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Bitcoin miners are losing on every coin produced as difficulty drops

coindesk.com

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Re: Bitcoin miners are losing on every coin produced as difficulty drops

#201

Post by ptero »

oblio wrote: post #196
ptero wrote: post #189

Earlier quoted context omitted.

Sorry, I do not understand your comment. Can you clarify. What does "a lot more centralized in practice" mean? > What's the point of it all in this case? Lightning is an L2 protocol, highly scalable and used for low cost payment in Bitcoin. Level 1 networks are almost never used for user transactions: your credit card payments do not go over fedwire, etc. Bitcoin protocol is not scalable to serve worldwide money tran…

Isn't it hard to use in practice? Liveness, inbound liquidity, moving funds between L1 and L2, don't all of those lead to massive use of hubs, this denying the entire premise of decentralization?

Very easy. If the merchant supports it, it is extremely easy; equivalent to pointing your phone at a reader to pay with GooglePay. Between people -- a QR or similar.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#202

Post by phire »

sapphicsnail wrote: post #178
sph wrote: post #155

Earlier quoted context omitted.

https://en.wikipedia.org/wiki/Lightning_Network I have been paying for my VPN with lightning payments; it takes less than one second to go through.

How does this work? I read the wikipedia article but I don't understand how Lightning enforces the transaction.

The peers generate two sets of transactions.

One is a quick summary of the current balance in a channel. A new transaction is created each time the balance in the channel changes. It's somewhat cheap to put on the blockchain (And the main saving is that you only need to post the final update when you close the channel), but venerable to one side putting an old stale transaction onto the blockchain to profit.

The other transaction forms a chain of proof for current state, invalidating previous balance update transactions. It's somewhat expensive to post, as it will pull in the whole history.

Both peers need to continually watch the chain (or contract a 3rd party to watch) to make sure the other peer isn't cheating by posted a stale balance transaction. These special transactions are time locked, so once one is posted, you have like 24 hours to post the proof transaction and reverse it.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#203

Post by hn_throwaway_99 »

Thorrez wrote: post #183
hn_throwaway_99 wrote: post #164

Earlier quoted context omitted.

It is how bitcoin is designed to work, but it also shows very directly how proof-of-work systems can never scale to be the global monetary replacement its boosters push. If the opposite happened, and the price for some reason sky rocketed to, say, $1 million per bitcoin, it would necessarily mean that it would induce more miners until the difficulty and consequent electricity cost (regardless of the efficiency in ele…

While I don't disagree in general, there are a couple gaps in your reasoning that weaken the argument: Adoption doesn't necessarily correlate completely with price. Price can increase without much adoption, due to speculation. In theory, adoption could also increase without much price increase. Electricity isn't the only requirement for mining. Hardware is also required. Miners can't simply use lots of additional ele…

> In theory, adoption could also increase without much price increase.

Not really. A fundamental purpose for any currency is to act as a "store of value". There is no way for bitcoin to represent a store of value (i.e. value commensurate to real-world goods) for a larger and larger portion of society without the price skyrocketing, especially since Bitcoin is inherently deflationary with a max number of coins.

Regarding your other paragraphs, I think this is a fundamental misunderstanding of how proof-of-work is designed to protect the network. The entire idea behind POW is that the total amount of work must be in direct relationship to the total value of the coins in the network, or else coordinated attacks become possible. I see this misunderstanding all the time in "the block reward decreases over time" argument. It doesn't really matter if miners get their payoff from block rewards or mining fees - they must (on average, over time) get enough reward to make their mining activity worthwhile, and, again, by the inherent design of POW, they need to spend enough on mining to make 51% attacks not worth trying. Just think about how your "If it's using Europe levels of electricity at time X, then after a block reward decrease, it'll use Europe/2 amount of electricity" sentence doesn't make any sense, because eventually in 2140 or so there will be no block rewards, so according to your logic no electricity at all would be required to run the network.

There is simply no getting around the fact that resource costs need to grow linearly with the total value of the network in POW systems.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#204

Post by VladVladikoff »

embedding-shape wrote: post #28
VladVladikoff wrote: post #24

Earlier quoted context omitted.

Seems like you could have made that same bet by just buying BTC with that money and doing twice as good.

I dunno, probably only if you don't count for human psychology. If they bought N BTC and tried to held them, would they still hold them when they double in value? What about increasing 10-fold? Compared to doing some work to getting 1 BTC per month, which you can then individually decide what to do with, instead of a lump sum you could cash out at any moment.

This was my great failure with Bitcoin. Bought in at $100, had many coins at $400. Sold most of it by $3000. Hard to not cash out when your investment goes 30x. In hindsight… ugghhh.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#205

Post by catlikesshrimp »

paulryanrogers wrote: post #151
catlikesshrimp wrote: post #122

Earlier quoted context omitted.

I need to buy a service. The service is provided in the US, where it is a grey area service. The service provider is not trustworthy enough to give it my credit card, and it doesn't accept neither paypal nor stripe. Unsurprisingly, it accepts bitcoins. The way bitcoin exists, the provider accepts bitcoin; it doesn't accept other crypto. I would rather bitcoin, or something equivalent to exist than not. There is also…

What did folks in Argentina and Venezuela do before Bitcoin? Perhaps that's even better?

Decades ago, in my country it was illegal to hold dollar bills. Naturally, you couldn't have dollar bank accounts. What was done back then was to illegally keep bills inside bags, hidden, and pray god they weren't found because you would go to prison.

The alternative is not holding money yourself. Buy everything as soon as you can, and hoard physical goods, which is cumbersome, dangerous and inefficient. Bitcoin is an upgrade in all senses.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#206

Post by Dylan16807 »

eterm wrote: post #74
didgetmaster wrote: post #67

Earlier quoted context omitted.

It sounds very similar to things like oil production, gold mining, and even farming. When the price is high, everyone wants in on the action. As supply explodes, the prices drop. Once prices get low enough, the costs to pump the next barrel of oil, find the next ounce of gold, or harvest the next acre of a certain crop; exceed the reward. When that happens, wells are shut down, mining operations suspended, and differ…

There's a soft failure-mode for bitcoin where due to the alternating difficulty adjustment, you could end up with people only mining every other 2016-block adjustment. Let's call this cycle A and cycle B. If A is too hard, miners drop out, cycle B gets easier, miners flood back, cycle A gets harder. This results in the hard cycle getting longer and the easy cycle getting shorter. This isn't completely critical as the…

The difficulty can only adjust by a factor of 4 which also limits the incentive change. You'd need more than 90% of miners to disappear to start seeing actual problems.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#207

Post by Zetaphor »

schmorptron wrote: post #140
dmk wrote: post #7

The headline is dramatic but this is literally how bitcoin is designed to work. Miners leave, difficulty drops, costs go down, mining becomes profitable again. The interesting part isn’t the loss per coin, it’s how long the lag between unprofitable mining and difficulty adjustment keeps forced selling pressure on the market.

In the gap between cost going down and profitability, is there not an increased risk of sybel attacks?

You'd still need to have 51% of the network to perform any successful attack, which despite the price drop is a a MASSIVE capital investment.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#208

Post by Zetaphor »

bit-anarchist wrote: post #168
Tepix wrote: post #137

Earlier quoted context omitted.

> I follow Bitcoin from a theoretical point of view and I find it fascinating. I find it horrible: The damage done to the planet doesn't correlate with the number of transactions. It's maximizing uselessness.

How is it maximizing uselessness? Anymore than anything else, at least?

It does have an outsized environmental impact compared to other technologies people would call useless. The only thing that really tops it in terms of ire and pollution is AI, but that has far more realized applications

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#209

Post by vscode-rest »

oblio wrote: post #195
vscode-rest wrote: post #194

Earlier quoted context omitted.

a that’s the botcoin hashing algorithm.

I figured that part out, I wonder why it's being doubled.

That was the way satoshi wanted it. No other explanation is known.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#210

Post by haakon »

oblio wrote: post #181
OJFord wrote: post #43

Earlier quoted context omitted.

"don't work well for AI" is a hell of an understatement, the Application they are Specific to is literally just sha256(sha256(x)), what AI are you going to do with that? GP probably didn't mean that hardware though, but rather the facility, electricity supply, cooling, etc.

Why double sha256?

The disappointing truth is that we simply don't know. Satoshi never explained it. For SHA-2 it can be used as a mitigation against length-extension attacks¹, and this seems like the most likely explanation, but it's just speculation.

¹ https://en.wikipedia.org/wiki/Length_extension_attack

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