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Inside One of the World's Largest Bitcoin Mines

thecoinsman.com

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Re: Inside One of the World's Largest Bitcoin Mines

#71

Post by dllthomas »

joosters wrote: post #26
bdonlan wrote: post #21

Earlier quoted context omitted.

The problem with this is that mining isn't just about reporting hash rates, it's a critical part of the Byzantine failure tolerant consensus algorithm that was bitcoin's key contribution. If miners had a lower duty cycle as you suggest, any dishonest miner could execute a majority attack with little resistance, absent some other kind of mitigation. While proofs of work are wasteful, the only alternative I know of is…

You could keep the blockchain and run with vastly reduced difficulty, but with one alteration: the next block needs to include a specific magic secret number. This magic key is unknowable in advance of a specific time, preventing workers from doing the hash work until the key is 'published'. This forces the miners to pause and not do any hashing for a set time. Now, this gets to the real issue: We need a source for t…

You could require some other kind of block interleaved between proof-of-work blocks. For instance, imagine you do proof-of-stake as follows: Any account with more than X btc (as of the previous block in the chain) can mint a block by including as the nonce the previous hash value signed with their private key, constraining the rest of the block such that the only thing to vary in the new block is the time value, adding a rule that between two chains with equal difficulty the one with the earlier most recent POS block wins, and forbidding acceptance of blocks "from the future".

This would seem to lead to a situation where, after a proof-of-work block is minted, those minting POW blocks relax and those minting POS blocks march things forward for each of their accounts until they find the earliest time that satisfies any of them - at which point they simply wait until that time arrives (for themselves or anyone else playing).

Re: Inside One of the World's Largest Bitcoin Mines

#72

Post by adventured »

bduerst wrote: post #42
jacquesm wrote: post #18

Earlier quoted context omitted.

I'm not sure if by the time you factor in all the costs of banking (including bail-outs) bitcoin is still ludicrously expensive. And one block will include a whole slew of transactions, that's fixed overhead with economies of scale built in.

Quid Pro Quo: Bank bailouts had positive returns. Mt. Gox collapsing was a worse wealth loss than bank bail outs, by far.

The bank bailouts had a huge negative return in real terms, just not in nominal terms.

They required the devaluation of the dollar via Fed 'printing.' The Fed had to take trillions in nuked assets off the balance sheet of Bank of America, Citi, and others.

The primary bailout was not the Treasury program TARP, but the Fed programs.

That stole purchasing power from everyone that uses the US Dollar. That purchasing power will never be returned. Trillions in real wealth were destroyed, that is gone. Even if you supposed all assets returned to their previous value, the time cost, wrecked credit ratings, debt accumulation, etc. that was involved in that loss of wealth is still massive when it has to do with tens of trillions in total asset value.

The collapse of Mt Gox isn't even a rounding error compared to the real wealth destroyed by the Fed in the last five years through dollar devaluation. It's equivalent to about ten hours, from one day, of QE the past year.

Not to mention, any bitcoins lost in the collapse of Mt Gox, increases the value of all other bitcoins over time due to the reduction in supply. To be like the bank bailouts ala the Fed, Mt Gox would have had to create a lot of new bitcoins in the process of being destroyed.

Re: Inside One of the World's Largest Bitcoin Mines

#73

Post by dllthomas »

thedaveoflife wrote: post #68
dllthomas wrote: post #58

Earlier quoted context omitted.

If I go out and hire (say) tptacek (and the rest of Matasano) to perform a software security audit, aren't they're doing it to earn dollars? When a corporate board hires external financial auditor to look over their records, same thing. I don't see where your inference of altruism comes in.

The difference is that you are exchanging money for a service between two willing parties. Bitcoin miners don't take anyone else's money in exchange for verifying transactions.

"Bitcoin miners don't take anyone else's money in exchange for verifying transactions."

Yes they do. Your whole point, I thought, was that they're being paid to do it. They presently take a small fraction of value from every bitcoin. They also receive any transaction fees offered by any of the transactions they are processing, but in practice those are presently (almost?) always zero.

Re: Inside One of the World's Largest Bitcoin Mines

#74

Post by wmf »

latchkey wrote: post #64
CatsoCatsoCatso wrote: post #3

This just strikes me as a colossal waste of energy & time. I understand that there may be good profit in doing it, but that doesn't shirk off any of my feelings.

I thought this was a pretty good analysis: https://www.academia.edu/7666373/An_Order-of-Magnitude_Estim... tl;dr: "This means that we can expect our current industry best efficiency of 0.733 W/GH to reach 0.0000000873804 W/GH – so even the most ignorant, arrogant, narrow-minded and pseudo-intellectual critics and arm-chair academics should note that in the event that Bitcoin scales to a million times its current size…

Regardless of efficiency, there is an equilibrium where energy cost = mining reward.

Re: Inside One of the World's Largest Bitcoin Mines

#75

Post by dllthomas »

baddox wrote: post #60
TeMPOraL wrote: post #54

Earlier quoted context omitted.

So in other words, they're doing it for the reward, with a side effect of maintaining security of the blockchain. I doubt that they're doing it for an idea.

But why is that contradictory, or a problem at all? When I buy a sandwich, I do so primarily because I want the sandwich, but the reason the vendor makes and sells sandwiches isn't to satisfy me, but to make money. Both of us are "selfish" in a sense, but it's not contradictory and not a bad thing.

Or more directly, when I am dealing with dollars and I hire an auditor to look over my financial records, they're doing it primarily to make money.

Re: Inside One of the World's Largest Bitcoin Mines

#76

Post by imaginenore »

Sambdala wrote: post #13
UweSchmidt wrote: post #11

Earlier quoted context omitted.

Well, when "mining" happens at the break-even point, the value of Bitcoin represents the amount of money that was transfered from the real economy to ..this. Since "waste" is a loaded term, let's call it "the cost of Bitcoin". Current market cap is 6.7 billion $, with 13.2 million of a total of 21 million btc mined. Early "mining" was very cheap, but now costs are only going up (barring any surprising breakthroughs i…

3,600 * is probably a pretty good approximation of the daily cost. Since Bitcoin is currently ~$500, that's ~$1.8mm per day.

It's not a cost. They spend electricity and get money back. It's basically an indirect currency exchange. They obviously do it because the resulting conversion rate is slightly better than the market rate.

Re: Inside One of the World's Largest Bitcoin Mines

#77

Post by burgers »

thedaveoflife wrote: post #57
burgers wrote: post #10

Earlier quoted context omitted.

To add to another reply, the big perk of bitcoin mining is that you can launder your money through the purchase of equipment, real estate and power directly into US Dollars. It's as that comment said, basically just a way to turn Renminbi into Dollars without the Chinese government knowing about it.

How long do you think the Chinese government will allow this subversion to continue? It seems like something they would aggressively shut down.

I don't know enough about Chinese politics to be able to reliably comment on their intentions, but buying dollars like this could help push down the price of the Renminbi compared to the Dollar. That has been part of China's economic policy for a long time. Also, when you think about how China is under international pressure to allow the Renminbi to start naturally moving up in value, these types of currency pressures would certainly make a nice way to keep the Renminbi low without having to responsibility for it.

Re: Inside One of the World's Largest Bitcoin Mines

#78

Post by dllthomas »

baddox wrote: post #62
bduerst wrote: post #42

Earlier quoted context omitted.

Quid Pro Quo: Bank bailouts had positive returns. Mt. Gox collapsing was a worse wealth loss than bank bail outs, by far.

> Bank bailouts had positive returns. Compared to what? You can't compare it to the results of not having done bailouts, so the comparison is largely a matter of economic prediction, and economic prediction is obviously very controversial. The only non-controversial part is that the bailouts were certainly very good for the banks receiving them.

In an accounting sense. The government received more money back then they put in - even, IIRC, adjusted for inflation. I agree that this is not actually a great metric, but then "bailouts" aren't actually a great example of the costs of dollars vs bitcoin - they mostly had to do with debt, and you could certainly still issue debt in a world run on bitcoin.

Re: Inside One of the World's Largest Bitcoin Mines

#79

Post by WayneS »

at-fates-hands wrote: post #50
CatsoCatsoCatso wrote: post #3

This just strikes me as a colossal waste of energy & time. I understand that there may be good profit in doing it, but that doesn't shirk off any of my feelings.

I couldn't agree more. The overhead must be staggering. New construction, all that equipment to purchase, set up and keep running, the amount of electricity it takes to power the whole thing, monthly warehouse rent. This has to be a loss leader, I see no way this is a positive ROI anywhere in the near future.

You understand it is making $90k/day revenue?

Re: Inside One of the World's Largest Bitcoin Mines

#80

Post by TeMPOraL »

baddox wrote: post #60
TeMPOraL wrote: post #54

Earlier quoted context omitted.

So in other words, they're doing it for the reward, with a side effect of maintaining security of the blockchain. I doubt that they're doing it for an idea.

But why is that contradictory, or a problem at all? When I buy a sandwich, I do so primarily because I want the sandwich, but the reason the vendor makes and sells sandwiches isn't to satisfy me, but to make money. Both of us are "selfish" in a sense, but it's not contradictory and not a bad thing.

Sure, but the difference is well pointed out by @thedaveoflife. The sandwitch vendor doesn't care about me being not hungry, and they would gladly switch to selling toilet paper to me if it was more profitable to them. Likewise, the miners don't give a damn about blockchain security. They have this black box - put electicity in, get money out. They don't care about what's going on inside. If the black box produced sandwitches, or widgets, or just spun and made sounds that make some millionaire happy, it would make no difference to them, as long as when the electricity flows in, the money comes out.

It's the difference between terminal and instrumental values. It's one of the reason why some people are bewildered by what Tesla or SpaceX is doing - because they're missing the point that for Elon rockets and electric cars are terminal values and the money is just instrumental, while most of the companies we interact with have this the other way around.

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