Almost all of society functions on energy, some of the largest breakthroughs in society have been on sudden abundance of cheap energy and the machines, vehicles products they can create.
Entire economies can be crippled by rising costs in energy (oil shocks of the 70s) and boom by sudden drops in cost of energy.
So we've created an "industry" where you are essentially paid by comverting energy to waste. Paid to perform extremely intense difficult (ie wasteful) operations to back a useful technology (digital currency).
Assuming it catches on, energy will never be cheap, there will always be a higher floor now due to options for "mining". As we get better at it and it becomes less wasteful, the digital system will simply raise the reward so people are incentivised to once again waste it.
Ignore the short term for the moment, and which ever currency you're backing. We've created a long term societal motivation/reward to harvest every joule produce by the sun and use it to calculate hashes. I'm not talking about the next decade obviously, but we have incentivised that behavior.
If there is anything technologists should understand is that whatever your beautiful perfect technology is, it will instead be used based on whatever has been incentivised.
Regardless of the technology it powers, this is a terrible societal incentive - and one that will be around a lot longer than people are considering.
Personally I find this argument unconvincing and somewhat tautological. 1) Surely we can come up with a less wasteful solution to this and 2) why should we assume that securing the block chain is a actually good use for the energy spent?
Especially if you consider that the process of "mining" is literally computing hashes over and over again until you find the right nonce that meets some arbitrary criteria, it's hard to see this process as anything except wasting massive amounts of energy.
A brief search showed that the US mint used 694,462.4 gigajoules in 2011 (~0.2Twh). The US is ~25% of world GDP, so lets times this by 4 for a naive cost of minting across the whole world.
This gives a cost of ~1Twh annually for minting the entire world's supply of money, with a total Gross world product of ~$80 trillion.
Bitcoin is using ~1.3Twh for a market cap of ~$35 billion.
Overall this means that bitcoins are ~3000x less efficient than physical money.
After writing this I've realised I should perhaps limit to the cash based economy.
The amount of US dollars in circulation is ~$1.3 trillion.
This gives a slightly better ratio of 222x less efficient.
Bitcoin is 222 times less efficient than a physical system of metal coins and paper/fabric/plastic.
And as sibling comments say, cash uses energy after it's produced.
That it is person to person makes it like cash, but moving a dollar with bitcoin isn't quite as convenient as moving a dollar with cash, whereas moving $5000 with bitcoin is vaguely comparable to moving $5000 using a bank transfer (the value has to be present at the bank/in bitcoin, etc).
Where there is confusion is because economists accept that money is an abstract thing, backed by people's willingness to accept it, whereas Bitcoin enthusiasts see money as a tangible thing that must be backed by a concrete thing. Thus, when economists say that the supply of money changes with fractional reserve banking, they are referring to dollars in the abstract, not physical dollar bills. When Bitcoin enthusiasts say that the supply is limited, they are referring to the bitcoins themselves, not the abstract availability of bitcoins.
No actual US currency is created this way, we just have a strong social convention of treating “the bank owes me $1 on demand” as equivalent to “I have $1”.
So if I make a “deposit” (which is, on point of fact, a loan) of $1, and the bank retains $0.10 in reserve and loans out $0.90 to someone else, we say that I have the equivalent of $1 and the borrower has $0.90, so it seems that $0.90 has been created. But there is really only $1.00 of currency, of which the bank has $0.10 and the borrower has $0.90. I don't have a currency, I have a right to demand (with certain conditions, depending on the kind of deposit) currency from the bank.
Most dollar-denominated trade is actually trade in future claims of dollars rather than actual dollars. Nothing  stops a parallel thing from happening with Bitcoin; obviously, such trade would be distinct from exchanges of Bitcoin recorded in the Bitcoin blockchain, just as trade in future claims of dollars are readily distinguishable from exchanges of physical greenbacks.
 Except the current immaturity of the Bitcoin ecosystem compared to the banking systems of any developed economy, but that's presumably something that would change were Bitcoin to achieve broad, durable acceptance.
2) Because a permission-less censorship-resistant decentralized financial system has the potential to truly improve society, hence worth spending energy on it.
I have presented multiple arguments why (Bitcoin) mining is not wasteful here: http://blog.zorinaq.com/bitcoin-mining-is-not-wasteful/
> 1. Miners currently use approximately only 0.0012% of the energy consumed by the world.
This doesn't change the fact that you're using energy.
The second argument is basically the same, just extrapolating into the future.
> 3. Mining would be a waste if there was another more efficient way to implement a Bitcoin-like currency without proof-of-work.
This is a logical fallacy. Mining means wasting energy regardless if there are other ways of producing digital currencies or not.
Now, this one is actually interesting:
> 4. Bitcoin is already a net benefit to the economy. Venture capitalists invested more than $1 billion into at least 729 Bitcoin companies which created thousands of jobs. You may disregard the first three arguments, but the bottom line is that spending an estimated 150 megawatt in a system that so far created thousands of jobs is a valuable economic move, not a waste.
This example is a bit special because the jobs haven't been created by BCs themselves but by VCs spending their own money into BC-related companies.
I just hope most of these aren't BC mines, otherwise we'd have a vicious circle here...
>5. The energy cost per transaction is currently declining thanks to the transaction rate increasing faster than the network's energy consumption.
Again: this kind of argument is of "it's not as bad as it sounds" type, and does nothing to refute the claim that mining is wasteful.
We cannot decide if an activity is valuable or not based solely on if it creates jobs.
e.g. suppose the government spends $1b on some entirely useless activity, such as employing people to dig holes and fill them in again. From the metrics of job creation and GDP this program can be regarded as a success. But there is a big opportunity cost in that resources and peoples' time has been spent on something utterly pointless when they could have been focused on a less useless or indeed a genuinely useful activity.
The world still has many genuine problems that still need to be solved. The time and resources could be directed to: maintain infrastructure, better educate people, roll out family planning programs, eradicate disease vectors, draft and enforce environmental regulation, build low cost housing, refit systems to improve energy efficiency, ...
You are right. However Bitcoin is not pointless and comparable to digging holes and filling them up. The simple fact that this financial network is censorship-resistant is a huge benefit to society, already positively impacting many people.
Many people don't realize the value of these things until they experience a hiccup in their current routine.
With a fee applied AND if your bank lets you.
> No, I don't consider that a large downside, as currency exchanges are the price a society pays in order to avoid getting into Greece's current situation, where the currency can't be adjusted to help the economy.
Greece's government spent more money than they took in by a large margin for many decades. Not being able to print money is not the fundamental cause of their problems and has nothing to do with crypto-currencies.
Actually if that number is accurate, is quite shocking.
World broad money supply is estimated around $80 trillion (not including many other stores of wealth and financial instruments which are not money). So the first conclusion one could draw is that cryptocurrency is also a surprisingly high proportion of currencies in circulation, at around 0.1% (treating cryptocurrencies as equivalent to broad money and exchange values as accurate)
A second would be that cryptocurrencies which apparently use 1% of their capital value in energy per annum to function even at low transaction volumes are unlikely to be a viable long term solution to the problem of exchange.
Edit: non-significant -> non-trivial
Maybe you meant "non trivial" or just "significant"?
3. It's not a fallacy. If X is worthwhile to society, and if the only one way to obtain X is to spend energy doing Y, and if alternative uses of this energy are not clearly superior (for example doing Z), then Y is not an energy waste. X = permission-less censorship-resistant decentralized financial network. Y = mining. Z = for example building desalination plants to provide clean water to third-world countries.
4. You seem to recognize the validity of this argument :) See the reference I give in the post: https://venturescannerinsights.wordpress.com/2015/09/04/the-... these are not mining companies.
5. This argument shows that even if you are unconvinced by arguments 1-4 and holds the view that mining is wasteful, you should at least recognize that it is becoming less and less wasteful over time.
No it didn't. I follow Ethereum development closely and I know for a fact that's absolutely untrue. I'm not sure why you're misleading people about this.
The other side of the coin: a permission-less censorship-resistant decentralized financial system also re-introduces a substantial set of significant problems that societies have already long solved for themselves.
"People are using the contingent stupidity of our current government to replace lots of human interaction with mechanisms that cannot be coordinated even in principle. I totally understand why all these things are good right now when most of what our government does is stupid and unnecessary. But there is going to come a time when – after one too many bioweapon or nanotech or nuclear incidents – we, as a civilization, are going to wish we hadn’t established untraceable and unstoppable ways of selling products."
Why would you conflate two separate systems like that?
It is dependent on a huge amount of cheap energy
I wouldn't call it censorship resistant yet
Raise the cost of the energy and only the ones with deep pockets can decide what is true
An intriguing difference might at least some miners struck it big due after finding huge geographical deposits of gold. In cryptocoins, though, the flatter distribution of the space means people tend to get out what they put in.
There are various other ways, however many of them ditch the decentralised-trust nature of cryptocurrency. If this is not something important to you (which it isn't to that many people) then crypto-currency represents a huge waste of power for no appreciable gain.
There's also systems without "mining" like iota, which has every sender verify other two transactions, so it's very scalable and has no fees. The drawback is that having no mining, all tokens were created on genesis.
Most of the time people seem to say as if that was a bad thing. But consider what happens when government does ultimately lose control. You get Somalia.
As it is today, it seems governments worldwide agree cryptocurrencies are overhyped. They all seem to be saying basically: "it's cool you're having fun with new Internet points; just don't forget to fill in your tax form".
Note that this is zero-sum.
If a device is invented tomorrow that is 100x more efficient per dollar/watt to mine, the cost to 'secure the blockchain' remains the same because people will just buy 100x more computing power for the same investment and the difficulty ramps up to compensate.
If you changed graphics cards to use 0.1% of their current power, then miners would not immediately buy 1000 times more graphics cards.
If there really was an overnight 100x improvement there would be a lot of lag, but in the long run the cost is mostly the energy. So if efficiency slowly goes up 100x people will generally use 100x the computing power, and use the same overall energy.
There's some difference because of the ratio of silicon investment to wattage cost over time, but that's the overall shape of it.
10 years ago people would have told you there is no possible solution to this.
Proof-of-work cryptocurrency is a tremendous breakthrough. It will certainly be surpassed one day, but it's currently our best available option for a system of money.
What are the benefits of thousands of different systems keeping a record of every single transaction, and how is this not a hindrance to widespread use of our best available option?
Crypto-currencies have utility and uses but they are rather niche and specialized. Crypto-currencies aren't a mass market system. And they're not structured in a way that they can be.
Given a choice between trusting a person/corporation and trusting a mathematical equation, I would rather place my trust in the mathematics.
The internet is a mass market system, and it was designed with biological growth in mind. Bitcoin is built on top of the internet. So I don't see why you would think it couldn't see widespread adoption. It's just another program.
All you've done is shift your trust to the authoring process of the Bitcoin clients and to the majority of the miners. Authoring and distributing the clients, and determining the majority of clients and the majority of mining power, is still a social and political problem driven by human greed.
Thanks for pointing that out. I suppose I'm guilty of "idealizing" my argument. Still, if the Bitcoin client could somehow be "written in stone", and everyone knew the protocols and source code could not be modified, I think it would be a safer bet to place my trust in a globally distributed network of selfish individuals, than to place it in a loose affiliation of millionaires and billionaires.
This comes across as incredibly naive. Just consider the whole Segwit2x controversy and think about exactly who controls the future of Bitcoin. You've just shifted your trust to a different group of people.
No one has found a solution yet that is as secure as proof of work, so this point is moot until then.
> 2) why should we assume that securing the block chain is a actually good use for the energy spent?
Who is this "we" you speak of? The energy is being paid for and the market demand demonstrates that it is a good use.
This argument is nothing but an appeal to the majority. I could equivalently say that the existence of spam emails shows that spam emails are good for society. After all, spammers have paid for the electricity and bandwidth to send spam, and the market demand demonstrates that it is a good use.
Market demand is a useful tool for measuring the current state, not for predicting an ideal state.
The point isn't moot. The point is that maybe we should stop pushing this tech forward until a less wasteful securing process can be developed.
> Who is this "we" you speak of?
This comes up often, and the answer is usually the same: that "we" are the people who consider the society they live in as something to contribute to and grow, and not as an exploitable resource to parasite on.
> The energy is being paid for and the market demand demonstrates that it is a good use.
Market demand only demonstrates that there are some people who are willing to pay money for this. Not that it's good or useful (see the spam example of sibling's comment). This is true especially if the thing is paying for itself.
Again, I find this defense to be incredibly tautological:
"This approach to securing a distributed ledger sure seems to waste a lot of electricity."
"But it's not wasteful because it secures the ledger..."
Mining also solves the distribution and creation of value problem. People won't use your currency unless it has value. To have value it needs to have a market to use it. To have a market you need people using it. Mining creates an incentive to create it since it has some value. And mining means the currency is distributed to people who create value for the system.
Primecoin is an example of this, where the mining process produces prime numbers which can be useful for.. something?
I think this wording obscures why the mining process gives the network trustworthiness.
You are changing the nonce over and over again until the HASH of the block meets some criteria. For example, your hash is below some value (it starts with a certain number of zeroes). This is important.
It's important because you can't 'fake' the work. The only physically possible way to come up with a block that has a conforming hash is to change the nonce and run the hashing algorithm and repeat this until your hash matches the criteria. There's no way I can know the nonce I need to use without running the hashing algorithm. Hence, if I present a block that hashes to a conforming value (you don't just take my word for it, you run the hashing algorithm on the block yourself to independently verify the work), you know that I've invested time and electricity (tangible, real-world things) in the creation of that conforming block.
Alone this doesn't seem like much, but the time and energy limitations it imposes gives a blockchain properties that make data more 'immutable' the longer it is stored in the chain by making it computationally more expensive to change data further back in time from the most recent block in the chain and makes it computationally expensive for a single bad actor to change past data that nodes in the network have 'agreed' upon. This computational expense is important when combined with the other rules that a node uses when receiving a new block and trying to independently determine that the block is valid and should be treated by that node as 'truth'.
The trustworthiness of the blockchain is an emergent network effect. It's not provided or enabled by one single thing, but by many things all contributing at the same time. Proof-of-work is just one small piece of a much larger system. For example, you also need to consider what other rules make proof-of-work useful in the system, such as the rule that a node must accept a chain with more work in it as more truthful than one with less work (hopefully I'm wording that somewhat right!).
Saying 'the miners provide security by hashing' is a massive oversimplification of what's going on. It's very much a sum-of-all-the-parts thing.
I found this helpful in particularly driving this process as a whole home:
I'm still really getting my head around blockchain itself, so if I'm way off base on anything in my understanding here I'm happy to be corrected :)
As I understand it, the challenging question is - is there something else we can use that's as independently verifiable as proof-of-work that's more energy efficient? What independent verification do we give up if we do choose something that's less energy consuming (but maybe less 'provable')?
Yes I am aware of this, I simplified a bit so the sentence would read less awkwardly.
> 1) Surely we can come up with a less wasteful solution to this
You are welcome to try. If you do come up with a less waisful solution you will be able to create your own altcoin and will make billions worth of dollars on it. Some very smart people have tried in the past and are still trying.
Because banks aren't setting themselves up in places based on the electricty cost. And shoving rackmount servers in close proximity and underventilating them. Even huge fintech operations aren't chasing cheap power at the exclusion of other concerns. Banks do not use the kind of electricity that cryptocurrency uses, when you control for the volume of usage of each.
Excel consumes a lot of energy
Feel free to elaborate...
It depends on what you're "mining." I've been mining Gridcoin for a while, which basically pays crypto-currency for working on BOINC projects. I feel like I am at least contributing to something worthwhile, rather than simply wasting energy.
But with Ethereum, it's not waste. The miners are providing storage and compute, a la Amazon Web Services. It's not like Bitcoin, where the hashing is just there to verify the blockchain.
In general, it's a valid concern... Do we really need to compute these things over and over to secure a fixed set of computations?
But in reality, the cryptocomputers that make more efficient use of miners will create more value and associated currencies will be more valuable. Bitcoin is essentially a proof of concept and therefore totally unoptimized.
Eventually the cryptographically verified computing market and the trustful computing market will find the sweet spots between efficiency and redundancy. I'm not generally trusting of the free market, but in this case the free market seems perfectly capable of solving this problem.
Depending on speculatively large future-values of cryptocurrencies is probably not the right way to evaluate the externalities, here.
I'd call you principled. The people scrambling for free money are treating the cost to the rest of the world as an externality. They'll chime in here to say "But what about other terrible system X?", but that, I'm afraid, does not absolve them. You're all terrible!
If good people weren't incentivised to spend energy on securing the network, it would be easier for bad people to spend energy on cheating the network.
This assumes, of course, that cryptocurrency itself is necessary.
The energy that banks and their employees consume is orders of magnitude less efficient.
Edit: or cost per transaction.
I wonder if there's an algorithm that could deter people from building mining farms?
However all cryptocurrencies are pyramid schemes . I.e. earlier you get in more you make. That's fastest way to grow and make it viral. However like any pyramid scheme it is unsustainable after some point
This is not necessarily the price point we think it should be valued at though. I and am sure many ppl never expected bitcoin to have mcap of 30$ billion . As difficult it is think today It may even grow another say 30x again to 900 billion or even more. However it will crash eventually like all pyramid schemes when growth flattens and new money - in the form of money spent in mining - stops coming in at the expected rate.
Another way to look at it, for mining to be even marginally profitable price needs to keep increasing for bit coin style algorithms. Either ppl will abandon the coin or price __has__ to increase
Consensus ledgers are where real money is going to be transacted on.
Where mining reward = (mining block reward + transaction costs + mining premium)
I use "mining premium" to refer to the premium people are willing to pay to mine, i.e. as a hobby, research, or to evade taxes or capital controls. I think when considering efficiency, we can disregard these costs - i.e. energy spent evading taxes is really an inefficiency of taxes, not bitcoin.
The mining block reward will become 0 in the long run.
Energy used = transaction costs * (1 - mining profit margin) / unit cost of energy
So basically energy usage is being driven by the transaction costs the market is willing to pay, which will adjust accordingly as people are willing to move transactions off-chain.
Looks pretty efficient to me.
As society lowers the cost of energy, we would expect even more energy to be wasted with all other variables remaining equal.
Halve the cost of energy and now you've doubled the amount of energy spent.
If the cost all energy worldwide improved dropped by a factor of 100, society should explode with new technology. Instead this formula says we'll just spend 100x as much of it mining.
At least with mining gold as technology improves, you gain efficiency in gold extracted per joule. Crypto mining works exactly reverse. The better technology gets, the more wasteful it has to become to compensate.
If you are creating a currency, then it has to be backed by something: gold, silver the cost of electricity, people's faith that the currency is worth something. A currency not backed by something will keep deteriorating until it is worthless (assuming a free market, the dollar doesn't collapse because only the us mint can make them).
The vast majority goes on hashing as fast as possible and getting the wrong answer many, many times... that seems pretty wasteful.
Scarecity is driven by an inability to readily harvest/create something.
If you pan for gold and don't find any, that energy is wasted, not converted. So what? The initial claim wasn't "This facet of mining cryptocurrency is like gold" it was "The energy used is converted". It's not. It's burned.
>> Scarecity is driven by an inability to readily harvest/create something.
Cryptocurrency scarcity is artificial, and not driven by anything other than predefined scarcity curves. Even if two guys with CPU-only miners were the entire BTC network, scarcity would be the same, but energy output would be vastly lower.
The busy-work that is done for (say) BTC is only necessary because of the aversion to central currency authority in certain subsections of society. It's an artifact of that ideology.