
Bitcoin Mining’s Three Body Problem - hosolmaz
https://www.aniccaresearch.tech/blog/bitcoin-minings-three-body-problem
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segfaultbuserr
This is an interesting article, but IMHO, its discussions on Hacker News lacks
depth. Almost all threads are debating about superficial Bitcoin issues that
has already been talked endlessly, and none of the thread focused on the main
thesis of this article:

> Bitcoin mining is a complex phenomenon that connects hardware and software,
> the energy and financial markets. Invisible rules govern every aspect of it.
> The performance of an individual operation is determined by various external
> factors that are often hard to quantify and almost impossible to forecast.

It stated that Bitcoin mining as a whole, is a complex social-economical-
computational-environmental phenomenon with a huge number of moving parts and
uncertainties. The most fascinating fact to me, is the direct impact of
climate cycle in southern China on the mining industry, almost with a mythical
tone found in some Sci-Fi novels. While Bitcoin is a highly artificial and
technical construct, but its yield can be severely affected by weather, some
Bitcoin miners even routinely migrate their operation according to seasonal
changes like the nomadic groups of the past. The flood seasons are visible on
the Bitcoin hash rate chart, and even dominates the date of trade shows and
R&D schedule of new mining rigs.

> May-October is the flood season in Southwest China. It is also a festival
> period for mining businesses as the large supply of surplus hydro capacity
> significantly cuts down miners’ operating expenses. For small-medium scale
> miners, the flood season can reduce the cost by as much as 40%. For large
> miners who own proprietary facilities, the flood season electricity cost is
> practically negligible. Over 80% of the miners in Xinjiang, Inner Mongolia
> will migrate in flocks to Sichuan, Yunnan, and Guizhou to take advantage of
> the discount, and they move back or sell their equipment after the dry
> season arrives in November.

> Gradually, the industry structured itself around these climate patterns.
> Like ancient rituals, every year before the flood season arrives, major
> mining conferences get organized in Sichuan’s capital Chengdu. Some
> facilities are only open to external customers during the flood season.
> Manufacturers plan their new product release right before it arrives. Miners
> race to source the latest and greatest machines in bulk.

~~~
pjc50
It's a tremendous story - and all the details make explanatory sense. But I'm
a little skeptical, because if the seasonal effects were big you would be able
to see them in the overall hashrate graph at the bottom?

~~~
londons_explore
I suspect when there is very cheap electricity, income is much higher than the
electricity costs, and money is ploughed into new hardware.

When electricity is expensive, it's still worth running the most of the
equipment you already own, but it isn't worth buying more.

Hence, you wouldn't expect much seasonal variation in hashrate.

------
trixie_
'Bitcoin is the product of hashpower. The industry wouldn’t exist without
incentivizing miners to continuously invest in hardware and burning
electricity to augment Bitcoin network’s settlement assurance'

I think this is a common misconception. People don't need to continually
invest in mining hardware to keep it going. The entire Bitcoin network could
technically be run off a single Rasberry Pi. The network hash rate is only so
high because the ROI is there, but without it, people would still be mining.

Case in point, there are plenty of long forgotten altcoins out there that
people are mining just for fun. At the end of the day your computer is no
different from an expensive space heater. Might as well mine some crypto with
it.

~~~
season2episode3
> At the end of the day your computer is no different from an expensive space
> heater. Might as well mine some crypto with it.

Or, you know, you could just turn the computer off while you're not actively
using it. It saves you money and does a small little good thing for the
environment too.

~~~
CalmStorm
The other common misconception is that the price of bitcoin is determined by
the hashrate. It is actually the other way around, a higher price drives up
the hashrate, because a higher price means more demand for bitcoin.

Some founders of altcoins apparently don't understand this and try to buy
hashpower to artificially increase the hashrate, hoping to increase the price
of their coins. If there is no demand for their coins, an ASIC farm is no
different from a Rasberry Pi.

~~~
srl
Wait... isn't it worse than that? If I buy enough hashpower to have a
measurable effect on the price, shouldn't the price be driven down, by the
increased supply? Thus an ASIC farm is _worse_ than a raspberry pi, at least
as far as the effect on price goes.

(But, isn't there some majority attack? So maybe I want an ASIC farm as a way
to protect my investment...)

~~~
trixie_
Supply of what? The supply increase of coins is constant regardless of the
hashrate.

This is exactly why there was no effect on bitcoin price when the reward rate
halved. The value of the coin drives mining behavior, not the other way
around.

~~~
TylerE
Actually, it doesn't. The difficulty adjusts every 2016 blocks, in theory
every ~2 weeks, but if a large percentage of the hash power suddenly
disappeared it could be much longer.

~~~
jimmydorry
For a temporary period of time, before it self-corrects back to ~2weeks. It's
easy to leave this part out as it is an edge case that doesn't need the extra
sentences qualifying the "normal case" that will be observed 99.99% of the
time.

------
isoprophlex
Fantastically written article, very to the point without too much flourish,
and very in depth as others have noted.

This bit is funny imo:

 _But in late 2019, the National Development and Reform Commission (NDRC)
removed mining from a list of activities to be eliminated. Note that the NDRC
also oversees the energy industry. Massive amounts of hydropower squandered
during flood season is a longstanding issue. The officials are beginning to
realize that Bitcoin mining is a highly effective way of transforming excess
local capacity into a global digital commodity._

One point of view would be that speculation and greed of bitcoin hodl-er
fanboys is subsidizing China's renewables industry...

------
dnprock
This analysis misses altcoin mining. When mining adjusts on BTC, miners don't
just turn off their rigs. They can go mine altcoins. This behavior introduces
another dimension to mining economics. Miners are practical. They have to make
money with their hardware and electricity. They can't afford to be
ideological.

In the Bitcoin mining world (SHA256), miners like to have BCH, BSV and other
alternatives. Altcoins allows them to diversify. That's why these chains will
never die. They always have mining support.

~~~
lukifer
They'll die if they can't make enough returns to pay for the electricity (and
I'd be happy if we helped make that a reality through a tax on carbon and/or
POW mining itself).

------
spir
Mining revenue is the network cost of running the Bitcoin network.

What if you ran a business that spends billions per year on network cost, then
somebody told you they could reduce it by 98% and make it a flat cost,
forever. That's proof of stake.

Ethereum launches the first phase of proof of stake this year. When Ethereum
v1.5 launches in ~18 to 24 months, Ethereum's network cost will undergo such a
transformation. The millions per day paid to Ethereum miners will stop being
paid, forever. It's a ~98% cost reduction in perpetuity.

~~~
perl4ever
To bring $1 worth of US currency into existence, it only costs a fraction of
that amount.

But to bring $1 worth of bitcoin into existence, it costs $1.

So, it seems obvious to me hash based currency is a virus that is many orders
of magnitude less efficient, but many people seem impossible to convince of
this.

~~~
jimmydorry
Nobody would be mining any crypto if their cost was exactly equal to their
revenue. This fundamental misconception might be the reason why you can't
convince anyone that crypto currency is a "virus".

~~~
perl4ever
In any efficient market, profits approach zero. I don't see the relevance of
saying "well, actually, there is some profit". That profit is the mechanism
that drives the mining cost to match the value of the currency, isn't it?
Please explain more about what you think I am missing, because it sounds like
you are just referencing the mechanism that causes the problem.

------
SRTP
One of the best, most in-depth and accurate Bitcoin articles to ever grace the
front page of HN.

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noxer
>"If mining operations migrate to more diverse locations in the future and
become less concentrated on a single power source, this cycle will cease to
play such a significant role."

Why should that happen? After the initial very diverse mining, it only ever
got more concentrated to places with cheap energy. The place my change but
there will always be an optimum place.

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tines
If an article is written in English for an English speaking audience, I wish
it would include translations of non-English quotations.

~~~
Scaevolus
The header quote is:

"The more transparent something was, the more mysterious it seemed. The
universe itself was transparent; as long as you were sufficiently sharp-eyed,
you could see as far as you liked. But the farther you looked, the more
mysterious it became." ——Liu Cixin "Three Body Problem"

------
novalis78
That’s a very thorough overview

