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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 whi

by 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...
mrb 12y ago
Your math is wrong, making your entire premise/argument invalid. A transaction costs $0.60 of electricity as of right now: 150000 kilowatt (power consumption of the global Bitcoin network [1]) ÷ (3600 (sec/hour) * 7 (transaction/sec)) = 6.0 kWh/transaction The worldwide average price of 1 kWh is $0.10, so a transaction costs $0.60 in electricity to be processed by the network. Also, the 7 transaction/second limit comes from the current 1MB block size limit which was chosen by agreement. It will be increased in the near future. If it is raised to, say, 10MB this would allow 70 transaction/sec, hence reducing the electricity cost of a transaction down to $0.06. [1] 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, up to ~300 petahash/sec today) but at the same time hardware efficiency (hash/sec per watt) has increased, so the ballpark number is correct
- imaginenore 12y ago
  His logic is wrong too. $0.60 is not a transaction cost - the persons making the transaction are not paying that. It a cost to the miner.
  - danbruc 12y ago
    These are the transaction costs, the costs to process the transaction. The user pays the transaction fee which is currently (usually) lower because miners still get the block reward. But at some point in the future only the transaction fees will have to pay for the transaction costs.
    - imaginenore 12y ago
      No, there is no other fee except the standard one. So if some miners aren't happy with that, they will quit. It's a self-correcting system.
      - danbruc 12y ago
        You are missing the point. Right now you are getting 25 BTC for mining a block, but that block reward will drop to zero while the costs for processing a transaction will remain more or less the same. Therefore transaction fees will have to go up until they cover the transaction costs without subsidizing them with the block reward. The other alternative, lowering transaction costs, is not a real option because it would make the Bitcoin network vulnerable.
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kanzure 12y ago
> You want to give everyone a single vote so that the majority can agree on which transactions are valid and which are not. That's not how Bitcoin works, although I admit it is plausible that you were describing how you would like Bitcoin to work. There's no "vote" in Bitcoin. Instead, there's a set of rules for determining whether or not a transaction is valid. Also, the distribution of hash rate does not necessarily have any relationship to the number of unique participants.
- danbruc 12y ago
  If you are building a system based on consensus you want to give everyone a single vote to vote for what is valid and what is not. But because Bitcoin doesn't want a central authority there is no easy way to ensure this by checking ID documents or something similar. Therefore everyone can create as many fake accounts as they want and let them vote for whatever they like. Bitcoin's solution to prevent everyone from casting as many votes as they like is mining, making it expensive to cast many votes. So the whole mining thing is nothing more than an elaborated fake account prevention mechanism without central authority.
  - kanzure 12y ago
    Sounds like you get it. I have some nitpicking to offer. I strongly disagree about the existence of any "fake accounts". All accounts are real accounts, even if they are being used in a Sybil attack. Arguably, the Bitcoin protocol should not care whether or not a block was generated by a "fake" account or not. Proof-of-Work as you acknowledge is critical for implementing distributed consensus in Bitcoin, but PoW has nothing to do with fake account prevention (and also, mining doesn't prevent non-miners from generating public or private keys anyway). As for votes, I think calling it a vote is skating on ice too thin.... I ran into someone recently that also thought it was based on voting, but then it turned out that he was reading from something about PoS, which is not involved in Bitcoin's consensus mechanism.
    - danbruc 12y ago
      I tried to just restate my previous comment but it seems I wasn't clear enough. Okay, once more. Account should be understood as user account, not bank account. Forget about Bitcoin for the moment. We build a new distributed currency. You can sign up for an account and with that account you get one vote to vote for (blocks of) transactions you consider valid. But because there is no central authority performing identity checks the bad guys can just create a million accounts and use them to vote for bad (blocks of) transactions. This is what I previously called fake accounts - several accounts by one person to vote for bad (blocks of) transactions. And now back to Bitcoin. Bitcoin's solution to this problem is mining. A vote in the Bitcoin network is a mined block and because mining is expensive this prevents users from casting arbitrarily many votes which is the logical equivalent of a fake account prevention mechanism. It is not perfect because with enough money for hardware and electricity you can still obtain more votes than others but it is no longer as easy as signing up for a million accounts with a million different email addresses. I hope this helps clarifying my point.

by danbruc 12y ago

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...

mrb 12y ago

Your math is wrong, making your entire premise/argument invalid. A transaction costs $0.60 of electricity as of right now: 150000 kilowatt (power consumption of the global Bitcoin network [1]) ÷ (3600 (sec/hour) * 7 (transaction/sec)) = 6.0 kWh/transaction The worldwide average price of 1 kWh is $0.10, so a transaction costs $0.60 in electricity to be processed by the network. Also, the 7 transaction/second limit comes from the current 1MB block size limit which was chosen by agreement. It will be increased in the near future. If it is raised to, say, 10MB this would allow 70 transaction/sec, hence reducing the electricity cost of a transaction down to $0.06. [1] 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, up to ~300 petahash/sec today) but at the same time hardware efficiency (hash/sec per watt) has increased, so the ballpark number is correct

imaginenore 12y ago
His logic is wrong too. $0.60 is not a transaction cost - the persons making the transaction are not paying that. It a cost to the miner.
- danbruc 12y ago
  These are the transaction costs, the costs to process the transaction. The user pays the transaction fee which is currently (usually) lower because miners still get the block reward. But at some point in the future only the transaction fees will have to pay for the transaction costs.
  - imaginenore 12y ago
    No, there is no other fee except the standard one. So if some miners aren't happy with that, they will quit. It's a self-correcting system.
    - danbruc 12y ago
      You are missing the point. Right now you are getting 25 BTC for mining a block, but that block reward will drop to zero while the costs for processing a transaction will remain more or less the same. Therefore transaction fees will have to go up until they cover the transaction costs without subsidizing them with the block reward. The other alternative, lowering transaction costs, is not a real option because it would make the Bitcoin network vulnerable.

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kanzure 12y ago

> You want to give everyone a single vote so that the majority can agree on which transactions are valid and which are not. That's not how Bitcoin works, although I admit it is plausible that you were describing how you would like Bitcoin to work. There's no "vote" in Bitcoin. Instead, there's a set of rules for determining whether or not a transaction is valid. Also, the distribution of hash rate does not necessarily have any relationship to the number of unique participants.

danbruc 12y ago
If you are building a system based on consensus you want to give everyone a single vote to vote for what is valid and what is not. But because Bitcoin doesn't want a central authority there is no easy way to ensure this by checking ID documents or something similar. Therefore everyone can create as many fake accounts as they want and let them vote for whatever they like. Bitcoin's solution to prevent everyone from casting as many votes as they like is mining, making it expensive to cast many votes. So the whole mining thing is nothing more than an elaborated fake account prevention mechanism without central authority.
- kanzure 12y ago
  Sounds like you get it. I have some nitpicking to offer. I strongly disagree about the existence of any "fake accounts". All accounts are real accounts, even if they are being used in a Sybil attack. Arguably, the Bitcoin protocol should not care whether or not a block was generated by a "fake" account or not. Proof-of-Work as you acknowledge is critical for implementing distributed consensus in Bitcoin, but PoW has nothing to do with fake account prevention (and also, mining doesn't prevent non-miners from generating public or private keys anyway). As for votes, I think calling it a vote is skating on ice too thin.... I ran into someone recently that also thought it was based on voting, but then it turned out that he was reading from something about PoS, which is not involved in Bitcoin's consensus mechanism.
  - danbruc 12y ago
    I tried to just restate my previous comment but it seems I wasn't clear enough. Okay, once more. Account should be understood as user account, not bank account. Forget about Bitcoin for the moment. We build a new distributed currency. You can sign up for an account and with that account you get one vote to vote for (blocks of) transactions you consider valid. But because there is no central authority performing identity checks the bad guys can just create a million accounts and use them to vote for bad (blocks of) transactions. This is what I previously called fake accounts - several accounts by one person to vote for bad (blocks of) transactions. And now back to Bitcoin. Bitcoin's solution to this problem is mining. A vote in the Bitcoin network is a mined block and because mining is expensive this prevents users from casting arbitrarily many votes which is the logical equivalent of a fake account prevention mechanism. It is not perfect because with enough money for hardware and electricity you can still obtain more votes than others but it is no longer as easy as signing up for a million accounts with a million different email addresses. I hope this helps clarifying my point.