4 ms·

It sounds very similar to things like oil production, gold mining, and even farming. When the price is high, everyone wants in on the action. As supply explodes

It sounds very similar to things like oil production, gold mining, and even farming. When the price is high, everyone wants in on the action. As supply explodes, the prices drop. Once prices get low enough, the costs to pump the next barrel of oil, find the next ounce of gold, or harvest the next acre of a certain crop; exceed the reward. When that happens, wells are shut down, mining operations suspended, and different crops planted. The cycle begins again.

eterm 6mo ago
There's a soft failure-mode for bitcoin where due to the alternating difficulty adjustment, you could end up with people only mining every other 2016-block adjustment. Let's call this cycle A and cycle B. If A is too hard, miners drop out, cycle B gets easier, miners flood back, cycle A gets harder. This results in the hard cycle getting longer and the easy cycle getting shorter. This isn't completely critical as there is I believe a small damping effect, so it isn't completely lethal to bitcoin, but a key thing about bitcoin mining is that whether other people are mining or not doesn't actually affect your own profitiability. Other people dropping out doesn't actually mean you get more bitcoins per hour/watt, it only affects the next difficulty adjustment as a secondary effect.
- londons_explore 6mo ago
  The damping effect is that part of your costs are the hardware, space, depreciation etc. leaving that stuff idle costs money - so it makes sense to mine in the less profitable periods too.
  - paulddraper 6mo ago
    Yes though AFAIK electricity is a large %
    - cykros 6mo ago
      The larger it is, the less likely your mining set up is actually all that solid. The best miners are doing so with near free electricity, either with things like subsidized solar, or energy acquired from things like nat gas that'd otherwise get flared, or hydroelectric power that exists too far from civilization to have a demand otherwise. If your miner is plugged into the grid, you're probably doing it wrong.
  - beloch 6mo ago
    Crypto-miners are switching to AI token farming when bitcoin is low. They have compute that's both installed and powered, so why not do what pays better?
    - londons_explore 6mo ago
      For bitcoin at least, you need totally different silicon. I guess you could share the power supply and cooling infra, but I am dubious the savings are enough to have half your silicon idle all the time.
    - xingped 6mo ago
      What the hell is AI token farming?
      - largbae 6mo ago
        I think they mean serving inference workloads
        scheme271 6mo ago
        How does that work? Isn't most bitcoin mining done on custom ASICs? I didn't think that the ASIC could be repurposed for inference.
        packetlost 6mo ago
        The biggest cost is the power which is often on multi year contracts. The hardware is comparatively cheap
        idiotsecant 6mo ago
        That's wildly inaccurate. The cost in enormous both on the inference side and the mining side and has short lifetimes if you want SOTA.
        0xack 6mo ago
  - throwup238 6mo ago
    That depends on each miner's energy costs, so long as (variable cost of energy - revenue from coins) < fixed costs. It's still negative cashflow either way, but the monthly losses have to be weighed against the cost of going insolvent and losing the hardware.
- axus 6mo ago
  I think you're right, it's counterintuitive but less competition means less rewards to share for those who keep mining. Though transaction fees / hour shouldn't decrease, maybe your share of that is bigger.
- deleted 6mo ago
  [deleted]
- themafia 6mo ago
  I thought the rate of mining was tied to the maximum transaction rate the network can support?
  - eterm 6mo ago
    It's the other way around, and there's no obligation to even carry transactions when mining, although it's incentivised through fees. Your mining rate is simply your hash rate vs the hash difficulty. Conceptually, it's analoglous to rolling random numbers in (0,1) until you get to a number smaller than 1/X, where X is large. How long it takes you to do that, isn't dependent on how many other people are also trying to do that, if you get 1 hit per hour, then lots of other people getting hits doesn't actually stop you getting your 1 hit per hour. Now, that's not quite the whole truth, as there's a small amount of time needed for propagation of the previous chain, but with an average hit globally of ~10 minutes, that's not actually a big factor. What could happen to incentivise people is increased fees if blocks get less common due to dropped miners, there'd be more competition to get into blocks if they start filling up. That combined with the fixed costs such as depreciation as othes mentioned, keeps the risk of this form of failure to a minimum.
- Dylan16807 6mo ago
  The difficulty can only adjust by a factor of 4 which also limits the incentive change. You'd need more than 90% of miners to disappear to start seeing actual problems.
chistev 6mo ago
Satoshi thought of everything, man.
- iwontberude 6mo ago
  Clearly not because they created wallets that they can’t even use without unmasking their pseudonym. Seems pretty stupid to me.
  - nomel 6mo ago
    Doesn't this assume that traceability of all transactions wasn't a goal?
- kibwen 6mo ago
  Except for the inevitable and obvious fact that proof-of-work creates a self-sustaining primary incentive for energy waste more pernicious than has ever been seen in any other financial or commercial enterprise, obliterating any hope of having energy that is too cheap to meter.
  - KetoManx64 6mo ago
    Now compare it to the annual energy use for the creation/printing of money and funding of infinite wars due to the Federal Reserve having the ability to print money out of thin air at the cost of future generations.
    - wafflemaker 6mo ago
      >Federal Reserve having the ability to print money out of thin air at the cost of future generations. As a non-American, it's hard not to notice that it's not future generations. It's everyone using dollars. And since your country will be invaded if you try not using dollars to trade oil, and everyone needs oil (transport, food/fertilizers, medicine synthesis), then it's literally the whole world paying. Which incentives USA to print money, because they only shoulder a small part of that burden.
  - 6mo ago
Nursie 6mo ago
There is an interesting missing link in the feedback cycle with Bitcoin though - the same amount is produced regardless, supply does not contract with demand.
Lerc 6mo ago
The difference is that the quantity of what is being supplied is a factor with supply of oil/gold/grain/etc. For mining it is just necessary that it happens. The amount of work in mining is way higher than is required to prevent another party from being able to overwhelm the Blockchain. It is that high because of the subsidy of the mining reward means if Bitcoin has a high value the reward is worth a lot. This is factored in with the halving of the reward. Either the price will increase exponentially or the mining reward will drop. Causing mining to reduce to those who can be profitable from fees. Which rewards those who can mine most efficiently, it becomes a supply and demand calculation in a market where there are relatively low barriers for competitors.
- MBCook 6mo ago
  > The amount of work in mining is way higher than is required to prevent another party from being able to overwhelm the Blockchain. Isn’t that exactly the point? Bitcoin incentivized wasting resources. It is, according to your own comment, unnecessary to use so much computing to keep bitcoin going. But it’s being used.
  - Lerc 6mo ago
    The level to be secure is much lower that. If Bitcoin were worth much less the network would still be secure even though the mining reward would only be enough to pay for a fraction of the current processing. If Bitcoin does not double in value every four years, the mining reward will reduce in real world terms. Claiming the mining resources required will be at the current level or higher perpetually requires also making the claim that you think that the value will increase exponentially forever. Nothing increases exponentially forever.
01HNNWZ0MV43FF 6mo ago
Yep economics rules everything around me

eterm 6mo ago

There's a soft failure-mode for bitcoin where due to the alternating difficulty adjustment, you could end up with people only mining every other 2016-block adjustment. Let's call this cycle A and cycle B. If A is too hard, miners drop out, cycle B gets easier, miners flood back, cycle A gets harder. This results in the hard cycle getting longer and the easy cycle getting shorter. This isn't completely critical as there is I believe a small damping effect, so it isn't completely lethal to bitcoin, but a key thing about bitcoin mining is that whether other people are mining or not doesn't actually affect your own profitiability. Other people dropping out doesn't actually mean you get more bitcoins per hour/watt, it only affects the next difficulty adjustment as a secondary effect.

londons_explore 6mo ago
The damping effect is that part of your costs are the hardware, space, depreciation etc. leaving that stuff idle costs money - so it makes sense to mine in the less profitable periods too.
- paulddraper 6mo ago
  Yes though AFAIK electricity is a large %
  - cykros 6mo ago
    The larger it is, the less likely your mining set up is actually all that solid. The best miners are doing so with near free electricity, either with things like subsidized solar, or energy acquired from things like nat gas that'd otherwise get flared, or hydroelectric power that exists too far from civilization to have a demand otherwise. If your miner is plugged into the grid, you're probably doing it wrong.
- beloch 6mo ago
  Crypto-miners are switching to AI token farming when bitcoin is low. They have compute that's both installed and powered, so why not do what pays better?
  - londons_explore 6mo ago
    For bitcoin at least, you need totally different silicon. I guess you could share the power supply and cooling infra, but I am dubious the savings are enough to have half your silicon idle all the time.
  - xingped 6mo ago
    What the hell is AI token farming?
    - largbae 6mo ago
      I think they mean serving inference workloads
      - scheme271 6mo ago
        How does that work? Isn't most bitcoin mining done on custom ASICs? I didn't think that the ASIC could be repurposed for inference.
        packetlost 6mo ago
        The biggest cost is the power which is often on multi year contracts. The hardware is comparatively cheap
        idiotsecant 6mo ago
        That's wildly inaccurate. The cost in enormous both on the inference side and the mining side and has short lifetimes if you want SOTA.
        0xack 6mo ago
- throwup238 6mo ago
  That depends on each miner's energy costs, so long as (variable cost of energy - revenue from coins) < fixed costs. It's still negative cashflow either way, but the monthly losses have to be weighed against the cost of going insolvent and losing the hardware.
axus 6mo ago
I think you're right, it's counterintuitive but less competition means less rewards to share for those who keep mining. Though transaction fees / hour shouldn't decrease, maybe your share of that is bigger.
deleted 6mo ago
[deleted]
themafia 6mo ago
I thought the rate of mining was tied to the maximum transaction rate the network can support?
- eterm 6mo ago
  It's the other way around, and there's no obligation to even carry transactions when mining, although it's incentivised through fees. Your mining rate is simply your hash rate vs the hash difficulty. Conceptually, it's analoglous to rolling random numbers in (0,1) until you get to a number smaller than 1/X, where X is large. How long it takes you to do that, isn't dependent on how many other people are also trying to do that, if you get 1 hit per hour, then lots of other people getting hits doesn't actually stop you getting your 1 hit per hour. Now, that's not quite the whole truth, as there's a small amount of time needed for propagation of the previous chain, but with an average hit globally of ~10 minutes, that's not actually a big factor. What could happen to incentivise people is increased fees if blocks get less common due to dropped miners, there'd be more competition to get into blocks if they start filling up. That combined with the fixed costs such as depreciation as othes mentioned, keeps the risk of this form of failure to a minimum.
Dylan16807 6mo ago
The difficulty can only adjust by a factor of 4 which also limits the incentive change. You'd need more than 90% of miners to disappear to start seeing actual problems.

chistev 6mo ago

Satoshi thought of everything, man.

iwontberude 6mo ago
Clearly not because they created wallets that they can’t even use without unmasking their pseudonym. Seems pretty stupid to me.
- nomel 6mo ago
  Doesn't this assume that traceability of all transactions wasn't a goal?
kibwen 6mo ago
Except for the inevitable and obvious fact that proof-of-work creates a self-sustaining primary incentive for energy waste more pernicious than has ever been seen in any other financial or commercial enterprise, obliterating any hope of having energy that is too cheap to meter.
- KetoManx64 6mo ago
  Now compare it to the annual energy use for the creation/printing of money and funding of infinite wars due to the Federal Reserve having the ability to print money out of thin air at the cost of future generations.
  - wafflemaker 6mo ago
    >Federal Reserve having the ability to print money out of thin air at the cost of future generations. As a non-American, it's hard not to notice that it's not future generations. It's everyone using dollars. And since your country will be invaded if you try not using dollars to trade oil, and everyone needs oil (transport, food/fertilizers, medicine synthesis), then it's literally the whole world paying. Which incentives USA to print money, because they only shoulder a small part of that burden.
- 6mo ago

Nursie 6mo ago

There is an interesting missing link in the feedback cycle with Bitcoin though - the same amount is produced regardless, supply does not contract with demand.

Lerc 6mo ago

The difference is that the quantity of what is being supplied is a factor with supply of oil/gold/grain/etc. For mining it is just necessary that it happens. The amount of work in mining is way higher than is required to prevent another party from being able to overwhelm the Blockchain. It is that high because of the subsidy of the mining reward means if Bitcoin has a high value the reward is worth a lot. This is factored in with the halving of the reward. Either the price will increase exponentially or the mining reward will drop. Causing mining to reduce to those who can be profitable from fees. Which rewards those who can mine most efficiently, it becomes a supply and demand calculation in a market where there are relatively low barriers for competitors.

MBCook 6mo ago
> The amount of work in mining is way higher than is required to prevent another party from being able to overwhelm the Blockchain. Isn’t that exactly the point? Bitcoin incentivized wasting resources. It is, according to your own comment, unnecessary to use so much computing to keep bitcoin going. But it’s being used.
- Lerc 6mo ago
  The level to be secure is much lower that. If Bitcoin were worth much less the network would still be secure even though the mining reward would only be enough to pay for a fraction of the current processing. If Bitcoin does not double in value every four years, the mining reward will reduce in real world terms. Claiming the mining resources required will be at the current level or higher perpetually requires also making the claim that you think that the value will increase exponentially forever. Nothing increases exponentially forever.

01HNNWZ0MV43FF 6mo ago

Yep economics rules everything around me