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Bitcoin is a scheme designed to create a deflationary store of value by wasting electrical energy, co-opted by a vast amount of people who really did look at it

by mpyne 12y ago

Bitcoin is a scheme designed to create a deflationary store of value by wasting electrical energy, co-opted by a vast amount of people who really did look at it like "tulips" and who continue to operate today as if it's a pump-and-dump. You are certainly right to point out that there are a lot of Bitcoin developers and users who are not assholes and have good intentions, but Bitcoin is not the vehicle that's going to work for things like banking in undeveloped countries. I'm honestly a bit surprised you brought that up, as even with the mining fees needed to pay off the Bitcoin network being subsidized by inflation of the money supply (which is apparently good when it's happening now in accordance with an algorithm that was certainly not determined by a centrali party, but won't be good in 20 years because ???), Bitcoin currently requires about $18 per transaction (https://blockchain.info/charts/cost-per-transaction https://blockchain.info/charts/cost-per-transaction). And the price is only that low because the value of Bitcoin in USD has been dropping steadily for months. If Bitcoin ever became as popular as its proponents hope then the per/tranx price will go up as well (until the entire network is burning through so much electrical power that more miners can't be brought online to compete in the Mine-a-Block lottery at the new, higher Bitcoin price). Increasing the number of transactions will help, sure, but it's currently limited to ~7 per second, and although there are technical means of increasing that someday, the Bitcoin lead developer has indicated they probably wouldn't do that anyways (https://bitcoinfoundation.org/2014/10/blocksize-economics/ https://bitcoinfoundation.org/2014/10/blocksize-economics/) since then how will the poor miners make money? And in a future where people actually have to bid their transaction fee high enough to be accepted by benevolent miners just to make it in the blockchain, how are the poor of Africa supposed to compete at all? I'm glad you're worried about them, but don't tie their fate to a network which is designed to be horribly inefficient just so people can say that no trusted third parties were ever utilized in a monetary transaction! Especially in this era of increasing centralization in Bitcoin itself; I don't see how those in Africa were their most-capable computing device is a mobile are supposed to compete with the mining pools and ASIC manufacturer/miners, all you'll have done is traded centralized protocols regulated by the public sector with centralized Bitcoin overseen by the profit-seeking private sector. I'm not an expert on the wide field of crypto-currency but surely there must be something better out there.

comboy 12y ago
I do love Bitcoin criticism from people who've done their homework. Thanks. I don't think Bitcoin is meant to be your direct mean of payment for coffee. Centralized solutions are cheaper than decentralized ones. In case of Africa for example, you can have many different competing centralized payment systems. But you can fund them with bitcoin, not depending on government printed money. In developed countries, we have CCs and some wanna-be payment systems, but there's very little competition, mostly because it's very expensive to create such company. You cannot start a new VISA in your garage. That's because of how banking system is constructed. But you can start payment system backed by bitcoin in your garage. More competition = lower transaction fees. And given your background I'm assuming you already know counterarguments to "deflationary store of value by wasting electrical energy" and just used it to make your point.
- mpyne 12y ago
  Saying that you can fund centralized payment systems with Bitcoin isn't an argument for Bitcoin, it's a solution in search of a problem. Even if you think fiat is completely unacceptable you can fund those centralized payment schemes in Africa with gold, or silver, or cowrie shells, or human urea (not making it up; https://twitter.com/UroFoundation https://twitter.com/UroFoundation), or any of a million other things that don't require billion-dollar foundries to make the mining hardware you need. You're right that you can't start a new Visa in your garage, but as it turns out even they have competition, and more than "very little". In any case "garage bootstrap ability" is not a value metric that I hear as a serious talking point that often. Normally we bootstrap things in garages and quickly try to scale them up out of garages (Visa itself was probably started in nothing larger than a Bank of America conference room, after all). And good luck fitting the datacenters behind Chinese-based Bitcoin mining operations in a single garage. As far as competition alone driving fees down, that only works up to a point (which is why no efficient market has managed zero fees, even in high-competition markets where the profit margins are squeezed very low). For Bitcoin as long as miners can turn a profit for the price of electricity they use, they'll continue to come online to buy tickets in the lottery with KW-hr, so the transaction fees will be based on the delta between the price of electricity and the price of Bitcoin itself, and mining itself will migrate to increasingly more efficient (and centralized) operations with plentiful cheap electricity and cooling as less efficient miners are driven out of business. But at 7 tranx/sec even the most efficient miners won't easily be able to pay for that on pennies/transaction. And since individual miners collaborating in mining pools will probably never go away (since it's not that expensive to "play the lottery" with only a couple of ASICs on your personal power bill), the efficient mining firms will have to eke out a profit on something less than 100% of the blocks out there, causing them to charge even more per transaction. At the end of the day the "fundamentals" is that Bitcoin in steady-state will convert electrical power into a distributed ledger without trusted third parties (except, of course, for the centralized miners themselves...), and that electrical power has to be paid for by the users of the Bitcoin network itself. Doing the same thing that Bitcoin does today with distributed networks that are orders of magnitude more power-efficient (even if they did utilize trusted third parties) would result in a much, much cheaper financial network, which would be even that much better for the poor of Africa (and that much easier to drive to near-zero fees by competition). After all, those transaction fees for Bitcoin don't pay for anything than keeping the ledger up to date, and don't include insurance fees for things such as fraud, scams by the counterparty, and a host of other things that are accounted for in the fees that Visa and its many competitors charges.

by mpyne 12y ago

comboy 12y ago

I do love Bitcoin criticism from people who've done their homework. Thanks. I don't think Bitcoin is meant to be your direct mean of payment for coffee. Centralized solutions are cheaper than decentralized ones. In case of Africa for example, you can have many different competing centralized payment systems. But you can fund them with bitcoin, not depending on government printed money. In developed countries, we have CCs and some wanna-be payment systems, but there's very little competition, mostly because it's very expensive to create such company. You cannot start a new VISA in your garage. That's because of how banking system is constructed. But you can start payment system backed by bitcoin in your garage. More competition = lower transaction fees. And given your background I'm assuming you already know counterarguments to "deflationary store of value by wasting electrical energy" and just used it to make your point.

mpyne 12y ago
Saying that you can fund centralized payment systems with Bitcoin isn't an argument for Bitcoin, it's a solution in search of a problem. Even if you think fiat is completely unacceptable you can fund those centralized payment schemes in Africa with gold, or silver, or cowrie shells, or human urea (not making it up; https://twitter.com/UroFoundation https://twitter.com/UroFoundation), or any of a million other things that don't require billion-dollar foundries to make the mining hardware you need. You're right that you can't start a new Visa in your garage, but as it turns out even they have competition, and more than "very little". In any case "garage bootstrap ability" is not a value metric that I hear as a serious talking point that often. Normally we bootstrap things in garages and quickly try to scale them up out of garages (Visa itself was probably started in nothing larger than a Bank of America conference room, after all). And good luck fitting the datacenters behind Chinese-based Bitcoin mining operations in a single garage. As far as competition alone driving fees down, that only works up to a point (which is why no efficient market has managed zero fees, even in high-competition markets where the profit margins are squeezed very low). For Bitcoin as long as miners can turn a profit for the price of electricity they use, they'll continue to come online to buy tickets in the lottery with KW-hr, so the transaction fees will be based on the delta between the price of electricity and the price of Bitcoin itself, and mining itself will migrate to increasingly more efficient (and centralized) operations with plentiful cheap electricity and cooling as less efficient miners are driven out of business. But at 7 tranx/sec even the most efficient miners won't easily be able to pay for that on pennies/transaction. And since individual miners collaborating in mining pools will probably never go away (since it's not that expensive to "play the lottery" with only a couple of ASICs on your personal power bill), the efficient mining firms will have to eke out a profit on something less than 100% of the blocks out there, causing them to charge even more per transaction. At the end of the day the "fundamentals" is that Bitcoin in steady-state will convert electrical power into a distributed ledger without trusted third parties (except, of course, for the centralized miners themselves...), and that electrical power has to be paid for by the users of the Bitcoin network itself. Doing the same thing that Bitcoin does today with distributed networks that are orders of magnitude more power-efficient (even if they did utilize trusted third parties) would result in a much, much cheaper financial network, which would be even that much better for the poor of Africa (and that much easier to drive to near-zero fees by competition). After all, those transaction fees for Bitcoin don't pay for anything than keeping the ledger up to date, and don't include insurance fees for things such as fraud, scams by the counterparty, and a host of other things that are accounted for in the fees that Visa and its many competitors charges.