It’s just proof that you didn’t forge a scarce commodity. The value isn’t related to the wasted electricity, but the hard problem the electricity was used to solve. Love it or hate it, it makes sense.
It doesn't make sense because it's a negative-sum game.
The only thing people are actually using Bitcoin for right now is to sell to other people for more than they bought it (or maybe to sell for less than they bought it to launder money).
The total amount made by the buyers and sellers is zero (because every buyer is buying from a seller), and there has to be a constant inflow of new buyers just to cover the cost of the hardware and power.
Yeah, it's wrong to deny cryptocurrencies have utility. They do.
The real problem is the associated upkeep. If it were to get comparable in use with fiat, I believe Bitcoin would quite literally cook us all on this planet. The energy characteristics of crypto are unbounded from top, and this is seen as a feature - unlike normal financial systems, which try to minimize it.
I agree that it does look disproportionate. But my understanding (I'm by no means an expert) is that it could theoretically become less disproportionate as more transactions are being processed.
Proof of work is not a per transaction cost. It's a per block cost that doesn't depend on the number of transactions per block or the size of the block.
But still, the way the incentives are structured in this whole game seems somewhat perverse. Otherwise we would never have gotten to a point where bitcoin mining has a country sized energy profile.
It's not a per transaction cost, but as I understand it they are closely related and there is no upper bound on it. As the number of transactions per block and the value of the currency increases, it becomes more profitable to mine, thus it makes more economic sense to invent more power into it.
How exactly? Who is doing this? Withdrawal from exchanges into Venezuela? Who is buying bitcoins for Bolivars?
How did the family get the capital asset of an antminer in the first place? How are they paying for electricity?
How is this sustainable? Why is a random family able to compete with businesses that have real economy of scale, rather than having their margin driven to zero?
Excuse me.
Was more a reaction on "The only thing people are actually using Bitcoin for right now is to sell to other people for more than they bought it (or maybe to sell for less than they bought it to launder money)."
But does that hard problem actually do anything? If it was something like Folding@Home, I could see the value. It seems to me, the only “value” in this hard problem is to waste electricity.
Mining in Crypto Currencies is the process to Verify, Order, and Secure the transactions in the global ledger. Without mining no one could send transactions, without transactions the currency does not function.
The hard problem that the mining algorithm computes is a Hash of a batch of transactions together with some meta data. This meta data also includes the Hash of the previous batch. This is creating a cryptographic chain of transaction batches (blocks). A Blockchain.
This is securing the transactions in the following way:
- You can not change a transaction without changing the hash of the batch the transaction was included in.
- This would also change the hash of all transaction batches that follow.
- The crypto currency miners and users follow the longest chain with the most work put into.
- To fake or alter a Transaction you would need to recalculate the hashes of the blocks that follow faster then the honest miners so that your new chain is the longest chain.
- More honest miners means it is harder to manipulate the blockchain since to do that you would need to control more then 51% of the global hash power of this currency.
Securing a Blockchain is not as noble of an effort then curing cancer with Folding@Home, but it is also not just wasting electricity.
You’re right; I phrased that poorly. What I intended was “the value derives from a proof that an amount of work was done, independent of the hard problem that necessitated the work or the resources expended to solve the problem.”
The value in proving some amount of work was done is that it’s a mechanism for defeating fraud.
This is a really good point. And strangely, like so much wealth in our economies, this one has nothing physical backing it up, but is suited to something we crave.
And in this case, trust seems to be the underlying commodity.
The only thing people are actually using Bitcoin for right now is to sell to other people for more than they bought it (or maybe to sell for less than they bought it to launder money).
The total amount made by the buyers and sellers is zero (because every buyer is buying from a seller), and there has to be a constant inflow of new buyers just to cover the cost of the hardware and power.