Resources are being utterly and completely wasted on mining bitcoins • Hacker News Board

Re: Resources are being utterly and completely wasted on mining bitcoins

#101

Post by oelewapperke » Tue, May 31, 2011, 5:20 PM UTC

jerf wrote: post #82

pbreit wrote: post #56

Earlier quoted context omitted.

The idea that gold has no real value is bizarre.

The idea of "real value" is bizarre. The value of something is how much you can get in return for the thing from a purchaser that you can find. Even "value is what we agree it is" isn't really right, it's what you can concretely get for the thing. (For instance, the fact that a certain Magic the Gathering card is listed in some book for $20 is meaningless if you can't find anyone who will give you more than $5.) Ther…

No, that's the price.

Value is a different beast entirely. If you buy a thing, for example, you consider it's value > it's price. Otherwise you wouldn't (shouldn't ?).

Of course, value is about as nebulous a concept as love, or anything else that only exists in a human mind.

Economic systems are what determines the connection between value and price.

Re: Resources are being utterly and completely wasted on mining bitcoins

#102

Post by gammarator » Tue, May 31, 2011, 5:33 PM UTC

DennisP wrote: post #59

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 milli…

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...

Re: Resources are being utterly and completely wasted on mining bitcoins

#103

Post by kragen » Tue, May 31, 2011, 5:47 PM UTC

nazgulnarsil wrote: post #99

kragen wrote: post #92

Earlier quoted context omitted.

The standard Silvio Gesell expiring-money scheme doesn't have anything to do with where the money is at any given time. The way it works is that for the government to accept a note, it must be up-to-date with stamps, one stamp for every month since it was issued. The stamps (traditionally, bought from the government) cost 10% of the value of the note. Nobody wants to be sitting on a pile of this sort of cash at the e…

this is one of the worst ideas I've ever heard. the amount of wealth that would be destroyed is beyond all measure.

Wealth consists of things like cured diseases, tasty and nourishing meals, being dry when it rains, and seeing the people you love as often as you want; and the resources and skills we use to create those other kinds of wealth, such as antibiotics, bread mold, spices, beans, houses, corrugated steel, iron ore, blast furnaces, airplanes, kerosene, and CAD software.

Gesell's scheme does not destroy any of those things; it only destroys money. Money is not wealth. Money is just a way to facilitate cooperative ventures with people we don't know and trust. With money, I can cooperate with 200 other people to pay for an intercontinental flight, and with the hundreds of thousands of other people who drilled and refined the kerosene, aluminum, and other resources needed to keep us in the air.

But the money game has a lot of drawbacks. So it's sensible to experiment with it and see how we can improve it. Gesell's scheme was one such experiment. It was reported to be very effective at creating wealth by its proponents when it was tried.

Re: Resources are being utterly and completely wasted on mining bitcoins

#104

Post by DennisP » Tue, May 31, 2011, 5:48 PM UTC

gammarator wrote: post #102

DennisP wrote: post #59

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 milli…

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…

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.

Re: Resources are being utterly and completely wasted on mining bitcoins

#105

Post by wmf » Tue, May 31, 2011, 5:50 PM UTC

abulafia wrote: post #100

dualogy wrote: post #41

Earlier quoted context omitted.

"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 ha…

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 pa…

One can be pretty certain that if one generates coins early, one can then make money selling them to others.

I don't know about that. Back in 2009 or 2010, Bitcoins were worth practically nothing and almost everyone predicted that they'd never be worth anything. And if no one mined, maybe Bitcoin would never have taken off (to the extent that it has) and it would still be worthless.

Re: Resources are being utterly and completely wasted on mining bitcoins

#106

Post by danenania » Tue, May 31, 2011, 5:58 PM UTC

masklinn wrote: post #34

vladd wrote: post #6

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 corrupt…

> 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…

"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.

Re: Resources are being utterly and completely wasted on mining bitcoins

#107

Post by aero142 » Tue, May 31, 2011, 6:05 PM UTC

danenania wrote: post #106

masklinn wrote: post #34

Earlier quoted context omitted.

> 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…

"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 m…

Saying it is just a ruse for inflation is not being honest. Many, though not all, economists believe that deflation causes money to be more valuable tomorrow than today, which leads to over saving which leads to unnaturally low demand. It's not helpful to act as though there is no debate on the subject. I'm sure there are other problems as well.

Re: Resources are being utterly and completely wasted on mining bitcoins

#108

Post by gammarator » Tue, May 31, 2011, 6:07 PM UTC

DennisP wrote: post #104

gammarator wrote: post #102

Earlier quoted context omitted.

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…

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.

That's helpful, thanks. Still, it's only profitable to mine bitcoins at any computing cost if they can be exchanged for other items of value. If the value of bitcoins drop and people leave the bitcoin economy, making the last N bitcoins easier to compute won't make them more valuable.

Re: Resources are being utterly and completely wasted on mining bitcoins

#109

Post by IsaacL » Tue, May 31, 2011, 6:08 PM UTC

joezydeco wrote: post #45

iwwr wrote: post #38

Earlier quoted context omitted.

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).

Unless you live in Ted Kennedy's or Trent Lott's district, where the cotton farms and paper mills are. For decades these senators continuously sabotaged measures to eliminate the paper Dollar and get the US entirely on dollar coins. The US is probably the last major economy to still be using paper for such small denominations.

China uses a lot of paper notes - paper 1 jiao (about 0.02 USD) are fairly common. They're also really annoying.

Re: Resources are being utterly and completely wasted on mining bitcoins

#110

Post by ghshephard » Tue, May 31, 2011, 6:08 PM UTC

masklinn wrote: post #70

pbreit wrote: post #56

Earlier quoted context omitted.

The idea that gold has no real value is bizarre.

"real value" is not very clear a concept. Gold does not have much intrinsic value (not actually correct anymore, in our modern world gold is used quite a bit in industrial contexts): apart from being shiny, before the 19th century there wasn't much it could be used for. The vast majority of its value was extrinsic and pretty much arbitrary, in its use as part of monetary exchange systems. The same can be said of diam…

The major difference, of course, is that diamonds are not rare, can be industrially counterfeited, and are easily damaged.

Diamonds, in some way, are the "anti-gold." There is a great game-theoretic reason for why something as completely worthless as diamonds make great engagement rings though: They are something expensive to the male (so he can't repeat the process of proposing very often) - but worthless to the female (so she can't be accused of being a gold digger) - and at the same time sparkly and easy to show off.