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The price does matter. Keeping a network with 250 PHash/s running costs 219 million Dollars per year (1 GHash/J mining efficiency, 100 $/MWh energy costs) and p

by danbruc 12y ago

The price does matter. Keeping a network with 250 PHash/s running costs 219 million Dollars per year (1 GHash/J mining efficiency, 100 $/MWh energy costs) and probably quite a bit more if you account for other costs like hardware, rental or cooling. If your block reward is worth nothing you will have a problem keeping the network running. Scale back the hash rate and you get vulnerable. Increase the fees - with 100k transaction per day you are looking at costs of 6 Dollars per transaction for electricity only - and you damage one of the main selling points of Bitcoin, cheap transactions. And this again is prohibitive for Bitcoin adoption in underdeveloped countries which are often suggested as a core market.

logicallee 12y ago
I have a hard time believing that scaling back the hash rate gets you vulnerable. $219 million dollars per year ($7/second) in cryptographic operations to support a maximum of 7 transactions per second - the bitcoin network's current maximum is... a bit ridiculous
- danbruc 12y ago
  The hardware is out there. If you reduce the hash rate and therefore the operation costs tenfold you end up with a 25 PHash/s network on the one hand and unused hardware worth 225 PHash/s on the other hand. Significantly reducing the network hash rate without getting vulnerable seems a pretty hard problem to me. I did not make the numbers up - hash rate and transaction volume [1], mining efficiencies [2] and energy costs [3]. Actually I think I underestimated the costs quite a bit. [1] https://blockchain.info/stats https://blockchain.info/stats [2] https://en.bitcoin.it/wiki/Mining_hardware_comparison https://en.bitcoin.it/wiki/Mining_hardware_comparison [3] http://www.statista.com/statistics/263492/electricity-prices-in-selected-countries/ http://www.statista.com/statistics/263492/electricity-prices...
  - logicallee 12y ago
    Are you saying it's worth the time of the owners of the hardware to break bitcoin? Why? When a mining pool recently reached 50% of hashrate, they didn't use it to break bitcoin. Just because something isn't cryptographically secure anymore (e.g. 51% owned by 1 single party) doesn't break anything. Likewise I doubt the $200 million worth of hardware needs to be used on the hashrate.
    - danbruc 12y ago
      The cheapest hardware listed on the page linked before is 2.5 GHash/s/$. This yields hardware worth 100 million Dollars as a lower bound. But I did not think so much about hardware costs when I said that it is probably underestimated but because I picked the efficiency from the top of the range and energy costs from the bottom. And it does not necessarily break anything but the security of Bitcoin is build on the assumption that it is very hard for any single entity to posses the majority of the hash rate. If you take the 100 million Dollars of hardware, reducing the hash rate tenfold will make the network attackable with only 10 million Dollars which seems pretty cheap to me. And being vulnerable does not imply the attack is actually executed, it only means it could happen anytime. But do you want your money in a system that could be attack anytime?
      - logicallee 12y ago
        As I mentioned, 51% of the network did get controlled by one single entity. The question "do you want your money in a system that could be attacked anytime" has two answers: "Yes" or "I don't want any money." There is no perfectly secure third alternative.
        danbruc 12y ago
        They controlled 51 % and decided not to abuse their power. But the idea behind Bitcoin is that you don't have to trust any single entity and if you allow this to happen this idea goes straight out of the window. You could just as well throw out all the expensive cryptographic stuff, send them your transactions and let them manage them in an Excel sheet and hope they will not abuse your trust.
sj4nz 12y ago
This is the scariest thing about BitCoin, this efficiency bubble. What happens when the world's miners decide that a different crypto-coinage is more profitable? I don't believe that the difficulty parameter in BitCoin adjusts very fast (every 2016 blocks or ~14 days) and you could have transaction speed disruptions. If a block doesn't solve in 10 minutes but instead an hour, you'll have a lot of very unhappy people waiting for transactions to seal and they'll abandon the network after selling off their assets. That's just the time aspect, you mention the transaction fee aspect, and that will drive people away as well if they start to creep near what legacy financial systems charge. The declining block reward in BitCoin guarantees that transaction fees will increase because of the limited capacity of the consensus network's data-storage/transaction block.
- davidgerard 12y ago
  At present: * Bitcoin is doing badly in terms of electricity cost versus block rewards. If it keeps going down, the miners are going to switch off. * All altcoins are doing worse. Because the altcoins are basically alternatives to Bitcoin, but their value has gone down even more than Bitcoin's. (I could be wrong - are there any that haven't, which have non-negligible exchangeability and/or trading volume?)

by danbruc 12y ago

logicallee 12y ago

I have a hard time believing that scaling back the hash rate gets you vulnerable. $219 million dollars per year ($7/second) in cryptographic operations to support a maximum of 7 transactions per second - the bitcoin network's current maximum is... a bit ridiculous

danbruc 12y ago
The hardware is out there. If you reduce the hash rate and therefore the operation costs tenfold you end up with a 25 PHash/s network on the one hand and unused hardware worth 225 PHash/s on the other hand. Significantly reducing the network hash rate without getting vulnerable seems a pretty hard problem to me. I did not make the numbers up - hash rate and transaction volume [1], mining efficiencies [2] and energy costs [3]. Actually I think I underestimated the costs quite a bit. [1] https://blockchain.info/stats https://blockchain.info/stats [2] https://en.bitcoin.it/wiki/Mining_hardware_comparison https://en.bitcoin.it/wiki/Mining_hardware_comparison [3] http://www.statista.com/statistics/263492/electricity-prices-in-selected-countries/ http://www.statista.com/statistics/263492/electricity-prices...
- logicallee 12y ago
  Are you saying it's worth the time of the owners of the hardware to break bitcoin? Why? When a mining pool recently reached 50% of hashrate, they didn't use it to break bitcoin. Just because something isn't cryptographically secure anymore (e.g. 51% owned by 1 single party) doesn't break anything. Likewise I doubt the $200 million worth of hardware needs to be used on the hashrate.
  - danbruc 12y ago
    The cheapest hardware listed on the page linked before is 2.5 GHash/s/$. This yields hardware worth 100 million Dollars as a lower bound. But I did not think so much about hardware costs when I said that it is probably underestimated but because I picked the efficiency from the top of the range and energy costs from the bottom. And it does not necessarily break anything but the security of Bitcoin is build on the assumption that it is very hard for any single entity to posses the majority of the hash rate. If you take the 100 million Dollars of hardware, reducing the hash rate tenfold will make the network attackable with only 10 million Dollars which seems pretty cheap to me. And being vulnerable does not imply the attack is actually executed, it only means it could happen anytime. But do you want your money in a system that could be attack anytime?
    - logicallee 12y ago
      As I mentioned, 51% of the network did get controlled by one single entity. The question "do you want your money in a system that could be attacked anytime" has two answers: "Yes" or "I don't want any money." There is no perfectly secure third alternative.
      - danbruc 12y ago
        They controlled 51 % and decided not to abuse their power. But the idea behind Bitcoin is that you don't have to trust any single entity and if you allow this to happen this idea goes straight out of the window. You could just as well throw out all the expensive cryptographic stuff, send them your transactions and let them manage them in an Excel sheet and hope they will not abuse your trust.

sj4nz 12y ago

This is the scariest thing about BitCoin, this efficiency bubble. What happens when the world's miners decide that a different crypto-coinage is more profitable? I don't believe that the difficulty parameter in BitCoin adjusts very fast (every 2016 blocks or ~14 days) and you could have transaction speed disruptions. If a block doesn't solve in 10 minutes but instead an hour, you'll have a lot of very unhappy people waiting for transactions to seal and they'll abandon the network after selling off their assets. That's just the time aspect, you mention the transaction fee aspect, and that will drive people away as well if they start to creep near what legacy financial systems charge. The declining block reward in BitCoin guarantees that transaction fees will increase because of the limited capacity of the consensus network's data-storage/transaction block.

davidgerard 12y ago
At present: * Bitcoin is doing badly in terms of electricity cost versus block rewards. If it keeps going down, the miners are going to switch off. * All altcoins are doing worse. Because the altcoins are basically alternatives to Bitcoin, but their value has gone down even more than Bitcoin's. (I could be wrong - are there any that haven't, which have non-negligible exchangeability and/or trading volume?)