Resources are being utterly and completely wasted on mining bitcoins

http://www.colorfulwolf.com/blog/2011/05/31/resources-are-being-utterly-and-completely-wasted-on-mining-bitcoins/

by rheide • 15 years ago

118 150 15 years ago

wccrawford2• 15 years ago

Excellent article.

I would only add that we're using a LOT of energy to create a fake (read: virtual) resource. The best part about virtual resources is that they don't use many real resources, but this one is the opposite.

Granted, it's a 1-time cost, but as the article notes, it could be created with a much lower 1-time cost.

weavejester11• 15 years ago

That's not quite true. Bitcoins cost virtually nothing to create, but you are only allowed to create them if you succeed at securing a block of transactions. All of the processing power used in the Bitcoin network is designed to verify the transaction chain and prevent double-spending. The bitcoins generated as a result are just a reward to compensate people for their energy and hardware costs.

wccrawford2• 15 years ago

I recently looked into generating bitcoins, and that's not really true. Very little power goes into generating a successful bitcoin, true... But a LOT of power is wasted by failing to generate them. That's why it takes days, weeks or months (depending on processing power) to generate a successul bitcoin, on average.

joezydeco8• 15 years ago

How much manpower and energy does it take to make a paper US dollar with nothing backing it up?

[EDIT] Since I'm getting downvoted, I'll answer my own question: $0.042 every 18 months.

iwwr6• 15 years ago

Printing money has in itself a cost in shifting resources from the market to the government or the central banks (or the financial sector in general).

DennisP7• 15 years ago

I'm guessing that's the cost of printing a single dollar bill. There are also hundred-dollar bills, which presumably cost the same.

It'd be pretty interesting to get the total cost of printing, transport, and storage, and compare to the cost of maintaining a similar amount in bitcoins (which I calculated here: http://news.ycombinator.com/item?id=2602667).

adrianwaj• 15 years ago

Don't the miners provide network services as well? Like how real mines don't just take from the ground, they also co-exist with civilian infrastructure built to keep the miners alive and functioning, and in bitcoin's case, the mining rigs dually enable transactions?

Tichy• 15 years ago

Yes, "mining" is a bit misleading.

Jabbles• 15 years ago

This is just a "prisoner's dilemma". The alternative is that we trust everyone not to use their full ability to generate blocks. Obviously this would completely defeat the point of bitcoins.

http://en.wikipedia.org/wiki/Prisoners_dilemma

rheide3• 15 years ago

Yeah, that's why the only thing I could think of that would 'fix' this, is to release new miners that use less processing power, and a new client that only allows input from those miners. Even so, such a thing would be equally as difficult to introduce as, for example, a rule that would hand out 200BTC instead of 50BTC.

StavrosK• 15 years ago

As other posters pointed out, someone would cheat and just get a client that used 100% and we'd be back to square one in a day.

kiba• 15 years ago

My magazine have a two part series that argue the opposite that bitcoin mining is not wasteful:

1. http://bitcoinweekly.com/articles/the-wasted-electricity-obj...

2. http://bitcoinweekly.com/articles/the-wasted-electricity-obj...

iwwr6• 15 years ago

That's actually quite interesting, thank you for posting.

So at a guess, the network is doing now around 7MW of electrical power, although there is room for a lot of efficiency improvement.

vladd2• 15 years ago

Any system of checks and balances will have its price. Look at what we do with gold: we dig it from a hole in Africa, we transport it in other countries, we dug holes or build vaults and throw it there. Like Warren Buffett said, it has no utility, if Martians were to look at the process they would scratch their heads.

Except for the guarantee of uniqueness. Which is one of the most powerful invariants against corruption and government-sponsored inflation, goals which are worth these effort.

gus_massa2• 15 years ago

Gold also is usefull in the industry and electronics:

http://en.wikipedia.org/wiki/Gold#Industry

http://www.gold.org/technology/uses/

joelthelion2• 15 years ago

Gold's market value is far above what it would be if it wasn't used as a value store.

masklinn4• 15 years ago

> Except for the guarantee of uniqueness.

There are a few more actually: gold is one of the least putrescible materials out there (it's one of the least reactive elements available and as one of the royal metals very few acids can attack it), it has a distinctive look, and it has a very high density (most denser metals were only discovered in or after the 19th century, and are generally more valuable) which makes it easy to differentiate pure and impure golds (such as fake coinage). It also used to strike a good balance between rarity (which ensures the market won't be flooded) and availability (which actually made it usable as money).

Of course, most of this broke down as new, very productive, mines were found (e.g. in South America) and mining techniques improved. And nowadays we have the opposite issue: gold mining output declines, and is unable to follow the value growth of the world itself. This is one of the reasons why most countries moved first to fractional gold standards and then to convertible currency.

pbreit• 15 years ago

The idea that gold has no real value is bizarre.

danenania3• 15 years ago

"And nowadays we have the opposite issue: gold mining output declines, and is unable to follow the value growth of the world itself. This is one of the reasons why most countries moved first to fractional gold standards and then to convertible currency."

This is just a ruse used by governments as a pretext for inflation. It isn't necessary for money supply to 'keep up' with growth. As demand increases, the value of money goes up, and people simply use smaller units for exchange.

m__• 15 years ago

Exactly. It is a feature of money if it is costly to produce.

The alternative is inflation (and economic instability) as soon as people start generating income by producing money for basically nothing.

api• 15 years ago

Bitcoin is not quantum-hard. When quantum computing reaches a certain threshold, bitcoin will lose its uniqueness and collapse.

There are post-quantum algorithms that are computable on ordinary computers, but they're still under research and they'd make Bitcoin's data set considerably larger.

DennisP7• 15 years ago

Bruce Schneier has written that quantum computers only halve the effective number of bits for symmetric encryption algorithms, which seem more closely analogous to hashing than factoring. That would be a giant leap in mining capability, but perhaps not so much as to cause collapse. Switching to 512-bit hashes would bring us back to where we are now.

bdhe• 15 years ago

Bitcoin is not quantum-hard. When quantum computing reaches a certain threshold, bitcoin will lose its uniqueness and collapse.

Could you elaborate which aspect of bitcoin has efficient quantum algorithms? The proof-of-work system requires you to invert hashes and quantum algorithms only give you a quadratic speed up (brute force takes time O(\sqrt{size of range}) rather than O(size of range)). Right now there is no quantum attack on SHA-256 (which is what Bitcoin uses).

There are post-quantum algorithms that are computable on ordinary computers, ...

This sounds interesting, but could you elaborate? What does it mean for a post-quantum algorithm to be computable on ordinary computers?

daviddoran• 15 years ago

Correct, however the Bitcoin website has an answer for that: upgrade. The cryptographic methods are not fixed for all time, we can switch to other methods (which are quantum-resistant) when it becomes necessary.

cynicalkane• 15 years ago

Scarcity of money is not the most desirable end, because the supply and demand for money threatens to change the value of money. Even if all the money in the world were fixed, you would see inflation and deflation, more inflation than you've ever seen on a properly managed fiat money system. This is not mere economic theory, it's a matter of history.

jncraton• 15 years ago

> more inflation than you've ever seen on a properly managed fiat money system

While this may be true, a scarce money system does produce better result than poorly managed fiat money systems. You won't see the kind of hyperinflation that we saw in Zimbabwe with the gold standard.

daniel-cussen• 15 years ago

Martians may also use gold as a store of wealth.

JoeAltmaier2• 15 years ago

The hypothetical solution is flawed: it would take not 50% of miners to adopt a 1% implementation; it would take 100%, since if only 1 defects, that one wins all the coins and all the cooperative 'prisoners' lose.

kragen5• 15 years ago

Based on my minimal understanding, you need about 0.99% to defect (and collude!) to win all the coins, not just one miner.

JoeAltmaier2• 15 years ago

The defector(s) are using 2 orders of magnitude more CPU time to solve problems. So they win almost all of the time (all of the coins).

perlgeek• 15 years ago

> There is a solution to this problem. If someone releases a new Bitcoin client (and miners) that run on only 1% of the available processing power, and gets more than 50% of the network to adopt this new client, then total electricity costs drop would drop hugely

No, because you can't cryptographically enforce that all compatiable clients use only 1% of their available processing power.

If such a client took over the bitcoin network, somebody would use a patched version of that client that pretended to use only 1% of the computing power, but actually used all of it. There's no way the other clients could know, so the whole spiral would start anew.

ramchip• 15 years ago

Or just use VMs, etc.

weavejester11• 15 years ago

The author misses the point. The security of the Bitcoin network (at least in terms of double-spending) is tied to the level of work required to generate a block. If everyone decided to use only 1% of their computing power, they'd use less electricity, but the Bitcoin network would then be 100 times less secure.

When people talk about "wasting resources", it's an indication they don't understand how Bitcoin works. One might as well complain about wasting resources on SSL when you could just send data in plaintext.

rheide3• 15 years ago

The trick lies in changing the bitcoin protocol. If the majority of clients can agree on a way to use less resources, then that's what will be enforced by the network. If a new bitcoin client enforced a mandatory delay of one hour and invalidated blocks that were made before that one hour, we would effectively have added one hour of idle time to the network. This is not a solution, but it is a demonstration of how the protocol can be altered, as long as the majority agrees on it.

gus_massa2• 15 years ago

The problem is that it is easy to simulate that you are waiting.

  1) Save current time
  2) "Precalculate" the current block
  3) Wait until the 3601th second
  4) Publish the block that you "calculate" in just 1 second
  5) Profit??

weavejester11• 15 years ago

The problem is what you define as "a majority".

If it's just a majority of clients, then an attacker could just start up a million new client processes and outvote the existing network.

If we're talking a majority of unique IP addresses, then anyone with access to a large IP address block could outvote the network. This approach also wouldn't be feasible for IPv6, where IP addresses are not a scarce resource.

The Bitcoin approach is to define "a majority" as the majority that has the most computing power. Because computing power is always going to cost money, this guarantees that anyone wishing to subvert the network needs to outspend all the honest miners.

If you can think of another way of defining "a majority" without needing a lot of CPU resources, a lot of people would be interested in hearing your solution.

icegreentea• 15 years ago

Why can't we tie the bitcoin mining process to some sort of useful calculation? Maybe some variant of folding @home or something? We just need some problem with a hard to calculate, but easy to verify 'right answer' right?

weavejester11• 15 years ago

More than that. It needs to be a problem that takes a predictable time to solve, it needs to be a problem that we're unlikely to discover faster algorithms for, and it needs to be something we can tie to a set of data.

Cryptographic hashes are designed to have these exact properties. If we wanted to replace this with a "useful" calculation, you'd essentially need to create a new hashing algorithm that also had some practical use beyond hashing a set of data.

Given that creating good cryptographic hashing algorithms is hard enough, I suspect that creating one that is tied to a "useful" result is not feasible.

mike_esspe2• 15 years ago

Even if such calculation could be possible, bitcoin network probably would be less secure, because attacker can attack it and be compensated for attack.

DennisP7• 15 years ago

No, mining solves a specific problem: it generates an agreed-upon ordered list of transactions, so if anyone double-spends, everyone agrees that the first recipient owns the coin. The new coins are just an incentive to solve the problem.

To solve this problem, the input has to be bitcoin transactions, rather than biologically-relevant amino acid sequences.

extension• 15 years ago

Here is another amusing example of resources being "wasted" creating money:

http://www.npr.org/blogs/money/2011/02/15/131934618/the-isla...

mike_esspe2• 15 years ago

The same argument can be applied to gold: resources are being utterly and completely wasted on securing Fort Knox, let's shutdown it and store all gold on a lawn without guarding it.

Mining is securing the bitcoin network in the similar sense, as Fort Knox secures gold.

lukeschlather• 15 years ago

Comparing it to gold doesn't make sense; we've been off the gold standard for a long time. What it should be compared to is minting coins, printing money, and banking. (As far as banking goes, I'm not sure bitcoin really solves any of those security issues.)

ArchD• 15 years ago

Isn't the waste also present even without bitcoin, too? Governments make complex laws and regulations in different industries. They do 'magic tricks' to make fiat currency appear and disappear. Banks do complex things to make a profit that largely do not correspond to creating real value for society. Competing companies do the same things, duplicating effort, mostly to make a profit. (e.g. Do we really need so many social gaming companies?) Companies also do other things that do not create real value (e.g. lobby politicians to gain political advantage).

A large part of human endeavor is not about increasing value in the world, but rather increasing value for oneself, possibly with the side-effect of decreasing value for others. It's just the way we are.

I don't think bitcoin's purpose is to aggravate or ameliorate this pervasive problem. To me, the point of bitcoin is to shift economic power from the circles of people who presume to rule the rest of us with complex economic policies and regulation that ostensibly keep the economy stable and growing.

With or without bitcoin, the 'waste' from competition still going to be there, and I have no reason to think that the adoption of bitcoin is going to increase the total amount of 'waste'.

duairc• 15 years ago

> A large part of human endeavor is not about increasing value in the world, but rather increasing value for oneself, possibly with the side-effect of decreasing value for others. It's just the way we are.

It's not just the way we are, it's the way we are under capitalism.

But I agree that the wastefulness of Bitcoin is nothing compared to the waste caused by capitalism as a whole.

billybob2• 15 years ago

"It's not just the way we are, it's the way we are under capitalism."

What line of reasoning makes you think that humans are naturally unselfish and are made so only by an external economic system (which is itself created by humans)?

Judeo-Christian thought says that humans are naturally sinful and selfish. Evolution says that the fittest survive at the expense of others (though this may involve cooperation with related creatures). Who says we're all basically nice?

"But I agree that the wastefulness of Bitcoin is nothing compared to the waste caused by capitalism as a whole."

What system would you have instead of capitalism? If socialism or the like, can you give an example of when that has ever worked well? There are many counter-examples in history, you know. Workers sitting down doing nothing because the government quota said to only make 250 pairs of shoes today, etc.

billybob2• 15 years ago

"Competing companies do the same things, duplicating effort, mostly to make a profit. (e.g. Do we really need so many social gaming companies?)"

In theory, we don't "need" more than one of anything: one telecom provider, one computer maker, etc. And they could be more efficient if they didn't have to spend money on advertising, etc.

But the history of monopoly companies seems to show that without the need to compete, companies do not improve their product or its cost-efficiency. So it appears that the loss of efficiency created by having many companies reinvent the process to make a widget is outweighed by the efficiency gains each company makes in an effort to out-compete others. Hence, better, cheaper widgets for less money.

As to the value of social gaming companies, I think it's nearly nil, but apparently millions of other people disagree.

michael_dorfman4• 15 years ago

Personally, I'm more concerned by the resources that are being utterly and completely wasted discussing Bitcoin on HN.

Hasn't it been talked to death already? Is there really anything new to say?

joezydeco8• 15 years ago

There's a lot to say. I personally think the Bitcoin debate is interesting because it's making a lot of people question the concept of money - especially in the current state of the world economy.

It's also a new and interesting intersection of technology, economy, and personal trust.

michael_dorfman4• 15 years ago

All those things are true. But I still am not seeing any points raised in the discussion here that haven't already been made in any of the countless other discussions that have already played out here on HN in the past few weeks.

It's not that Bitcoin isn't new and interesting-- it is-- but that there is nothing new and interesting to say about it today that wasn't said (here) yesterday.

iqster• 15 years ago

The way I understand bitcoins might be flawed but would certainly appreciate clarification ...

My problem with bit coins is that early people who start mining have a greater advantage than later ones. While that's not the classic definition of a Ponzi scheme (in the classic definition, payouts at each round are funded by new participants), it is a feature bitcoin shares with them. If someone started mining bitcoin when it first started, they have a significant stash created by now. As people start to assign value to the virtual currency, these people are getting a significant proportion of value for simply being early adopters.

iwwr6• 15 years ago

Alternatively, maintaining a hard limit on the number of BTC saves resources, compared to a system that allowed for a fixed growth. Once the 'mining' stage ends, no new computational resources are invested. The system accumulates a kind of computational capital (a mathematical problem difficult enough to be intractable) which needs no further upkeep, other than a network presence to provide verification.

caf5• 15 years ago

Even after the mining phase ends, the hash chain continues to be extended, requiring the same computational resources.

dualogy• 15 years ago

"these people are getting a significant proportion of value for simply being early adopters"

I'm not one of them but have no gripes with that. What you describe is also commonly known as the entrepreneurial taking-unknown-risks for an unknown-future-reward.

It's the same with government currencies -- the government/banking complex gets newly created money first, and gets to spend it when the new money supply still has the purchasing power of the old money supply, ie. before inflation. This is their bonus for successfully defending their monopoly on money creation. Not that I'm in favour of such a privilegue. Which is the appeal to a growing number of users: yes, early adopters may be rewarded in proportion to how early they adopted, BUT no-one can unilaterally create new Bitcoins at the push of a button or by signing some law and even the early adopters could not initially create more bitcoins or faster than prescribed by the open source peer to peer protocol.

abulafia2• 15 years ago

It's not the same as taking early risks; this is a very constrained and artificial environment in which bitcoins are generated. One can be pretty certain that if one generates coins early, one can then make money selling them to others. This is much more similar to a pyramid marketing scenario, where the earlier franchises are inherently worth more, and eventually the value generated for the terminal generation of participants is close to nil.

I'd argue you're not exactly correct about the release path of currency in a fractional reserve system, although I don't disagree that elements are currently implemented in quite unfair ways. I'd also suggest, though, that government fiat currency works very much better than anything commodity based, or indeed than a partially fiat system that functions exactly like a commodity based system, as bitcoin does.

cheez7• 15 years ago

My solution is to expire the BTC to force circulation.

yrral• 15 years ago

If what you're suggesting is that coins can only sit in one address for a limited amount of time, then that would not do anything because people would just create new addresses to send the coins to.

weavejester11• 15 years ago

I'm not sure how you expect that to work. How would expiring bitcoins increase circulation?

BarkMore2• 15 years ago

The situation is not much better with inflating fiat currencies. Those who are closer to the money spigot have an advantage over those who are further way.

rmc2• 15 years ago

It's no where near as pronounced with fiat currencies as it is with bitcoin. Only a few currencies have experienced this level of hyperinflation that bitcoin has (e.g. weimar republic, zimbabwe), and those currencies have failed.

Andys• 15 years ago

So you're saying its like the housing market?

rmc2• 15 years ago

If someone started mining bitcoin when it first started, they have a significant stash created by now

Some of the early adoptors of BitCoins have 1% of all the current BitCoins each.

DennisP7• 15 years ago

I see that as a fairly elegant solution to the chicken-and-egg problem. Seems to be working, too.

summitpush• 15 years ago

I don't think the bitcoin system is in any way designed to benefit the miners. Its intent is to create a digital currency that has a guarantee of retaining its rarity in the future. Making mining difficult and inefficient is kind of the point.

mahrain• 15 years ago

So, when we waste our processing power on credits generated on limited supply by the Bitcoin network, it's a waste, but when we waste our time on acquiring credits created in limited quantities by the (Central) Banks it's okay.

I guess the issue here is that calculated bitcoins don't contribute anything. The grid should be used for something useful such as folding proteins or even SETI for that matter.

jfoutz• 15 years ago

Really? It seems like the computational power thrown at this is way less than the latest console game.

rms• 15 years ago

Good thing we have so much coal left to burn! o.0

pstack• 15 years ago

No, you guys. You don't get it. Bitcoins are going to take over the world. We're ALL going to be part of an economy of Bitcoins, just like we all universally adopted Swatch Internet Time[1]!

[*1] http://en.wikipedia.org/wiki/Swatch_Internet_Time

clistctrl• 15 years ago

The future economy may not (I'm guessing will not) be bitcoin. It will probably have a few very different ideas built into the core of it. But the foundation is being laid right now as we discuss the problems of bitcoin.

DennisP7• 15 years ago

I was worried about this so I worked out the math. It wasn't as bad as I expected.

Let's say it's 20 years from now, the total size of the bitcoin economy is $1 trillion, and there are 10 million bitcoins in existence. (We could find the number of bitcoins exactly, but 10 million makes the math easy and it's within a factor of 2 of the ultimate limit. There are about 6 million coins right now.)

$1 trillion / 10 million coins = $100K per coin, so we can expect people to spend almost that much money to generate a coin.

The rate of coin production is currently 50 per 10 minutes, dropping in half every four years, giving us 9 coins per hour in 2031.

That's 78K coins per year, at $100K per coin, or $7.8 billion in computer time and energy spent per year.

Let's say half of that is energy, call it $4 billion, including the energy to make the dedicated mining computers. At ten cents per kilowatt-hour, we're talking 40 billion kilowatt-hours per year. Divide by the number of hours in the year and we get 4.5 gigawatts.

In other words, a $1 trillion bitcoin economy can be run on the output of roughly five typical nuclear power plants (assuming it's 20 years from now).

If we get to $1 trillion in only 12 years, energy usage will be four times higher, since coins will be worth about the same but four times as many will be generated per hour.

If people use custom ASICs to generate coins, they'll be costly but more energy-efficient, weighting expenditures more heavily on hardware than energy.

People can grant transaction fees to miners to make their transaction go through faster. If transaction fees become prevalent, resource usage will be higher, since there will be additional reward for completing blocks. But $7.8 billion is already almost one percent of the bitcoin economy. If the average bitcoin changes hands once per year with a one percent fee, or ten times per year with a 0.1 percent fee, we add $10 billion to mining rewards and approximately double our resource usage.

Edit: $1 trillion is about equal to the amount of U.S. currency in circulation: http://en.wikipedia.org/wiki/Money_supply

gammarator2• 15 years ago

I don't know much about economics, but this seems to illustrate why bitcoin must ultimately fail. Since producing new bitcoins by design becomes exponentially (!!!) more difficult as time passes, the true cost in resources (electricity, computing time, etc.) to produce a new coin can only increase. That resource use can be justified, but only if the value of the bitcoin is also increasing.

Here's how I see it playing out: eventually it will be too costly for most people to produce new bitcoins. Since nothing forces one to use bitcoins, bitcoin holders will cash them out, and the exchange rate will plummet. Deflationary panic? http://en.wikipedia.org/wiki/Deflation#Money_supply_side_def...

DennisP7• 15 years ago

It will always cost about the same to produce a bitcoin as the bitcoin is worth. If it costs more, people will stop doing it and the difficulty will drop. If it costs less, people will profit by doing it and the difficulty will rise as more people join in.

It's already difficult for individuals to produce bitcoins, but people have solved that by pooling their resources, getting regular rewards of fractional bitcoins.

vrsmn• 15 years ago

imagine all that computing power being used to boinc projects. World problems would be solved

pspeter3• 15 years ago

What you're proposing is a cartel of users who agree to only use 1% of their computing power. The Prisoner's Dilemma still applies and thus the incentive to cheat still remains because using more than 1% can give you a competitive advantage. By assuming every one will compete as much as they can the prisoner's dilemma disappears because there is a limit of how many resources a user can expand. The main issue is whether bit coin is a valid expenditure of those resources

ck2• 15 years ago

There is a solution to this problem. If someone releases a new Bitcoin client (and miners) that run on only 1% of the available processing power...

It's fairly easy to throttle a bitcoin client.

But if they mean run slower but do the same amount of work that's not possible unless someone makes a dedicated chip to do the needed calculation.

richardw• 15 years ago

Most of the time graphics cards aren't used for anything remotely as socially beneficial as contributing to the bitcoin network. Rather than complain about the waste, find a way to do something more useful with them and set up an equivalent reward system for people to respond to.

dennisgorelik• 15 years ago

Do you realize that BitCoins is elaborate pyramid scheme that targets computer geeks?

Resources are being utterly and completely wasted on mining bitcoins

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