Topic: What would mining look like... (Read 2532 times)

Agreed. I confused advantage with the lack of disadvantage. Hence, your assessment that the size of the holding has no influence over the rate of return is correct.

Theoretically you're right, because it depends on the slope.
But in practice is follows. Otherwise, we would not observe poor people. The only question is what is a few?

You said it yourself. The reason for differences has to be non economic. Thus a counterargument must include the assumption that there cannot be a non economic reason for mining. Alternatively, I could support the claim by showing that there is a specific type of miner which does not care about economics.

I agree that the format of the forum makes it difficult to create a coherent discussion. But I disagree that its impossible for it to be constructive. It seems that you have low tolerance for misunderstandings.

There is no clear relationship between your question and the series of statements which follow it. I will have to guess at your meaning.


Because the mining power of the stake would be linearly proportional to the amount of the BTC held. It is irrelevant if the entity holds 10000 address with 1 BTC or 1 address with 10000 BTC. His mining power, just like his spending power, is the same in either case. Therefore, large scale investors experience the same rate of return as small investors.

A is true, but B does not follow from A.



Okay, so you believe that there are two groups of people, whom you call "miners" and "investors", and who behave differently. There is no economic reason why "miners'" and "investors'" behavior should differ, but you expect it to. This is silly, but it is not possible to provide a counterargument.

I find that typical of discussions here. People generally lack a coherent, logical explanation for their beliefs and it is not possible to constructively argue with them. Consider this argument closed (at least on my side).

any asset of wealth tends to be distributed exponentially among participants. The majority of coins will be in the hands of a few.

Now why would you say that there is no business advantage with having a large holding? Bitcoin is anonymous. There is no certain way determine the total holdings of an entity. The best you can do is addresses.
How can you distinguish between an entity holding 10000 addresses with 1 BTC or 1 address with 10000 BTC?


The problem is that you promote miners to investors by design. However, miners and investors have different agendas (unless a miner CHOOSES to be an investor). It's difficult to predict the repercussions of forcing them to be the same entity.
My argument about volatility above preassumes that a miner does not care about future stock value. Thus you create additional fluctuation whenever a miner starts or stops business, because he liquidizes his mining equipment and thus his bitcoins.

Now I have seen some proposals for hybrid systems (proof-of-work/proof-of-stake). These may have the benefit of dampening the effect to a degree where it becomes tolerable, because miners may not "need" large piles of bitcoins to work with...

Firstly, it could just as easily be 1000, 10000, or 100000 minor stakeholders. There is no business advantage associated with a large holding, unless this holding exceeds 51%.

More importantly, what the hell are you talking about? People already have large stocks of coins, and continuously choose to either continue to hold them or sell them. The current situation is equivalent to a stock investment which does not pay dividends. Under proof-of-stake, the system is again identical to stock investment except the stock now pays dividends. Why would this lead to more volatility? (Correct Answer: It wouldn't)

in proof-of-stake mining the availability of bitcoins is affected by players entering and leaving mining operations

here's the corresponding numbers game:
assume 100 major stake holders, holding 50% of all bitcoins, doing the proof-of-stake mining
other 50% bitcoins are in constant motion
now one proof-of-stake miner exits & dumps his stake on the market, which would be about 0.5% of available bitcoins
0.5% of currently 9M is 45K, would move the current market from 5.2 to 5.0
if 3 would concurrently exit this would move the current level from 5.2 to 4.2

so in proof-of-stake mining suddenly one single economy (mining operations) has a significant impact on the valuation of bitcoins... That's undesirable.

In proof-of-work mining you don't have that problem. If a proof of work miner exits, he will dump his computing hardware on the market which will just crush the price for mining hardware and not affect the value of bitcoin...

Now, I am not saying that the idea of proof-of-stake is bad. But using bitcoins as stake is a problem.

No, volatility would not be affected either way by proof of stake (at least not until block reward disappears or becomes insignificant.)

Curious though, why would you (mkstakenly) think otherwise?

No. price is irrelevant. What matters is volatility. If bitcoin has economic value in its own (because it acts as a catalyst for mining) then you're more susceptible to demand fluctuations.

Your complaint is that proof-of-stake would make the currency price too high. Classic.

How did this become a proof-of-stake discussion?

Anyway, I doubt that proof-of-stake is relevant for bitcoin
1) fixing a fundamental aspect of the protocol is unlikely. Proof-of-stake is something which has to be explored in something like stakecoin. Think of silver and gold, both exist. If you're serious about implementing proof-of-stake start a fork now and solve the problem of coin distribution.
2) involving the asset into a mechanism for earnings is a bad idea:
- It will make the money instantly more expensive (since suddenly bitcoin has an economic value, other than store of value)
- It shifts the mining economy from low-margin profit to a high-margin profit, since the cost of mining is greatly reduced. This means that coins tend to accumulate and a big stake holder can manipulate the exchange market at their will. Putting speculators and mining operations into the same entity will corrupt the exchange market.

I understand the major concerns about proof-of-work: Scalability. If bitcoin becomes a dominant payment system, the required investment and electricity costs in mining operations are huge. However, the fact that it intrinsically converges against a low-margin profit equilibrium means that it will stabilize at a value which will make economic sense. (but actually it will converge against a net loss equilibrium, due to other considerations, i.e. defensive mining)

Agreed, there is no way that proof-of-work mining would last that long. The benefits from moving to proof-of-stake would simply be too huge for developers (either of bitcoin or of its successor) to ignore.

I'd just like to point out that if miner's revenues were to equal $10 bllion (presumably this will not hapen in the next 5 monhts) at 25btc/block, each bitcoin would need to be worth $7610. Of course transaction fees would decrease that necessary price. It happening after another reward drop, means you'd have to double that to $15k per coin.

Miner's revenues should probably be compared to VISA's network operating costs to get an idea of an eventual ceiling on the market.

I don't think price or difficulty fixing will be possible but I do think it would become centralized to large extent to a handful of places around the world where cheap or subsidized electricity existed.

With proof of stake, people would compete over the possible but not mandatory transaction fees at no costs at all compared to proof of work. It doesn't need thousands of computers crunching numbers to sign blocks. Once the proof of stake system would suffer a 51% attack from 1% of stake, stake holders would switch on mining to secure their stake in case no fees were paid leading to nobody mining at that point in time. if block creation takes ages, stake holders would start mining to protect their stake.

but if there was no profit to be made mining - why would anyone do it? in non-bitcoin economies, there's still massive amounts of computer power used and the like. it's all handled and paid for by banks and their transactions fees and interests rates. why, in the case of no available profit from any source, would anyone participate in an activity  that would cost massive amounts of money in hardware and electricity?

By the time the "annual mining revenues were in the $10's of billions" I hope we already moved towards proof of stake so the need to have transaction fees compensate the shrinking coin generation disappears and therefore the pressure to rise transaction fees also vanishes. Bitcoin is not about guaranteeing an income for miners. Mining should ideally not be profitable.

My instinct-no to proof of stake turned into a "we need it desperately at some point". I would love to stop generation early and switch to proof of stake. The massive generation now is why proof of stake would make the owners of bitcoin rich for "nothing".

It's the price of electricity and the weather, for the little end user/miner who needs a little spot heat in a cold climate.

It's the price of electricity, not the weather. Another factor is cultural/political - some societies will care less about Bitcoin then others.

One factor to consider here is the weather. Where will many Bitcoin mines be located? The coldest countries in the world. http://www.youtube.com/watch?v=Tfs4jPR3BDI We are already see this effect in BTC prices on BTC-e (Russia) and Virtex (Canada) when compared to MtGox. Now what do Russia and Canada have in common when it comes to mining Bitcoin?

Good point. Another way of looking at the mining business is the buying of "transaction" cycles. Currently 1GHash at 10THash (=1:10000) total hashrate will buy you 1008/10000=0.1 free blocks per week (6*24*7=1008), i.e. a free transaction block all for yourself every 10 weeks.
Obviously if you need to move a lot of money around, then there's an economic incentive in gaining access to mining equipment. However, it has to be a lot of money!

I find it more realistic that companies like walmart and target would pool together and agree to process each others transactions, instead of fighting on that level.

Defensive mining is only relevant on the above 1% market share of mining equipment. If it's below the delay times make it impractical to achieve defense in the first place. That is if you "need" to process transactions within a week you need to invest 0.1% money of the "total" value of hardware equipment in mining operations. Thats $1Million per $1Billion in hardware equipment.
!! However, this heavily depends on the number of players. If 10000 players play that game, it's impossible to achieve the goal: it's a never-ending arms race !!
( because the average mining share per player is 0.01%, i.e. 10 weeks)

Maybe it's impossible, but you have an underdeveloped imagination.

Don't assume that all the money to be made in bitcoin mining will come from the block rewards or transaction fees.  If bitcoin is big enough that walmart starts taking it, then target will also; but don't expect the mining operations of each (whether they do it themselves or contract out) will accept the transactions of the other.  To some degree, each of these major players are going to have to mine defensively so that they can control the delay times of their own transactions clearing while also being able to offer their customers the option of paying in bitcoin feelessly.

Also, don't expect that walmart's mining datacenter is going to ever include transactions intended for Target, if they can identify those addresses.