I've enjoyed watching the Bitcoin experiment. It's been enlightening in a variety of ways, from technically to socially.
I've been fascinated and appalled in equal measure at the fanboy community, at the intolerance of criticism that sprang up very quickly, and how strong feelings ran (likely because of financial investment in the tech).
It's also been interesting watching it go from simple CPU mining, to multiple GPU rigs in dorm rooms, all the way through FPGA and then to massive installations of custom ASIC miners.
But I've always hoped it wouldn't go mainstream for two reasons - limited supply with weighting in favour of early adopters, and the massive electricity costs of the 'mining' and transaction validation process. Scalable, competitive proof of work systems for a widespread currency are an ecological disaster in the making, and deflationary currency with a handful of early users controlling a huge proportion of the total currency supply... these aren't "features".
I'll be very interested in what happens next, and for the reasons given I hope it's not just a BTC clone with better governance.
I 'll also notice what the whole experiment proved: That money can perverse moral incentives. The electricity/wasted energy issue you mention is just one of them. The amount of time spent on building and specializing the hardware is another. All this was in the hope of the abstract goal of creating money, not wealth. People weren't so zealous in building specialized hardware for, say, protein folding. Bitcoin advocates usually put forward "the good of humanity" argument, yet the product by design puts individual interests above all other interests.
In that vein, I'd like to point out Gridcoin[1], a crypto-currency that rewards you for throwing your computing power at a BOINC project (basically scientific data crunching) [2] instead of wasting it on pointlessly solving crypto problems. It's certainly not perfect, but an interessting idea nonetheless.
> I 'll also notice what the whole experiment proved: That money can perverse moral incentives. The electricity/wasted energy issue you mention is just one of them. The amount of time spent on building and specializing the hardware is another.
The existence of high frequency trading already proved this. All that technology built and maintained, all that electricity wasted, merely so that one company's bots could play a zero-sum game nanoseconds faster than another company's bots, undermining them.
>Spending energy to secure and operate a payment system is hardly a waste. Like any other payment service, the use of Bitcoin entails processing costs. Services necessary for the operation of currently widespread monetary systems, such as banks, credit cards, and armored vehicles, also use a lot of energy. Although unlike Bitcoin, their total energy consumption is not transparent and cannot be as easily measured. Bitcoin mining has been designed to become more optimized over time with specialized hardware consuming less energy, and the operating costs of mining should continue to be proportional to demand. When Bitcoin mining becomes too competitive and less profitable, some miners choose to stop their activities. Furthermore, all energy expended mining is eventually transformed into heat, and the most profitable miners will be those who have put this heat to good use. An optimally efficient mining network is one that isn't actually consuming any extra energy. While this is an ideal, the economics of mining are such that miners individually strive toward it.
> Spending energy to secure and operate a payment system is hardly a waste.
That's not the question. The question is if more energy is being spent than is necessary to achieve the goals of a well-secured, well-operated a payment system, and I think there are very strong reasons to believe the answer is yes. (Among many other things, Ripple and Stellar are existence proofs of being able to get something with comparable security and much lower energy usage.)
> Furthermore, all energy expended mining is eventually transformed into heat, and the most profitable miners will be those who have put this heat to good use.
what
> While this is an ideal, the economics of mining are such that miners individually strive toward it.
And it is equally valid to say that the economics of cloud computing are that cloud hosts should individually strive towards it, too, but is AWS so much as keeping a single pizza warm?
Is there any previous case in human history where "Negative externalities could be turned into profitable positive externalities with cleverness" has worked?
I disagree that the optimal network doesn't waste any energy - any hash attempt that fails is a waste of energy. As more people compete and the difficulty goes up, more and more energy is consumed.
I understand that this is the way BitCoin protects itself. I want to be clear that I am saying I think this is a bad way of doing things. As someone that understands a bit about crypto - most crypto schemes that are hard to break are not hard to break because the encrypting device has worked so hard at encrypting them. They're hard to break because they have been designed in a mathematically sound way.
I hope this endless grind is not something inherent to the idea of decentralised crypto-currency, but if it is I don't think the decentralisation aspect is worth it, and as we see in this article it can be illusory anyway and the amounts of energy involved are pretty huge.
>> Furthermore, all energy expended mining is eventually transformed into heat
It uses vastly more energy than payment processors that have vastly more throughput. And the ideal miner that finds a valuable use for the waste heat is a fantasy, and it's an incredibly inefficient way of generating that heat.
It's made me a little down on digital stamps, which was an idea I used to like.
Back before spam filters got good, one of the proposed solutions to the spam problem was to require everyone to compute an easy to verify, difficult to produce hash for their email message and bounce everything which didn't come with an attached hash. The idea was that a regular user could spend 1 or 10 seconds hashing each email, but a spammer couldn't spend the time hashing millions of spam messages.
Now I suspect that we would have just ended up with data centers full of highly efficient hashing hardware cranking out signatures for spam messages.
We didn't need bitcoin to know that HashCash and the like wouldn't work to prevent spam. The existence of botnets already means spammers won't be impacted. No need for expensive specialised hardware when other people are paying for the commodity hardware and electricity. And since a regular user on a not-so-powerful mobile device needs to be able to compute the hash in a reasonable time, that puts an upper bound on the processing that's guaranteed to not be an obstacle to a spammer with 3000 botnet slaves.
The root problem with Bitcoin isn't the program, it's the money supply equation. Deflationary currencies fail exactly because they are too volatile, which is the anti-thesis of designing a currency to be held as an asset. Imagine currency like the oil in an engine. Someone needs to create a coin that rewards mining by giving them futures contracts on the currency and still deflating it.
Doesn't this all seem a bit dramatic? Throwing away the baby with the bathwater? Cryptocurrency is still in its infancy, and BitCoin is the first cryptocurrency. It's a little early to declare the project a "failure," throw up your hands and walk out of the room, just because a few people haven't acknowledged the urgency of a (very fixable) technical problem.
People disagree about the reality of global warming. Does that mean we throw out the entire system of laws of the United States and other world powers because it hasn't yet addressed this problem?
This is exactly why I never bought the concept of BitCoin as a 'libertarian' currency. There's always politics, there's always governance. It becomes political as soon as more than one person is involved. And as soon as it's political, institutions, processes, procedures, and laws become necessary - also known as "government."
I still believe in BitCoin, however. Ultimately, there's a way out of this tangle, and like with most political problems, it's a political solution. BitCoin will either adapt and scale up or stay the same and scale (way) down.
I'm not sure why you think bitcoin is the first cryptocurrency, things like digicash existed since the early 90s. In any case, did you even read the post? The author explicitly describes the failings of bitcoin's political processes. His concerns weren't some hypothetical issues of ideology, they were concrete examples of how those who control bitcoin are preventing it from growing in a very technical sense, and refuse to engage in any sort of compromise because it's not within their (business) interests.
edit: To clarify, I'm not trying to say I agree or disagree with the author, as I don't know anywhere near enough about the bitcoin community to say either way. I'm merely pointing out that the OP was talking past the author's points, not addressing them. (In particular, they built a strawman against governance and political solutions.)
Ok, I'll add some modifiers: BitCoin is the first global peer-to-peer distributed cryptocurrency actually in use.
And yes, I did read it.
Step A is realizing that the political processes aren't working, and Step B is figuring out a way to make them work. Step B is not throwing up your hands and quitting.
His concrete examples are of problems, but not of "those who control bitcoin preventing it from growing". The block size debate is ongoing and the work on it is widespread. Just a few days ago Bitcoin Classic was announced with wide miner support.
Bitcoin doesn't move fast and break things-- and that's one of its strengths, not a weakness.
Also, its inherently democratic- those with the hashing power , and thus the most on the line, determine its future. IT's in their best interests to find solutions-- in a considered way.
I don't see that this system has broken down at this point.
Small quibble. To me, that spelling of Bitcoin signals a speaker's lower familiarity with the bitcoin community and subject matter. Akin to using the word "CyberSpace".
Apologies for the mistake, but I'm quite familiar with Bitcoin (and also have a financial stake in this matter). You can see my past comments here on the subject (many of which, regrettably, also contain the capitalized C)
Not just directing this at you as numerous people have pointed this out, but it seems awfully pedantic to quibble over my capitalization of a letter than to address the substance of the point which is that the technical issue here is quite fixable and that the political will to fix it is not impossible.
Actually it shows the author knows the bit-coin community very well indeed, and knows that they freak out and write pointless posts like yours about trivialities... you are well-trained.
This seems like someone saying "I don't agree with the direction that BitCoin is heading in" and then taking his ball and going home. A bit dramatic yes, but not uncommon in open source projects. It's like someone saying "Linux is dead because it doesn't confirm to XYZ principle", which seems to occur every other Tuesday. Forks happen.
It seems like he makes some cogent criticisms, for which the best solution seems to be to fork the project, or begin developing for any of the other *coins that were so popular a couple of years ago. But BitCoin has the dominant brand and the people who control the mining and the source code can do whatever they want. Something tells me that bitcoin itself isn't dead because there's been too much invested in it by too many people, whatever the problems. But it's dead in the eyes of the author and maybe for several others, and that's all that matters in the context of his blog.
He did fork. He's the creator of Bitcoin XT, which was trying to bring light to the blockchain issues he discussed. He was met with DDOS attacks, and was banned from several bitcoin communities.
When the BTC community has become so hostile to literally attack those who criticize it, it becomes hopeless to resist. The best you can do is walk away until the community stops being so hostile.
> "Something tells me that bitcoin itself isn't dead because there's been too much invested in it by too many people, whatever the problems."
So in other words, too big to fail? I don't necessarily disagree with you, but that sure seems to support the argument that the Bitcoin ecosystem as a whole isn't in a very healthy place.
Additionally, what does it say about the managers of the project when the Bitcoin Core people decide that (because ever-shrinking available capacity means ever-more unpredictable [and gradually-upward-trending] transaction fees) it's better to allow a transaction partner to silently reverse a transaction they made, rather than increasing the maximum block size to keep up with the ever-growing (due to Bitcoin's increasing popularity) transaction volume?
It means that the fundamental innovation of Bitcoin - peer-to-peer, trust-less, distributed concensus - is a solid one, even a technological breakthrough. And it means as first-mover in implementing that innovation, Bitcoin will have continued life. It also means that the problem has not reached a sufficient level of urgency that the scales have tipped to the pro-block-size-increase camp, but that I believe it will.
> like with most political problems, it's a political solution
I don't know anything about Bitcoin but the promise seemed to be to invent a technical form of money, with limited supply, that would be free of politics and interference from governments.
To quote the beginning of the article:
> What was meant to be a new, decentralised form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people.
You cannot have a human system that is free of politics. This is one of the great techie fantasies, that messy human need can be eliminated from the system, where in fact it's at the root of why people do things.
Bitcoin became valuable enough to attract people with a lot of real money on the wrong side of the Chinese capital controls, who've taken it over as their major use case.
It's not just that a few people haven't acknowledged the technical issue though - it's also that 95% of mining capacity is now held by a handful of people and they don't want to change it either.
with the mining capacity mostly in the hands of china, i'm not surprised of DDOS attacks and censorship behavior against XT proposals. bigger blocks would put out of competition the majority of chinese miners unable to support the network with their crappy uplink and criminal attacks keep the situation unchanged, they are going to milk the cow as long as possible
There's no such thing as a libertarian currency. Money was invented to provision government. Everything else is a commodity. Currencies can only be issued by a sovereign with the ability to impose taxes to drive the value of the currency
You have a bunch of down-votes, but you're right. Taxes are the best driver of demand since they force the currency to be the unit of account in a country. In essence, any bitcoin transactions in the US will need to be accounted in USD in order to taxes to be paid. Thus, bitcoin is, as you say, commodity money.
Bitcoin can only operate as a stand-alone medium of exchange in regions without taxes (or in transactions where taxes are ignored).
Countries without a "sovereign" or other government, like Somalia, still use money. Some people have been known to use laundry detergent as a currency since it lasts for a long time, is relatively expensive, and is inherently useful.
It is only dramatic because you seem to think that Mike Hearn declared the cryptocurrency experiment a failure - but he did not. Bitcoin is the first decentralized cryptocurrency - if it fails because of some social dynamic issues - there will be others.
Precisely. I find amusing how every time there is a trend up in the price, there is a flood of doom sayers, as though they want to force the price down...
I think the bitcoin network is fine. These issues will eventually be resolved, although not likely to OP's satisfaction or the way he wants to solve them.
In the conclusion he states: "<i>Even if a new team was built to replace Bitcoin Core, the problem of mining power being concentrated behind the Great Firewall would remain.</i>"
Bitcoin's decentralized nature encourages power pool formation by promoting economies of scale. It is not surprising that like the production of electronics, clothing, toys, etc. the lowest cost center is in China.
I think he is kind of burying the lead here. The major development in Bitcoin in the past week is that several crucial players came together to form Bitcoin Classic.[0]
They have the trifecta of a majority of mining power, two of the largest exchanges, and several key developers on board. More importantly the miners supporting the project are in agreement on increasing the block size. It goes a long way to addressing most of the things Mike brings up in this post.
Mike's done a lot of Bitocin particularly by bringing to light the issues with Bitcoin core. At the same time this post strikes me as alarmist. It seems more like a rationalization of his decision than anything else.
Thanks for reading the article. I mentioned Classic briefly at the end. I did not dwell on it because it is simply repeating the same process as XT went through.
When we were preparing for XT, we also went and talked to the Chinese miners. They told us that the original 20mb limit Gavin proposed was too high, but that they could accept 8mb. So we compromised and went with 8 + a growth function. Then after XT was launched they changed their mind and said any growth after 8 at all was totally unacceptable. Now they're telling the Classic guys that 2 is the most they could handle. Did the Chinese internet border really get 4x worse in the span of 3 months? I doubt it.
Western miners aren't much better. One told me quite clearly they'd start voting for BIP101 back in November (though: voting in such a way that it wouldn't actually activate!). But they didn't. When I followed up, they again said it was on their todo list and they'd start really soon. But they didn't.
The miners have proven over and over again that what they say they will accept and what they actually do accept is not aligned. So right now I'm seeing some excitement (maybe more like desperate hope) that Bitcoin Classic will solve anything. Maybe now the "Scaling Bitcoin" conferences have come and gone and Core's reputation is much worse, they'll have better luck, but even then the best case scenario is that Bitcoin gets a 2mb limit. That isn't nearly enough and big backlogs will still occur.
More to the point, even in the best case scenario, the community will essentially accept that Bitcoin is controlled by the Chinese government and grows or shrinks at their whim.
> It is not surprising that like the production of electronics, clothing, toys, etc. the lowest cost center is in China.
The lowest cost center for mining bitcoin is absolutely not China. The reason mining power is currently centered in China is because producing the latest-generation ASICs is cheapest and quickest in China and for various reasons the companies involved prefer to just bring them online in China quickly.
Soon ASICs will stabilize on the most modern production processes and commoditize and Bitcoin mining will shift to where the marginal cost of mining is low -- Iceland or other cold countries with extraordinarily cheap energy.
China is the place where the marginal cost of mining is lowest. It's the only place in the world where a command economy has hybridized with crony capitalism to offer you as much electricity as you want at below-market prices; if the otherwise idle hydropower station that was built 300 miles from any center of population or industry under the last five-year plan can't give you all the juice you can use, you can get more from your choice of local coal-fired power plants at six cents per kilowatt-hour (after a small consideration to the provincial party chief).
The other major reason that Bitcoin mining is big in China is that it's far and away the biggest source of capital looking to escape government controls. You put in yuan at one end, turning it into ASICs and electricity, and you take bitcoin out at the other end. Say what you want about bitcoin, but it's a whole lot easier than your yuan deposits at the Industrial & Commercial Bank of China to get across the border.
Some day these things will change. But for now, Bitcoin is stuck with Chinese miners.
Bitcoin mining could be more decentralized if it better resembled a lottery, where huge numbers of people play for an expected loss.
In other words, the lack of people mining at a loss makes mining profitable and hence subject to forces of centralization.
There are several reasons why mining as a lottery substitute is rare, a major one being that commodity hardware is inefficient by many orders of magnitude,
making even a botnet next to useless.
Perhaps, if a proof of work, whose efficiency gap (with custom hardware) is at most an order of magnitude, were adopted (or slowly phased in), enough lottery players would arise to make mining unprofitable at scale.
Botnets should then just be welcomed as a modest increase in decentralization.
Yes there are several other cryptocurrencies that (at least attempt to) address this issue. Those solutions were disregarded as non-essential technical improvements, and any change to Bitcoin would bring instability. Now perhaps more people will see those as fundamentals to the currencies' goal.
You can see here many alternative coins and an estimated market cap:
A lot of altcoins came up as mere clones of another, pump-and-dump schemes, or with irrelevant or plain bad changes; but there were quite a few valid innovations. Bitcoin has barely changed in it's core protocol. I hope other projects get more exposure in the future (or Bitcoin becomes less afraid of change).
"You can't possibly get a good technology going without an enormous number of failures. It's a universal rule. If you look at bicycles, there were thousands of weird models built and tried before they found the one that really worked. You could never design a bicycle theoretically. Even now, after we've been building them for 100 years, it's very difficult to understand just why a bicycle works – it's even difficult to formulate it as a mathematical problem. But just by trial and error, we found out how to do it, and the error was essential." -- Freeman Dyson
Has anyone run the numbers on what it would cost to build data centers with equivalent hashing power using the latest ASIC's in various areas taking into account labour and energy costs. Between a wealthy libertarians, BitCoin startups and crowd funding (not necessarily donating, could be buying shares in a company that will mine, with a charter, governance etc) and regain control to do whats required to make it work.
BitFury were apparently spending around $100M on a new mining data centre[0] so I would imagine cost would be in excess of this. There was also a discussion at https://news.ycombinator.com/item?id=10774204 with some estimated numbers.
1) Mining power is still decentralized. It's not evenly distributed, true, but it is decentralized.
2) Just because some significant percentage of it is in China, doesn't mean it's controlled by one single entity like you're trying to present it here. It's still distributed across thousands of independent miners.
> ...the block chain is controlled by Chinese miners, just two of whom control more than 50% of the hash power.
That's a pretty unique situation.
If a predominant amount of hash power were concentrated in China, but distributed among some large (100+ to 1000+) number of miners, that would be fine. But a system of any kind is no longer decentralized the moment more than 49% of that network is entirely controlled by a small [enough] group of people.
Miners produce a stream of bits by consuming CPU cycles, energy, data centers and admins. First, China is a low cost producer across many product categories. It is not surprising that bitcoin mining is also on that list.
Second, there are economies of scale to be exploited. Over time, it will become more profitable for the largest miners to increase capacity vs the smaller miners. The largest miners will get cheaper power contracts. That alone gives them an advantage that will allow them to take market share from the smaller miners.
The end result is fewer, but larger, miners doing more work.
Read the article, he was clearly laying the groundwork for this move back in Thanksgiving.
“The current Bitcoin system, I mean the system we actually use today with the block chain, isn't going to change the world at all due to the 1mb limit. … So if I have a choice between helping the existing financial system build something better than what they have today that resembles Bitcoin, or helping the Bitcoin community build something worse than what they have today that resembles banking, then I may as well go where the users are and work with the banks."
Whether or not Mike might profit from Bitcoin failing (in favor of the alternate cryptocurrencies he works with), the picture he paints is one of inherent instability, mismanagement, and censorship, and it seems like a solid argument. I'm skeptical of where his money comes from, and I don't think he's unbiased enough that I would short BTC just on this article alone. But I'm certainly less bullish on its future than I was.
No, only that the article is being misleading in it's breathless clickbaitiness.
The quote is absolutely in line with the article; actually including the quote in the article would have rendered the headline 'Bitcoin dev thinks blockchains for banks are way cooler, has thought so for months, and is reluctantly moving on'; that might be a fun article to read, but it's not frontpaging HN.
What I take from this (and I think I really should invest my own time in researching more on) is psychology.
People want to protect their investments. But because we are talking about money, don't confuse this for meaning that the investments are just about money.
Investments in code contributions, investments in all the articles read, investments in community, friends, social networking, investments in belief systems, investment in the justification for choosing one thing rather than another.
It's simply not consistent to say "oh you only have 20BTC, so you've nothing to lose" or "oh, you made no code contributions, so why are you complaining" as both ignore the potential for massive psychological and personal investments.
All these investments act as a barrier to change. It hurts, it hurts physically to lose big investments.
There is a cost benefit analysis that humans perform internally. Is the hurt of losing this investment now worse than the pain by keeping the investment later.
If we go back to the article, we see Mike repeatedly tell us that Bitcoin is an experiment. He is saying to us now "look, don't invest your time, effort and money into it" - and he is telling himself "I have made the change, I have accepted a loss by investing so much of my time and effort into this, and am moving on".
I have always felt that Bitcoin was doomed to this sort of fate, for the simple fact that the "specification" for the Bitcoin protocol was "whatever Satoshi's client does". The community repeatedly failed to encourage a diversity of implementations, and as a result they effectively ceded control of Bitcoin to the maintainers of the one and only implementation.
By the time independent implementations did begin to develop, it was too late to introduce diversity into the ecosystem.
>for the simple fact that the "specification" for the Bitcoin protocol was "whatever Satoshi's client does"
Fully agreed. The largest failure of the so-called "developers" (pretenders after Satoshi) of Bitcoin have failed to concentrate their efforts on understanding and specifying Satoshi's code.
The original Satoshi bitcoin implementation is a mess of Boost-y C++ that was clearly written by a bright guy who was steeped in mediocre C++ programming (probably on Windows). Studying the code and writing a proper specification is job number one. Adding random new features onto Bitcoin without first understanding the codebase is simply juvenile.
So this is a political problem -- here's my prediction of what will happen (given that we live in the real, political, world).
A political entity -- not necessary a sovereign government, but perhaps a bank or financial institution -- will offer a currency swap to existing blockchain holders to adopt their crypto currency. The inducement will be a limited time window to put in your claim, with all unclaimed but mined numbers going to the financial entity to reward their followers or stakeholders.
In the real world, this is called escheat and it is a power of the crown. Bitcoin is essentially a system for recording deeds to digital land. They aren't making more numbers, so the problem is the political resolution of competing claims to the same resource. This sort of claim comes, in the end, to a network consensus of who is the sovereign.
Ethereum is one prominent example of this: we'll swap currency on your blockchain for currency on our blockchain, ours will totally be worth more due to enhanced features.
They aren't making more numbers
"We can conveniently restrict the supply of numbers" is one of the fundamental failures of the imagination among Bitcoin enthusiasts. "There's only 21 million. Trust us. We counted." "But couldn't I make a new 21 million with a one character code change?" "Well yeah but they'd be so much less cool than our 21 million and you'd have to convince people to use them." "But wouldn't I be able to use the Satoshi adoption strategy -- give them away for cheap to bootstrap a distributed boiler room then gradually make them more expensive, enriching early participants in the scheme at the expense of later participants?" "But that's crazy, it will never work. Nobody wants worthless currency units tied to a transaction network that provides absolutely no value. They want spendable money." "Of course people want worthless currency units tied to a transaction network that provides absolutely no value, if they have the expectation that they will not be the last people to want those currency units. That describes why you invested in Bitcoin!"
The problem is incentivizing people to "mine". This effectively created a pyramid scheme where the "first in" benefit from the "later in" spending money.
Bitcoin will be more interesting to me once the mining pool is exhausted. At that point, we'll see how much of Bitcoin's value is in use instead of speculation.
A currency which gains value encourages holding it, agreed, however, there are opposing economic forces at play as well.
First, the marginal utility of additional units drops for the hoarders, and marginal utility is a well established economic fact.
Second is the time preference of goods. People's lives are finite and they don't want money for money's sake, they want to exchange it for useful things. If you're really hungry, you will buy your sandwich today, not tomorrow even if it's going to be cheaper. Real world examples are electronics and the price of oil. Electronics get better and cheaper with time, and yet, people still buy today. Oil has depreciated hugely in the last months, and yet, people are buying gasoline and heating oil right now, even though signs point to it being even cheaper.
Taken together, you have the desire to hoard counterbalanced by these two factors, which creates a balance of hoarding and spending. This does an economy make.
Isn't the amount of money with real currencies also supposed to be limited?
(I'm not the kind of person to complain about being downvoted, because I literally don't care, but I'd like to know what's wrong in what I said. I always thought printing money is something no sane government would do.)
Readit News
I've been fascinated and appalled in equal measure at the fanboy community, at the intolerance of criticism that sprang up very quickly, and how strong feelings ran (likely because of financial investment in the tech).
It's also been interesting watching it go from simple CPU mining, to multiple GPU rigs in dorm rooms, all the way through FPGA and then to massive installations of custom ASIC miners.
But I've always hoped it wouldn't go mainstream for two reasons - limited supply with weighting in favour of early adopters, and the massive electricity costs of the 'mining' and transaction validation process. Scalable, competitive proof of work systems for a widespread currency are an ecological disaster in the making, and deflationary currency with a handful of early users controlling a huge proportion of the total currency supply... these aren't "features".
I'll be very interested in what happens next, and for the reasons given I hope it's not just a BTC clone with better governance.
[1] http://gridcoin.us/ [2] http://boinc.berkeley.edu/
The existence of high frequency trading already proved this. All that technology built and maintained, all that electricity wasted, merely so that one company's bots could play a zero-sum game nanoseconds faster than another company's bots, undermining them.
This isn't something newly discovered, I hope.
>Isn't Bitcoin mining a waste of energy?
>Spending energy to secure and operate a payment system is hardly a waste. Like any other payment service, the use of Bitcoin entails processing costs. Services necessary for the operation of currently widespread monetary systems, such as banks, credit cards, and armored vehicles, also use a lot of energy. Although unlike Bitcoin, their total energy consumption is not transparent and cannot be as easily measured. Bitcoin mining has been designed to become more optimized over time with specialized hardware consuming less energy, and the operating costs of mining should continue to be proportional to demand. When Bitcoin mining becomes too competitive and less profitable, some miners choose to stop their activities. Furthermore, all energy expended mining is eventually transformed into heat, and the most profitable miners will be those who have put this heat to good use. An optimally efficient mining network is one that isn't actually consuming any extra energy. While this is an ideal, the economics of mining are such that miners individually strive toward it.
That's not the question. The question is if more energy is being spent than is necessary to achieve the goals of a well-secured, well-operated a payment system, and I think there are very strong reasons to believe the answer is yes. (Among many other things, Ripple and Stellar are existence proofs of being able to get something with comparable security and much lower energy usage.)
> Furthermore, all energy expended mining is eventually transformed into heat, and the most profitable miners will be those who have put this heat to good use.
what
> While this is an ideal, the economics of mining are such that miners individually strive toward it.
And it is equally valid to say that the economics of cloud computing are that cloud hosts should individually strive towards it, too, but is AWS so much as keeping a single pizza warm?
Is there any previous case in human history where "Negative externalities could be turned into profitable positive externalities with cleverness" has worked?
I understand that this is the way BitCoin protects itself. I want to be clear that I am saying I think this is a bad way of doing things. As someone that understands a bit about crypto - most crypto schemes that are hard to break are not hard to break because the encrypting device has worked so hard at encrypting them. They're hard to break because they have been designed in a mathematically sound way.
I hope this endless grind is not something inherent to the idea of decentralised crypto-currency, but if it is I don't think the decentralisation aspect is worth it, and as we see in this article it can be illusory anyway and the amounts of energy involved are pretty huge.
>> Furthermore, all energy expended mining is eventually transformed into heat
This is just such a cop-out!
Back before spam filters got good, one of the proposed solutions to the spam problem was to require everyone to compute an easy to verify, difficult to produce hash for their email message and bounce everything which didn't come with an attached hash. The idea was that a regular user could spend 1 or 10 seconds hashing each email, but a spammer couldn't spend the time hashing millions of spam messages.
Now I suspect that we would have just ended up with data centers full of highly efficient hashing hardware cranking out signatures for spam messages.
Deleted Comment
People disagree about the reality of global warming. Does that mean we throw out the entire system of laws of the United States and other world powers because it hasn't yet addressed this problem?
This is exactly why I never bought the concept of BitCoin as a 'libertarian' currency. There's always politics, there's always governance. It becomes political as soon as more than one person is involved. And as soon as it's political, institutions, processes, procedures, and laws become necessary - also known as "government."
I still believe in BitCoin, however. Ultimately, there's a way out of this tangle, and like with most political problems, it's a political solution. BitCoin will either adapt and scale up or stay the same and scale (way) down.
edit: To clarify, I'm not trying to say I agree or disagree with the author, as I don't know anywhere near enough about the bitcoin community to say either way. I'm merely pointing out that the OP was talking past the author's points, not addressing them. (In particular, they built a strawman against governance and political solutions.)
And yes, I did read it.
Step A is realizing that the political processes aren't working, and Step B is figuring out a way to make them work. Step B is not throwing up your hands and quitting.
Really? Were they actually usable/used? How/when/where?
Bitcoin doesn't move fast and break things-- and that's one of its strengths, not a weakness.
Also, its inherently democratic- those with the hashing power , and thus the most on the line, determine its future. IT's in their best interests to find solutions-- in a considered way.
I don't see that this system has broken down at this point.
It's Bitcoin or bitcoin.
[1] https://bitcoin.org/bitcoin.pdf
[2] https://en.wikipedia.org/wiki/Bitcoin
[3] https://www.google.com/search?q=bitcoin&oq=bitcoin
Not just directing this at you as numerous people have pointed this out, but it seems awfully pedantic to quibble over my capitalization of a letter than to address the substance of the point which is that the technical issue here is quite fixable and that the political will to fix it is not impossible.
It seems like he makes some cogent criticisms, for which the best solution seems to be to fork the project, or begin developing for any of the other *coins that were so popular a couple of years ago. But BitCoin has the dominant brand and the people who control the mining and the source code can do whatever they want. Something tells me that bitcoin itself isn't dead because there's been too much invested in it by too many people, whatever the problems. But it's dead in the eyes of the author and maybe for several others, and that's all that matters in the context of his blog.
When the BTC community has become so hostile to literally attack those who criticize it, it becomes hopeless to resist. The best you can do is walk away until the community stops being so hostile.
So in other words, too big to fail? I don't necessarily disagree with you, but that sure seems to support the argument that the Bitcoin ecosystem as a whole isn't in a very healthy place.
What -exactly- does this mean?
Additionally, what does it say about the managers of the project when the Bitcoin Core people decide that (because ever-shrinking available capacity means ever-more unpredictable [and gradually-upward-trending] transaction fees) it's better to allow a transaction partner to silently reverse a transaction they made, rather than increasing the maximum block size to keep up with the ever-growing (due to Bitcoin's increasing popularity) transaction volume?
I don't know anything about Bitcoin but the promise seemed to be to invent a technical form of money, with limited supply, that would be free of politics and interference from governments.
To quote the beginning of the article:
> What was meant to be a new, decentralised form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people.
Bitcoin became valuable enough to attract people with a lot of real money on the wrong side of the Chinese capital controls, who've taken it over as their major use case.
You have a bunch of down-votes, but you're right. Taxes are the best driver of demand since they force the currency to be the unit of account in a country. In essence, any bitcoin transactions in the US will need to be accounted in USD in order to taxes to be paid. Thus, bitcoin is, as you say, commodity money.
Bitcoin can only operate as a stand-alone medium of exchange in regions without taxes (or in transactions where taxes are ignored).
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Precisely. I find amusing how every time there is a trend up in the price, there is a flood of doom sayers, as though they want to force the price down...
I think the bitcoin network is fine. These issues will eventually be resolved, although not likely to OP's satisfaction or the way he wants to solve them.
In the conclusion he states: "<i>Even if a new team was built to replace Bitcoin Core, the problem of mining power being concentrated behind the Great Firewall would remain.</i>"
Bitcoin's decentralized nature encourages power pool formation by promoting economies of scale. It is not surprising that like the production of electronics, clothing, toys, etc. the lowest cost center is in China.
They have the trifecta of a majority of mining power, two of the largest exchanges, and several key developers on board. More importantly the miners supporting the project are in agreement on increasing the block size. It goes a long way to addressing most of the things Mike brings up in this post.
Mike's done a lot of Bitocin particularly by bringing to light the issues with Bitcoin core. At the same time this post strikes me as alarmist. It seems more like a rationalization of his decision than anything else.
[0] https://bitcoinclassic.com/
When we were preparing for XT, we also went and talked to the Chinese miners. They told us that the original 20mb limit Gavin proposed was too high, but that they could accept 8mb. So we compromised and went with 8 + a growth function. Then after XT was launched they changed their mind and said any growth after 8 at all was totally unacceptable. Now they're telling the Classic guys that 2 is the most they could handle. Did the Chinese internet border really get 4x worse in the span of 3 months? I doubt it.
Western miners aren't much better. One told me quite clearly they'd start voting for BIP101 back in November (though: voting in such a way that it wouldn't actually activate!). But they didn't. When I followed up, they again said it was on their todo list and they'd start really soon. But they didn't.
The miners have proven over and over again that what they say they will accept and what they actually do accept is not aligned. So right now I'm seeing some excitement (maybe more like desperate hope) that Bitcoin Classic will solve anything. Maybe now the "Scaling Bitcoin" conferences have come and gone and Core's reputation is much worse, they'll have better luck, but even then the best case scenario is that Bitcoin gets a 2mb limit. That isn't nearly enough and big backlogs will still occur.
More to the point, even in the best case scenario, the community will essentially accept that Bitcoin is controlled by the Chinese government and grows or shrinks at their whim.
https://www.reddit.com/user/anarchystar as a random example that comes to mind.
like, yay it fixes a technical issue, but I'm doubtful that a group that acts like children in forums has any long-term sustainability.
The lowest cost center for mining bitcoin is absolutely not China. The reason mining power is currently centered in China is because producing the latest-generation ASICs is cheapest and quickest in China and for various reasons the companies involved prefer to just bring them online in China quickly.
Soon ASICs will stabilize on the most modern production processes and commoditize and Bitcoin mining will shift to where the marginal cost of mining is low -- Iceland or other cold countries with extraordinarily cheap energy.
The other major reason that Bitcoin mining is big in China is that it's far and away the biggest source of capital looking to escape government controls. You put in yuan at one end, turning it into ASICs and electricity, and you take bitcoin out at the other end. Say what you want about bitcoin, but it's a whole lot easier than your yuan deposits at the Industrial & Commercial Bank of China to get across the border.
Some day these things will change. But for now, Bitcoin is stuck with Chinese miners.
In other words, the lack of people mining at a loss makes mining profitable and hence subject to forces of centralization.
There are several reasons why mining as a lottery substitute is rare, a major one being that commodity hardware is inefficient by many orders of magnitude, making even a botnet next to useless.
Perhaps, if a proof of work, whose efficiency gap (with custom hardware) is at most an order of magnitude, were adopted (or slowly phased in), enough lottery players would arise to make mining unprofitable at scale.
Botnets should then just be welcomed as a modest increase in decentralization.
You can see here many alternative coins and an estimated market cap:
http://coinmarketcap.com/
A lot of altcoins came up as mere clones of another, pump-and-dump schemes, or with irrelevant or plain bad changes; but there were quite a few valid innovations. Bitcoin has barely changed in it's core protocol. I hope other projects get more exposure in the future (or Bitcoin becomes less afraid of change).
"You can't possibly get a good technology going without an enormous number of failures. It's a universal rule. If you look at bicycles, there were thousands of weird models built and tried before they found the one that really worked. You could never design a bicycle theoretically. Even now, after we've been building them for 100 years, it's very difficult to understand just why a bicycle works – it's even difficult to formulate it as a mathematical problem. But just by trial and error, we found out how to do it, and the error was essential." -- Freeman Dyson
[0] http://www.coindesk.com/bitfury-details-100-million-georgia-...
1) Mining power is still decentralized. It's not evenly distributed, true, but it is decentralized.
2) Just because some significant percentage of it is in China, doesn't mean it's controlled by one single entity like you're trying to present it here. It's still distributed across thousands of independent miners.
> ...the block chain is controlled by Chinese miners, just two of whom control more than 50% of the hash power.
That's a pretty unique situation.
If a predominant amount of hash power were concentrated in China, but distributed among some large (100+ to 1000+) number of miners, that would be fine. But a system of any kind is no longer decentralized the moment more than 49% of that network is entirely controlled by a small [enough] group of people.
Second, there are economies of scale to be exploited. Over time, it will become more profitable for the largest miners to increase capacity vs the smaller miners. The largest miners will get cheaper power contracts. That alone gives them an advantage that will allow them to take market share from the smaller miners.
The end result is fewer, but larger, miners doing more work.
http://bravenewcoin.com/news/30-top-banks-and-mike-hearn-hav...
Read the article, he was clearly laying the groundwork for this move back in Thanksgiving.
“The current Bitcoin system, I mean the system we actually use today with the block chain, isn't going to change the world at all due to the 1mb limit. … So if I have a choice between helping the existing financial system build something better than what they have today that resembles Bitcoin, or helping the Bitcoin community build something worse than what they have today that resembles banking, then I may as well go where the users are and work with the banks."
The quote is absolutely in line with the article; actually including the quote in the article would have rendered the headline 'Bitcoin dev thinks blockchains for banks are way cooler, has thought so for months, and is reluctantly moving on'; that might be a fun article to read, but it's not frontpaging HN.
People want to protect their investments. But because we are talking about money, don't confuse this for meaning that the investments are just about money.
Investments in code contributions, investments in all the articles read, investments in community, friends, social networking, investments in belief systems, investment in the justification for choosing one thing rather than another.
It's simply not consistent to say "oh you only have 20BTC, so you've nothing to lose" or "oh, you made no code contributions, so why are you complaining" as both ignore the potential for massive psychological and personal investments.
All these investments act as a barrier to change. It hurts, it hurts physically to lose big investments.
There is a cost benefit analysis that humans perform internally. Is the hurt of losing this investment now worse than the pain by keeping the investment later.
If we go back to the article, we see Mike repeatedly tell us that Bitcoin is an experiment. He is saying to us now "look, don't invest your time, effort and money into it" - and he is telling himself "I have made the change, I have accepted a loss by investing so much of my time and effort into this, and am moving on".
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By the time independent implementations did begin to develop, it was too late to introduce diversity into the ecosystem.
The result is what we are now seeing.
Fully agreed. The largest failure of the so-called "developers" (pretenders after Satoshi) of Bitcoin have failed to concentrate their efforts on understanding and specifying Satoshi's code.
The original Satoshi bitcoin implementation is a mess of Boost-y C++ that was clearly written by a bright guy who was steeped in mediocre C++ programming (probably on Windows). Studying the code and writing a proper specification is job number one. Adding random new features onto Bitcoin without first understanding the codebase is simply juvenile.
A political entity -- not necessary a sovereign government, but perhaps a bank or financial institution -- will offer a currency swap to existing blockchain holders to adopt their crypto currency. The inducement will be a limited time window to put in your claim, with all unclaimed but mined numbers going to the financial entity to reward their followers or stakeholders.
In the real world, this is called escheat and it is a power of the crown. Bitcoin is essentially a system for recording deeds to digital land. They aren't making more numbers, so the problem is the political resolution of competing claims to the same resource. This sort of claim comes, in the end, to a network consensus of who is the sovereign.
They aren't making more numbers
"We can conveniently restrict the supply of numbers" is one of the fundamental failures of the imagination among Bitcoin enthusiasts. "There's only 21 million. Trust us. We counted." "But couldn't I make a new 21 million with a one character code change?" "Well yeah but they'd be so much less cool than our 21 million and you'd have to convince people to use them." "But wouldn't I be able to use the Satoshi adoption strategy -- give them away for cheap to bootstrap a distributed boiler room then gradually make them more expensive, enriching early participants in the scheme at the expense of later participants?" "But that's crazy, it will never work. Nobody wants worthless currency units tied to a transaction network that provides absolutely no value. They want spendable money." "Of course people want worthless currency units tied to a transaction network that provides absolutely no value, if they have the expectation that they will not be the last people to want those currency units. That describes why you invested in Bitcoin!"
https://coinmarketcap.com/ lists 650 alternate value storages which take up 650 million dollars. Bitcoin alone takes six billion.
Bitcoin will be more interesting to me once the mining pool is exhausted. At that point, we'll see how much of Bitcoin's value is in use instead of speculation.
First, the marginal utility of additional units drops for the hoarders, and marginal utility is a well established economic fact.
Second is the time preference of goods. People's lives are finite and they don't want money for money's sake, they want to exchange it for useful things. If you're really hungry, you will buy your sandwich today, not tomorrow even if it's going to be cheaper. Real world examples are electronics and the price of oil. Electronics get better and cheaper with time, and yet, people still buy today. Oil has depreciated hugely in the last months, and yet, people are buying gasoline and heating oil right now, even though signs point to it being even cheaper.
Taken together, you have the desire to hoard counterbalanced by these two factors, which creates a balance of hoarding and spending. This does an economy make.
(I'm not the kind of person to complain about being downvoted, because I literally don't care, but I'd like to know what's wrong in what I said. I always thought printing money is something no sane government would do.)