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Bitcoin's mining difficulty has increased by 41.9% over the last 30 days (kaiko.com)
226 points by arnauddri on Dec 21, 2015 | hide | past | favorite | 254 comments

Nobody on HN pointed out who is behind the increase... This is BitFury who just launched a 40 megawatt data center filled up with their new 16 nm chips which reportedly achieve approximately 0.06 joule per gigahash. They also use immersion cooling which gives them an insane PUE of 1.02. So the mining capacity of this DC alone is ~650 Phash/s! We saw an increase of ~200 Phash/s in the last 30 days, so presumably they are at only operating at 1/3rd of their capabilities so far:

40e6 (watt) / 0.06 (joule/gigahash) / 1e6 (petahash/gigahash) = ~650 petahash/second

BitFury's immersion cooling tech:


https://www.youtube.com/watch?v=uV7MDhqNyXE&t=0m42s (shows the fluid boiling - starts at 0m42s)


BitFury's 16nm chips:


So less than half of one datacentre entirely owned by one company is enough to commit a 51% attack. I get that they say they are going to work on distribution these chips to ensure they don't end up in that position but let's be honest they just destroyed any claim that the network is powerful enough to avoid malicious control by one miner now. They've not even raised that much money.

This DC cost $100 million. Not exactly pocket change. http://www.coindesk.com/bitfury-details-100-million-georgia-...

Plus, with BitFury online, the cost of a 51% attack just raised to $200 million.

The only reason it is (currently, for a short time) hypothetically possible to 51%-attack the network with a budget in the low hundreds of million of dollars is because most of the miners are not using such efficient 16 nm chips. As the market migrate to these last generation chips, expect the cost to increase to $1+ billion in the next year.

People seem to forget that it is NOT in BitFury's best interest to perform a 51% attack because, bitcoin's value will plummet if they do that.

>People seem to forget that it is NOT in BitFury's best interest to perform a 51% attack because, bitcoin's value will plummet if they do that.

If BitFury can turn $200 million into $400 million now rather than over a couple of years, why on earth would they care about the side-effect of killing off bitcoin?

For the avoidance of doubt, I think that BitFury's best interest is BitFury; as long as they make a decent chunk of money, the end result for bitcoin is - and should be - immaterial to them.

Yes but in practice you can't convert that much BTC into USD that quickly.

>Yes but in practice you can't convert that much BTC into USD that quickly.

Would they even need to convert BTC into USD? Even ignoring the obvious opportunities for shorting an entire economy?

I mean, I'm kinda curious to know what effects they could cause by e.g. choosing to mine zero-block transactions for a few days.

I thought miners already try to mine zero block transactions first, then add in fee transactions? apparently you can chew through the nonce really fast..

Not exactly. Some Chinese mining firms maintain a stratum connection to pools in the US so they can get just the new block header when a new block is found on the network. They then mine on that header until the full block is downloaded and validated by their local bitcoind (which can take 20 seconds, to several minutes in the worst case) This has been referred to as "SPV Mining".

If they find the next block during the time they are mining only against the block header, that block will contain no transactions. This doesn't happen very often, and there are some other issues that can arise from the practice (a multi-block fork happened once), but miners believe that it increases their profitability so (afaik) they continue to do it. More info here: http://bitcoin.stackexchange.com/questions/38437/what-is-spv...

But if that was a predictable consequence, they can't turn $200million into $400million now, because other would anticipate the future state of things and the price would plummet before a couple years. Not that I think that is at all what is going to happen.

>because other would anticipate the future state of things and the price would plummet before a couple years.

Why would the price plummeting matter to them if they've already made their money?

The only way they make money (cash out) is if trust remains in the bitcoin platform. By doing 51%, they tank the platform itself. No liquidity. Provable and transparent majority attack is MAD in the strictest sense.

>The only way they make money (cash out) is if trust remains in the bitcoin platform.

Not if their cash isn't - somewhat ironically - tied up in BTC.

Really, I'm sure between the two of us, we could imagine a thousand and one viable ways of making a tonne of cash very, very quickly that wouldn't involve transacting in BTC at any point!

Not sure I follow you here. How would they make money from controlling BTC other than by selling it? ...which is impossible if they break it, as argued above.

As the mining rewards keep lowering it's getting to the point here someone is going to do this for the lulz. As to cost you can sell all your coins before doing a 51% attack. Short the market and at some point it might even be proffitable to do so.

Yeah, but how many bitcoins is USD$ 100 million worth?

229922 BTC according to Google's exchange rates.

See: https://www.google.com/search?q=100M+usd+in+bitcoin

Or you could just buy bit fury

Or be the sovereign state whose jurisdiction that data center is in.

You couldn't buy BitFury for less than 200 or 300 million dollar. After all they expect this $100 million data center to be profitable so I am sure they value their company at least 2x or 3x this.

It's not pocket change… except for government organizations.

It is profoundly unlikely a state-level actor would bother.

You can cripple Bitcoin transaction clearing with a thousand dollars to DDOS the network with spam. If only state-level actors had a thousand bucks lying around ...

Malice isn't enough. The only special power of a 50% miner is to consistently resolve double-spend attempts in its favor. If this happened, it would surely lower the value of Bitcoin. This, an attacker must be not just malicious but also irrational enough to forfeit the $800,000 in Bitcoin that it creates daily by virtue of its 50% control of the network. (6 blocks/hour x 24 hours/day x 25 bitcoin/block x $450/bitcoin x 50%)

Not true. A malicious 50% miner can cancel any transaction it wants, not just fix doublespend. Assuming the transaction was sufficiently recent (the more hash power they have the more such a transaction can be in the past).

So they can "unspend" their own bitcoins, as follows : use 51% of your hash power to create a parallel blockchain, which is not published. Include all transactions, except the one you used to buy a TV. Put something else in it's place. Keep doing this until the TV is shipped/arrived. Then publish the parallel blockchain. Boom. Unspent.

Parent's point is that if BitFury did that, then nobody would trust Bitcoin anymore, thus crashing the price.

If BitFury resolved a single doublespend transaction differently from the "main" blockchain, people would(/should) realize that it now has the power to cancel transactions, and stop trusting bitcoin ASAP. At that point you can no longer trust the blockchain, since you can no longer know you're looking at the "true" blockchain, and not a fake one that has been presented to you to make you do something (e.g. pay someone real money).

In any reasonable person's version of "wait X blocks for confirmation" (currently mostly 3), X would be infinite.

>Parent's point is that if BitFury did that, then nobody would trust Bitcoin anymore, thus crashing the price.

If they make good money from it, why would BitFury care about bitcoin's long-term outlook?

they make money by mining bitcoin, if the value drops then their return, even if they sell all BTC immediately, would be affected. They just spent $100m on a new mining facility so to trash bitcoin would be to write off that investment. They cannot make good money by screwing over bitcoin without screwing themselves over.

Best case scenario is that at the end of the effective life of this DC BitFury decide to doublespend their coins to allow them to spend all bitcoins once, however by that time their relative % of the network will be less than 50%.

>They cannot make good money by screwing over bitcoin without screwing themselves over.

Why not? Surely this is more a lack of imagination on your part, rather than a hard fact?

Observation is that pretty much nothing crashes the price of Bitcoin.

* During the transaction spam DDOS attacks, the price went up even though it was literally unusable.

* The present price seems sustained by something that looks very Willybotish running between OKCoin and Huobi. https://www.reddit.com/r/Buttcoin/comments/3vnjgk/what_drive...

The remaining American Bitcoin traders are certainly gullible enough to keep buying and trading a 51%-compromised coin. (I mean, there are people who still think Paycoin could make a comeback.) But American traders are a sideshow - all the action is in China (miners, actual traders). So the question would be: will Chinese speculators keep gambling on a 51%-compromised coin?

(And of course the MMM ponzi buyers, whose judgement is sufficiently bad that they wouldn't even understand the problem.)

maybe people will trust bitcoin more if you put the right spin on it (bitcoin is now regulator-approved, etc.).

The attack you just described is semantically identical to a "double spend".

It's not necessarily 'irrational'. A 51% miner could profit from Bitcoin's downfall, or by threatening others, or even by bluffing an attack. See, e.g., the Goldfinger Attack in https://www.cs.princeton.edu/~kroll/papers/weis13_bitcoin.pd....

Stupid question: if control of 50% of the hash power is so unimportant, why does Bitcoin rely on hash power anyway? Why not simply have a consensus system without proof-of-anything?

If you remove proof-of-work, then the question then becomes: what else do you measure consensus by? A few other crypto currencies have tried other metrics but they all aim to for the same thing: removing the need for human trust.

Well, consensus between whom? How would you do distributed, anyone can participate at any time, byzantine consensus but still prevent Sybil attacks?

I think the reason is because then there would be no way for new coins to be mined and given to those who are rewarded for ensuring the security of the network.

>The only special power of a 50% miner is to consistently resolve double-spend attempts in its favor.

No, this post, and the handy table inside, explains the various attacks possible at different percentages of the hash rate:


Short first hope the exchanges don't fold and run it into the ground with double spends. Alternatively just attack it because you feel scared about it but I do t believe anyone in power is since it is not going anywhere

At any point since bitcoin's inception there have been plenty of major govts that could have easily afforded the resources to pull off a 51% attack.

A real bad thing here is the asymmetry. To prevent 51%, the network has to burn enormous amounts of energy 24x7 forever while the attacker only needs his energy for the duration of the attack.

Counterpoint: physical security largely works this way too.

Well, things work much better in crypto (not proof-of-work, but the "real" one).

And now a single company can. Progress!

It has always been the case that a single company could 51%-attack the network. No regression here. In fact the cost has continually increased over time. So, yes, progress.

Not less than half of their datacenter, but less than all of their datacenter. See the current hash rate here:


I will forever refuse to spend my 0.5 BitCoin just so one day I can say to my grandkids in a creaky old voice, "See! I mined that myself on my own computer in a couple of nights!"

"What are you even talking about, Bitcoin? And what's the big deal about the $0.5 you got there?" :)

How those 40 megawatts of energy consumption compare to known companies? How much energy for example consumes an average cloud storage company? Or a corporation? 40 megawatts sound a lot but it would be nice to have a reference.

After searching around, it looks about average for a large data center. This link[1] estimates Google's data centers require between 50-100MW.

50MW is enough power to supply ~14k homes from different references I've seen.

I'm curious about what normal data centers use for backup power since natural gas and diesel generators don't get much bigger than 2MW. Or maybe they just don't have backup generators.

[1] http://www.datacenterknowledge.com/google-data-center-faq-pa...

They do. Natural Gas fueled generators are practical at 50MW capacity. GE basically sells a 747 engine (CF6) driving a generator, known as the LMS6000

[0] https://en.wikipedia.org/wiki/General_Electric_LM6000

[1] http://www.geaviation.com/marine/engines/military/lm6000/

I understand that gas turbines can produce that kind of power, in fact I used to work on some pretty large turbines and turbo generators in the 500-1000MW range. However they aren't used as backup generators where they have to be online in a minute. These are the types of generators I was referring to, https://powergen.gepower.com/products/reciprocating-engines/...

More batteries to get over the slower generator startup time, and likely quite a few smaller generators to do the best they can to keep the batteries going if the big generator is slower than expected to startup that day.

That's probably the most awesome thing I've heard tonight.

That is cool. Wonder what the efficiency of one of those will be.

40%, it's in the linked Wikipedia article.

I ran a ~10MW capable facility for a while, we had 8 2MW Cummins gensets that would run in parallel. Extra units for redundancy as sometimes units would be offline for oil changes or other routine maintenance.

Maybe want to checkout engines from Wärtsilä.

They have gas capable engines (50DF series, 50cm cylinder bore) with ratings up to 975kW/cylinders and up to 18 cylinders or 17MW per genset at 60hz.

They're not the only player in that field. Fairbanks-Morse sells the Colt-Pielstick PC2.6 line with 750kW per cylinder at 600rpm and up to 16 cylinders for 11.5 MW @ 60hz. They also sell MAN 48/60 engines that go up to 21MW and MAN natural gas 51/60 G engines up to 18.5 MW.

40MW = 40,000KW Typical power density in a colocation facility these days is approximately 5kW per full cabinet (sold as 30A @ 208V or 60A @ 120V at 80% utilization). So, approximately 8000 full cabinets at average density, which would be enough power for one of the 10 largest known facilities in the world. Most likely though, the power density is going to be much higher than typical with bitcoin mining, and could be as few as 1333 actual cabinets at the high end of density of 30kW per cabinet.

Are those crazy jargon words meant to translate to $ ? If so, is it profitable? Sounds like they've just cut their lunch by 40% too.

Right at the moment the current hashrate is 723 Phash/s, so BitFury hashing at 200 Phash/s rate would get ~28% [1] of the newly generated bitcoin in average, i.e. 0.277 * 144 [block/day] * 25 [BTC/block] ~= 996 [BTC/day]. (Assumes that the difficulty approximately keeps up with the hashrate, which seems to be fine to me.) That translates to more than 400,000 USD per day if BitFury manages to sell them at the current price (highly unlikely) without disrupting the market (impossible at all), but yeah, that gives the rough order of magnitude.

[1] This also means that putting 650 Phash/s gigs into the network is not as profitable as it seems, since it will double (55%) the ratio while three times more expensive (if it linearly scales).

Since the amount of Bitcoins introduced into world daily is near constant (except for the scheduled halving of the rewards every few years), SOMEBODY is selling most of the freshly mined coins without disrupting the market.

It doesn't really matter how high the difficulty is or who the miner is the coins are mined and most of them sold.

There might be a small fraction of coins which are still mined in pools using outdated miners and those people don't bother selling them coins(fractions of coins that is).

It has been accepted wisdom that most mining operations sell most/all of their mined coins.

It's a race to the bottom. It will end with the party that manages to just win that race by making the smallest profit possible at the highest efficiency of Joules per hash computed. Bitcoin is interesting for many reasons, the real-world effects of a couple of configuration settings and some cleverly picked auto-scaling parameters are immense. The number of orders of magnitude that the protocol has survived with minor tweaks to date is very impressive.

Anywhere in the USA who has to pay USA power prices is going to be at a disadvantage by that alone then. It would seem that locating the hashing equipment to the place with the cheapest power possible would be a logical step when things start to get cut that fine. Unless that could be overcome with clever usage of naturally generated local power (such as solar power).

You'd think Canada would have more major data centers. They've got a lot of extremely cheap hydro power. You could surely lay ultra-high-speed fiber along the same right-of-ways that the transmission lines use. Also, it's cold as hell more often than not, so cooling is less of an issue than putting them out in the desert somewhere.

Bitcoin miner's dilemma: Should I mine where it's hot for the free solar energy or should I mine where it's cold for the extra refrigeration?

Photovoltaic power is actually less efficient where it's warmer. The ideal for photovoltaic generation is somewhere cold but sunny. And I'm not aware of too many solar thermal plants that are online and profitable versus other generating methods.

Cold air but hot ground. Take advantage of geothermal and hydroelectric in the arctic and near-arctic regions.

Iceland! Active volcano geothermal power and cold climate.

USA (Washington state) has the cheapest power in the world (at volume -- places like Iceland are cheaper/nearly free, but with too limited capacity for large scale mining).

Really limited capacity? They run aluminium smelters in Iceland, I can't imagine bitcoin mining requires more power than that.

At that price point, yes. Maybe the problem has been not enough power required... I don't know. I just know that most bitcoin companies in Iceland have moved or are moving to get cheaper power elsewhere.

Therein lies the problem: New users pay the average price, but new capacity has to be built at the marginal cost.

Washington and Oregon sell a lot to the SW. Google just built a big data center here near a dam from a huge city for power reasons.

There have already been articles about people doing that a couple years ago. I believe they were located in a cooler climate as well, made cooling the datacenter a bit cheaper so more power was going to computing than maintaining the computing equipment.

I'll look for that article now.

EDIT: Not the article I was looking for, but it covers it and was from 2013. This guy was using the cheap Icelandic power and the cold Icelandic air to his advantage.


> It will end with

What you describe is price-based competition. It’s probably the most documented situation in economics, and it present in many markets. It is a race to the bottom, but rarely ever ends; when it does, it is generally by disruption (something people on HackerNews know a lot about). In the mean time, it drives technical innovation after technical innovation—but I doubt, after 40 years of Moore’s law that it will suddenly end.

I'm wondering, isn't this going to put lots of current miners out of business, as their return-on-watt used to mine bitcoins is severely cut? Doesn't this risk to make BitFury even more dominant in hashing power, until somebody else can get comparable economies of scale?

Are these systems totally self contained? Seems a bit unsafe to have fire retardant chemicals vaporizing constantly in a confined space. Has anyone given any thought to the health effects of these type of data centers?

Could you translate some of that into an estimate of X coins mined per day and Y kwh used per day? Thanks.

The best way to think about the mining market is that the number of Bitcoins available to be mined each day is _constant_* no matter what the total hashing power deployed is. As a miner your share of that fixed pool of available coins is determined by your hashing power relative to the overall hashing power of all miners. So if you control 30% of the hashing power you should on average get 30% of the coins mined each day. Your profits are then determined by your costs and the value of a bitcoin when converted to the currency your costs are denominated in.

* The constant amount actually changes periodically when the coinbase reward is adjusted downward but that only happens about once every 4 years and historically exchange rate price appreciation has outstripped the reduced coinbase mining rewards. eventually the coinbase reward will go to zero and the number of coins that go to miners each day will be their relative share of the total fees being paid by users transacting on the network. Miners choose which transactions to include in a mined block so in the future a large miner may have some pricing power over transactions because they could refuse to process any transaction with a fee that falls below some threshold.

The question I haven't seen answered that I'm intrigued by: Assuming I put my 2015 pretty-normal-specs (i7 processor, 8gbs ram) laptop to work bitcoin mining 24 hours a day, how long before I have a single bitcoin?

Buy a scratch off lottery ticket you would have a better chance of coming out ahead.

At this point, basically never. Sad but true.

I find this style of commenting passive aggressive... "Nobody has pointed out this great fact?! I guess I will be forced to do it." Just lead with "This is BitFury..." we don't need to know how annoying it is for you to have to post this.

(Note: Since most HN readers are technical, this comment is being downvoted by bitcoin enthusiasts among them. You won't see many replies from them to this comment, since their reaciton is political and not a technical statement. Still, I'll keep it up. This comment is currently at -2.)

To put this into context, by comparing it with a centralized version, an equivalent number of actual transactions could be done at a bank with a crud app running on a $5 complete desktop PC which the Raspberry Pi foundation just released[1]. It is a 1 ghz computer with 512 MB of RAM. It draws up to 0.7 Watts.

Wait, wait, wait. did I say an equivalent number? Since Bitcoin is limited to 7 TPS (7 transactions per second), I should modify this to 100x more transactions (700 transactions per second), if you wrote it in C, or if not a hundred times, then at least ten times as many in python. If it were a crud app running at a bank, a $5 computer could do 100 times the transactions that 650 Phash/s of wasted effort collectively give. And 40 megawatts.

Bitcoin is a supreme waste of resources through the proof of work hack. It is like emulating a GPU in a CPU...in javascript. I mean, sure, you can do that. You can run Open GL by emulating a GPU in single-threaded Javascript.

But it's a stupid, wrong solution. The basic idea sucks. It's bad.

(by the by my target price for btc is $600,000 based on a comparison with how bad gold is physically, and the market cap of gold. :-P.)

I love fiat currencies, they're one of the great achievements of modern civilization. (This sentence isn't ironic, it's actually how I feel.) Despite my target price I don't hold any bitcoins at all. I hope some of the numbers I've given can put into perspective why.

[1] https://www.raspberrypi.org/blog/raspberry-pi-zero/

I believe that your being down-voted for writing:

> But it's a stupid, wrong solution. The basic idea sucks. It's bad.

instead of explaining that the cost is the cost of guaranteeing the authenticity of the transaction. HackerNews likes technical comments, and will happily burry expletives.

You could find more compelling example, such as estimate the ecological cost of having most of the current world-wide banking transactions on BitCoin, and prove your point.

You're wrong. Even without any mining, running a full node requires 2GB of RAM. Even if you do less than a full node, you'll find it hard to fully process 100x transactions on less than 2GB.

Also, you don't seem to understand the point of PoW.

You misunderstood him. He was talking about running a non-bitcoin program on that small computer.

He's talking about running something that does bitcoin, but without the inefficiencies of PoW. I pointed out that the RPi 0 doesn't have enough power to handle that scale, even if we took out the PoW stuff.

What the expense of mining buys you is censorship-resistance.

> Since most HN readers are technical, this comment is being downvoted by bitcoin enthusiasts among them.

No, you're being downvoted by technical people because you're missing the whole point of decentralized digital currencies. Educate yourself: https://en.wikipedia.org/wiki/Cryptocurrency#Timestamping

> I love fiat currencies, they're one of the great achievements of modern civilization.

Yeah, unless you want to export some Cuban cigars from Germany to Denmark: https://en.wikipedia.org/wiki/Society_for_Worldwide_Interban...

Slightly-more-available link https://bitcoinwisdom.com/bitcoin/difficulty

Hash rate has increased by 41.9% over the same period, so the difficulty has kept the time-to-generate relatively fixed - just the way it's supposed to work.

The real news is that someone or someone(s) have added ~200PH/s worth of processing power to the network in the past 30 days. This is probably from some high-power ASIC miner being released, or from some consolidated mining concern going live.

The billion dollar question is how we can have completely decentralised (and not merely distributed) consensus without proof of work. It's a difficult question, and various proposals like Proof of Stake (not secure) and Consensus Ledger (not secure, not decentralised) have all failed technically and on the market.

40MW! For bitcoin! This is nuts!

As a point of comparison, a typical commercial nuclear reactor produces around 1000 MW (give or take; most power stations have more than one reactor).

You know, I'd kind of like to see someone construct a nuclear plant just to self-source their bitcoin mining power needs.

For comparison, how much power does Visa, Mastercard, the Federal Reserve (and its printing presses), banks, and all of the buildings and employees that work in the traditional financial sector use? Now think about that in every single country on this planet. It's a lot more than 40MW. The Bitcoin network is a steal by comparison.

You're comparing the microscopic bitcoin economy to the financial infrastructure that services the entire planet; it's a ridiculous comparison.

How would bitcoin's power consumption stack up if it were tasked with servicing tens of millions of transactions per second?

> How would bitcoin's power consumption stack up if it were tasked with servicing tens of millions of transactions per second?

It would stay almost the same since the hashing power is not connected to the number of transactions.

Also by the way, no one does tens of millions of transactions per second, visa does something like 40,000 at their absolute peak.

No, no, no.

The amount of power wasted by BitCoin indirectly depends on the monetary turnover of the system. Because if somebody can spend $1mln to perform 51% attack and move around $1bln, that will likely be done. Hence, the power wasted is proportional to the turnover of the system. Otherwise, it does not work.

Also, when a bank charges me 1% for a wire transfer, they pay salaries from that money and some people buy food. The power burnt by BitCoin is actually literally immediately irrecoverably physically wasted.

No, it's proportional to the value of the coins used as reward. If there's high turnover, that might lead to bitcoin's price increasing and therefore higher energy costs. Also, high turnover may lead to higher fees, increasing the reward.

If the high turnover is done between trusted parties, or with settlement time, then it doesn't matter to security. It needs to be people accepting large amounts from strangers/untrusted counter-parties and giving stuff for it immediately. But usually, if I send someone $1000, they can wait 3 hours for security.

>Also, when a bank charges me 1% for a wire transfer, they pay salaries from that money and some people buy food.

When a bank has lights on, burns fuel to send an armored truck around, etc, that's also wasted.

Sorry, but the bitcoin "wasted power" is just a NON-ISSUE right now.

World wide standby power waste must be 1000 times more than what bitcoin uses - world wide power usage ~17TWH, 1% standby power waste => 170GWH.

I'm pretty sure that all the power dedicated by the banks to perform the same opperations as bitcoin (people driving to work, office building power, air conditioning, datacenters power, and so on) is signifficantly more than 40MWH.

So, just the global standby power waste is orders of magnitude greater than what bitcoin uses, and banks probably use a lot more power to perform the same opperations as bitcoin does.

If you pay a 1$ fee to a bank or a bitcoin fee, that 1$ will recirculate back into the economy. The difference is the banks are a lot more inefficient and are such human resources hogs because of their exclusive right to create money out of thin air.

You seem adamant about something that you clearly do not understand.

> Because if somebody can spend $1mln to perform 51% attack and move around $1bln, that will likely be done.

Then why hasn't it been done? The answer is that bitcoin doesn't even remotely work like this. You would have to sign a transaction, then double spend it to yourself, then BY CHANCE mine enough blocks to satisfy the person giving you whatever you are buying before they see the double spend.

That is not going to happen. Someone receiving a million dollars will not give over a briefcase of cash the second they see the transaction, and that's the only way something like this would work. If you are taking money out of an exchange, the exchange would never even credit your account, let alone send you money. They would see the double spend transaction and if by some chance (0.015625%) you managed to mine the next 6 blocks or so, they would just wait longer since there is a double spend out there. By the time they might actually send you money, the chances of you mining all the blocks up until that time is practically zero. So you would then be gambling your million dollars against enormous odds.

You might not want to believe that bitcoin works, and it might seem counter intuitive that the proof of work is important and useful, but this isn't about how you wish the world works, it is about how the world ACTUALLY works, and that is why bitcoin actually works.

You are focusing on a single scenario of an individual double-spender. Why don't you consider some other scenario, e.g. a hacker getting control of a major BitCoin mining facility to disrupt things just for a laugh? I've seen a lot of that happening. There are tens of possible scenarios. Mining capacity is highly centralized these days and that trend will likely develop further (see the subj). The mental model of "one malicious node against all the honest nodes" is totally bogus.

So far, my observation is that BitCoin can't run cheaply on the reasons already mentioned. I will only buy your argument if you'll show me a graph of power consumption vs turnover and it will happen to be sub-linear.

If a miner gets hacked, then their blocks will go to the attacker, or they won't be mining. Blocks will be mined more slowly and transactions may take longer for the same number of confirmations until the miner comes back. If a bank gets hacked, people steal money enormous amounts of money by directly changing their ledgers. I don't see this as some sort of a loss for cryptocurrencies.

I'm not sure what you mean by turnover although you might want to learn more about bitcoin before you rail so hard against it.

Turnover: the amount of business transacted during a given period of time. How much BitCoins change hands in a month, for example. Actually, plotting that in dollars is even more correct, as electricity costs are not paid with BitCoins.

Ultimately, that is a graph of dollars moved vs dollars wasted. (I explained the difference of "spent" and "wasted" in a different comment.)

> Because if somebody can spend $1mln to perform 51% attack and move around $1bln, that will likely be done.

This attack allows double spending and censorship. It does not allow to directly steal someone's BTC.

> Also, when a bank charges me 1% for a wire transfer, they pay salaries from that money and some people buy food.

And horses are pissed at cars.

> The power burnt by BitCoin is actually literally immediately irrecoverably physically wasted.

No, it is not. It buys security in a way which traditional banking is not capable of providing.

Actually that 1% normally will go to paying the electricity bills for the bank back end systems and the fraud analysis algorithms. On top of that they need to pay for fraud insurance. The power spent on bitcoin is not analogous to these costs, it is equivalent. The question is, is bitcoin more cost effective at preventing specific types of fraud?

Evidently not the types that actually happen in the Bitcoin space, all of which have as their root cause "no chargebacks": if someone picks your pocket from the other side of the planet, you have no recourse.

Like the president of Moldova who laundered a billion dollars out of the country?

> Also, when a bank charges me 1% for a wire transfer, they pay salaries from that money and some people buy food.

So basically they are paying bunch of people to live and consume without doing anything useful. How much power wasted is that? How do you know how much wasted day of human life costs?

I just had some issues with my Dutch bank because they totally switch to the model of "mobile client + internet + paper letter once a year". They deprecate walk-in procedures. They close branches. I did not visit them for 5 years and I would not visit them for another 5, but something happened, so I had to.

My Russian bank is mobile+internet from day 1. They have no branches. They don't even have their own ATMs.

I am not sure what is the current trend in US, but my personal experience certainly contradicts your thesis.

My thesis was "if the banks use 1% to pay salaries to their employees doesn't mean it's not a loss"

Maybe you meant the thesis I was responding to that banks use 1% to pay salaries.

My point is: banks are not driving around trucks full of gold bars (like some other commenter suggested). These days, it is mostly electrons moving. They also minimize the number of people involved. I believe, the remaining people are doing something useful. Like answering my calls and investigating incidents, for example.

Agreed... lets keep it in terms we all understand and that make sense...

How many libraries of congress can they power with 40MW?

Given how people use tap-to-pay type services for vending machines and bus fare, that might be a low estimate on volume.

> How would bitcoin's power consumption stack up if it were tasked with servicing tens of millions of transactions per second?

There is no way to do this calculation. At the moment Bitcoin mining uses, let's say 150MW and can do around 4 transactions per second. If you gave the network a 1000 times more hashing power, you'd be using 150GW, and could handle... around 4 transactions per second.

Well a miner like the one going live is also responsible for managing the transaction volume. So the capacity of Bitcoin to manage many more transactions just went up.

No, this is completely incorrect: the transaction rate limit is inherent in the protocol.

You could do it with an increase in the block size, but the Bitcoinsphere has bitterly resisted all attempts to increase the block size.

The federal reserve has no printing presses. VISA can process 10,000x as many transactions per second as Bitcoin and banks do a lot more than transferring funds.

Bitcoin feels a bit like the gold standard. Massive mining operations dumping huge volumes of resources and energy to acquire some thing that is only mildly useful. It seems quite wasteful.

There's a pretty good writeup about this issue in the Stanford/Princeton Cryptocurrency Class:


Excerpt: According to our estimates then, the whole Bitcoin network is consuming maybe 10% of a large power plant’s worth of electricity. Although this is not an insignificant amount of power, it's not yet a large amount of electricity compared to all the other things that people are using electricity for on the planet.

Any payment system requires energy and electricity. With traditional currency, lots of energy is consumed guarding and moving gold bullions around, running ATM machines, coin sorting machines, cash registers, and payment processing services, and transporting money in armored cars.

Some people say Bitcoin wastes energy because the energy expended computing SHA-256 hashes doesn’t serve any apparent purpose. But you could make this same argument for traditional currency as well — there’s a lot of energy being wasted and it doesn't serve any purpose besides maintaining the currency system. So, if we value Bitcoin as a useful currency system, then the energy required to support it is not really being wasted.

That said, we can ask if there’s a way to do better ...

I believe that most of money consumed by the financial system actually goes back into the economy. Some bankers buy sushis, then sushi chefs buy gasoline, then oil drillers... and so on.

BitCoin tends to waste energy irrecoverably.

Apples-to-apples comparison is a challenging task, but the modern financial system hardly has that feature of burning more for the sake of burning more.

> I believe that most of money consumed by the financial system actually goes back into the economy. Some bankers buy sushis, then sushi chefs buy gasoline, then oil drillers... and so on. BitCoin tends to waste energy irrecoverably.

Bitcoin is best technical solution we have for an existing societal problem. As soon as better technical solution will be created (e.g. proof-of-stake which can be relied upon), Bitcoin will be modified to use it. And Bitcoin will continue to operate with lower costs - burning less energy.

Money is returned to the economy via energy company profits and wages just as effectively as via bankers' salaries. It's the labour and energy itself that is wasted.

> I believe that most of money consumed by the financial system actually goes back into the economy. Some bankers buy sushis, then sushi chefs buy gasoline, then oil drillers... and so on.

Yes and no. If a banker is being paid $100/hour then presumably (in an efficient-markets sense) their labour is worth that much, and they could be doing something else with their time that would be creating $100 of value instead.

>Any payment system requires energy and electricity. With traditional currency, lots of energy is consumed guarding and moving gold bullions around

Whenever the topic of bitcoin's inherent wastefulness is discussed, someone always brings up this point, but it's a fallacious comparison because most of the power consumed by the traditional financial system is spent in its capacity as a ubiquitous pillar of modern society, wherein bitcoin would be completely subsumed were it to become anything more than a technical novelty.

Even when you subtract the common denominator that represents the vast majority of the world's financial intuitions, bitcoin is still the only currency that burns resources as a function of its circulation.

>most of the power consumed by the traditional financial system is spent in its capacity as a ubiquitous pillar of modern society

Either I missed your point or it would be nice if you brought this back down to Earth. Yes, traditional ledgers help mediate economic exchanges. Bitcoin, as a ledger system, also helps mediate economic exchanges.

> ... wherein bitcoin would be completely subsumed were it to become anything more than a technical novelty.

You put this forward like we should all nod and say of course. Care to tell us about this scenario?

That paper estimates the bitcoin network's total power consumption at around 117MW. This latest increase is estimated at 40MW. So it is a significant increase.

Not sure how they came up with that estimate, but the miners are getting more and more efficient, so it's not a linear increase.

No, it's a race to the bottom. The cost of mining 1 BTC will naturally tend to 1 BTC, and we're already circling that.

> guarding and moving gold bullions around

I forget where I read it, but when countries and banks buy and sell large amounts of gold bullion they don't usually move it around because it's expensive and inconvenient.

The ownership changes, but it's usually left where it is.

can you share more pdfs ?

Sure, take a look at the syllabus here: https://crypto.stanford.edu/cs251/syllabus.html

(all are hyperlinked)

Stellar solves the same problem in a different way - nodes pick whom to trust in the network. So it doesn't burn vast quantities of energy just to stand still, and it's not vulnerable to someone with vast computing resources.

I'm not an expert but it makes a lot of sense to me. Most real-world decentralized institutions work kind of like this.


And all of the myriad redundant banks, central banks, credit card processors, buildings in every city in the world aren't wasteful? Bitcoin is a monetary system for the whole world and if it succeeds none of the things I previously listed will need to exist.

Proof of work is the most secure way we have by far of running a decentralized currency. I am hopeful that a better, more energy-efficient method will be developed, but until then, I think advancing the state of the art is worth the energy cost.

It's not obscene to me that a truly global currency, that is decentralized and not controlled by any government, would cost a tenth of the energy output of a modest-sized power plant.

That's my main issue with bitcoins (aside from how they're marketed to anyone; it is most definitely NOT anonymous!).

Instead of 'proof of work' it should require actual, /useful/ work. I think it should be a mix of work /types/ to promote general purpose computing, instead of ASICs. Imagine if a comity decided, and the owners of existing coins voted on, what work was worthy of being included. Folding proteins for medical research, SETI, attacking DRM/bootloader encryption keys... things that benefit the world.

Ok, yeah that would be nice. But no one has figured out how to securely do productive work for proof of work. In fact, there are pretty good reasons to believe that it may even be impossible to create a secure yet productive proof of work algorithm.

It almost sounds like you are talking about something like SETI@Home...

You can't use SETI@home for proof of work. The work target has to somehow involve a fully random process.

Lots of very smart people have tried this and failed. The best effort so far has been to find prime numbers, and even that turned out to not be a robust proof of work.

I will tell you what I tell everyone who says the same thing:

You are free to create that proof of work system and you can see who buys your coin.

Now, if you piggy back on something people are already doing, then you might have something.

1GW is a large sized power plant.

It might seem mildly useful until you realize why bitcoin, gold, or fiat currencies all have value - their properties lining up with the properties of ideal money. Gold is not valuable because of jewlery or industrial uses. It is valuable because it was the original decentralized shared ledger. Easy to verify, easy to divide, hard to create, hard to destroy (and some more if you look it up).

I wouldn't say currency or a financial instrument is just mildly useful. How much money gets spent running the equivalent size of banks?

except gold is very useful, every bit of electronic around you uses it.

Once the 16nm chips become a commodity, it will make sense that the hashing power would get more distributed.

I hope figures out how to get a solar powered, interchangeable bitcoin miner in a box at a positive ROI. It may seem impossible now, but solar prices are falling faster than expected.

Why would you expect hashing power to become more distributed? Mining is a race to the bottom/thin margins, and the differentials in power rates far exceed normal miner profit margins. It would still only be profitable to mine at scale in a few select locations in the world.

> "Why would you expect hashing power to become more distributed?"


"Valery Vavilov, CEO of BitFury, said: “We are very excited to launch mass production of our super 16nm ASIC Chip. The final results of our hard work have fully met our expectations. We understand that it will be nearly impossible for any older technology to compete with the performance of our new 16nm technology. As a responsible player in the Bitcoin community, we will be working with integration partners and resellers to make our unique technology widely available ensuring that the network remains decentralized and we move into the exahash era together. BitFury warmly welcomes all companies interested in joining our integration and reseller program.”"

That doesn't address any of the concerns I raised.

Yes it does. If the article is correct, the 16nm BitFury chips will be sold to interested parties, so new mining capacity won't be dominated by a single company, thereby ensuring newly mined BitCoins can be distributed throughout the network.

If your concerns were about something other than distribution, please clarify.

They will be sold to interested parties.. and hosted in the same data center. Back to square one.

It takes a price per kW-hr differential of about $0.03 before it makes sense to put miners on a plane. That's far less than the power differentials one would expect, so those miners will stay put. Just paper ownership will change hands.

> "and hosted in the same data center."

This is why we're disagreeing, I can't see any indication that the chips will not be used in other data centres. Where are you getting this information from?

Isn't that logically impossible until renewable is cheaper than fossil fuels?

I'd have thought that because fossil fuels are cheaper, it will literally never be possible to have have a positive ROI bitcoin miner on a renewable energy source, assuming that people are willing to mine using $0.99 of energy to make $0.01 profit.

EDIT: Downvotes and no comments for a simple question? WTF is going on with HN these days, can we not ask questions?

An interesting though exercise:

Does the new capacity make a bitcoin more valuable or less valuable?

Intuitively seems like more valuable, but the average cost in energy to mine the marginal block has gone down (otherwise the new miner wouldn't be mining) and that's often though of as the floor on BTC value.

Seems like having a stronger network is a net plus, and since they're probably not near the 50%+1 threshold it probably is in fact a stronger network. Although maybe they will get close if marginal miners are forced to turn off if the price of XBT drops and BitFury is enough more efficient.

Although BitFury is probably not a bad actor, technically a 50%+1 attack is not obviously illegal (IANAL), although a government might step in ironically enough. It seems to me these types of more centralized setups do introduce some tail risk to the system.

There's an interesting book on the economic underpinnings of Bitcoin-


> we now know that there is a near precise model that describes the cost of running and maintaining the network. The way the cost estimate is determined is through how Bitcoin acts as a decentralized waste heat creator that activates and deactivates heat generation based on market participation and pricing signals. What do the randomizations necessary for cryptography and the waste heat produced by computing devices have in common? One word: “exergy,” a term of art describing the maximum useful work possible during a process that brings a system into equilibrium with a heat reservoir. Exergy is always destroyed in the seigniorage hashing process - for example - if a token's value increases to $1,000, this means that at most $1,000 worth of waste heat will be generated somewhere in its creation.

From my reading of the text, it's not so much the additional hash power that's valuable, it's the additional money spent building and operating the ASICs. In theory, the market cap of a proof-of-work system should approach its total cumulative cost to secure. The more watts you see being dumped into the environment calculating hashes, the more you should value Bitcoin.

If Bitcoin is worth less than its cost to mine, no rational miner will mine (if they want BTC they'll just use their electricity budget to buy it on the market), so the competition (and therefore the cost) to mine each block goes down. If Bitcoin is worth more than its cost to mine, mining becomes profitable to anyone willing to put up the capex, so the competition (and therefore the cost) to mine each block goes up. There's an equilibrium where the value of Bitcoin is equal to its cost to mine.

The actual price of bitcoin as seen by the average consumer is insulated from the cost to mine because of effects like speculation, perceived future movement, and the value provided by ease of spending / anonymity, so the economic theory isn't really accurate, but that's why it's a theory!

No one is afraid of the ecological cost of crypto currencies ?

We are in a world where the energy has a frightening ecologic cost and people to spend it in gigantic quantities just to create a virtual money...

>No one is afraid of the ecological cost of crypto currencies ?

I am. But this is a drop in the bucket compared to financial sectors that deal with "real" money. Really, isn't nearly all modern money "virtual"? Nevermind the fact that a lot of money only exists electronically, modern money doesn't actually physically represent anything. Therefore: virtual.

The problem is not the virtual character of the money, but the energy involved to create it.

The idea behind it is that you need energy to gather money (metalic money for example). but this is pointless for bitcoin, it's just wasted without any utility.

looking at the chart there are plenty of places there was more increase in difficulty in 30 days. In the whole 2014 difficulty seemed to have multiplied 40 times! I understand the magnitude is a whole different story now though..

More powerful miners beget higher work needed to mine. A small cadre of people with ultrpowerful mining gear have pushed a more difficult task on the rest of us.

... by simultaneously facilitating a large ratio of bitcoin's infrastructure.

Not 100% sure, but from your tone it sounds like you think they are performing some kind of service. This is not true. Miners do not increase the number of transactions the network can handle. An infinitesimal amount of the electricity going into mining is actually goes to process transactions. A raspberry pi in a shoebox running mySql is capable of processing more transactions than the entire bitcoin network, liquid nitrogen and all.

All that mining does is give the person with the most hashrate more voting power in which transactions will be accepted. Innovation in mining hardware and data centers does not in any way increase bitcoin's security.

> All that mining does is give the person with the most hashrate more voting power in which transactions will be accepted. Innovation in mining hardware and data centers does not in any way increase bitcoin's security.

This is completely wrong. The higher the difficulty, the harder it becomes to attack the network, which is a critical feature. If anyone who rented a data center could attack Bitcoin at this point, it would be even less stable (much less!) than it has been already.

No. Read what I said. "Innovation in mining hardware and data centers does not in any way increase bitcoin's security."

If everyone can use technology to push a higher hashrate, then what has changed? The people who can get their hands on new mining chips first have an advantage for a little while, but in the end it's a zero-sum game. The pie is 100% of hashing power/block validation power. How can you divide a pie into more than 100%?

If a dedicated data center is more effective than a commodity data center then that increases bitcoin's security, because it means a greater proportion of the hashrate resides with people who have an expensive long-term commitment to bitcoin and it's more expensive for an outsider to match that.

That's circular logic thogh. If you built a data center capable of staging a 51% attack, you haven't made the network harder overall. You've already gained enough power to do an attack.

It might encourage others to compete, and the arms race continues. But if too much of the network is controlled by a minority, then it's not automatically more secure.

Only certain types of attacks are based on hashing at a rate which is a significant percentage of the network hash rate. Many other types of attacks have nothing to do with hashing, for example, the transaction malleability attacks.

>Innovation in mining hardware and data centers does not in any way increase bitcoin's security.

Not sure exactly what you mean here - mining, and mining faster, generally increases the computational resources another third party would need to 51% attack the network.

Only by as much as the miners themselves spend. And it's a running cost, you have to spend it every day, while an attacker would spend it only during their attack.

The only way to make a 51% attack impractically expensive is to make the network impractically expensive to run.

That would only make sense if you could somehow rent 51% of the hashrate, which isn't remotely true.

Another option is to hack 51% of the hashrate. The third one is to own it from the very beginning.

If there are faster mining chips available, is not easier the third party to hash as well?

Is there any possibility that they could themselves attack the network?

Anyone with enough compute can attack the network in this way. There's various scenarios depending on how much compute the attacker has, but in general as they approach 51% of the network's compute, they can start to reliably do double-spending attacks.

But, and this is arguably one of the cleverest parts of Bitcoin's design: Who is going to get all that compute setup to mine Bitcoin, and then break the very system that makes it worth having?

Not saying there couldn't ever be scenarios where it happens, but its a pretty good first deterrent to bad behavior - and its clearly intentional, mentioned in the original Bitcoin paper:

"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."

In some ways, the existence of custom mining hardware is a bad thing, by reducing the spread of participants who can mine cost-effectively - essentially un-democratising the running of the system. But on the other hand, its meant that an attacker has to invest in a lot of special-purpose hardware to attack the system (rather than just being able to e.g. rent enough EC2 nodes, or turn their entire government's cluster against Bitcoin, or whatever); which probably increases the cost of (then) destroying the system, and makes Satoshi's original Incentive argument stronger, imo.

If they wanted to torpedo the price, get routed around, and lose all that capital investment in 16nm mining fabrication. Bitcoin was designed so that attacking the network will be less profitable than joining it.

But I can imagine scenarios where its game theory might not hold - because "profitable" is measured in bitcoins. For example, Bitcoin might not be suitable for use as a reserve currency if doing so would create "political profit" for destablising bitcoin that might exceed the monetary cost.

It does specifically because it increases the barrier to entry. This means the likelyhood of an attack is lower and the cost of an attack is higher. If your Rasberry PI ledger had a market cap of multiple billions of dollars, the likelyhood of an attack that would either steal people's money or shut it down would be pretty much %100.

increases the barrier to entry === centralization

There are many shades of grey. It creates some centralization, thought incentives of the miners are still aligned with the incentives of the people using the currency.

You seem to be implying total centralization, which is not at all true.

Some alternatives. Permacoin(http://cs.umd.edu/~amiller/permacoin.pdf) has mostly the same security properties, but effectiveily non-outsorceable, and work done is useful. We made the first open-source implementation of that https://github.com/ScorexProject/Scorex-Lagonaki/tree/master... .

I also have paper draft about better Proof-of-Stake protocol, and would like to share it with people from academias to get a feedback. Please write me ( kushti at protonmail dot ch ). I also have half-written paper draft about PoW+PoS hybrid chain.

What broke?

It doesn't mean anything is broken.

The recent rise in price justifies bringing miners online or shifting them away from other cryptocoins.

Halving day is coming soon too.

It's predicted to happen mid-2016, 70% of all coins to ever be mined have been so.

This has been a really interesting tech to watch over the years.

What happens when we reach 100%?

We re-learn why a deflationary currency is an awful idea.

Like precious metals? Deflationary currencies have been used successfully for over 1000 years.

The only people it is bad for are governments. Throughout history there is a patter of promising, spending, and becoming insolvent.

The idea that an individual wouldn't choose a deflationary currency is ludicrous. Inflationary currencies are what you want everyone else to use.

And by the way, the cat is out of the bag. Cryptocurrencies are here, bitcoin or not. When people can choose to use any currency they want, will they choose one that inflates? I doubt it.

Yes, like precious metals. The history of precious metal economies is pretty bad -- decades-long recessions and wars triggered by fluctuations in the commodity markets. Deflationary currency is not a good thing, and bitcoiners will eventually realize this.

(Note I work on Bitcoin Core and co-founded Blockstream, a prominant bitcoin company. The value of Bitcoin is not the currency, but rather what censorship-resistant, distributed global consensus gives us.)

The value of bitcoin is in properties of ideal money.

> decades-long recessions and wars triggered by fluctuations in the commodity markets

As opposed to now where we have no recessions and no wars? A deflationary currency doesn't cause a recession, the unwinding of practices like fractional reserve banking or the deleveraging of debt do. When these spin out of control the financial system becomes fragile because none of the intermediaries are resistant to any sort of failure to be able to keep their promises. If no one person in an organization is really accountable, why would they care? They can make short term gains, and when things fails they all fail together and no one really has to claim any substantial responsibility - they can say 'it just happened'.

So what you are talking about is a problem with certain systems, not with money that doesn't lose value. Then again it doesn't come as a surprise that a co founder of a company so misguided and desperate doesn't really understand systems, accountability, or even bitcoin/cryptocurrencies.

That is like saying 'the value of the discrete cosine transform isn't JPEG but what it lossy compression gives us'. They are separate things, and denying the impact of one is a simple, easy, and wrong answer.

> (Note I work on Bitcoin Core and co-founded Blockstream, a prominant bitcoin company. The value of Bitcoin is not the currency, but rather what censorship-resistant, distributed global consensus gives us.)

You can get that while being less deflationary though, e.g. Dogecoin.

Or Freicoin, which I co-authored with another Blockstream founder. But neither has the network buy-in and security of Bitcoin.

I am pretty confident that the amount of precious metals in circulation has gone up over the last 1000 years.

AS sfackler points out, mining of precious metals has continued (though, like bitcoin, with diminishing returns over time).

They will choose an inflationary currency if they have any debt. Debt with deflation is very bad, and it's incredibly stupid to offer credit with deflation.

It's not so bad an idea as long as you get to choose which currencies you use.

So let's see... We have an inflationary currency which is behind an increasing divide between the rich and the poor[0], and keeps people hooked on unsustainable growth to just survive, leading to intensifying environmental destruction and wanton consumption of limited resources... It's not like an inflationary currency is necessarily a good idea, either.

[0] before you say that inflation hurts the rich, among other reasons the if inflation didn't hurt the poor, we would never feel the political pressure to increase the minimum wage.

ELI5 por favor


Essentially, if you think that a currency will be worth more tomorrow than it is today there is little reason for investment (or even spending!). It quickly becomes a spiral where no one wants to spend. Inflation provides a nice kick in the pants for people to put their money to good use.

This isn't a concern yet for Bitcoin because in the scheme of world economies BTC simply doesn't matter (it could go away tomorrow without any noticeable effects), but if in the future it becomes a critical thing it would be a major concern.

Deflationary spirals are a hypothetical concern and mostly a fringe neo-Fisherian idea that has recently gained some mainstream nodding, but is otherwise difficult to verify in any way.

For one thing it assumes a massive collective irrationality where people's expectations are all rendered berserk and plunged into a negative time preference. It's a very tough gambit to make that people can withdraw their propensity to consume to such a high extent. It's tough to presume that the heterogeneous stock of capital and the time structure of production will just stand still to a deflationary pressure and not readjust to add more stages or adjust the price spreads in between. [1] Of course, BTC being a global currency means it exists in competition and per Gresham's law can always be driven out. Not a catastrophe.

[1] https://www.jstor.org/stable/2547921

>For one thing it assumes a massive collective irrationality where people's expectations are all rendered berserk and plunged into a negative time preference.

One of the more idiotic ideas to come out of neoclassical economics is the assumption that a negative time preference is irrational or impossible, when most of us have one (pension, passing wealth on to one's kids, saving up to buy big ticket items, etc.).

Indeed, what would really be irrational is spending all of your money immediately.

I am uncertain as to why you imply that a) I think a negative time preference is irrational or impossible apodictically, b) that the former is necessarily a neoclassical idea when the neoclassical synthesis in fact eschews it, c) that there is a natural rate of time preference, d) that time preferences do not differ per subjective valuations and units of goods on an individual scale, or that they are not dynamic, and e) that to respond to the assertion that deflationary spirals are unrealistic in presupposing a fixed natural rate of negative time preference with the opposite straw man idea of extremely high time preferences that favor immediate consumption is a convincing line of argument (indeed, the latter cannot be true for it would make capital investment an impossibility).

The three activities you list in parentheses apply only for those goods, and do not even imply a negative time preference. Saving doesn't have to be a result of negativity at all, per se.

>the opposite straw man idea of extremely high time preferences that favor immediate consumption is a convincing line of argument (indeed, the latter cannot be true for it would make capital investment an impossibility).

Under the neoclassical synthesis capital investment is done purely by investors who have a positive time preference but are being paid enough to offset their desire to spend absolutely all of their money right this second.

It's kind of dumb.

the irony is that in order to satisfy these 'negative time preferences', inflation forces people into risky investment behavior, which is basically regressive wealth redistribution. And then we complain how the rich get richer and the poor get poorer, and blame it on capitalism.

Aren't we learning in today's environment where prices of many things are going down (or with recent Japan as an example), that deflation isn't necessarily bad? In the past it is associated with recessions, but it may be a side effect of the recession or depression, or an over-adjustment by governments trying to reign in inflation.

Economists agree: deflation is either good, or bad, or irrelevant: http://ftalphaville.ft.com/2015/03/23/2122452/economists-agr...

I'm no economist, but it seems like a lot of things (most, by dollar amount) I buy are simply not things I could feasibly defer for long. Food and rent (shelter) are the obvious examples by necessity, but also plenty of discretionary spending is obviously time-sensitive. I want to see a movie now, go skiing now, fly home for the holidays now, etc. It's unlikely that deflation stop me from making these purchases, unless it was some guaranteed short-term high-percentage deflation.

It doesn't take a big change of behavior if there are a lot of people doing it. If everyone reduced spending by just a couple of percent it would radically change the economy and growth forecasts (we'd be in a recession). Lowered growth forecasts would then incentivize savings, further pushing down future growth. There is no Bitcoin Fed that could cut rates and incentivize investment, a Bitcoin dominated world in recession would be a dire place to be.

Cutting rates would not necessarily stimulate investment: http://www.themoneyillusion.com/?p=31372

As a counterpoint, you should consider Hayek's critique of the Paradox of Savings:


The "deflation makes people not spend" is a hand-wavy argument. There is zero empirical evidence for it.

It is not so much that it stops people from spending - it is that it makes the real interest rate high relative to the nominal and so discourages borrowing.

Actually with negative interest rates proving possible (almost nobody thought they were a few years ago) if you had a deflationary currency you could always use negative interest rates to control demand. I am sure some smart economist has looked into this.

When the real interest rate is high, business retained earnings are more valuable. Thus, economic power is transferred from lending institutions to profitable corporations. Who do you think does a better job investing?

Well the theory of a bank is to act as an efficient mechanism to transfer capital from businesses and consumers with excess capital to those with a need for more capital. Of course in practice banks have got pretty good at capturing almost all the value out of this process.

Business should not really be in the business of retaining earnings. If it was not for tax reasons it would be best to return any excess funds to the shareholders and raise new capital when needed.

This would be fine and good, except banks create money when they lend through the money multiplier effect.

Yes but returning capital to shareholders would have the same effect too.

You could just read any Bitcoin forum where everyone is 'hodling' because they expect their coins to be worth $100000 each soon.

This is more an example of Gresham's law than anything else.

Gold seemed to work for a long time.

They keep digging more of it up too, it's not like Bitcoin. It's also not a good thing to run an economy on, but that's another concern.

Every fiat currency ever has collapsed, yet gold is still being hoarded in vaults. You have a limited perspective of history.

I'm no fan of fiat, but your statement is tautological at best: the fiat currencies that have collapsed, collapsed. Communications tech and electronic fiat make the future anyone's bet.

Tomorrow always different right?

You're some saying it'll be different this time, and the only explanation you give is, 'communications' and 'electronic', and yet plenty of fiat currencies have collapses under such systems. Again, every fiat currency that has ever existed has collapsed, sure there are some new ones that haven't yet but to believe they won't is magical thinking.

Again gold, after thousands of years, is still being hoarded in vaults by every major and minor world power, you really need to review some history.

The USD and Euro haven't collapsed, so I'm not sure what you're getting at.

No it didn't. It worked for less than 100 years and ruined many national economies.

Define "work". Gold denominated WW1 debts caused WW2.

The problem sounds like the debts, not the gold. Since, if you accept the debt deflation hypothesis and the idea of debt overhangs, these obviously occur in fiat money systems as well. Gold makes it hard to inflate monetarily, but we observe that catastrophic debts still occur in its absence.

A gold standard makes debt deflation routine whereas fiat money systems make it much easier to adjust to systemic capital flows.

In essence the problems faced by Greece are due to a reinvention of the gold standard despite there not being gold involved this time around.

Point being that Gold only "worked" for a small elite and it was largely devastating to the rest.

The problems faced by Greece are from a lack of monetary sovereignty, but to equate it as somehow being like a gold standard simply on locus of control alone sounds more like a political talking point than anything else.

Catastrophic debts occur in its absence, but fiat money gives a way to handle catastrophic debt in ways that are a lot less harmful than when it happens in a gold based system.

Bitcoin inflation was around 10% recently

Hashrate!= inflation btw

The question was about when new coins stop being mined...

That's a long way away, by then either bitcoin becomes popular, bitcoin evolves into something else or bitcoin dies.

Right now all comments about "inflation" etc are downright silly, usually form people regurgitating sill cons against bitcoin that are not a concern at this time.

But lets not have fact get in the way, downvote away.

Then blocks continue to be created, but no more coins are mined (in practice, we will be mining tiny little fractions of a coin for a very long time until it drops off to true zero).

If no more coins are mined (or the mining rate drops to almost negligible levels), is there still any incentive for people to keep the blockchain alive by computing power? Aside from keeping the whole system alive, I mean.

When you request a transaction you also offer a fee. You get to set the fee. If miners don't like it they don't have to include your transaction, and if that happens your transaction will not get confirmed.

After no more coins are mined, miners will be relying entirely on transaction fees. At that point, competition will show us the real cost (and electricity used) for transactions.

Right now transaction fees are low(er) because miners can offset their costs against the coins that they mine as well.

yes, transaction fees

No more bitcoins, miners get funded by fees instead of the newly-minted coins.

Then no new bitcoins will be created and all mining profits will come from fees. That won't happen until 2140.

There's some very big ifs in that. We really have no idea what sort of breakthroughs might happen the next 125 years

That's always true of the future, but the difficulty is continually self adjusting and pluggable and quantum proof algos exist so that'll be about the timeline no matter the power of future CPU's.

Transaction fees.

What a colossal waste of electricity. Great, they've created a general ledger and currency formed by individual untrusted participants, but who in the aggregate are trusted.

What about this: Why not just diversify your risk by doing transactions or investing in currencies/assets across a diversified set of untrusted counterparties? Same net effect, and a lot less electricity wasted.

Huh? How does this "diversifying risk" idea let you do any of the major bitcoin applications? (For example, how would your idea that has the "same net effect" as bitcoin allow anonymous markets?)

Bitcoin is not anonymous. The entire ledger history is exposed. Through network analysis you can figure out who the original anonymous holder is. And as soon as that holder tries to convert to a fiat currency their identity will be exposed. It's precisely because Bitcoin is way more traceable than cash, the US government has not tried to shut it down despite a lot illegal activity being paid for via bitcoin.

As soon as Satoshi tries to convert any of his coins into dollars or any other legacy currency everyone will know who he is.

This is wrong. Plenty of people have converted to fiat and not been caught, there are ways of mixing coins.

Actually, we're both wrong. Just because you have not been caught does not mean there hasn't been loss of anonymity. And if you mix enough coins you can decrease the chances of being pinpointed exactly as the source, but you cannot definitively remove yourself from the bucket of suspects.

>And if you mix enough coins you can decrease the chances of being pinpointed exactly as the source, but you cannot definitively remove yourself from the bucket of suspects.

Not in my understanding. I have some coins X that are tainted. I send them to you, Y. You, Y, happen to have other coins completely unrelated to the address I sent my X coins to, and you send them to me at address Z. There's no blockchain link between X and Z.

I suppose physically tracking you down, assuming you keep logs, could hurt me, but if I trust you not to keep logs then I'm safe after you delete the logs.

This is what I mean about reading the whole ledger. If wallet X is a target, then anyone who transacts with X is a target (which includes Y (anyone with a direct link to X) and Z (anyone with an indirect link to X)). We are dealing in probabilities here, but we definitely don't have untraceable transcations. The authorities have a finite number network paths/leads they can track down.

Of course, the more washing transactions you do with dirty coins the harder it is to track down the original wallet. That being said, the blockchain is somewhat self limiting in how many transactions it can processes per unit of time and thus the its obfuscating capabilities are diminished.

But Y might be over Tor, or might not keep logs. There's no mechanism I can see for getting past wiped logs after the fact. If everything is done in RAM, and the machine is rebooted every few days, there's pretty much nothing you could do afterwards.

If all you need is a finite number of leads, then trivially the number of humans/bitcoin users is finite. I don't think that makes a difference.

Regardless of whether or not Y is over TOR, it cannot serve as a cut out. All the transactions are stored on the blockchain. So if Y tries to convert to dollars, then they have him. Or if Y's proxy Z tries to convert to dollars, they have Z (and by extension Y).

For these reasons, I cannot figure out why they don't know who stole the MtGox bitcoins. The only way to hide is to forever keep your booty in bitcoins. Whenever the thief tries to convert his/her bitcoins to money or goods, the veil of anonymity will be pierced. And given the amount money involved in MtGox, it would be blow wide open.

As an aside, this has to be one of the deeper HN threads that has not devolved into a flame war. kudos to us.

It doesn't matter if they catch Y, as long as he didn't keep logs. Nobody, not even Y, knows who Z is, so Z can safely use his coins.

>For these reasons, I cannot figure out why they don't know who stole the MtGox bitcoins.

When you don't understand something, something might be wrong with your model. (http://lesswrong.com/lw/if/your_strength_as_a_rationalist/ comes to mind).

The exact addresses of the Gox stolen coins aren't known AFAIK. Even if they were, to cash out you only need to get someone to accept them without verifying ID. I can send coins to an exchange, and have them send me other coins in a different cryptocurrency, and send those to another exchange, then convert back to btc. If the intermediate currency is something like Monero, then the chain analysis must stop there.

I'm not saying most mixing happens through alts, but it is a fairly foolproof method for anonymity, at the cost of not supporting volume and high fees.

Also, you can sell to people for cash, so any investigation hits a dead end. There are probably dozens more ways to cash out anonymously.

> as long as he didn't keep logs.

It doesn't matter who keeps the logs, the blockchain is the log. I really think you are the one who is missing something. Because the blockchain has the entire history, everyone knows every transaction wallets X, Y, Z and any other wallet has ever done.

> A block chain is a transaction database shared by all nodes participating in a system based on the Bitcoin protocol. A full copy of a currency's block chain contains every transaction ever executed in the currency. With this information, one can find out how much value belonged to each address at any point in history.


You don't understand how mixing can work. I send money to your right pocket, you send me money back from your left pocket. At no point were your right and left pockets connected. As soon as you destroy your logs of what your pockets were, there's no way to identify which pocket was which.

Do you understand the concept of taint in block chain analysis, and how mixing can produce untainted coins?

I'm talking about tainted wallets, not coins. When a tainted wallet tries to transact outside the bitcoin system, then you're busted.

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