Topic: The paperclip maximizer. (Read 319 times)

It only recently occurred to me how potentially dangerous PoW coins are.  That's of course bitcoin, but the whole lot of PoW coin have a similar danger to them.  This includes a whole lot of top-20 coins.  I've always found the waste of PoW silly, but I only recently realized how dangerous this is.  I scattered this opinion in a few other posts, but I would like to start a dedicated thread for it.

So there will be some repetition. What if bitcoin wasn't a currency or an investment tool, but rather a waste maximizer, that only USES aspects of investment, gambling, speculation and so on, in order for it to maximize waste production ?  Imagine that Satoshi was an entity that wanted to "destroy humanity by waste", but doesn't have bombs, virusses or anything else.   He would like to make a device that makes humanity self-destroy, simply with a laptop.  How could he do it ?  What if he invented a "paperclip maximizer" that turns humanity, by leveraging personal greed, into a big rat race to stop doing useful things, and turns all efforts into making waste ?  Something that will only end when there's exhaustion of resources to continue to produce useless proof of work. When humanity will have wasted all of its resources on proof of waste, and there's no more of it.

Bitcoin, being a proof-of-work engine that uses a game of speculative tokens to inspire people to waste more and more resources on doing useless calculations to make less and less of more and more expensive tokens, is right now at least consuming 2 GW (if all hashes are done with the latest antminer S9 class waste-machines). But difficulty hasn't reached equilibrium with the new prices and the new tech yet. We know that mining at this moment is hugely profitable the time it takes for difficulty to catch up with the market. There's about a factor of 5 to be won. So we can take it that bitcoin at current market cap in equilibrium wastes 10 GW and a lot of hardware. That's the power consumption of a country like Belgium. One has to admit that the machine to produce useless waste calculations has done a good job in 9 years time. It is the sole piece of free amateur software that has been able, purely by itself, to inspire people by their greed to waste 10 GW, with as sole return, the right to transact some tokens while wasting even more to a greater fool. Obviously, this thing cannot be stopped any more, as long as it can go up.

Current market cap is less than 1/200 of all of fiat if bitcoin were a currency (it isn't) ; but most importantly, it is 1/10000 of the entire speculative assets market cap in finance (estimated at about $2 quadrillion). Suppose that 1% of all speculative assets are invested in bitcoin in the longer term, or suppose that bitcoin takes a major part of the fiat market. In both of these cases we can hence expect yet another factor x100 in market cap. And hence in electricity use. At that point, bitcoin will use 1TW of electricity: 1/3 of earth's electricity production. It will then also have absorbed grossly all of hardware production on our planet. Most of our economy will be oriented towards producing proof of work: the biggest pile of useless calculations in the world, unstoppably driven by the motor of finance and greed - a decentralized, unstoppable paper clip maximizer. Once it runs out of resources to maximize proof of work, it will be done. And we, with it.

But until then, there's no stopping of it. No big capital will be able to resist. No investment can afford not to be part of it. The harder silly governments will try to stop it, the stronger it will become.

I'm very bullish on bitcoin. This thing will go up to destroy humanity entirely. Unstoppable. Everything will be converted in bitcoin mining. No other form of investment will be able to compete. This is the Armageddon machine that will make many of us rich for a very short period. And then we will find out that we can't eat Antminer hardware.

Why could the economy not continue to produce, say, Beanie Babies ?  Economically, you cannot make Beanie Babies with an expected ROI of, say, 5%, if there's an opportunity to have a return of 500% by buying a device that consumes electricity and spits out money. (as must be grossly the case right now for a short period, the time difficulty adapts and competition increases) As long as the market value of the mining rewards is way higher than the cost in electricity and hardware by a significant factor, EVERY sensible investor will only want to finance your activity if you will be using his funds for mining. Any industrial capital will leave Beanie Babies factories, but also farmers, plumbers, supermarkets, and all the rest, if there's a much higher ROI possible by buying devices that consume electricity and spit out money. Or in MAKING these devices (because of course, the high demand for these devices will make them expensive too). So any investor will turn his TV factory into a mining device factory ; any chip maker will push aside anything else but mining chips. Simply because the ROI of these things is so much higher, and so much guaranteed, than anything else, that it would be pure financial idiocy to take another decision, and defend it before share holders.

If there is a large-scale investment opportunity that brings much higher ROI than anything else in the economy, essentially all activity stops to reorient towards that activity and its supporting environment. This is what you can see on a much smaller and much more local scale in gold rushes. Everything but the bare minimum of survival is oriented towards digging gold. In NORMAL economic circumstances, such huge economic ROI are the result of a very high NEED. So it is useful to re-orient the economy towards the relief of that need. The market responds to an important need. However, in this case, the economy is making WASTE. There's simply a HUGE speculative demand for waste. No need is relieved by this economic re-orientation. Usually, these phenomena are too short to damage the world economy, because the potential gains quickly die out. But this thing has the potential to generate such a huge demand for waste, that it can turn a large fraction of our economic potential into a huge machine that makes waste. The paper clip maximizer. In our case, the proof of work maximizer.

If we are talking about "machines that consume electricity and spit out more money than they consume electricity" on a planetary scale, all economic activity will get oriented that way. One has no choice in that rat race. The rat race will end, when the ROI of bitcoin mining will fall to levels comparable to other economic activity. At the expected "end value" level of bitcoin, the only way for that ROI to fall so low, is when it consumes 1/3 of the world's electricity and most hardware. So before the whole economy will have done that, the attraction by high ROI for bitcoin mining will be irresistible for most investors. What dumb-ass is going to make Beanie Babies (or hamburgers), if he can plug in a device that makes him more money ?

One may say: there are the halvings that will save us.  The halvings make this waste maximizer seem less dangerous. But in reality, that's not what is happening. At the last halving in 2016, hash rate only blinked slightly and went up again. Note also that fees are becoming a significant part of the block reward. It is not clear whether the halving will give rise to increased speculative expectations of price rise (in which case it is even worse), or will lower difficulty.  The halvings may have in fact an amplifying effect. Historical data indicates that halvings never decrease hashrate:

https://blockchain.info/cha...

Look at it in log scale... and think that the end point is now "a small country like Denmark". Does that curve look like it will not gain another factor of 100 or so ? We did a factor of 10 in 1.5 years...

Remember that 1/3 of world's electricity consumption is for "1% of all investment". If there's an expected price rise, that might be more. This can double at the halvings.

Usually, in the free market, greed is a good thing, because it stimulates people to produce VALUE.  Bitcoin's inventor is, to my knowledge, the only guy who found a way to turn this into a stimulation to produce entirely useless waste (heat and calculation results that couldn't be less interesting).  Bitcoin is the most powerful computer in the world, to spit out the most uninteresting calculations ever, namely funny hash function pre-images.  So, was bitcoin simply a device for destruction of humanity's economy on world scale ?  We are only a factor of about 100 from global disaster at this moment.  Since mid-2016, bitcoin's hash rate increased already 10-fold.  Is another factor of 100 really excluded ?

So any investor will turn his TV factory into a mining device factory ; any chip maker will push aside anything else but mining chips. Simply because the ROI of these things is so much higher, and so much guaranteed, than anything else, that it would be pure financial idiocy to take another decision, and defend it before share holders.

Wouldn't electricity price form an equilibrium eventually?

If mining doesn't cause shortage, and supply meets the demand - then there's no problem (other than environmental one).

But when mining competes with other goods/services for scarce electricity, then electricity cost goes up and reduces the assumed 1TW mining break-even point.

On top of that, producers of useful goods/services will have it easier to pass the costs of electricity onto customers, as people will always choose food over bitcoin. What's more, overall increase in living expenses (due to higher electricity cost) will reflect on lower demand for bitcoins (again, bread>BTC), which would reduce the original 1TW equilibrium point even further.

So in short, goods/services that are indispensable/highly needed will have an inherent advantage over Bitcoin and therefore there's no risk of btc-mining draining all the global energy.

Edit: To clarify, I don't think your doomsday scenario is a real threat, but that doesn't mean problem doesn't exist. If mining is ever to cause a noticeable energy price increase, then I say it's a huge problem and something should be done about it.

Shame we no longer seem to have any discussion about PoW Vs. PoS and alike on this forum. It's almost like post blocksize drama there's no room for out of-the-box ideas.

Get real mate, mining is too risky for 99% of people.

It's astounding to see how much electricity is being wasted in trying to sustain and develop something experimental like bitcoin. We've come to a point where we would put effort in building mining farms near arctic circle just to cut cost. And just as important as electricity, computing power is a precious resource that is being wasted as well. We are too focused on a single currency, too focused on a single use for blockchain technology when it can be used outside mere currencies.

Most people don't find profit in the mining business, therefore most people get kicked out of the market and will be forced to create value by doing something else other than  stacking up mining rigs and constantly expanding your operation, so I don't see where the danger is in which everyone stops working and becomes a miner which is what you are saying. There will be mining businesses that come and go, others will remain a monopoly for a long time... like on all areas of business.

Meanwhile, Bitcoin has fallen behind technologically. We won't be having this discussing in a few months, Bitcoin won't be the market leader and won't be the center of attention.

It doesn't change a thing.  The LN network, if working as planned (for which I have my doubts, but that's irrelevant to the discussion), only allows you to have more transactions for the same cost ; not really to decrease the total miner income.   Let us not forget what the LN does: it allows you to have more transactions per on-chain transaction.  This will probably not diminish the on-chain transactions, but will open up more transaction possibilities, that are now excluded from on-chain transactions, such as micro payments.  These micro payments are in any case not in competition for block chain room.  There is actually almost no commercial adoption of bitcoin payments (compared to the total bitcoin volume, "payments for goods and services" are an extremely small part).  So what the LN will do in the best case, is open up more possibilities of payments, not reduce the block chain volume.   I would even say that the LN can only, if it works, *increase* interest in bitcoin transactions ; hence in its market cap, and hence, in its waste production.  

I don't think the LN will reduce miner fees.   In fact, if miner fees fall too low, the LN will collapse.  Nobody is going to take the even slight disadvantage of locking in his funds, if payments on-chain are just as cheap and if LN fees are ridiculous.  So in as much as the LN works, it means that miner fees are important.  And in as much as miner fees are unimportant, the LN will not work.

I understand better now, and thanks for explaining, that's very interesting thinking.
A question about Lightning Network, since I am not a techy, do you think we reached the limits of bitcoin and that LN would be one of the solutions to overtake these issues? What happens to miners if LN (off chain transactions) gets adopted by more and more people?

What you wrote is pretty scary. Are you really serious?

I can understand where you are coming from when you mention greed and other bad sides of human beings, but why would anyone think that way to plan the destruction of humanity's economy, what's the point? I cannot picture the image of someone with such logic between the ears.

A more plausible far stretched theory for me would be that Satoshi is an American citizen, among the elites of the country, and he predicted that Chinese geeks would go crazy about bitcoin, and the electricity being cheaper there, most of the mining would be done there wasting the electricity of the country, so that in the end USA stays on top.