Bitcoin is Unsustainable?

http://motherboard.vice.com/read/bitcoin-is-unsustainable

by ForHackernews • 11 years ago

43 59 11 years ago

motherboard.vice.com

TheDong• 11 years ago

Another dynamic of bitcoin is that mining is not purely motivated by block rewards; even if there were no rewards at all, people who owned bitcoins would be incentivized to continue mining in order to secure their own currency holdings.

For example, if I had 100BTC and I feared that they would halve in value if the bitcoin network had a successful technological attack, it would be quite reasonable for me to spend up to half the amount of coins I had in mining/securing the network, regardless of other profit... and that arms race also continues even with no money gained from mining due to increasing vested interest.

I think this dynamic is often lost in people estimating what amount of mining a rational actor would undertake.

Someone• 11 years ago

Half of the money over what time frame? If that's per year, you're facing 50% devaluation of your property per year.

That may be your best choice, but it surely isn't enticing for people to enter the game, or keep playing it. So, that would kill Bitcoin.

dperfect• 11 years ago

As long as markets exist to transfer bitcoin to other currencies, I believe that effect is probably negligible. If a miner holds a significant portion of their rewards in bitcoin and there exists a credible threat to the network, it will almost certainly be more advantageous to convert that value to another currency rather than continue mining in hopes of saving the network.

reddytowns2• 11 years ago

If you owned stock in Pepsi, and their business looked like it was going to go under, would you drive down to the plant and help them bottle the stuff?

The rational response in your scenario would be to sell your BTC and diversify into other assets.

Trying to secure the network yourself suffers from the tragedy of the commons. There is no real incentive besides altruism to not let others bear the cost of doing the work and ride on their coattails.

beaner3• 11 years ago

You might not, but if Pepsi produced 90% of the demand for drinking bottles, the bottle makers might. Similarly, bitcoin companies which are not currently miners but which profit from providing bitcoin-related services might have incentive to step in. (Coinbase, Circle, BitPay, etc.)

chaostheory2• 11 years ago

Someone I know covered his roof in solar panels. Instead of buying a big battery, he just runs a BC server farm. It's not unsustainable.

cryptoz• 11 years ago

That only works if it becomes part of the BTC protocol that you can only mine if the electricity comes from renewable, non-polluting sources. Otherwise, due to solar not being the cheapest, most accessible source of energy everywhere that people want to mine BTC, you'd have lots of people choosing to increase greenhouse gas emissions in order to fill their own pockets.

It would be interesting to see estimates of the cost of those greenhouse gasses, in terms of extinct species, effort to clean up the atmosphere, or other expensive/bad things that can happen when you claim that increasingly using energy in non-efficient ways is just fine. Are these costs higher or lower than the value of the money created?

Perhaps BTC is sustainable, but your argument certainly does not refute the article's claim - at least, until we've already solved our energy & pollution problems.

chaostheory2• 11 years ago

If bitcoin does become even more mainstream, given its energy requirements and the potential strain it may put on existing traditional infrastructures; will solar and other alternative power sources always be more expensive?

prostoalex• 11 years ago

There are some markets out there where solar prices turn negative http://www.bloomberg.com/news/articles/2015-05-26/solar-as-f...

bernardlunn• 11 years ago

Local solar works well. It is the transport to central electricity generating stations that killed initiatives such as the one to power Europe from North African deserts. Bitcoin mining can use local solar (on small scale) or large scale. Mining will move to hot climates.

ars3• 11 years ago

That doesn't make any sense. Energy is fungible. Just sell your power back to the grid if it's worth more than BC. If it's worth less that BC then buy from the grid.

"Assigning" your solar cells to BC is meaningless.

dagw• 11 years ago

Just sell your power back to the grid if it's worth more than BC.

Many (most?) power companies around the world don't simply buy power from solar cells at the same price they sell. Also you may very well be taxed on your income from selling electricity back to the grid, so it's not that simple.

FatalLogic• 11 years ago

There is no question mark in the original title, though probably there should be one.

It's only one character, but adding it has significantly changed the meaning of the title. The article is full of confident statements of opinion, presented as facts, so I don't think the writer intended to make that title into a question and invoke Betteridge's Law of Headlines.

Whether it's correct or not, it does seem like the issues raised in this article have been discussed many times before during the past 5 years. Is there anything really new?

Here's some reaction to it from the pro-bitcoin side: http://redd.it/3bj0vo

javajosh4• 11 years ago

The central problem that banks solve is the shared-truth problem, and banks solve it by being the score-keepers. Alice's bank owes her $100; Bob's bank owes him $100. If Alice pays Bob $50, Alice's bank owes her $50, and Bob's owes him $150.

That's all there is to it. The key is that the banks have to agree on the truth. A check from Alice to Bob is a statement from her saying "I pay Bob $50", he endorses it, saying, "I accept $50 from Alice" and then the two banks at some point say "1-2-3 go!" and make the change simultaneously.

Until I understand how Bitcoin does that, I will not believe in it. And don't give me hand-wavy bullshit. Speak plainly.

EDIT: Yes, downvote me for wanting to understand, you bitcoin bastards.

throwaway3453• 11 years ago

You're being downvoted because you didn't put in the effort to explain why you misunderstand Bitcoin transactions. Further, your tone is aggressive and instigative.

iopq• 11 years ago

Bitcoin is a distributed ledger of all transactions.

Alice mines 100 BTC. That "mining" transaction is recorded on the ledger and distributed to all the other miners and they accept it because it has the correct math behind it. Bob wants to buy 100 BTC because he wants to deposit to an online poker site and the regulations don't allow him to deposit using a credit card. He goes to Alice in person and gives Alice USD and Alice transfers Bob 100 BTC.

Carol mines the block that contains the transaction. Carol gets some BTC for mining and also verifies that the transaction from Alice to Bob is legitimate because it was signed by Alice. Therefore, since Carol mined a legitimate block it's accepted by all the miners. Now all miners agree that Bob has 100 BTC.

The answer for all of this is math. Cryptography proves that these things happened.

DanWaterworth2• 11 years ago

Until I understand how Bitcoin does that, I will not believe in it. And don't give me hand-wavy bullshit. Speak plainly.

You're probably being down-voted because that information is available to you. You just need to look for it.

perfunctory• 11 years ago

that information is available to you. You just need to look for it.

In this case almost all questions on HN should be downvoted.

geofft4• 11 years ago

Is there a reason that you find the existing resources on Bitcoin (the Wikipedia article, the paper, the "how it works" page on bitcoin.org, etc.) unclear? What parts of them do you find un-plain or handwavy? What have you read? Do you concur with the purported answer in part and not in part, or do you disagree completely, or do you not understand it...? Help us help you.

I don't believe that Bitcoin is a good idea, but I certainly believe that it works for the use case / model of the world it has, and I believed it just about as soon as I heard of it, because I found the resources clear. I imagine so have most others, and so us repeating that to you is probably no different from what you've heard already. If you tell us more about what you understand and what you don't, what you've read and what you haven't, then we can give more useful replies.

javajosh4• 11 years ago

For one thing, if you have a single global ledger, how do you avoid the problem that miners can ignore your transactions if they want to? I have other questions, but none of them matter, really, except this one, because this implies that the score-keepers become bitcoin miners rather than banks, which makes bitcoin a non-solution to the banking problem.

If you transfer money, at what point does the transfer "happen"? If you have to wait for a miner to calculate something during a 10-minute batch of (global) transactions, doesn't this mean that a) everyone has to wait (at least) 10 minutes for a transfer to take place and b) that all global transactions for every 10 minute window have to reach the same place (e.g. the miner)? Do all miners have to agree on the contents of a block before they start mining?

Most discussions of Bitcoin seem to get bogged down in details and jargon. I think the idea is to create a single ledger that monotonically increases in size, with each block of transactions getting integrated with it by solving a (mostly) arbitrary math problem involving the value of those transactions. So I guess my main problem with the system is that it's trivial to alter blocks before integration. The secondary problem is the "waiting for transfer" issue. Or perhaps it's enough for a buyer to hand a seller a signed message saying "I pay you $50" which the seller can a) look at the global ledger to make sure they have the money, and b) integrate into the ledger at their leisure. Which implies there's a double-spending possibility in the window between handing the seller the message and the seller passing the message to the miners for integration.

roberte• 11 years ago

Well, for Bob's bank to owe $50 more to Bob they need to be compensated so Alice's bank now owes $50 to Bob's bank. In other words, Bob's bank must trust Alice's shitty bank.

Unlike the dollar, Bitcoin is not the transfer of debt.

lhl3• 11 years ago

The original Bitcoin white paper very "plainly" describes how it solves this. It is Bitcoin's fundamental invention. http://nakamotoinstitute.org/bitcoin/

facepalm• 11 years ago

There seems to be a factual error in this: other than what the article claims the number of transactions should not change the amount of energy required.

The Mining network mines a block roughly every 10 minutes, no matter how many transactions there are.

If the amount of transactions rises, the cost in Bitcoin per transaction rises, not the energy required. The cost in Bitcoin rises because you have to give the miners an incentive to actually process the transaction (that is, include it in a mined block). Since the number of transactions per block is limited, there is a bidding competition.

What increases the energy required is only the mining, which depends on the value of Bitcoin. The more valuable Bitcoin is, the more miners will be thrown at it, consuming more energy.

Correct me if I am wrong...

lhl3• 11 years ago

There is currently a (ballpark) 7tps limit due to the current 1MB block size limit although this is currently under the subject of intense discussion/debate and will likely be solved in the coming months/years by a combination of increases to the block size (imminent), and the deployments of technologies like side chains and lightning network (both under development).

HappyTypist• 11 years ago

The author of this article has a misconception that the marginal cost for processing a bitcoin transaction is "1.57 American household's yearly consumption". That's not correct -- the marginal cost is closer to the electricity spent by your processor in rendering this web page.

It is the upfront cost of getting a partial SHA256 collision and being able to add transactions to the blockchain that is massive, at least for this level of transactional volume. Bitcoin becomes more sustainable the more people use it, as the average TX costs goes down.

Whether other consensus systems like Proof of Stake should replace Proof of Work is a more interesting question.

uhwhat• 11 years ago

Proof of state only further incentives hording, generally making it undesirable for economic activity.

reddytowns2• 11 years ago

This is why I hope that Proof of Stake currencies currencies like Neucoin take off.

liamzebedee• 11 years ago

Exactly. Many like to focus on the shortcomings of Bitcoin (of which there are many, I agree). Some more even like to predict the 'death of Bitcoin' based on these. However we shouldn't ignore the fact that cryptocurrency is developing rapidly (hell, it's only 6 years old), and many obvious issues are being slowly but surely worked on (privacy, wallet security, energy consumption, mining decentralisation, sustainability and tx fees, microtransactions, contracts, scripting, etc.).

As for when it hits mainstream consumer adoption, who knows. I'm here for the ride.

Animats• 11 years ago

The mining farm linked in that article is from last year. A more modern one is shown here.[1] This new one is located in a cold, mountainous part of China next to an underutilized hydroelectric plant, so they have free cooling and cheap power. They've been able to avoid cable clutter; their power distribution uses aluminum busbars, and they seem to have an in-house network that doesn't require vast numbers of long cables. (The data rate for a Bitcoin miner is very low; you only need to talk to it when setting a new block starting point and if it finds a block.)

[1] https://bitcointalk.org/index.php?topic=1072474.0;all

awjr• 11 years ago

That link is absolutely fascinating and a very honest account.

personjerry• 11 years ago

Correct me if I'm wrong, but the idea of the blockchain is that everything is recorded in it right?

So there is more and more information stored in there, redundantly. So eventually it'll take way too much space for everyone?

(And the more adoption there is, the faster this process is)

beaner3• 11 years ago

Two points, which are not by any means the whole story but simply things to consider:

- Hard drive space is increasing faster than the blockchain size

- New protocols like sidechains and the lightning network could help offload much of the transaction load, making certain bitcoin transactions essentially an settlement representing many thousands, thereby dramatically reducing overall data size.

beedogs• 11 years ago

The blockchain can be truncated to move old transactions off. There's also no need to work with the entire thing unless you're mining.

http://bitcoin.stackexchange.com/questions/2798/are-there-an...

ucho• 11 years ago

Yes, that's one of main argument raised against increasing transactions per block - it would increase block size and ledger growth rate.

beaner3• 11 years ago

Increasing the block size doesn't increase the transactions per block. Usage does.

Hermel2• 11 years ago

Yes, that's why using a blockchain is only feasible for applications that do not generate too much data. With one transaction being 500 bytes in size, a billion transactions occupy 500 GB, which is still managable by an average PC. Once Bitcoin reaches Visa-level transactions rates (100 million per day), there's 500 TB of transaction data per year. That would be a problem for today's network, but it is still in the realm of feasibility as long as the professionalization continues.

ars3• 11 years ago

It already takes up too much space. It's what, 40G now? That's a significant fraction of the size of economy hard disks.

Plus it takes forever to download 40G for new users.

They keep talking about trimming the blockchain, but as far I know (and correct me if I'm wrong) the official client does not support that.

bencxr• 11 years ago

for day to day usage not all the data needs to be kept. for example, you could keep just the unspent outputs (instead of all previous transactions).

But yes, some archival nodes would be needed to keep the entire history.

retrogradeorbit• 11 years ago

So what is not covered is how this cost of bitcoin compares to the cost of the present central-bank full-fiat system. Take into account the London whale, the libor scandal, forex fixing, comex cartels, all the fees and charges that are skimmed at every stage and flow into the ridiculous levels of Wall Street/The City profits. Take all the criminal actions and the fact that it seems the financial law enforcers are incapable now of bringing financial criminals to justice. How does the bitcoin cost compare to those costs? I don't know, but if I was a gambling man I'd bet that bitcoin is orders of magnitude less expensive. Does anyone have any figures to compare these?

Hermel2• 11 years ago

The implementation of FATCA alone is estimated to cost 100 billion USD. And that's just one regulation of many.

lhl3• 11 years ago

Bitcoin will not eliminate most of the market inefficiencies you've listed - certainly not forex, by definition for example. There are already Bitcoin derivatives and other financial instruments being built already.

However, the most comprehensive (and perhaps, relevant) analysis I've seen looks at the costs of printing/minting money and its distribution (banks, ATMs) is here: http://www.coindesk.com/author/hass-mccook/

It's from mid-2014 now so the mining article is a bit out of date but there's no reason it couldn't be turned into a spreadsheet to account for current mining efficiency (and modeled against new developments increased block size or lightning network, for example).

modeless2• 11 years ago

How can the author write this entire article without mentioning the real numbers that matter? The mining reward is currently 3600 bitcoins per day in block rewards, plus about 20 bitcoins in transaction fees. That means if miners are rational they will collectively buy about 3620 bitcoins worth of electricity per day.

3620 bitcoins buy a lot of electricity for sure. But it won't always be like this! The block reward halves next year, and transaction volumes will probably increase. Then rational miners will spend perhaps around 1830 bitcoins on electricity per day, while processing more transactions. Wow, we've more than doubled the efficiency in a year!

Furthermore, the block reward keeps halving every couple of years until it goes all the way to 0! At that point, the only thing funding the miners will be transaction fees, so the full costs of running the network will be borne by the users, and market forces will decide the appropriate level of resources to spend on running the Bitcoin network. It could be higher or lower than 215 MW, depending on how useful Bitcoin becomes to users.

slg2• 11 years ago

I mean this in the strict economic sense and not the "Bitcoin is irrational" sense, but is there any proof that Bitcoin miners are rational actors as either individuals or as a community as a whole?

darawk2• 11 years ago

If people are losing money mining, they'll either stop mining or run out of money to pay their electricity bills. Either way, problem solves itself.

golergka• 11 years ago

the only thing funding the miners will be transaction fees

How does that work, exactly? I thought that the only reward that the miners get is the block reward hard-wired in the system. Is there another mechanism that allows them to negotiate transaction prices with clients and accept/decline transactions?

drdeca• 11 years ago

Iirc, a transaction has some number of ongoing and outgoing things, and the part of the ingoing things which don't go to outgoing things goes to the miner of the block that includes the transaction.

The specifics of that might not be quite right.

But a transaction generally specifies some amount which goes to whoever mines a block which includes the transaction.

If one wants their transaction to be included in a block more quickly, one can include a higher transaction fee, so that miners have a greater incentive to include your transaction in a block compared to other transactions.

I am fairly sure that the above is basically correct, but not entirely sure.

I don't actually own and have not used bitcoin, I'm just interested in the space.

ufo• 11 years ago

Bitcoin fees are more like "tips"m there is no negotiation involved. When someone posts a bitcoin transaction to the network, they can optionally include a fee along with it. When miners bundle up transactions into blocks to add to the blockchain they give priority to transactions with higher fees.

Of course, the huge problem here is that there is only an incentive to add substantial fees if the number of transactions is larger than the maximum the network can handle. If they increase the blocksize to allow for more transactions per minute then there will be less incentive to pay fees. The fee system is also not very friendly to microtransactions because its not percentage based.

modeless2• 11 years ago

Bitcoin transactions include an optional fee, chosen by the sender, which is paid to the miner who mines the block containing that transaction. Miners choose which transactions go into their blocks. They can accept or decline transactions at will, and also choose which transactions are processed first. Rational miners will process higher fee transactions first, and may also set a fee threshold below which they reject transactions. This mechanism is already in place and working.

Currently transaction fees are negligible compared to the block reward. Many miners are willing to process 0 fee transactions because it hardly costs them anything and promotes use of the network. However this will change over time as the block reward declines and transaction fees become more important.

Bitcoin is Unsustainable?

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