7 ms·

Bitcoin – The Magic of Mining

47 points by mgertner 12y ago

thefreeman 12y ago
https://www.google.com/search?q=Bitcoin+%E2%80%93+The+Magic+of+Mining&oq=Bitcoin+%E2%80%93+The+Magic+of+Mining&aqs=chrome..69i57j69i64.239j0j7&sourceid=chrome&es_sm=122&ie=UTF-8 https://www.google.com/search?q=Bitcoin+%E2%80%93+The+Magic+...
- drivingmenuts 12y ago
  Thank you.
mrb 12y ago
"last year it performed even worse than the Russian rouble and Ukrainian hryvnia" A number of journalists have relayed this claim lately, but I find it disingenuous as it avoid talking about the real reason (volatility) and it hides the big picture (Bitcoin is up 3200% over the last two years [1]). Otherwise, this is a good article about mining. But one comment I would like to make is that people, like this author, sometimes claim Bitcoin's mining consume a lot of electricity. But compared to what? It is fair to compare it to the many data centers owned and operated by credit card processors, banks, and all sorts of financial companies, but only to the portion of these data centers that fulfill a role roughly comparable to Bitcoin: processing transactions, verifying fraud, etc. Let's do some math: North American data center market power consumption is about 12 gigawatt [2]. I don't know what the world data center power consumption is, but let's assume ~3x that, or 30 gigawatt [3]. Let's assume that 1/3 of these data centers belong to financial companies, so 10 gigawatt are consumed by financial data centers. If half of these data centers are used to process transactions and for anti-fraud purposes, that's 5 gigawatt. By comparison, Bitcoin's mining operations worldwide are estimated to consume 150 megawatt [4]. So Bitcoin mining uses 3% of the electricity of what financial companies use for similar purposes. [1] From $6 in January 2013 to $200 as of today: http://bitcoincharts.com/charts/bitstampUSD#rg730ztgSzm1g10zm2g25zl http://bitcoincharts.com/charts/bitstampUSD#rg730ztgSzm1g10z... [2] http://www.datacenterdynamics.com/focus/archive/2014/01/15-growth-forecast-north-america-colocation-market-2014-0 http://www.datacenterdynamics.com/focus/archive/2014/01/15-g... [3] 30 gigawatt is also approximately in line with the often quoted estimate that data centers use ~1% of the world's electricity (~1% of 2500 gigawatt). [4] http://www.eetimes.com/document.asp?doc_id=1323522 http://www.eetimes.com/document.asp?doc_id=1323522 - the global hashrate has increased by 50% since this article was written (~200 petahash/sec in August 2014, to ~300 petahash/sec today) but at the same time hardware efficiency (hash/sec per watt) has increased, so the ballpark number is correct. In fact the economist article also estimates it at ~135,000 average american homes, or 168 megawatt (1 average home = 1250 watt). Edit: @the_mitsuhiko: By definition, "volatility" is a price variation over time, regardless if it is consistent or not.
- the_mitsuhiko 12y ago
  > but I find it disingenuous as it avoid talking about the real reason (volatility) and it hides the big picture I don't think a consistent drop over a year can be attributed to volatility.
- bdcravens 12y ago
  In all these discussions of Bitcoin's price over N months, I don't see anyone consider this: 2 years is 44% of its tradable life (first trades on Mt. Gox were in July 2010). You might as well talk about Apple's performance since 2000, which is 44% of its tradable life. In which case, you see similar returns (almost 3000%) So if Bitcoin goes down to $30, that's an amazing investment, right? After all, that's a 500% ROI!
  - cgjaro 12y ago
    Nobody talks about "percentage of tradable life" because this is a pointless metric. You don't see banks publishing prospectus saying "this investment gained x% over y% of its tradable life". %/year is what matters to all investors. > So if Bitcoin goes down to $30, that's an amazing investment, right? After all, that's a 500% ROI! Absolutely. Buying at $6 in january 2013, and selling even at $30 would be a 500% ROI and a great investment over 2 years. What is your point?
    - bdcravens 12y ago
      "%/year is what matters to all investors" Exactly. Only one in Bitcoin in January 2013 were those who were really deep in the community. Investors don't care what the price was before they purchased.
    - jgalt212 12y ago
      yes, but drawdowns are very important to investors as well, not just ROI. http://en.wikipedia.org/wiki/Drawdown_(economics) http://en.wikipedia.org/wiki/Drawdown_(economics)
Animats 12y ago
That's a good article on Bitcoin mining. Last week a big cloud mining operation, CEX.io, shut down. (http://www.coindesk.com/cex-io-halts-cloud-mining-service-due-low-bitcoin-price/ http://www.coindesk.com/cex-io-halts-cloud-mining-service-du...) The price of Bitcoin has dropped to the point that their operation was unprofitable. Because the total weekly reward to all miners is fixed, all miners are in direct competition. If mining effort doubles, return on mining investment halves. The big operations are starting to hit that limit. The little guys hit it a long time ago.
danbruc 12y ago
Mining is what will ultimately make Bitcoin fail. You want to give everyone a single vote so that the majority can agree on which transactions are valid and which are not. But because you don't want a central authority that checks ID documents you come up with the idea of mining - make having a vote in the Bitcoin network an expensive thing by requiring to buy hardware and then spend more money on electricity to keep you hardware alive. It's not really fair because if you happen to have a lot of money you can buy a lot of votes. But the really bad thing is that you just made Bitcoin transactions pretty expensive - I got six Dollars per transaction for electricity only about a month ago. Even worse, processing more transaction will or should not lower these costs. If Bitcoin would really take off processing transactions worth billions every day, you really don't want to protect them by hardware and electricity costs only worth a few millions because the growing transaction volume will also increase the amount of money someone would be willing to spend to mess with your system. At least up to some limit you really want the total mining costs proportional to the transaction volume. And from there down it goes. Bitcoin transactions are not cheap even if the current low transaction fees suggest it. As the block reward goes down all the costs of running the Bitcoin network will end up as transaction fees. And transaction costs of several dollars are the death of micropayments and Bitcoin adoption in the underdeveloped world, two of the most lauded arguments for Bitcoin. I am not dismissive of the idea of cryptocurrencies but Bitcoin with its proof of work scheme won't be the queen of the prom.
- johndevor 12y ago
  > As the block reward goes down all the costs of running the Bitcoin network will end up as transaction fees. You haven't mentioned off-chain transactions at all. Don't you think Coinbase and others could enable those micropayments you're worried about?
  - danbruc 12y ago
    Off-chain transactions have nothing to do with Bitcoin - they are just changing the balances of their customers in their database. Essentially no difference to you average bank account besides that it only works between two users of the same service. Unless they make agreements between different services making them even more similar to your average bank. You have to completely trust them because these off-chain transactions are neither visible to the public nor agreed on by the majority of the votes nor secured by any cryptographic or proof of work or whatever measures. All trades at Mt. Gox were off-chain transactions...
brainy 12y ago
guys here in africa ze are starting to accpt bitcoin and i think this will have a positive effect on the coin http://techunzipped.com/bitcoin-conference-africa/ http://techunzipped.com/bitcoin-conference-africa/

47 points by mgertner 12y ago

https://www.google.com/search?q=Bitcoin+%E2%80%93+The+Magic+of+Mining&oq=Bitcoin+%E2%80%93+The+Magic+of+Mining&aqs=chrome..69i57j69i64.239j0j7&sourceid=chrome&es_sm=122&ie=UTF-8 https://www.google.com/search?q=Bitcoin+%E2%80%93+The+Magic+...

drivingmenuts 12y ago
Thank you.

mrb 12y ago

"last year it performed even worse than the Russian rouble and Ukrainian hryvnia" A number of journalists have relayed this claim lately, but I find it disingenuous as it avoid talking about the real reason (volatility) and it hides the big picture (Bitcoin is up 3200% over the last two years [1]). Otherwise, this is a good article about mining. But one comment I would like to make is that people, like this author, sometimes claim Bitcoin's mining consume a lot of electricity. But compared to what? It is fair to compare it to the many data centers owned and operated by credit card processors, banks, and all sorts of financial companies, but only to the portion of these data centers that fulfill a role roughly comparable to Bitcoin: processing transactions, verifying fraud, etc. Let's do some math: North American data center market power consumption is about 12 gigawatt [2]. I don't know what the world data center power consumption is, but let's assume ~3x that, or 30 gigawatt [3]. Let's assume that 1/3 of these data centers belong to financial companies, so 10 gigawatt are consumed by financial data centers. If half of these data centers are used to process transactions and for anti-fraud purposes, that's 5 gigawatt. By comparison, Bitcoin's mining operations worldwide are estimated to consume 150 megawatt [4]. So Bitcoin mining uses 3% of the electricity of what financial companies use for similar purposes. [1] From $6 in January 2013 to $200 as of today: http://bitcoincharts.com/charts/bitstampUSD#rg730ztgSzm1g10zm2g25zl http://bitcoincharts.com/charts/bitstampUSD#rg730ztgSzm1g10z... [2] http://www.datacenterdynamics.com/focus/archive/2014/01/15-growth-forecast-north-america-colocation-market-2014-0 http://www.datacenterdynamics.com/focus/archive/2014/01/15-g... [3] 30 gigawatt is also approximately in line with the often quoted estimate that data centers use ~1% of the world's electricity (~1% of 2500 gigawatt). [4] http://www.eetimes.com/document.asp?doc_id=1323522 http://www.eetimes.com/document.asp?doc_id=1323522 - the global hashrate has increased by 50% since this article was written (~200 petahash/sec in August 2014, to ~300 petahash/sec today) but at the same time hardware efficiency (hash/sec per watt) has increased, so the ballpark number is correct. In fact the economist article also estimates it at ~135,000 average american homes, or 168 megawatt (1 average home = 1250 watt). Edit: @the_mitsuhiko: By definition, "volatility" is a price variation over time, regardless if it is consistent or not.

the_mitsuhiko 12y ago
> but I find it disingenuous as it avoid talking about the real reason (volatility) and it hides the big picture I don't think a consistent drop over a year can be attributed to volatility.
bdcravens 12y ago
In all these discussions of Bitcoin's price over N months, I don't see anyone consider this: 2 years is 44% of its tradable life (first trades on Mt. Gox were in July 2010). You might as well talk about Apple's performance since 2000, which is 44% of its tradable life. In which case, you see similar returns (almost 3000%) So if Bitcoin goes down to $30, that's an amazing investment, right? After all, that's a 500% ROI!
- cgjaro 12y ago
  Nobody talks about "percentage of tradable life" because this is a pointless metric. You don't see banks publishing prospectus saying "this investment gained x% over y% of its tradable life". %/year is what matters to all investors. > So if Bitcoin goes down to $30, that's an amazing investment, right? After all, that's a 500% ROI! Absolutely. Buying at $6 in january 2013, and selling even at $30 would be a 500% ROI and a great investment over 2 years. What is your point?
  - bdcravens 12y ago
    "%/year is what matters to all investors" Exactly. Only one in Bitcoin in January 2013 were those who were really deep in the community. Investors don't care what the price was before they purchased.
  - jgalt212 12y ago
    yes, but drawdowns are very important to investors as well, not just ROI. http://en.wikipedia.org/wiki/Drawdown_(economics) http://en.wikipedia.org/wiki/Drawdown_(economics)

Animats 12y ago

That's a good article on Bitcoin mining. Last week a big cloud mining operation, CEX.io, shut down. (http://www.coindesk.com/cex-io-halts-cloud-mining-service-due-low-bitcoin-price/ http://www.coindesk.com/cex-io-halts-cloud-mining-service-du...) The price of Bitcoin has dropped to the point that their operation was unprofitable. Because the total weekly reward to all miners is fixed, all miners are in direct competition. If mining effort doubles, return on mining investment halves. The big operations are starting to hit that limit. The little guys hit it a long time ago.

danbruc 12y ago

Mining is what will ultimately make Bitcoin fail. You want to give everyone a single vote so that the majority can agree on which transactions are valid and which are not. But because you don't want a central authority that checks ID documents you come up with the idea of mining - make having a vote in the Bitcoin network an expensive thing by requiring to buy hardware and then spend more money on electricity to keep you hardware alive. It's not really fair because if you happen to have a lot of money you can buy a lot of votes. But the really bad thing is that you just made Bitcoin transactions pretty expensive - I got six Dollars per transaction for electricity only about a month ago. Even worse, processing more transaction will or should not lower these costs. If Bitcoin would really take off processing transactions worth billions every day, you really don't want to protect them by hardware and electricity costs only worth a few millions because the growing transaction volume will also increase the amount of money someone would be willing to spend to mess with your system. At least up to some limit you really want the total mining costs proportional to the transaction volume. And from there down it goes. Bitcoin transactions are not cheap even if the current low transaction fees suggest it. As the block reward goes down all the costs of running the Bitcoin network will end up as transaction fees. And transaction costs of several dollars are the death of micropayments and Bitcoin adoption in the underdeveloped world, two of the most lauded arguments for Bitcoin. I am not dismissive of the idea of cryptocurrencies but Bitcoin with its proof of work scheme won't be the queen of the prom.

johndevor 12y ago
> As the block reward goes down all the costs of running the Bitcoin network will end up as transaction fees. You haven't mentioned off-chain transactions at all. Don't you think Coinbase and others could enable those micropayments you're worried about?
- danbruc 12y ago
  Off-chain transactions have nothing to do with Bitcoin - they are just changing the balances of their customers in their database. Essentially no difference to you average bank account besides that it only works between two users of the same service. Unless they make agreements between different services making them even more similar to your average bank. You have to completely trust them because these off-chain transactions are neither visible to the public nor agreed on by the majority of the votes nor secured by any cryptographic or proof of work or whatever measures. All trades at Mt. Gox were off-chain transactions...

brainy 12y ago

guys here in africa ze are starting to accpt bitcoin and i think this will have a positive effect on the coin http://techunzipped.com/bitcoin-conference-africa/ http://techunzipped.com/bitcoin-conference-africa/