[didgetmaster]

It sounds very similar to things like oil production, gold mining, and even farming. When the price is high, everyone wants in on the action. As supply explodes, the prices drop. Once prices get low enough, the costs to pump the next barrel of oil, find the next ounce of gold, or harvest the next acre of a certain crop; exceed the reward. When that happens, wells are shut down, mining operations suspended, and different crops planted. The cycle begins again.

[eterm]

There's a soft failure-mode for bitcoin where due to the alternating difficulty adjustment, you could end up with people only mining every other 2016-block adjustment.

Let's call this cycle A and cycle B.

If A is too hard, miners drop out, cycle B gets easier, miners flood back, cycle A gets harder.

This results in the hard cycle getting longer and the easy cycle getting shorter.

This isn't completely critical as there is I believe a small damping effect, so it isn't completely lethal to bitcoin, but a key thing about bitcoin mining is that whether other people are mining or not doesn't actually affect your own profitiability.

Other people dropping out doesn't actually mean you get more bitcoins per hour/watt, it only affects the next difficulty adjustment as a secondary effect.

[londons_explore]

The damping effect is that part of your costs are the hardware, space, depreciation etc. leaving that stuff idle costs money - so it makes sense to mine in the less profitable periods too.

[throwup238]

That depends on each miner's energy costs, so long as (variable cost of energy - revenue from coins) < fixed costs. It's still negative cashflow either way, but the monthly losses have to be weighed against the cost of going insolvent and losing the hardware.

[paulddraper]

Yes though AFAIK electricity is a large %

[cykros]

The larger it is, the less likely your mining set up is actually all that solid.

The best miners are doing so with near free electricity, either with things like subsidized solar, or energy acquired from things like nat gas that'd otherwise get flared, or hydroelectric power that exists too far from civilization to have a demand otherwise.

If your miner is plugged into the grid, you're probably doing it wrong.

[beloch]

Crypto-miners are switching to AI token farming when bitcoin is low. They have compute that's both installed and powered, so why not do what pays better?

[londons_explore]

For bitcoin at least, you need totally different silicon.

I guess you could share the power supply and cooling infra, but I am dubious the savings are enough to have half your silicon idle all the time.

[xingped]

What the hell is AI token farming?

[largbae]

I think they mean serving inference workloads

[scheme271]

How does that work? Isn't most bitcoin mining done on custom ASICs? I didn't think that the ASIC could be repurposed for inference.

[axus]

I think you're right, it's counterintuitive but less competition means less rewards to share for those who keep mining. Though transaction fees / hour shouldn't decrease, maybe your share of that is bigger.

[Dylan16807]

The difficulty can only adjust by a factor of 4 which also limits the incentive change. You'd need more than 90% of miners to disappear to start seeing actual problems.

[themafia]

I thought the rate of mining was tied to the maximum transaction rate the network can support?

[eterm]

It's the other way around, and there's no obligation to even carry transactions when mining, although it's incentivised through fees.

Your mining rate is simply your hash rate vs the hash difficulty.

Conceptually, it's analoglous to rolling random numbers in (0,1) until you get to a number smaller than 1/X, where X is large.

How long it takes you to do that, isn't dependent on how many other people are also trying to do that, if you get 1 hit per hour, then lots of other people getting hits doesn't actually stop you getting your 1 hit per hour.

Now, that's not quite the whole truth, as there's a small amount of time needed for propagation of the previous chain, but with an average hit globally of ~10 minutes, that's not actually a big factor.

What could happen to incentivise people is increased fees if blocks get less common due to dropped miners, there'd be more competition to get into blocks if they start filling up.

That combined with the fixed costs such as depreciation as othes mentioned, keeps the risk of this form of failure to a minimum.

[Nursie]

There is an interesting missing link in the feedback cycle with Bitcoin though - the same amount is produced regardless, supply does not contract with demand.

[chistev]

Satoshi thought of everything, man.

[throwaway85825]

Except people wanting to do more than 15 transactions a minute. Or that to scale everyone would need to store a petabyte size blockchain.

[sph]

https://en.wikipedia.org/wiki/Lightning_Network

I have been paying for my VPN with lightning payments; it takes less than one second to go through.

[tredre3]

The Lightning Network is specifically designed to work around bitcoin design flaws. It entirely sidesteps the chain for a big part of the process. To me it proves that Satoshi did not, in fact, think of everything. Not the other way around.

[oblio]

Lightning has mostly done this by being a lot more centralized in practice and one could argue... What's the point of it all in this case? Why not just use regular currency?

[ptero]

Sorry, I do not understand your comment. Can you clarify. What does "a lot more centralized in practice" mean?

> What's the point of it all in this case?

Lightning is an L2 protocol, highly scalable and used for low cost payment in Bitcoin. Level 1 networks are almost never used for user transactions: your credit card payments do not go over fedwire, etc. Bitcoin protocol is not scalable to serve worldwide money transfer needs; Lightning is. And with the cost of a penny per transaction or so.

> Why not just use regular currency?

There are a lot of frictions in the current banking systems, because money laundering, because drugs, because whatever. Getting $5-$10k in regular currency while on an overseas trip can be a major quest. With Lightning I can transfer that much (or more) in a few mouse clicks.

As a side note, I think the federales are already way too nosy regarding my use of my own money, so I want to give alternative options as much business as I can. My 2c.

[oblio]

Isn't it hard to use in practice? Liveness, inbound liquidity, moving funds between L1 and L2, don't all of those lead to massive use of hubs, this denying the entire premise of decentralization?

[throwawaypath]

>Level 1 networks are almost never used for user transactions: your credit card payments do not go over fedwire, etc.

Fedwire isn't a "level 1 network", it's an entirely different service with different end users and goals in mind. ACH isn't an "L2 protocol", but does orders of magnitude more transactions per second than Bitcoin.

It's like cryptobros don't understand the basics of the systems they're attempting to replace.

[jenadine]

Could you elaborate why it is more centralized?

The point is that it is resistant to censorship, it is pseudonymous, and so on (all the other bitcoin attributes apply)

[hggh]

> it takes less than one second to go through Like Bitcoin used to be before someone had the brilliant idea of destroy the possibility of zero-confirmation transactions on-chain with Replace-by-fee transactions

[sapphicsnail]

How does this work? I read the wikipedia article but I don't understand how Lightning enforces the transaction.

[phire]

The peers generate two sets of transactions.

One is a quick summary of the current balance in a channel. A new transaction is created each time the balance in the channel changes. It's somewhat cheap to put on the blockchain (And the main saving is that you only need to post the final update when you close the channel), but venerable to one side putting an old stale transaction onto the blockchain to profit.

The other transaction forms a chain of proof for current state, invalidating previous balance update transactions. It's somewhat expensive to post, as it will pull in the whole history.

Both peers need to continually watch the chain (or contract a 3rd party to watch) to make sure the other peer isn't cheating by posted a stale balance transaction. These special transactions are time locked, so once one is posted, you have like 24 hours to post the proof transaction and reverse it.

[jenadine]

This link explains it a bit better: https://lightning.network/ and see the paper at the end for the exact details

[hggh]

> Except people wanting to do more than 15 transactions a minute It's more like 7 transactions per second, which is still absolute crap, but that was after the original Bitcoin project was kidnapped. There aren't such limitations in the original Bitcoin (forked as Bitcoin Cash)

> Or that to scale everyone would need to store a petabyte size blockchain That is addressed in the whitepaper (SPVs and pruning)

[iwontberude]

Clearly not because they created wallets that they can’t even use without unmasking their pseudonym. Seems pretty stupid to me.

[nomel]

Doesn't this assume that traceability of all transactions wasn't a goal?

[kibwen]

Except for the inevitable and obvious fact that proof-of-work creates a self-sustaining primary incentive for energy waste more pernicious than has ever been seen in any other financial or commercial enterprise, obliterating any hope of having energy that is too cheap to meter.

[AnthonyMouse]

Isn't this kind of the opposite?

Mining Bitcoin requires both hardware and electricity, and the cheapest electricity is solar. There isn't any severe scarcity of the raw materials to make solar panels, or of sunlight, so Bitcoin miners can buy as many solar panels as they want and it would only increase the economies of scale for producing them for other purposes too.

Solar has inconsistent output. There is none at night and it varies based on weather during the day. Mining hardware wants a fixed constant amount of power. The logical thing for miners to do is to somewhat overbuild the amount of generation they need and then sell any surplus to the grid, and sell to the grid during the day and buy it back at night. The same incentives hold if the miners and the generators are two different parties, and the result is to increase the amount of generation capacity by more than the amount of consumption and have "too cheap to meter" during periods of above-average generation. (You were never going to get "too cheap to meter" during periods when generation is low and demand is high.) And even during short periods when demand significantly outstrips supply, then their incentive is to stop operating those few days out of the year because the spot price of electricity makes mining unprofitable then, which allows the generation capacity installed to do mining be used to support the rest of the grid and inhibits the price of electricity from rising above the point where mining becomes unprofitable even for people who already have mining hardware. It's basically a buffer that buys electricity when it's cheap and sells when it's expensive.

Bitcoin has a volatile price. When the price is high, miners buy hardware and increase or pay someone else to increase generation capacity. When the price declines, the mining hardware becomes idle but the power generation capacity still generates fungible electricity that can be used for any other purpose. The result is that miners pay to install a lot of generation capacity during the boom, and have the incentive to prioritize investing in more generation rather than newer/more efficient mining hardware because it's the thing that's still worth something if the price declines, and that generation capacity then gets offloaded into the grid during the bust, with the result that grid prices go up some during the boom and down by even more during the bust. By the next boom some of the generation added last time has already been sold to non-miners or locked into long-term contracts so now they're back to adding new capacity again.

"Incentive to fund increases in generation capacity but then not use all of it" has what effect on average prices?

[toraway]

You're making a lot of highly idealized assumptions that don't hold true in reality.

Most significantly that the increased demand due to mining will result in grid operators investing in proportional new capacity to offset it over a reasonable time scale. Instead of just driving up prices due to basic supply/demand.

Also that miners are only consuming electricity when renewables dominate the mix. Otherwise they're responsible for more CO2 emissions to do something useless.

Plus in markets like Texas, miners also manage to get subsidies intended for actually useful customers like factories to go offline at peak times. So ratepayers are essentially paying protection money so they won't over stress the grid by performing their useless work.

In a world where bitcoin miners had to install new solar capacity to entirely offset their peak usage and sell back to the grid any excess then sure, seems like that wouldn't be a big societal net negative like it is right now.

[AnthonyMouse]

> Most significantly that the increased demand due to mining will result in grid operators investing in proportional new capacity to offset it over a reasonable time scale. Instead of just driving up prices due to basic supply/demand.

If anyone can buy a piece of land, plop down some solar panels and start selling power to the grid, that's what happens whenever the market price gets higher than the cost of doing it. If they can't, that seems more like a regulatory problem than a Bitcoin problem.

> Also that miners are only consuming electricity when renewables dominate the mix. Otherwise they're responsible for more CO2 emissions to do something useless.

~100% of new net generation capacity in the US is renewables and that seems poised to continue for economic reasons. Adding some new nuclear could also make sense in an amenable political environment (some new data centers are trying to build it) but that also doesn't emit CO2.

> Plus in markets like Texas, miners also manage to get subsidies intended for actually useful customers like factories to go offline at peak times. So ratepayers are essentially paying protection money so they won't over stress the grid by performing their useless work.

Those "subsidies" (really discounts) exist because the cost of supplying power 100% of the time is dramatically higher than the cost of supplying it 99% of the time, so you pay less if you only need it 99% of the time and the power company gets to choose when.

Having more customers that can do that allows the grid to supply power to everyone for less money. You install some solar panels whose average generation can support a Bitcoin mining operation + X number of homes. When the output is half of normal for an extended period of time, the Bitcoin mining operation cuts out and "half of normal output from twice as many panels" can power all of the homes. Without the mining operation buying half the typical output there would only be half as many panels to begin with and then you would need something like natural gas peaker plants to power the other half of the homes when solar generation is low, which both costs more and emits more CO2.

> In a world where bitcoin miners had to install new solar capacity to entirely offset their peak usage and sell back to the grid any excess then sure, seems like that wouldn't be a big societal net negative like it is right now.

If you care about CO2 then you do a carbon tax or similar (and then refund all the money to the public as checks so it doesn't damage the economy), at which point that's exactly what happens, only it happens for everybody and not just Bitcoin miners, which is what you want anyway.

[vrighter]

The first argument really really does not make sense.

You can also increase economies of scale by building out solar farms, and using them for something useful, instead of wasting it on guessing random hashes.

Saying that wasting energy is fine as long as you get it cleanly doesn't change the fact that you're still wasting it.

[oblio]

Or we could use all that "free solar energy" to benefit humanity through a million other more useful endeavors. Such as developing and deploying batteries.

One thing we do not lack is demand for more energy.

[AnthonyMouse]

> Or we could use all that "free solar energy" to benefit humanity through a million other more useful endeavors.

Please tell me where I can get unlimited solar panels for free. I'll rent a truck and be there straight away.

> One thing we do not lack is demand for more energy.

Market demand is the willingness and ability to pay money for something. If the demand was actually unlimited then why isn't there either a Dyson sphere around the sun already or a 0% unemployment rate from everyone having a job building one?

[KetoManx64]

Now compare it to the annual energy use for the creation/printing of money and funding of infinite wars due to the Federal Reserve having the ability to print money out of thin air at the cost of future generations.

[wafflemaker]

>Federal Reserve having the ability to print money out of thin air at the cost of future generations.

As a non-American, it's hard not to notice that it's not future generations. It's everyone using dollars.

And since your country will be invaded if you try not using dollars to trade oil, and everyone needs oil (transport, food/fertilizers, medicine synthesis), then it's literally the whole world paying.

Which incentives USA to print money, because they only shoulder a small part of that burden.

[Lerc]

The difference is that the quantity of what is being supplied is a factor with supply of oil/gold/grain/etc.

For mining it is just necessary that it happens.

The amount of work in mining is way higher than is required to prevent another party from being able to overwhelm the Blockchain. It is that high because of the subsidy of the mining reward means if Bitcoin has a high value the reward is worth a lot.

This is factored in with the halving of the reward. Either the price will increase exponentially or the mining reward will drop. Causing mining to reduce to those who can be profitable from fees. Which rewards those who can mine most efficiently, it becomes a supply and demand calculation in a market where there are relatively low barriers for competitors.

[MBCook]

> The amount of work in mining is way higher than is required to prevent another party from being able to overwhelm the Blockchain.

Isn’t that exactly the point? Bitcoin incentivized wasting resources. It is, according to your own comment, unnecessary to use so much computing to keep bitcoin going. But it’s being used.

[Lerc]

The level to be secure is much lower that.

If Bitcoin were worth much less the network would still be secure even though the mining reward would only be enough to pay for a fraction of the current processing.

If Bitcoin does not double in value every four years, the mining reward will reduce in real world terms.

Claiming the mining resources required will be at the current level or higher perpetually requires also making the claim that you think that the value will increase exponentially forever.

Nothing increases exponentially forever.

[01HNNWZ0MV43FF]

Yep economics rules everything around me