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Bitcoin – The Magic of Mining

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Re: Bitcoin – The Magic of Mining

#21

Post by danbruc »

imaginenore wrote: post #20
danbruc wrote: post #19

Earlier quoted context omitted.

These are the transaction costs, the costs to process the transaction. The user pays the transaction fee which is currently (usually) lower because miners still get the block reward. But at some point in the future only the transaction fees will have to pay for the transaction costs.

No, there is no other fee except the standard one. So if some miners aren't happy with that, they will quit. It's a self-correcting system.

You are missing the point. Right now you are getting 25 BTC for mining a block, but that block reward will drop to zero while the costs for processing a transaction will remain more or less the same. Therefore transaction fees will have to go up until they cover the transaction costs without subsidizing them with the block reward. The other alternative, lowering transaction costs, is not a real option because it would make the Bitcoin network vulnerable.

Re: Bitcoin – The Magic of Mining

#22

Post by vanzard »

sharpneli wrote: post #16
mrb wrote: post #14

Earlier quoted context omitted.

Your math is wrong, making your entire premise/argument invalid. A transaction costs $0.60 of electricity as of right now: 150000 kilowatt (power consumption of the global Bitcoin network [1]) ÷ (3600 (sec/hour) * 7 (transaction/sec)) = 6.0 kWh/transaction The worldwide average price of 1 kWh is $0.10, so a transaction costs $0.60 in electricity to be processed by the network. Also, the 7 transaction/second limit com…

Where do you get 150 000 kW? Even assuming all the miners are the best I could find (Achilles lab series) [1] that comes to 190000kW based on current hashrate [2]. Your transactions/second is also bit off. Right now based on blockchain.info the highest transaction day had 115787 transactions [3]. And that day the backlog of unconfirmed transactions got as high as almost 6000 unconfirmed transactions [4]. It doesn't m…

The network never "choked" at 1.3tps. There are peaks of activity near the theoretical max of 7 tps (check for blocks close to 1MB in size). There are thousands of unconfirmed transactions because their senders chose to include fees that are too low (or no fee at all), so miners decide to not process them.

> When new coins are no longer being awarded to miners then people will have to start to pay the transaction fees themselves

That's not how it works. People (senders) already pay the transaction fees themselves.

Re: Bitcoin – The Magic of Mining

#23

Post by mrb »

danbruc wrote: post #18
mrb wrote: post #14

Earlier quoted context omitted.

Your math is wrong, making your entire premise/argument invalid. A transaction costs $0.60 of electricity as of right now: 150000 kilowatt (power consumption of the global Bitcoin network [1]) ÷ (3600 (sec/hour) * 7 (transaction/sec)) = 6.0 kWh/transaction The worldwide average price of 1 kWh is $0.10, so a transaction costs $0.60 in electricity to be processed by the network. Also, the 7 transaction/second limit com…

I just looked it up in a comment [1] I wrote about a month ago - 250 PHash/s hash rate with 1 GHash/J mining efficiency, 100 $/MWh energy costs and 100k transactions per day. Sources for these numbers in the linked comment. But even your hypothetical $0.60 or $0.06 are still way to high for real micropayments if we, for example, think about paying maybe $0.10 for reading a news article as an alternative to subscripti…

"100k transactions per day"

There lies your miscalculation. You use the underutilization of the network (~1.1tps currently) to calculate a transaction cost and you claimed this cost cannot decrease (you said "processing more transaction will or should not lower these costs"). But as it is, the network is in fact capable of processing 7tps, therefore the true minimum electricity cost of a transaction is ~7x lower than what you claimed.

"1 GHash/J"*

This is a second but smaller error. Miners currently average closer to 1.5 Ghash/J, so that is another 1.5x decrease in your calculated transaction cost.

These 2 errors (7 * 1.5 = 10.5) explain why your calculation was 10x off.

Regarding micro payments, opinions are split but personally I do not think Bitcoin is well suited to them, or even needs to be suited to them to be a successful transaction processing system. So a $0.60 or $0.06 electricity cost per transaction is good enough right now, keeping in mind cost will go down as the block size limit is increased and as chips become more efficient in terms of Ghash/J.

Re: Bitcoin – The Magic of Mining

#24

Post by danbruc »

mrb wrote: post #23
danbruc wrote: post #18

Earlier quoted context omitted.

I just looked it up in a comment [1] I wrote about a month ago - 250 PHash/s hash rate with 1 GHash/J mining efficiency, 100 $/MWh energy costs and 100k transactions per day. Sources for these numbers in the linked comment. But even your hypothetical $0.60 or $0.06 are still way to high for real micropayments if we, for example, think about paying maybe $0.10 for reading a news article as an alternative to subscripti…

"100k transactions per day" There lies your miscalculation. You use the underutilization of the network (~1.1tps currently) to calculate a transaction cost and you claimed this cost cannot decrease (you said "processing more transaction will or should not lower these costs"). But as it is, the network is in fact capable of processing 7tps, therefore the true minimum electricity cost of a transaction is ~7x lower than…

Slightly above 1.5 GHash/J seems to be the best available hardware. I have no idea how often people throw away their mining equipment but I find it unconvincing that everybody is already using the newest hardware.

The calculation of the transaction costs was for that particular time frame so 100k transactions was a pretty fair assumption. But I was also talking about the future without block rewards so you have a point there that there is room for more transactions.

So maybe we will end up at about a Dollar if we throw in hardware costs, rental, cooling, profit and so on. This is still prohibitive for micropayments. And it makes the assumption that the network will not grow if the transaction volume grows. The problem I have with this is that I don't think that it would be a good idea.

Processing ten times the volume as of today but protecting it with the same amount of money in hardware and electricity costs as of today kind of makes the network ten times more interesting to attack. I estimated that gaining 50 % of the processing power would cost you 100 million in hardware, add electricity for two, three months and you end up in a range where a determined state, large company or even individual could wreak havoc.

Re: Bitcoin – The Magic of Mining

#25

Post by danbruc »

vanzard wrote: post #22
sharpneli wrote: post #16

Earlier quoted context omitted.

Where do you get 150 000 kW? Even assuming all the miners are the best I could find (Achilles lab series) [1] that comes to 190000kW based on current hashrate [2]. Your transactions/second is also bit off. Right now based on blockchain.info the highest transaction day had 115787 transactions [3]. And that day the backlog of unconfirmed transactions got as high as almost 6000 unconfirmed transactions [4]. It doesn't m…

The network never "choked" at 1.3tps. There are peaks of activity near the theoretical max of 7 tps (check for blocks close to 1MB in size). There are thousands of unconfirmed transactions because their senders chose to include fees that are too low (or no fee at all), so miners decide to not process them. > When new coins are no longer being awarded to miners then people will have to start to pay the transaction fee…

Yes, they pay the transaction fees, but not the transaction costs. He wanted to say that transaction fees will become as high as the transaction costs.

Re: Bitcoin – The Magic of Mining

#26

Post by vanzard »

danbruc wrote: post #24
mrb wrote: post #23

Earlier quoted context omitted.

"100k transactions per day" There lies your miscalculation. You use the underutilization of the network (~1.1tps currently) to calculate a transaction cost and you claimed this cost cannot decrease (you said "processing more transaction will or should not lower these costs"). But as it is, the network is in fact capable of processing 7tps, therefore the true minimum electricity cost of a transaction is ~7x lower than…

Slightly above 1.5 GHash/J seems to be the best available hardware. I have no idea how often people throw away their mining equipment but I find it unconvincing that everybody is already using the newest hardware. The calculation of the transaction costs was for that particular time frame so 100k transactions was a pretty fair assumption. But I was also talking about the future without block rewards so you have a poi…

KnC Neptune does 1.8 GHash/J: https://www.kncminer.com/pages/neptune-setup-info

> I find it unconvincing that everybody is already using the newest hardware.

Only a third or at most half of the network is mining with the Neptune at 1.8 Ghash/J. The rest is mostly the 1½ year old Bitfury at 1.2 GHash/J. Then there is a bunch of Monarch at 1.4 GHash/J, some Antminer at 1.3 GHash/J, and so on. So yeah a 1.5 Ghash/J average is very likely. You have to remember mining is extremely competitive. If you are not on the latest generation hardware, you are making less money than the competition.

> I estimated that gaining 50 % of the processing power would cost you 100 million in hardware

These days the estimate is closer to half a billion dollars. (There was a nice article about that - can't remember the link, sorry)

Re: Bitcoin – The Magic of Mining

#27

Post by danbruc »

vanzard wrote: post #26
danbruc wrote: post #24

Earlier quoted context omitted.

Slightly above 1.5 GHash/J seems to be the best available hardware. I have no idea how often people throw away their mining equipment but I find it unconvincing that everybody is already using the newest hardware. The calculation of the transaction costs was for that particular time frame so 100k transactions was a pretty fair assumption. But I was also talking about the future without block rewards so you have a poi…

KnC Neptune does 1.8 GHash/J: https://www.kncminer.com/pages/neptune-setup-info > I find it unconvincing that everybody is already using the newest hardware. Only a third or at most half of the network is mining with the Neptune at 1.8 Ghash/J. The rest is mostly the 1½ year old Bitfury at 1.2 GHash/J. Then there is a bunch of Monarch at 1.4 GHash/J, some Antminer at 1.3 GHash/J, and so on. So yeah a 1.5 Ghash/J aver…

The list I used has the KnC Neptune at 1.429 GHash/J which seems to be the number they advertised before the update in July 2014.

But if you have to replace your hardware every year this makes the whole thing even worse - not only are you spending over 200 millions for electricity each year, you are now also spending a similar amount on hardware.

Re: Bitcoin – The Magic of Mining

#28

Post by vanzard »

danbruc wrote: post #27
vanzard wrote: post #26

Earlier quoted context omitted.

KnC Neptune does 1.8 GHash/J: https://www.kncminer.com/pages/neptune-setup-info > I find it unconvincing that everybody is already using the newest hardware. Only a third or at most half of the network is mining with the Neptune at 1.8 Ghash/J. The rest is mostly the 1½ year old Bitfury at 1.2 GHash/J. Then there is a bunch of Monarch at 1.4 GHash/J, some Antminer at 1.3 GHash/J, and so on. So yeah a 1.5 Ghash/J aver…

The list I used has the KnC Neptune at 1.429 GHash/J which seems to be the number they advertised before the update in July 2014. But if you have to replace your hardware every year this makes the whole thing even worse - not only are you spending over 200 millions for electricity each year, you are now also spending a similar amount on hardware.

Officially they spec 1.4 GHash/J but in practice it measures 1.8 GHash/J: see the "0.57 watts per GH/J" quote in the link I gave. Only a few low-performing units bottom out at 1.4.

> But if you have to replace your hardware every year this makes the whole thing even worse

You used to have to replace your hardware every year, but not anymore. There was a big race to get the ASICs to the next fab node as Bitcoin startups progressively got better and better funded and could develop for more and more expensive processes. In 24 months we went: ASICMINER 130nm -> Avalon 110nm -> BFL Single SC 65nm -> Bitfury 55nm -> Jupiter 28nm -> Neptune 20nm. But now that we have reached the top-of-the-line 28-20nm, Bitcoin ASIC developers are just waiting for foundries to make the next node available (16nm), so the lifetime of a Bitcoin miner should grow from less than a year to at east ~2 years.

If a Bitcoin miner lasts ~2 years, its hardware cost is relatively small compared to electricity costs, so replacing them is not much an issue: a $1500 2kW Neptune consumes $3500 of electricity over 2 years at $0.10/kWh. TCO = $5000. The hardware represents only 30% of that. So not only it is affordable but it makes sense to throw that hardware away and replace it for a more efficient one after 2 years.

Re: Bitcoin – The Magic of Mining

#29

Post by [deleted] »

danbruc wrote: post #9

Mining is what will ultimately make Bitcoin fail. You want to give everyone a single vote so that the majority can agree on which transactions are valid and which are not. But because you don't want a central authority that checks ID documents you come up with the idea of mining - make having a vote in the Bitcoin network an expensive thing by requiring to buy hardware and then spend more money on electricity to keep…

[deleted]

Re: Bitcoin – The Magic of Mining

#30

Post by danbruc »

vanzard wrote: post #28
danbruc wrote: post #27

Earlier quoted context omitted.

The list I used has the KnC Neptune at 1.429 GHash/J which seems to be the number they advertised before the update in July 2014. But if you have to replace your hardware every year this makes the whole thing even worse - not only are you spending over 200 millions for electricity each year, you are now also spending a similar amount on hardware.

Officially they spec 1.4 GHash/J but in practice it measures 1.8 GHash/J: see the "0.57 watts per GH/J" quote in the link I gave. Only a few low-performing units bottom out at 1.4. > But if you have to replace your hardware every year this makes the whole thing even worse You used to have to replace your hardware every year, but not anymore. There was a big race to get the ASICs to the next fab node as Bitcoin startu…

Okay, that will gives us total transaction costs with hardware, electricity, rental, profit and so on in the range 1.5 to 2.0 of the electricity costs which again makes electricity costs a pretty good proxy for transaction costs.

So the remaining question is how the total costs of running the Bitcoin network will evolve with changing transaction volume. Will competition among miners drive up or lower the total costs? Will total costs evolve proportionally to the transaction volume - which I think is important for security - or will they decouple? It would probably be interesting to model the whole system and see what happens. Is there an equilibrium for transaction costs and Bitcoin adoption? And is it stable or will the system run away?

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