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The most clear-cut argument against Bitcoin is that it is a ridiculous waste of energy. The nature of mining in the protocol implies that if Bitcoin takes off o

The most clear-cut argument against Bitcoin is that it is a ridiculous waste of energy. The nature of mining in the protocol implies that if Bitcoin takes off on any significant scale, there is a dichotomy going on: either there are so few miners that single large actors can dominate the total hashing power of the network, making it vulnerable; or, a significant fraction of the total world computing power goes towards mining - which means that the electricity used up by the Bitcoin network would be much larger on any reasonable measure than what you need to maintain other currencies. Wasting energy is not exactly a good plan for the future.

kiba 14y ago
Miners will generally operate when their revenue is greater than their loss in term of electricity bill(if they're not being parasites). Let calculate the revenue a miner would get if they win all the blocks: 50 bitcoin every 10 minutes mean 300 bitcoin, which mean 7200 bitcoin a day. The price of a bitcoin at the time I am writing this is 6.54 USD, so the total revenue is 47,088 USD per day. That mean, assuming a miner can win all blocks at 50 bitcoin forever assuming the price and difficulty stay the same, he can afford to pay an electric bill of 47,088 per day assuming that the price hold stable. This equals to 17,187,120 USD in revenue every year. The market cap of bitcoin is only 60,951,475 USD, which mean miner revenue equals 28% of the market cap. However, most economic activities are certainly not miners, but actually trading bots and speculators across exchanges. In the MtGox USD alone, about 8.7 million dollars worth of bitcoin were exchanged in 30 days. You can also add in the various economic activities other than trading currencies, such as virtual goods, hosting, ice creams, t-shirts, porn, illegal drugs, etc. You can conclude that the miners are guaranteeing more than just revenues for themselves, as the various activities in the bitcoin economy which actually probably dwarf what the miners are making in term of revenues. As far as being actually efficient method of security for a currency? Probably not right now, assuming that security measures actually scale economically. It could be that the actual electricity cost grows slower as more and more efficient method of hashing are found.
cabalamat 14y ago
Mining bitcoins is useless work to exactly the same extent that mining gold is useless work. > which means that the electricity used up by the Bitcoin network would be much larger on any reasonable measure than what you need to maintain other currencies This is only true if the other currencies are fiat money. For a non-fiat currency, it is necessary that either (i) it is hard to make (or people will just make enormous amounts and its value will go away), or (ii) it has intrinsic value.
geoffschmidt 14y ago
While this is an excellent point and one I hadn't heard before, I'm not so sure you're properly modeling the cost of maintaining other currencies. Must we include the Fed? The enormous physical system that securely moves money all the way from the mint to every single cash register? The opportunity cost of the time of all of the smart people who work on international currency arbitrage, but would otherwise be doctors and scientists? Since paper money is backed ultimately by the threat of violence against those who counterfeit it, wherever they may be in the world, we must include some fraction of our defense spending as well. In fact, the more valuable the currency, the more must be spent on defense to protect it. Isn't this closely isomorphic to your dichotomy?
2367o1 14y ago
Note how ridiculous the counter arguments. I too have made this argument several times and I have gotten similar nonsense in response. I recall reading a story about some guy who was visited by police as they thought he was running an indoor pot growing operation, only to find after searching the premises that he was a bitcoin miner. It takes quite a power surge to draw that kind of attention from police. Bitcoin is geeky, and maybe it's idealistic in some good ways, but it's not "green" and it's not practical. What happens when there's a loss of electricity? Do we fallback to paper currency then?
- sgornick 14y ago
  Bitcoin payments for person-to-person can be done on mobile. Merchants can run their own point-of-sale or use a hosted solution (or, us a mobile / tablet, just like an individual). For merchants, just like if VISA/Mastercard/Debit card, etc., goes out due to power problems (and there there is no battery backup or local generation), a merchant can't accept payments until power is restored. As far as power outages for those mining -- there is no disturbance to Bitcoin even for lots of power distruptions. If the entire world goes dark, your inability to spend bitcoins will be the least of your problems.
sgornick 14y ago
Quite a bit of the money that mining operators receive is now going mostly going towards investment in R&D (and soon, manufacture) of ultra-efficient ASIC based mining hardware. This things solve the computational work at a couple orders of magnitude greater than GPUs (the currently prevalent mining hardware) does. So instead of 70% of the cost of mining going to pay for the electricity, it will be 10%, and the cost of the technology consuming the remaining 90%. I.e., in terms of total kWhs consumed for Bitcoin mining, we probably are already past the peak. One single bank building in Manhattan consumes way more power than Bitcoin ever has.

kiba 14y ago

Miners will generally operate when their revenue is greater than their loss in term of electricity bill(if they're not being parasites). Let calculate the revenue a miner would get if they win all the blocks: 50 bitcoin every 10 minutes mean 300 bitcoin, which mean 7200 bitcoin a day. The price of a bitcoin at the time I am writing this is 6.54 USD, so the total revenue is 47,088 USD per day. That mean, assuming a miner can win all blocks at 50 bitcoin forever assuming the price and difficulty stay the same, he can afford to pay an electric bill of 47,088 per day assuming that the price hold stable. This equals to 17,187,120 USD in revenue every year. The market cap of bitcoin is only 60,951,475 USD, which mean miner revenue equals 28% of the market cap. However, most economic activities are certainly not miners, but actually trading bots and speculators across exchanges. In the MtGox USD alone, about 8.7 million dollars worth of bitcoin were exchanged in 30 days. You can also add in the various economic activities other than trading currencies, such as virtual goods, hosting, ice creams, t-shirts, porn, illegal drugs, etc. You can conclude that the miners are guaranteeing more than just revenues for themselves, as the various activities in the bitcoin economy which actually probably dwarf what the miners are making in term of revenues. As far as being actually efficient method of security for a currency? Probably not right now, assuming that security measures actually scale economically. It could be that the actual electricity cost grows slower as more and more efficient method of hashing are found.

cabalamat 14y ago

Mining bitcoins is useless work to exactly the same extent that mining gold is useless work. > which means that the electricity used up by the Bitcoin network would be much larger on any reasonable measure than what you need to maintain other currencies This is only true if the other currencies are fiat money. For a non-fiat currency, it is necessary that either (i) it is hard to make (or people will just make enormous amounts and its value will go away), or (ii) it has intrinsic value.

geoffschmidt 14y ago

While this is an excellent point and one I hadn't heard before, I'm not so sure you're properly modeling the cost of maintaining other currencies. Must we include the Fed? The enormous physical system that securely moves money all the way from the mint to every single cash register? The opportunity cost of the time of all of the smart people who work on international currency arbitrage, but would otherwise be doctors and scientists? Since paper money is backed ultimately by the threat of violence against those who counterfeit it, wherever they may be in the world, we must include some fraction of our defense spending as well. In fact, the more valuable the currency, the more must be spent on defense to protect it. Isn't this closely isomorphic to your dichotomy?

2367o1 14y ago

Note how ridiculous the counter arguments. I too have made this argument several times and I have gotten similar nonsense in response. I recall reading a story about some guy who was visited by police as they thought he was running an indoor pot growing operation, only to find after searching the premises that he was a bitcoin miner. It takes quite a power surge to draw that kind of attention from police. Bitcoin is geeky, and maybe it's idealistic in some good ways, but it's not "green" and it's not practical. What happens when there's a loss of electricity? Do we fallback to paper currency then?

sgornick 14y ago
Bitcoin payments for person-to-person can be done on mobile. Merchants can run their own point-of-sale or use a hosted solution (or, us a mobile / tablet, just like an individual). For merchants, just like if VISA/Mastercard/Debit card, etc., goes out due to power problems (and there there is no battery backup or local generation), a merchant can't accept payments until power is restored. As far as power outages for those mining -- there is no disturbance to Bitcoin even for lots of power distruptions. If the entire world goes dark, your inability to spend bitcoins will be the least of your problems.

sgornick 14y ago

Quite a bit of the money that mining operators receive is now going mostly going towards investment in R&D (and soon, manufacture) of ultra-efficient ASIC based mining hardware. This things solve the computational work at a couple orders of magnitude greater than GPUs (the currently prevalent mining hardware) does. So instead of 70% of the cost of mining going to pay for the electricity, it will be 10%, and the cost of the technology consuming the remaining 90%. I.e., in terms of total kWhs consumed for Bitcoin mining, we probably are already past the peak. One single bank building in Manhattan consumes way more power than Bitcoin ever has.