The economics of the situation will always push the profit from mining toward the cost of production. If a home buys an ASIC and uses less power they will get less BTC once the ASIC is widely deployed. The market makes sure there is 0 free money and pushes all profits toward 0 due to competition.
The result of pushing profits toward 0 is that no matter what you with the BTC system the power consumption costs will approach the value of the BTC produced.
Topic: How Bitcoin Centralizes Profit & Control in the Hands of Miners (Read 2587 times)
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capital costs for the 'home miner' should be near 0 because of dual-use.
The costs are not near 0 though because running a CPU (or GPU) at full capacity not only uses more itself but also generates more heat which shortens the life of the CPU and if you live where I live, requires additional cooling for the room the computer is in. Thank god for LCD displays, that helped a lot, but I can feel my office is hotter when my computers are using their full capacity. I have to leave the door open and run a fan to mix the air with the rest of the house.
I saw a drop in power bill when I stopped running folding@home. Part of that of course was I no longer left all my computers on 24/7 but people will with CPU/GPU mining will leave computers on 24/7 just like I did with folding@home. Especially kids where mom and dad pay the power bill.
Squeezing CPU/GPU mining out and going to lower consumption ASIC mining brings the power cost of the home miner down. The home miner might have to wait for ASIC prices to drop, but they will drop. And when they do, the home miner can mine again.
I'm surprised I haven't seen any PCI-E cards with ASIC that I can just pop into desktop, that would be preferred because I don't like cables or clutter. But most geeks have big rat nests around their desks with all kinds of stuff, so I suppose I'm in the minority.
But even without ASIC, if it were still CPU mining, you'd still have large farms that do most of the mining. With ASIC those farms use less power so it's greener.
BTC inflation effectively price-fixes mining to be incredibly profitable for far too long (100+ years).
I don't think it's right that mining will be incredibly profitable; One feature of capital-intensive commodity businesses like this, as well as having economies of scale that favour large players, is that they tend not to be particularly profitable. Assuming the business remains competitive (ie the big players don't form a cartel to avoid deploying too much hashing power) competition should leave everybody locking up a lot of money in equipment costs to grind out a fairly small profit. If the profit margin grows, everybody will deploy more hardware and speed up the hash rate, which will increase the block difficulty until profits return to barely-attractive levels.
The point is that we cannot and do not want to control who can mine, what we want to control is the economics of mining that reduces the ROI for specialized hardware below that available to the masses. This means CPU mining and reducing the inflation rate of the currency much sooner. BTC inflation effectively price-fixes mining to be incredibly profitable for far too long (100+ years).
So here is how you setup the economics of mining to keep it decentralized.
1) capital costs for the 'home miner' should be near 0 because of dual-use. This means that someone building specialized hardware has to recoup the cost of their hardware before they can start competing with the home user on price of electricity.
2) the 'ideal asic' for the POW should be dual use and widely available to everyone.
3) the cost of processing transactions is born by everyone who uses the network, miners shouldn't have right to 100% of all transaction fees or inflationary rewards.
4) The real goal of the network is to build consensus as nothing else matters. It doesn't matter how much work a miner does on a block if the rest of the network rejects the block. In fact, the only purpose of the proof of work is to rate-limit blocks for synchronization purposes and to control distribution of the initial coins. Once all of the coins are distributed you could allow anyone who pays the highest fee to generate the block provided everyone else agreed with the included transactions and there was some means aside from mining power to determine the group consensus.
So here is how you setup the economics of mining to keep it decentralized.
1) capital costs for the 'home miner' should be near 0 because of dual-use. This means that someone building specialized hardware has to recoup the cost of their hardware before they can start competing with the home user on price of electricity.
2) the 'ideal asic' for the POW should be dual use and widely available to everyone.
3) the cost of processing transactions is born by everyone who uses the network, miners shouldn't have right to 100% of all transaction fees or inflationary rewards.
4) The real goal of the network is to build consensus as nothing else matters. It doesn't matter how much work a miner does on a block if the rest of the network rejects the block. In fact, the only purpose of the proof of work is to rate-limit blocks for synchronization purposes and to control distribution of the initial coins. Once all of the coins are distributed you could allow anyone who pays the highest fee to generate the block provided everyone else agreed with the included transactions and there was some means aside from mining power to determine the group consensus.
Ah - but as the demand for ASICs goes up, so the does those making them and thus the supply, driving both the cost down and increasing the distribution.
Thus Miner A can now afford ASIC himself and is mining again, but now consuming less power to do so.
Don't you love a free market?
Thus Miner A can now afford ASIC himself and is mining again, but now consuming less power to do so.
Don't you love a free market?
No, the guy who buys in bulk is still going to be buying, installing and operating each ASIC less expensively than the guy who only buys one.
And there are lots of guys buying bulk and lots of guys buying one joining together.
As soon as we start interfering with who can mine and how much they can mine, we've lost.
In my opinion, one of the goals of Bitcoin was that the network would be 'decentralized' and owned by 'everyone' and 'no one'. However, it is very clear that there are two classes of people in the Bitcoin world. Those who 'own the network' and those who 'pay to use the network'. What I mean by this is that only miners profit directly from the operation of the network. Everyone else pays the miners through inflation or fees. Mining is now centralized to the point that 3 or 4 people could colude and control the majority of the hashing power. These people own the network, everyone else pays to play.
It will always be the case (with Bitcoin) that specialization will tend make mining profitable only to a few and benefit from economics of scale.
Unfortunately, the cost of running / operating the network isn't entirely born by the miners. Every user is providing bandwidth and mirroring services and these users are not reimbursed in any way. Miners, because they are centralized, will tend to favor more centralization, larger blocks, etc until all aspects of the network grow beyond what can be truly decentralized.
I contend that an ideal crypto-currency should allow everyone who owns it to profit from its use and that owning & mining should be equally profitable. This would be accomplished by paying dividends to owners from 50% of the transaction fees. From a capital perspective, owning such a crypto-currency would be just as profitable as mining such a crypto-currency. Competition would drive the ROI of investing in ASIC/etc to the dividend rate and no lower because if given the choice between buying ASIC for $1M or buying $1M of the crypto-currency both would expect the same rate of return yet going the ASIC route is far more risky.
The effect of a dividend-paying crypto-currency is that it would be even less inflationary that Bitcoin. If you remove half of the inflation bitcoin has experienced then the total value of everyone's bitcoins would be almost 2x. If there was profit to be made by holding Bitcoins then their value would be over 2x.
It will always be the case (with Bitcoin) that specialization will tend make mining profitable only to a few and benefit from economics of scale.
Unfortunately, the cost of running / operating the network isn't entirely born by the miners. Every user is providing bandwidth and mirroring services and these users are not reimbursed in any way. Miners, because they are centralized, will tend to favor more centralization, larger blocks, etc until all aspects of the network grow beyond what can be truly decentralized.
I contend that an ideal crypto-currency should allow everyone who owns it to profit from its use and that owning & mining should be equally profitable. This would be accomplished by paying dividends to owners from 50% of the transaction fees. From a capital perspective, owning such a crypto-currency would be just as profitable as mining such a crypto-currency. Competition would drive the ROI of investing in ASIC/etc to the dividend rate and no lower because if given the choice between buying ASIC for $1M or buying $1M of the crypto-currency both would expect the same rate of return yet going the ASIC route is far more risky.
The effect of a dividend-paying crypto-currency is that it would be even less inflationary that Bitcoin. If you remove half of the inflation bitcoin has experienced then the total value of everyone's bitcoins would be almost 2x. If there was profit to be made by holding Bitcoins then their value would be over 2x.
Why would we want control to be in the miners hands? do you not realise soon only companies will control mining?
Ah - but as the demand for ASICs goes up, so the does those making them and thus the supply, driving both the cost down and increasing the distribution.
Thus Miner A can now afford ASIC himself and is mining again, but now consuming less power to do so.
Don't you love a free market?
Thus Miner A can now afford ASIC himself and is mining again, but now consuming less power to do so.
Don't you love a free market?
No, the guy who buys in bulk is still going to be buying, installing and operating each ASIC less expensively than the guy who only buys one.
And that's before they start doing things that businesses in the real world often do to give themselves an edge over the competition, like signing exclusive contracts with the manufacturer, or hiring the best ASIC designers themselves and patenting their designs or keeping them as trade secrets.
For comparison: Thanks to the free market, smartphone parts are constantly getting better and cheaper. And you can build your own smartphone if you want to. But try assembling smartphones yourself in your kitchen and see if you can compete on price with Samsung...
Bytemaster is right on the economics of this: Mining is an increasingly capital-intensive commodity business with large economies of scale. Businesses like that are never cottage industries. They guy who buys ASICs and electricity in bulk, and uses the software and hardware setup they had to spend engineering time on for a huge farm of servers rather than a single one, is going to have much lower costs per block mined than a smaller competitor.
Not only that, in a competitive market the large operators will expand their operations to the point where it's just profitable for them, which will raise the block difficulty to the point where smaller, less efficient operators won't be able to run at a profit. This is going to be true regardless of what happens to the block size etc.
If you don't like that, you have three options:
1) Use a different proof-of-work that uses equipment people already have and doesn't require a lot of extra capital investment. LiteCoin tries to do this, but I'm not sure that it works, and even if it does I'm not sure that it always will.
2) Stop using proof-of-work and use something else.
3) Make some decisions that aren't short-term self-interestedly economically rational, like mining at a loss to help keep the network decentralized, or donating to people who do.
Not only that, in a competitive market the large operators will expand their operations to the point where it's just profitable for them, which will raise the block difficulty to the point where smaller, less efficient operators won't be able to run at a profit. This is going to be true regardless of what happens to the block size etc.
If you don't like that, you have three options:
1) Use a different proof-of-work that uses equipment people already have and doesn't require a lot of extra capital investment. LiteCoin tries to do this, but I'm not sure that it works, and even if it does I'm not sure that it always will.
2) Stop using proof-of-work and use something else.
3) Make some decisions that aren't short-term self-interestedly economically rational, like mining at a loss to help keep the network decentralized, or donating to people who do.
Ah - but as the demand for ASICs goes up, so the does those making them and thus the supply, driving both the cost down and increasing the distribution.
Thus Miner A can now afford ASIC himself and is mining again, but now consuming less power to do so.
Don't you love a free market?
Thus Miner A can now afford ASIC himself and is mining again, but now consuming less power to do so.
Don't you love a free market?
Miners C, D, E and F see a profit opportunity and buy some ASICs (consuming power to produce) until Miner B spends $20 in power to earn $2 per year while collectively Miner's B,C,D,E and F spend $9.99 in power to earn $10 per year.
Miner A never spent $100 to earn $10.
Unfortunately, ASICs represent a significant capital investment and are specialized... so what happens instead is that..
Miners A - Z who were CPU mining and earning 1% profit are replaced with Miners A-C which ASIC mine and still earn the same 1% profit. Assuming profit rate and BTC value are the same, the energy consumption will be identical.
Miner A never spent $100 to earn $10.
Unfortunately, ASICs represent a significant capital investment and are specialized... so what happens instead is that..
Miners A - Z who were CPU mining and earning 1% profit are replaced with Miners A-C which ASIC mine and still earn the same 1% profit. Assuming profit rate and BTC value are the same, the energy consumption will be identical.
Let me put it to you this way.
Miner A spends $100 in power to earn $10 a year.
Miner B spends $20 in power to earn $59 a year.
Those numbers are made up, but the result is clear. The miner spending more money in power and getting low returns because his method is not efficient enough to win the lottery is going to leave, resulting in lower over-all power consumed in the mining process.
Miner A spends $100 in power to earn $10 a year.
Miner B spends $20 in power to earn $59 a year.
Those numbers are made up, but the result is clear. The miner spending more money in power and getting low returns because his method is not efficient enough to win the lottery is going to leave, resulting in lower over-all power consumed in the mining process.
It just means that you will end up with more ASIC chips until the power consumed by all ASIC chips equals that consumed prior to ASIC chips. Only now you are centralized rather than decentralized.
The power consumed is not irrelevant.
We burn oil, coal, and other things to create it.
More efficient chips with higher hash rates means those using inefficient power consuming methods are driven out of the game, leaving those with the more efficient chips that consume less power in the game. That's a good thing.
We burn oil, coal, and other things to create it.
More efficient chips with higher hash rates means those using inefficient power consuming methods are driven out of the game, leaving those with the more efficient chips that consume less power in the game. That's a good thing.
Here's why I like mining going the way it is going.
Power consumption.
The fact that I can't make didly squat from a GPU means I am perfectly satisfied with the Intel HD graphics in my sandy bridge, the available PCI-E slots won't be sucking up power because they won't make me money, those with more efficient chips that have more hashing power with less power consumption will be solving the blocks.
And I won't be surprised if in a few years, something even faster that uses even less power hits the market.
This may be frustrating to some of us, we never get free coins, but it is environmentally better because when mining is competitive, the solutions that win are the solutions that give the most hashing for the least power consumed and that is better for the environment.
Power consumption.
The fact that I can't make didly squat from a GPU means I am perfectly satisfied with the Intel HD graphics in my sandy bridge, the available PCI-E slots won't be sucking up power because they won't make me money, those with more efficient chips that have more hashing power with less power consumption will be solving the blocks.
And I won't be surprised if in a few years, something even faster that uses even less power hits the market.
This may be frustrating to some of us, we never get free coins, but it is environmentally better because when mining is competitive, the solutions that win are the solutions that give the most hashing for the least power consumed and that is better for the environment.
The power consumption issue is 100% irrelevant when you think about the fundamental nature of what is going on. Hashes are simply a lottery used to distribute who has the right to submit a block. The number of tickets purchased depends upon the cost of the ticket and the payout for winning. The only thing an ASIC does is lower the cost of the ticket for those who invest in ticket printers. As a result, more tickets will be printed until the sum cost of all tickets is about equal to the payout for winning. Therefore, energy consumed is always about equal to the value of finding the block.
This may be frustrating to some of us, we never get free coins, but it is environmentally better because when mining is competitive, the solutions that win are the solutions that give the most hashing for the least power consumed and that is better for the environment.
I don't think it makes any difference. Energy is still the major cost in the long term. Amount of energy used depends on the price of bitcoin, not on the efficiency of mining. Even if hashing was extremely inefficient, miners would consume the same amount of energy (but the network hash rate would be much lower).
Here's why I like mining going the way it is going.
Power consumption.
The fact that I can't make didly squat from a GPU means I am perfectly satisfied with the Intel HD graphics in my sandy bridge, the available PCI-E slots won't be sucking up power because they won't make me money, those with more efficient chips that have more hashing power with less power consumption will be solving the blocks.
And I won't be surprised if in a few years, something even faster that uses even less power hits the market.
This may be frustrating to some of us, we never get free coins, but it is environmentally better because when mining is competitive, the solutions that win are the solutions that give the most hashing for the least power consumed and that is better for the environment.
Power consumption.
The fact that I can't make didly squat from a GPU means I am perfectly satisfied with the Intel HD graphics in my sandy bridge, the available PCI-E slots won't be sucking up power because they won't make me money, those with more efficient chips that have more hashing power with less power consumption will be solving the blocks.
And I won't be surprised if in a few years, something even faster that uses even less power hits the market.
This may be frustrating to some of us, we never get free coins, but it is environmentally better because when mining is competitive, the solutions that win are the solutions that give the most hashing for the least power consumed and that is better for the environment.
When you hold a bitcoin, you benefit from the growth of Bitcoin economy via deflation.
When you send a transaction with low fee, it is the same as if you were sending it with a high fee and receiving part of its cost as dividend.
So according to your definition, Bitcoin is an ideal crypto-currency.
When you send a transaction with low fee, it is the same as if you were sending it with a high fee and receiving part of its cost as dividend.
So according to your definition, Bitcoin is an ideal crypto-currency.
Hahahaha!
You benefit from bitcoins deflation?!? Last I looked, 25 new coins are being created out of thin air every 8 minutes. That's inflation, just like mr bernake does. One day, when all the coins minted, bitcoin will be deflationary, but today, its experiencing a far bigger growth in the monetary base than US dollars (0 to however many coins, in 3 years).
Likewise, its not deflation that drove bitcoins price to where it is now (even after this fall), its speculation, pure and simple.... You can't just throw out terms like that when reality shows the exact opposite
Unfortunately, without miners to confirm your transactions, it is entirely possible for a government that controls hashing power to control when transactions get processed. What good is your bitcoin if you cannot spend it unless you register your address with one of these mining entities?
There is another aspect to this, mining use to represent a cost effective way of buying bitcoins. Now mining is no longer cost effective.
There is another aspect to this, mining use to represent a cost effective way of buying bitcoins. Now mining is no longer cost effective.
Despite the rebuttals you are right to raise this as a concern. I have been tracking Team China on BTC Guild for some time now:
http://www.btcguild.com/index.php?page=rankings§ion=teams
Not very scientific I know but I think we are seeing an increase in centralisation for a variety of reasons.
Check pages 3 & 4 of Satoshi's paper which talks about the Proof of Work model.
http://bitcoin.org/bitcoin.pdf
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Page 3
If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the
work of the honest nodes.
Page 4
The incentive may help encourage nodes to stay honest. If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.
If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the
work of the honest nodes.
Page 4
The incentive may help encourage nodes to stay honest. If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.
Emphasis mine.
A lot of what has fuelled this rise in price and adoption is greed. If hash rate drops sharply due to lower mining profitability then we could be left with slower confirmations and lower price.
And so the design of Bitcoin continues to be tested as the hashrate continues to rise even as the price drops. One of the interesting difference with scrypt mining is that at least a graphics card or CPU is a multi purpose piece of equipment that they can be used for gaming or sold easily on the open market. Those ASICs are going to make excellent door stops and do nothing for the enviroment.
Miner's tool is fixed like other models. Have you noticed the cost for mining 1oz Gold(24K)? USD 1,200, one of mining companies said.
Ya man, all the dudes sucking gold off the Bering Sea floor...
That paid for offshore leases the Government auctioned...
Are totally screwed at $1,200 gold.
At least BTC miners have real toilets to crap in (so they say).
Unfortunately, the cost of running / operating the network isn't entirely born by the miners. Every user is providing bandwidth and mirroring services and these users are not reimbursed in any way.
True.
I contend that an ideal crypto-currency should allow everyone who owns it to profit from its use and that owning & mining should be equally profitable.
I wish Satoshi had envisaged in his protocol the nodes should be rewarded too (although I wouldn't go as far as to state that owning and mining should be equally profitable). Maybe there should be an algo that balances profits based on the increase of data stored and transmitted?
I am sure Satoshi had not envisaged a lot of things that will be needed for a cryptocurrency to succeed in the future.
Being a fan of Bitcoin I think it is not ideal (it is just an experiment) and I have no doubt a better (whatever ''better'' means in the realm of the unknown future) currency will emerge within our lifetime. It will spread faster putting Bitcoin to grave, which I will truly regret, if this happens.
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