[...long-ish post...]
I like your response, and I do not disagree with what you're saying. It is a different viewpoint that I can accept.
Thanks for the civil, thoughtful discussion.
I think that we have a fundamental point of disagreement here:
We can debate endlessly about cause end effect, but the fact is that the Bitcoin network is essentially an energy storage container, and as such, it is subject to the Laws of Thermodynamics. Bitcoin cannot simply "become very valuable" and then be left to stay that way forever without an energy inflow, as if it is a Perpetual Motion Machine.
I don’t know whence this idea of Bitcoin as an “energy storage container” arose. I have seen it here and there for years, of course; now, I see it everywhere; it even seems to be implied in that Cruz speech. (I did say that I disagree with some parts of it. I also understand that Senator Cruz has a growing constituency of miners; I hope that he does well to protect their right to mine Bitcoin, but it doesn’t make his argument correct on this particular point.)
Please think back to the first time you bought Bitcoin. Why did you buy BTC? Did you think to yourself, “I want a piece of this awesome energy storage container?”
I know that I didn’t. I think that nobody did.
I infer that you may be trying to use the total-work measurement as some sort of “energy storage” measure. If so, I can rebut that; but first, I think it is more productive to step back and examine Bitcoin’s value constructively.
The pivotal question: Why is Bitcoin valuable? Many people have many different reasons for buying Bitcoin; but beneath it all, it’s because Bitcoin is social money. It is money that connects people, without the boundaries imposed by banks.
I originally bought Bitcoin because it lets me transact with anyone, anywhere in the world, without asking anybody’s permission. Note the necessary focus on people: People to whom I want to connect financially, and people whose unjust control I wish to escape.
Traders are a big factor in the market. Traders buy Bitcoin because they are trying to beat other traders; trading is, after all, a zero-sum game in which every gain has a matching loss. Simple daytraders use
This examination of various motives for buying BTC could be elaborated at some length. In every real-world scenario I can think of, it all comes down to Bitcoin’s superior ability to connect people financially.
Without deprecating other various facets of Bitcoin, ultimately, Bitcoin is people-money. A superior tool for communicating monetary information with other people.
In some degree, that is the nature of money itself; and this discussion invokes the types of abstract questions about the nature of value which philosophers have discussed and debated for millennia. But with Bitcoin, the people-money aspect is nearly total. If I were alone in the world, then I would still like to have some gold coins: They’re shiny, they’re pretty, they’re a pleasure to hold in my own hands. But if I were alone in the world, a bitcoin would be worthless.
I can run a cryptographic-money program on my computer with exactly one user: Me. It is worthless without other people. To verify that empirically, run Core in regtest mode, or with your own private signet, and see how much the coins are worth. It doesn’t matter how much energy is poured into it. I could set up my own mining farm mining a private Bitcoin fork; it would still be worthless.
Bitmain poured an awful lot of energy into BCH. Calvin Ayre and company have poured some energy into BSV. That doesn’t imbue these shitcoins with some sort of magical value as “energy containers”. Their only value is how much they can scam out of people by abusing the Bitcoin name.
Now, as to the “energy container” concept in itself: How does this container function? Where does the energy go? And how can we get it back out?
The total-work number is probabilistic evidence that energy has been spent. It is an indirect measure, and a relative measure: It does not measure energy itself! It does not account for efficiency: A CPU hash costs more energy than a GPU hash, which costs more energy than an FPGA hash, which costs more energy than an ASIC hash.
If Bitcoin were an “energy container”, then we should still be CPU-mining to expend the most energy per hash. Instead, we use the most efficient known means to spend the least energy per hash.
No—the total-work number is only a measure of what the difficulty would be of rolling back and rewriting the blockchain with a 51% attack. It is a measure of practical, real-world security against double-spend attacks—no more, no less.
With some apologies for the foregoing having been a bit rambling and disorganized—too long, yet too terse—I am trying to compress some big ideas into a small space, without time or space to write a book here.
If you rethink Bitcoin’s value from the start, I think that you will probably arrive at some radical conclusions.
Thanks for that post, which I find very interesting and insightful. Contrary to the opinion/preference of many WOers, I find this type of discussion very valuable and exactly on-topic.
Perhaps, in the context of our discussion, the term "energy" should be interpreted in a more abstract sense. Think of if as the collective amount of work (or effort) needed to optimize a performance metric. It's the outcome that counts, and one must choose the best tool for the job (e.g., ASICs vs. FPGAs vs. GPUs vs. CPUs). It's not just the raw amount of energy used. I could pour an immense amount of energy into an endless loop (something like 10: GOTO 10) executed by a supercomputer, and it would all be converted to heat and have no monetary (or other) value. That would be equivalent to your private Bitcoin fork mining example. But still, there is an inherent link between energy and value. There has to be, or else value could be "cheap" (an oxymoron). Energy is a necessary (but not sufficient) condition for something to have value.
To answer your question about what made me buy Bitcoin. No, it wasn't the "energy storage container" idea. I was intrigued by the mathematical beauty of this invention, and the freedom it could offer the world. Another reason was the fact that late-2015 (the year I first bought Bitcoin) was just a few months before the 2016 Halving event, so I knew that Bitcoin production would soon be halved, making Bitcoin more scarce. This, to me, was a clear indicator that its value would rise. Why? Because it is something extremely useful and hence desirable, that becomes progressively scarce.
You've already outlined what gives Bitcoin its value and I agree. But all those great properties that Bitcoin possesses would be worth nothing if there was no energy coming into the system to secure it. The beauty of Bitcoin's self-adapting difficulty requirement is that the energy required is automatically adjusted so that a hard-coded set-point is maintained (namely, Bitcoin's 10-minute block "heartbeat"). It is an ingenious design that has the ability to "suck" any amount of energy one throws at it. It reminds me of Andreas Antonopoulos' "cat videos" example, where he comments about the speed of the internet and how it is constantly "never enough". Every new technology that comes along soon maxes out again. All available bandwidth quickly fills up.
Thus, limiting the amount of energy used in Bitcoin is not something practically feasible on a worldwide scale. Legally limiting it in the USA/EU would cause miners to relocate to other, more "miner-friendly" regions of the world. The code is locale-agnostic. It will still self-adjust, and for those miners to stay profitable, the value of the coins generated must surpass the cost of mining.
Running the loop in the other direction, the higher the value of Bitcoin (due to its desirable properties) the more competition it attracts from miners that pour higher and higher amounts of energy into the system. Difficulty increases, and even more energy is needed by miners to stay competitive, yet they still mine because Bitcoin is so increasingly valuable that it can cover the increased cost.
In my humble opinion, it all comes down to the link between energy and value, complex and inexplicable as it may be. Energy may or may not create value, but value requires energy. There is no "free lunch" in this universe.
Edit: Typo.
