Run that one by me again? If tomorrow, a manufacturer announced the new Super Duper Quantum ASIC for Bitcoin that can perform hashes at 10 times less energy cost, everybody would switch over to it, and the total hashrate would increase 10x. Neither the number of miners, the proportion of mining held by each person, the distribution of mining rewards accumulated, or the total power consumption would be affected at all. Therefore, the amount of trust in the system would not be changed at all.
Cryptocurrencies are not secured by the hashrate, but by the cost of exceeding the hashrate of the network.
I'm probably way out of my element here (I don't own bitcoin or play video games). Are you telling me that the power consumption of the bitcoin network is constant and based solely on the most popular bitcoin mining hardware?
I wouldn't say that it is constant, as the energy consumption has been increasing. However, it does not depend on the efficiency of the hardware being used.
Think of bitcoin mining as a raffle. You can buy as many raffle tickets as you want, and so can everybody else. Each raffle ticket costs $1, and so people buy tickets until the prizes start getting spread out too much. The next day, though, the raffle tickets are only 10 cents apiece. However, the prizes are still the same, so the break-even point is still the same when expressed in dollar value. As a result, the same amount of money is spent, just buying 10x as many raffle tickets.
In this analogy, each hash performed by the miners is buying a raffle ticket. The block reward is the prize at the end of the raffle. Going from CPU mining to GPU mining to ASIC mining each increase the efficiency of performing a hash, analogous to lowering the price of a raffle ticket. Just as lowering the price of each raffle ticket results in an increase in the number of ticket sales without changing the total value of ticket sales, so decreasing the cost of each hash results in an increased number of hashes performed, without changing the total amount of electricity spent to perform those hashes.
Okay, I think I get it. So the power consumption of the network is based only on the power available to miners, which is probably reasonably constant since the mining pool doesn't change much? So putting aside market hype the main thing impacting the value of a bitcoin should be the cost of this power?
I agree it doesn't sound like the most efficient system and these incentives are somewhat perverse, but there weren't any systems like this before bitcoin. If cryptocurrencies do have valuable attributes that cannot be attained by conventional currencies and bitcoin introduced these concepts to the world in the first viable way and the popularity of these networks has lead to people researching more efficient analogues such as proof of stake and the techniques mentioned in the original article then can't we still say that the existence of bitcoin had a utilitarian benefit for the world? If the popularity of bitcoin goes down and these more efficient networks supplant it then the total energy-expenditure should be minuscule compared to the total energy usage of all humans over all time. Given the the rate at which these technologies seem to be maturing it will likely still be a lower expenditure than bootstrapping many other equally useless human endeavors.
It is a new application, but I'm not sold on it at all. I don't see anything that cryptocurrencies do that fiat currencies do not do better. Irreversible transactions, for example, is touted as a benefit, but I believe is a major disadvantage. As a result of them, consumer protections against theft and fraud are impossible to implement. Any reverse payment requires the cooperation of the fraudulent actor.
Furthermore, the decentralized nature of bitcoin cannot last indefinitely, and arguably has already ended. All mining nodes need to have a record of all balances, in order to verify that incoming transactions are valid. This places a limit on the ability to contribute to trust by mining, and will result in further centralization of miners. If a cryptocurrency were to replace fiat currency, it would not be a change from centralized currency to decentralized. Rather, it would be a from a centralized currency controlled by an elected government to a centralized currency controlled by conglomerations of miners.
I have done my best to understand their use, their applications, and their limits. With that in mind, I believe cryptocurrencies to be a obfuscated form of pyramid scheme, with additional externalities of heavy power use.
"Increasing trust" doesn't add value if the system is already sufficiently trustworthy for the task of processing transactions. Based on that reasoning the cost should ('should' meaning: it is beneficial) increase forever because an infinite amount of energy burned is infinitely trustworthy.
If you are transacting small amounts of money (less than is spent on mining a block) then waiting for 3 confirmations is probably sufficient to consider the transaction settled. But what if you send a transaction with a 100 times higher value than goes into mining a block then you will need to wait for over 100 confirmations till you can be sure it doesn't make economical sense for anyone to try to double spend your transaction by orphaning the first block your transaction was in (with a very simplified incentive model not taking into account other transactions in these blocks).
Thus the money spent on mining blocks determines how much value can be transferred in one block. Allowing for higher value transactions is good thing imo, is necessary for its success as digital gold and therefore justifies the higher energy consumption (especially since there don't seem to be any alternatives with similarly good or better robustness against attacks yet, proof of stake can't work under the same assumptions bitcoin does [1]).
> PoW systems are the only ones where "higher value transactions" need security proportional to their size.
Every other currency is either backed by men with guns and transactions are reversible (fiat) or you have to spend a roughly proportional amount of resources securing it (e.g. gold). I didn't look at the data, but judging by US military spending I'd guess that the strongest economies also have to spend the most to keep their system safe.
You can still argue that the assumption of pseudonymous actors in bitcoin makes the proportion factor larger (=system less efficient) than for systems that can use identities and attribution and I'd agree with that. But that's only because it can operate with less assumptions (no identities), which I see as a feature.
> Every other currency is either backed by men with guns?
So what? Men with guns are also the foundation of property rights, law and order, and national sovereignty; they are not an extra cost of fiat currency, they underpin the government's ability to maintain order and structure within society. I shouldn't have to explicitly point this out.
> transactions are reversible (fiat)
Cash payments are not reversible. Reversible payments are also a feature that nearly everyone wants.
> spend a roughly proportional amount of resources securing it (e.g. gold).
Gold is not a currency.
> that's only because it can operate with less assumptions (no identities), which I see as a feature
Untrue. A centralized anonymous payment system is technically possible, the limitations are strictly legal.
Is bitcoin sufficiently trustworthy without proof of work? I'm not a bitcoin expert, but my understanding was that this is an integral part of the trust model. If so then we're just back to talking about inefficiencies.
I can't imagine the processing being done by my computer right now is all strictly necessary to read and post these comments, and I'd wager this site is more efficient than most these days. Still I accept reality and pay these costs in order to talk with you on the internet because this is the world we live in. It looks like these nice people at MIT are working on some of the inefficiencies of cryptocurrencies, so let's rejoice.
> Is bitcoin sufficiently trustworthy without proof of work? I'm not a bitcoin expert, but my understanding was that this is an integral part of the trust model. If so then we're just back to talking about inefficiencies.
Yes, that's exactly the point. Bitcoin is insanely inefficient because PoW is insanely inefficient. Unlike other "inefficiencies" where there is a logical relationship between "energy spent" and "useful work accomplished", with PoW there is no such relationship since the energy isn't spent doing useful work (i.e. processing transactions). Yes, more power into the network makes it "more secure" by making it "more expensive" to perform a 51% attack. The increased expense is distributed across the network in the form of increased difficulty. If a 51% attack was already implausible (which most bitcoin enthusiasts would say is true), then making it even more expensive doesn't actually do anything useful.
>the processing being done by my computer right now
Well it depends what you are considering. Arguably, yes, your computer finished the HTTPS connection long before you got around to reading the words on the page itself. But the scale of an idle CPU compared to a 100% CPU is not even close. Mine is sitting at 2% use while I type this.
You could put that money into mining actual gold, and literally make 4x as much as mining bitcoin [0].
>Bitcoin is wasteful because the increasing energy costs does not increase the total number of transactions that can be processed.
Are you saying the number of transactions the market will demand of a system is independent of the trust of the system? If I need to move $250,000[1] in one hour with ~100% certainty are you saying an IOU from a bank janitor is equivalent in value to a bitcoin transaction? An increase in attack costs increases the types of transactions that can occur safely on L1. The number of L2 updates are unbounded by L1 transaction capacity, increase attack costs gives the market confidence L2 updates cannot be erased.
A high cost to signal which money you're willing to use filters out fraud attempts. Which should I trust more, Malory Money who double-pinky swears to run her Malory Money servers 5 years from now but is signaling with no costs or Bobby Bitcoiner who signals by billions of dollars in single-use capex (ASICS)
> Are you saying the number of transactions the market will demand of a system is independent of the trust of the system
No. I'm saying that if a 51% attack is practically impossible today, the increasing amount of energy consumed to secure the same amount of transactions is wasted. It's also a sign that the system is broken because the amount of energy consumed has no practical impact on security. Reasoning otherwise would suggest it is justified to consume infinite energy because that would be infinitely secure.
It appears you think a 51% attack is when an external agent attempts to out hash the network. This is only one type of 51% attack.
A 51% attack means there is a almost equal amount of hash rate being applied to two divergent, consensus equivalent chains. This can happen in above scenario or when existing miners attempt to reorg blocks (See ETC 51% attack) There is nothing stopping this behavior from occurring at any point in time. The only check on this behavior is the cost to rewrite history, decrease this cost, and you increase the profitability of such attacks.
Is the American military wasteful because it provides too much security? How much should it be reduced to provide sufficient security? This is a legitimate question/ I don't have an opinion either way - but it seems to be a fair corollary.
Unlike bitcoin, every person in the US has an (more or less) equal vote to help decide that. Congress's job is literally to decide whether to spend more money on military, among other things.
And also unlike bitcoin, when you pay the salary of 450k+ soldiers, among other jobs and such created, that's likely a lot better for the economy than random people converting electricity into crypto tokens. What does bitcoin provide in terms of add-on benefits like jobs? The ability for power companies to maximize profits by having their supply used more fully?
Edit: Additionally, you can argue that the US army does not provide too much security, because it doesn't take someone more than a few seconds to look at the world and see the world is not 100% safe. There are numerous areas such that, if money was not a concern, could be made safer and more profitable by adding more security. Creating infinite trust in bitcoin would... do what exactly? Let nerds buy drugs on the internet?
> And also unlike bitcoin, when you pay the salary of 450k+ soldiers, among other jobs and such created, that's likely a lot better for the economy than random people converting electricity into crypto tokens.
Jobs are only useful if they waste people's time? Mining is a job. Mining can also become green much faster than constantly moving around millions of tons of vehicles can.
> Additionally, you can argue that the US army does not provide too much security, because it doesn't take someone more than a few seconds to look at the world and see the world is not 100% safe.
I would argue it decreases security, with all the wars and disruption it caused in the last decades.
Some would argue that it fixes the economic system so that we won't have booms and busts anymore and can start seeing capitalism in action proper. That seems to be a worthwhile investment, and may even help prevent wars (which are often financed by currency debasement).
https://drive.google.com/file/d/0B1s8219SGDIjMnkzdFI2QjhwNm8...
My gut instinct is that the vast majority of all computing cycles used by humanity are completely wasted on irrelevant tasks and inefficiencies.