
Many Bitcoin Miners Are at Risk of Turning Unprofitable - petethomas
https://www.bloomberg.com/news/articles/2018-04-18/bitcoin-miners-facing-a-shakeout-as-profitability-becomes-harder
======
ctime
What a colossally stupid waste of resources. Right now its costing somewhere
between ~3500 and ~9000 USD to mine a single bitcoin (on average). To me,
we've essentially engineered a mechanism to capture and trade something that
represents the value of squandered electricity.

1) we're generating a ton of co2, further destabilizing the planet ecosystem
2) if we ever _do_ sort out cold fusion energy, crytoholes are going to abuse
the shit out of it.

I feel like cryptocurrency and perhaps nuclear weapons are a built in 'kill
switch' by nature to make sure only useful species ever get off the planet.

~~~
VMG
How do you define waste?

Is bitcoin mining more wasteful than gold mining?

~~~
_ph_
Correct me if I am wrong, but my understanding is, that it is not the mining
itself which creates the bitcoin, but an arbitrary challenge set up to earn
the bitcoins. So by definition, any energy used is completely wasted.

~~~
sp332
That's right, the difficulty adjusts to match the level of competition so that
a bitcoin block is mined on average once every ten minutes. If fewer people
were competing or if they competed with less powerful hardware, the network
would adjust and the same amount of bitcoins would be mined. Increasing your
hash power increases your odds of getting that block though.

But when bitcoin prices are high, there is an increased risk that someone
could launch a 51% attack and start double-spending bitcoins. Keeping the
level of competition high does protect the network to some extent. But really
it only has to be expensive enough to be unprofitable to launch an attack.
Pushing difficulty right up to the point of any mining being unprofitable is a
waste.

~~~
paulmd
(to concur with your point:)

People tend to think of the rewards as set in stone, but they're completely
arbitrary (they just have to be agreed-upon by participants). For example,
there's no need for them to taper off over time, we could keep them constant.

It's just a question of what you can get consensus for. The geometrically-
decreasing rewards of Bitcoin are probably not optimal, but without
centralized control there has to be some kind of pre-determined issue rate.

We could just as easily agree to halve them right now (which would probably
reduce electricity utilization as well as network security, as miners go
offline). And that's essentially what Ethereum is planning to do - a major
decrease in block rewards in the near future, so that they can create
deflation (dumb as hell, but that's what happens when you let a 17-year-old
run an economy, he has big holdings of Eth and just wants to see the number go
up).

~~~
sp332
Yeah, I think a decreasing block reward was a good idea, but I think it's on
the wrong schedule. Following something like Metcalfe's Law, the value
increases geometrically but the reward isn't decaying fast enough yet. That
means at some point in the "middle", the value of the block reward will be
increasing much faster than the amount of the reward is decreasing.

[https://www.wolframalpha.com/input/?i=n%5E2+%2F+(2%5En)+from...](https://www.wolframalpha.com/input/?i=n%5E2+%2F+\(2%5En\)+from+0+to+10)

That's where we are now, and it means the reward will be large enough to drive
bad behavior at least until the next halving (probably two years from now
[http://www.bitcoinblockhalf.com/](http://www.bitcoinblockhalf.com/) ).

~~~
paulmd
The whole idea of discrete halvings of the block rewards at specific block
heights also grinds me in general... why is this not a continuous function? Oh
yeah, because that's how some guy set it up in 2012 before he disappeared.

------
thisisit
Aside from the electricity usage concerns, this presents a big risk for
bitcoin.

Centralization of mining power was one of the biggest issues of the BTC vs BCH
debate. BCH proponents wanted bigger block size. While BTC proponents argued
that bigger block size will lead to centralization, as not everyone will be
able to propagate bigger blocks. So, if Bitmain et al. do end up controlling
90% of the hashing power, they might be able to control voting and other
aspects of the network. They could prioritize their own transaction, pay lower
fees etc.

Now this will lead to two things. First, cryptocurrency circles love perfect
game theory. The argument is always going to be - Bitman etc are not going to
harm the network even if they take over. The reason being it will always be in
Bitmain's favor to ensure bitcoin's sanctity. If things go downhill they will
lose tons of money and mining worthless coins. So, people should not turn away
from bitcoin.

Second, we are talking about human nature and not a perfect prisoner's
dilemma. So, Bitmain etc will be sneaky and maybe even vote against some BIPs
they don't like. Some of their behavior will warrant people to leave bitcoin.
But, then bitcoin supporters will bring up the first point again. Game theory,
hence HODL.

This will at the end become a roundabout discussion:

Step 1 - News - Bitmain etc does X which is very bad. People should leave a
centrally mined coin.

Step 2 - Bitcoin supporters - Game theory says Bitmain etc wont harm the
network as their coins will worthless too. HODL.

Rinse and repeat.

The irrational belief in perfect math and game theory will give lot of leeway
to anyone who captures Bitcoin's mining power.

~~~
yongjik
> The argument is always going to be - Bitman etc are not going to harm the
> network even if they take over. The reason being it will always be in
> Bitmain's favor to ensure bitcoin's sanctity.

Wait wait... there are bitcoin supporters arguing this?

Now s/Bitmain/US government/ and this is basically the argument for dollar.
(Or any fiat currency, for that matter.)

~~~
thisisit
Satoshi said as much in the Bitcoin paper. To quote:

 _If a greedy attacker is able to assemble more CPU power than all the honest
nodes, he would have to choose between using it to defraud people by stealing
back his payments, or using it to generate new coins. He ought to find it more
profitable to play by the rules, such rules that favour him with more new
coins than everyone else combined, than to undermine the system and the
validity of his own wealth_

------
tonysdg
Wasn't part of the promise of Bitcoin that no single entity or cabal would
control it? It would be a distributed platform, owned by the masses?

~~~
qbrass
The promise was that no single entity would want to control it since nobody
else would want Bitcoin if they did.

~~~
kazagistar
That's a dumb promise, since all it takes is one third party with the desire
and means to control multiple entities for non financial reasons; for example,
a state actor with treaties and regulations.

~~~
conanbatt
They would not be able to capture it unless they get consensus.

------
dreen
Similar thing happened with the internet when a lot of bedroom servers
disappeared. A very similar thing also happened to radio some many years
before. If anything, this could be a sign of maturity.

~~~
simias
In other words "this is good for Bitcoin"?

~~~
dreen
More like "nothing extraordinary"

~~~
simias
Having a bunch of people making millions by racing to compute SHA256
collisions is very much extraordinary IMO. Drawing parallels with the server
and radio markets is not very convincing.

Furthermore the way mining happens is pretty irrelevant to Bitcoin adoption
and maturity at this point. Having a million miners or only 10 doesn't really
change much in terms of usability or price volatility.

------
Faark
> I feel like cryptocurrency and perhaps nuclear weapons are a built in 'kill
> switch' by nature to make sure only useful species ever get off the planet.

There are a lot of potential Great Filters [1], but crypto currencies doesn't
seem like one of them. They will might slow mankind down and waste a bunch of
energy&resources, but beyond that doesn't particularly hurt our survival
chances. Kind of like a lot of entertainment we produce has marginal benefits.
But prof of work based crypto currencies have real chance to end up irrelevant
once their novelty wears off (and the interesting parts of it might even be
adopted elsewhere).

[1]
[https://en.wikipedia.org/wiki/Great_Filter](https://en.wikipedia.org/wiki/Great_Filter)

------
jacquesm
Just imagine how bad space heaters based on electricity are. Baseboard
heating, radiant electric heat it's all terribly inefficient and turns 'steak'
(electrons) into hamburger (IR radiation).

------
nakedrobot2
""We’ve returned to some level of rationality," Flack said."

Uh, not quite.

------
jovial_cavalier
Aren't the "guy in a dorm-room" operations already pretty much out of the
game? Couldn't GHash.io do pretty much whatever they want with the blockchain
at this point?

~~~
Qub3d
Yup. As a self-described guy in a dorm room throwing his single GPU cycles at
some crypto for self-education purposes, people are using multi-coin pools
that mine ASIC-resistant coins and flip around depending on which is most
profitable (often monero/litecoin).

That said, pools like nicehash pay out in BTC anyways, effectively locking
altcoins to the BTC index price. Where goes bitcoin, so goes the market.

------
balls187
Does this mean consumer GPUs will come back down in price?

~~~
alimbada
No. Bitcoin isn't mined with GPUs.

~~~
balls187
Good point, yet the value of other crypto currencies are correlated to
bitcoin.

So what happens to bitcoin should impact the crypto market?

------
Boulth
Many Bitcoin Miners Are at Risk of Turning Unprofitable, they will go
bankrupt, and after two weeks bitcoin difficulty gets adjusted and mining is
easy again, just as designed. So the problem is not really a problem for
people that understand how the system works. But it's far easier to bikeshed
about electricity, gpus and everything related to cryotocurrencies but not the
topic submitted.

------
fixermark
If a single org does end up with 51% mining engine de-facto control of BTC,
what happens next? Would people transition off of BTC to another ecosystem, or
would people just accept that BTC is now under the auspices of a (one would
hope) benevolent dictatorship?

~~~
aiCeivi9
It is hard to verify if separate pools aren't controlled by single entity so
we won't know when it happens.

------
amluto
If this happens to too great an extreme, it’s a major security problem. If at
any point there is enough old-and-not-quite-profitable mining hardware around
to mount a 50% attack, then a 50% attack becomes reasonably cheap.

~~~
Klathmon
Like many things with computers, scales can be deceivingly large.

 _I want to preface this with a note that I haven 't done even napkin math on
this, so there's a good chance my numbers are WAY off_

All of the CPUs in the world probably won't be able to match even a handful of
ASICs. It's probably the same with GPUs.

Each generation of ASICs is hashing about 4x faster with roughly the same
power usage as the last. So after a generation or 2, you quickly run into the
same sorts of issues where there is a good chance that all of the Antminer S3s
in existence won't be able to hold a candle to a medium sized current-gen
install.

And to mount an attack like that, you'd need to buy and power a monumental
amount of these devices. The current hashrate is roughly 30,000,000 TH/s The
current generation of Antminer can do roughly 14 TH/s

You'd need a million current-gen antminer S9's running at 1.3 gigawatts of
power to get 50% of the hashrate (and from my extremely rough guesses, 4
million S7s, 12 million S5s, etc... Each generation also multiplying the power
needed by some amount as well). And that kind of buying, manufacturing, and
power generation isn't going to be easy to conceal.

Not to mention that evidence of a 50% attack will basically end bitcoin,
making all of the money, time, and power spent on that attack truly worthless
as you are left with a million completely worthless SHA256 hashing machines.

If you are able to pull off that kind of hashrate, you might as well just be a
good player at that point, as you would be making $50,000 every 10 minutes at
current prices.

~~~
amluto
> If you are able to pull off that kind of hashrate, you might as well just be
> a good player at that point, as you would be making $50,000 every 10 minutes
> at current prices.

You’re missing my point. If there is a pile of unused unprofitable hardware
(because energy efficiency is too low given the mining rewards), then you
_can’t_ use it to make an honest profit. That means that it has very little
value to honest miners and might be sold for a non-crazy amount of money. A
dishonest buyer could use it to mount a 50% attack for a few million dollars
of electricity, but I bet a dishonest miner planning such a thing could
arrange to benefit in an amount far exceeding a few million dollars.

(I bet that the actual major cost would be the connections involved in
acquiring the power, not the power itself. But there are many, many GW of
working-but-idle non-base-load power plants in the world. You can’t buy their
power at rates that make honest mining profitable, but short-term dishonest
mining may be an entirely different story.)

Some people may attach considerable value to the destruction of bitcoin if
nothing else.

~~~
Klathmon
But you missed the fact that the difficulty is increasing at a rate that makes
old un-efficent hardware mostly useless, even in big numbers.

Even ignoring the power required, you'd need 67+ MILLION AntMiner S3s, and
those still are just barely profitable if you are able to get power for $0.03
per KWh, and are still sold for over $100 a piece.

I'd be willing to wager that even if you were able to buy every single S3 that
exists you wouldn't even be close.

~~~
amluto
So... what happens if the price of Bitcoin stabilizes and then drops enough
such that even the most recent generation of miners are no longer profitable
if all of them are running?

~~~
Klathmon
In that case Bitcoin might be caught in a "big freeze". Bitcoin takes about
2000 blocks to adjust difficulty, so if it becomes worthless overnight, the
amount of hash power could drop enough that no new blocks will ever be found,
and without any new blocks the difficulty will never adjust.

So one player would need to buy the vast majority of all miners, and even then
they would only be capable of doing a double spend attack on a dead
blockchain.

------
mancerayder
So how well will Proof of Stake be able to solve the ecological and mining
cost issue, here, for the cryptocurrencies that moved/are moving to that?

~~~
Qub3d
In theory, PoS would fix the energy waste. Unfortunately, aside from ETH,
nobody has a real roadmap so I doubt it will make much of a dent.

------
ct0
this is good for gamers

~~~
juliangoldsmith
Bitcoin miners use ASICs, so this wouldn't affect gamers at all.

It might make it worse, actually, since people who had mined Bitcoin may move
to Ethereum.

~~~
mkirklions
ETH is going POS, I would be very skeptical as an ETH miner to buy something
new.

~~~
rufugee
I'm really curious about the logic of this move. As I understand it, PoS will
award miners who have the most coin with an increased likelihood that they'll
be able to mine a coin. In other words, the more coins you own, the higher
probability you can mine more.

This seems to be designed to fail, or at least designed to create a mining
market which is highly central to only the wealthiest players.

Anyone care to refute this?

~~~
maxerickson
The idea is to not have the huge block reward.

(the main incentive for participating in the consensus finding is the ability
to do transactions)

~~~
rufugee
I get that, but doesn't this still create a network where the most coin-
holding miners wield the most power?

------
oliwarner
Looking forward to the flood of "uneconomical" graphics cards. Pricing got
stupid.

------
eli
Doesn't the dorm room miner not pay for their electricity? Or am I being too
literal?

~~~
IkmoIkmo
Mining at current prices is a $5 billion a year industry, mostly run on
specialised chips at scale. Dorm room miners aren't a significant factor.

Regardless, there's also capital expenditures on the equipment.

The problem is that the price is so volatile. As with any industry, new
entrants will keep joining in until total cost will approach total revenue.
But if total revenue can just drop by 50% in the span of a few months, that
can put a large portion of participants out of business, even if
hypothetically one of their cost factors (electricity) is free, some
participants will have to go.

------
twoodfin
Wouldn’t fewer miners = higher prices with all else being equal?

~~~
Jagat
Also isn't fewer miners => reduced difficulty => higher chances of solving the
puzzle => greater chance of a successful mine => potential profit?

~~~
raesene9
Fewer organizations mining doesn't necessarily mean lower hashrate.

As new hardware comes online for the big miners the hashrate could still
increase whilst the number of organizations mining decreases.

------
clone00
I came here to check if there was a Napalm Death joke, and I am serious
disappoint.

[https://youtu.be/ybGOT4d2Hs8](https://youtu.be/ybGOT4d2Hs8)

~~~
pc86
This comment would be more appropriate for Reddit.

------
rbanffy
I like the possibility of having tons of high-end GPUs being sold for bargain
basement prices on eBay.

One of my never-started projects is to build a big GPU=based cluster shaped
like a Cray-2. The original machine had, IIRC, 11 lobes and, therefore, having
11 GPU cards feels right (or 10 and use one lobe for the motherboard
controlling everything. A Xeon Phi (if we are going crazy with GPUs, we should
go crazy with the motherboard as well) has 36 PICe lanes, so I assume it'd be
a fine choice. All this would be immersed in 3M's Novec 649 to keep the bubbly
looks.

~~~
nakedrobot2
GPU's have not been used for mining Bitcoin for years. They are being used to
mine other cryptocurrencies.

~~~
chisleu
He wants a gpu compute cluster, not a notebook mining machine. They would be
on the market because bitcoin's price is so tightly linked to many others
including ethereum.

