very high and the market cap increases as the block reward decreases. I predict the demand will stabilize and the reward will continue to decrease. This means there will be less mining. Eventually the reward will asymptotically trend to zero in which case bitcoin will become fee-dominated. Fees are dependent on the supply/demand for bitcoin bandwidth (the supply is a static 1MB/10 mins), not market cap or price.
kordlessagain 4y ago
> Proof-of-work requires, by design, that the electricity value expended on mining is proportional to the total market cap of Bitcoin. Proof of work in Bitcoin requires computation of a thing called a Nonce. If a miner gets the right Nonce while hashing, they get that block's reward. The electricity value expended on mining that block is proportional to the total amount of hashes being performed by miners in the network at the time. There is no "design" for requiring the cost of this power be equal to anything directly related to the market capitalization of Bitcoin, which really means how much Bitcoin is worth compared to other markets, such as USD. Are they linked to each other through human action and decision processes? Certainly. Is it coded in the chain? No. > It's really just simple arbitrage: if the value of Bitcoin goes up, but the electricity cost doesn't, then you have essentially 2 different prices for 1 good, which should attract more miners to spend more money on electricity. If the electricity cost doesn't go up, then the number of Nonce being computed will only go up if more miners join the effort. If they don't, the network is still operational, and produces the same amount of new coin every so often. What is NOT obvious here is that the technology for increasing the mining rates is always increasing, so the clowns will continue to pay to upgrade their hardware over time to save on electrical costs and engage in competition with the technology. The exchange rate for Bitcoin may be related to the technological "power" that is required to keep the network running and producing new coins, but less directly so related to the amount of power burned. > Furthermore, it's, again by design, a competitive system By design, Humans compete. The Bitcoin blockchain could be mined and run by two clowns in a tent if nobody else cared. It's not coded to be competitive, it's coded to be cooperative. This means the the amount of power spent on mining and running the network is a cooperative function. The amount of money spent on developing and producing faster hardware is a competitive function. The two together produce something that is chaotic and interesting. Bitcoin does have a downside, and that is that it is a viral thing that cannot be taken down by any one person or organization. It would take 51% of those running the network to cause it to fork into two. It would take an impossibility to halt it. Maybe this scares some people and maybe it makes some people excited about the possibilities. Either way, we're going to need Fusion to run it in the future.
- ssl232 4y ago
  Most of what you said I agree with, but not your last point: > Either way, we're going to need Fusion to run it in the future. In my understanding, the economics of Bitcoin mean that eventually mining will be performed with predominantly waste energy, which is by definition that which has no other practical use. The existence of a practical use for the energy other than for mining will push its price higher than is economical to use for Bitcoin mining, because other miners using waste energy will be able to pay less to mine the next block. It's likely that energy for Bitcoin mining will come from sources like heat from flare gas, currently just burned at oil refineries and released as photons into the night sky, leaving Earth forever. Or energy from wind turbines or solar panels during periods of low demand. Or a hydroelectric dam 1000s of km from civilisation willing to pay the transmission costs to use it. Or, heck, even heat extracted from sewage in Vegas hotels, if it's enough to run a steam turbine. Basically anywhere where otherwise useless energy can be extracted in quantities sufficient for mining. I don't think, given the costs of the infrastructure likely required for fusion, we'll be seeing it employed for Bitcoin mining long term. This is one of the aspects of Bitcoin I find most beautiful - it monetises waste.
chillacy 4y ago
Upon a second reading of parent poster's comment, there's nothing much to debate the conclusion but mostly debating the degree of certainty of the conclusion, which is a much lower bar. The way I see it though, unless anyone is shorting cryptocurrency with 100% of their net worth I think they are at some level expressing that the world is not so clear cut. Sometimes meme stocks win before you run out of runway.
- mjevans 4y ago
  Knowledge something will fail eventually, and knowledge of exactly when it will are entirely different propositions. The market can stay insolvent longer than the investor.
  - FabHK 4y ago
    "The stock market can remain irrational a lot longer than you can remain solvent." https://quoteinvestigator.com/2011/08/09/remain-solvent/ https://quoteinvestigator.com/2011/08/09/remain-solvent/