[_n6th]

Yet another failure to understand the purpose of mining. The energy is NOT being wasted. In fact, the energy spent mining is the exact thing that makes the Bitcoin network function. The energy is being converted into trust. The more energy that is spent on mining, the more difficult it will be for a well-capitalized entity to perform an attack on the network.

Aaron Greenspan, repeat after me: Mining energy is not wasted. Mining energy is not wasted. Mining energy is not wasted.

Now, it is an open question as to whether the cost of running the Bitcoin network is worthwhile. However, for the moment, it clearly is. The fact that some miners can turn even a small profit on the Bitcoins they're rewarded with demonstrates that the utility they provide has positive market value.

Of course at some point it may be that it costs substantially more to mine new Bitcoins than they are worth on the market. If this happens soon, Bitcoin will likely fail. If it happens later, it's possible that transaction fees could prop up the network, but that's purely speculative.

Another thing to consider when assessing the energy efficiency of the Bitcoin network is how it compares to the efficiency of existing currencies. Cash has a physical component and must be manufactured. Electronic fiat is backed by huge, complex, and expensive networks. Visa's datacenters are not free. Keep in mind that credit card transactions typically have a transaction cost of 3%, which in some way represents the cost of operating the Visa network. 3% is kind of a staggeringly huge number, and off the cuff I expect that's actually quite a bit higher than the total Bitcoin network cost to volume ratio...

[21echoes]

> Yet another failure to understand the purpose of mining. The energy is NOT being wasted. In fact, the energy spent mining is the exact thing that makes the Bitcoin network function. The energy is being converted into trust. The more energy that is spent on mining, the more difficult it will be for a well-capitalized entity to perform an attack on the network.

> Aaron Greenspan, repeat after me: Mining energy is not wasted. Mining energy is not wasted. Mining energy is not wasted.

I think you're missing the point here: Aaron is not denying that markets run on trust, and trust takes work (in both the physical sciences sense and the layman sense) to maintain.

What he is saying, as should be clear through his use of the water analogy, is that we should choose currencies for which it is easiest to convert work into trust and usage. Water is off the table, in his analogy, because of the large amount of work required to use it.

In other words: he views BTC as another currency which, compared to systems like the USD/ACH/Credit system, is overly laborious to maintain.

What's nice is that this is a reasonably scientific claim-- it is not out of the question that someone could compare measurements of the energy usages of the two currencies per unit of value and per transaction. To me, it seems clear that the USD, riding on the trust externalities from the already present authority of the US Gov't, is going to be cheaper. But again, it's a totally measurable assertion.

[cma]

This isn't a judgment on bitcoin, but on your logic:

The fact that some farmers can turn even a small profit on the tulips they're rewarded with demonstrates that the utility they provide has positive market value.

[pault]

I don't want to discourage rational discourse about BTC and whether it has any inherent value, but I think tulips are the Godwin's law of bitcoin. As a debate about bitcoin increases in length, the chance of someone mentioning tulip bulbs approaches 1.

[humbledrone]

Well, what other measure would you use? The markets did, rather quickly, correct themselves with regards to tulips. There was a brief window of mania, but for the last several hundred years the tulip market seems to have been pretty reasonable.

It's just not possible at this time to know whether Bitcoin provides enough value to succeed in the long term. But to survive in the long term, it has to survive in the short term, and our best measure of short term utility is the market.

Again, if the market crashed far below the mining costs, then I would view that as a demonstration of the lack of Bitcoin's utility. And that very well could happen! But it hasn't yet.

[skylan_q]

Well, what other measure would you use?

There is no other way to calculate whether something is done at an economic loss or profit than by the loss/profit mechanism of the economy.

Again, if the market crashed far below the mining costs, then I would view that as a demonstration of the lack of Bitcoin's utility.

Keywords being "far below". In cases where gold was the unit of money, there would be times where mining gold was economically unprofitable. As a result, more goods started chasing a fixed supply of money, bringing up the price of money making it more profitable to mine gold.

[LekkoscPiwa]

FYI: price of gold currently is at its mining cost.

And Greenspan would still call it a "bubble"

When he is personally responsible for creating dot-com bubble and the housing bubble. Who would ever listen to this clown anyway?

[zmk_]

You are confusing Aaron with Alan. And Alan Greenspan was one of the first to point out the dotcom bubble (he coined the term irrational exuberance).

[jasallen]

Wrong dude, dude.

[digitalzombie]

>>The markets did, rather quickly, correct themselves with regards to tulips.

Quickly is subjective... I don't believe several years, according to some historians, is "quickly" considering if you were affected by it.

Also "seems to be pretty reasonable" means it's just your opinion.

You're also very high strung and on the offensive for bitcoin. This is not how you would sell an idea and a huge warning sign of your view being very skewed and not objective when it comes to the matter of bitcoin.

[humbledrone]

Quickly and pretty reasonable are both subjective, yes. In the context of several hundred years of tulip history, though, I'm happily confident that a 1 year bubble is "quick." You're free to disagree.

Calling me high strung/on the offensive/skewed though is a bit of an argumentum ad hominem and thus irrelevant. My argument would not be affected at all even if I were foaming at the mouth and wearing a sweater woven out of paper wallets.

[mcgin]

There are energy efficient ways of securing a block chain. Proof of Stake does not rely on vast energy consumption and in fact is better at securing the network, something one of the newer currencies Peercoin takes advantage of.

[humbledrone]

Thanks for the Proof of Stake reference, I was not familiar with that system but am reading about it now and it's very interesting. This site [1] seems to indicate a rather unfavorable transaction cost for Bitcoins, around 7%. However, I'm not sure whether their estimation of 650 watts per gigahash* is accurate (that warrants some more research), so I don't know whether to trust that figure or not. If it is accurate, it is not favorable when compared to Visa.

[1] https://blockchain.info/stats

* I assume they meant watts per gigahash/second.

[EDIT] It seems like the recent ASIC miners on the market are vastly more efficient (>100x) than blockchain.info's estimates [2] (which probably include CPU/GPU miners since ASICs are relatively new). Without knowing the makeup of the Bitcoin network (i.e. what portion is CPU/GPU/ASIC etc), though, it seems like any efficiency estimate will be pretty inaccurate.

[2] https://www.kncminer.com/categories/miners

[DennisP]

Proof of Burn is another interesting idea.

[waqasx]

btc is much like gold, but most ppl here fail to realize that gold as a storage of value makes no logical sense except that a lot of ppl 'believe' in the value of gold. in that sense, gold is a bigger ponzi scheme than btc personally i believe eventually btc wil crash to smithereens and so will gold prices. but im talking long term, when currencies will be backed by actual work that provides social and economical value

[dnautics]

gold as a storage of value makes no logical sense

1) it's relatively rare 2) it's easily minted into objects of consistent mass. 3) because of quantum mechanics, gold has a yellow color. This makes it easy to verify gold content without advanced technology. You take a set of "gold standards", say, 99%, 90%, 80%, 75%, and then make a series of streaks against a black rock (http://en.wikipedia.org/wiki/Touchstone_%28assaying_tool%29). Then you take your sample and make a cross-streak. Then you and your trading partner can agree upon an approximate purity level at which you are willing to make the trade for goods.

currencies will be backed by actual work that provides social and economical value

Who decides what this value is? By hours consumed? Is one hour of sitting on your butt playing a video game worth the same as one hour helping to build a rocket that is destined to try to destroy a (hypothetical) asteroid on a collision course with the planet? How about by "type of work"? Well then, is one hour sitting on your butt playing a video game worth the same as one hour sitting on your butt playing a video game in a playtesting environment?

[vubuntu]

> but im talking long term, when currencies will be backed by actual work that provides social and economical value

If it were possible, the absolute currency would be 'life time' as in the movie http://en.wikipedia.org/wiki/In_Time. In the absence of that, something equally dear for staying alive in a increasingly moving towards apocalypse world, like may be bottles of oxygen or water ? But even then, the things that are of value may not be easier/handy to barter/trade with. That is when an alternative 'scarce' 'hard to create and requires resource intensive mining' but 'easy to handle' , 'easy to determine purity' type of resource takes the place as a currency. Gold has that property inherently. Not saying that it is the only absolute resource that has it. But it is a time tested resource with those qualities.

[TylerE]

Nonsense. Gold has non-currency uses so it is, innately, NOT a "fiat" currency. It can be used to make objects of art, and it's essential in many manufacturing processes.

[marvin]

This argument gets repeated again and again, but it doesn't have roots in reality. The market value of gold is far, far in excess of what the demand from industrial, scientific, fashion and jewelry use cases dictate. In fact, these uses exist despite the fact the gold is very expensive. (Perhaps with the exception of the latter two, which are popular because of gold's high market value. But they do not themselves cause it).

If gold and other precious metals did not have their historical use as a currency and the trust of markets (and its suitability as a currency, I suppose), they would be worth at least an order of magnitude less than they are today. And it would be mined a lot less of them.

[orblivion]

> The market value of gold is far, far in excess of what the demand from industrial, scientific, fashion and jewelry use cases dictate.

You forgot speculation. The reason it's so much more expensive than 10 years ago is because people expect that at a certain point inflation will finally be realized, and prices will be so high that it will be used for scientific, jewelry, and ornamental uses again, at prices even higher than today.

And even forgetting that, we have the fact that people buying gold to save removes it from the market, reducing supply at lower prices, leaving only higher bidders in the market. And you can still get gold tipped RCA cords, despite what you say. So as long as there are any consumption buyers just below the current price, the price is justified.

[TylerE]

[citation needed]

[marvin]

If we're going to play the "memes for intellectuals" game, I could just as easily make a similar claim on your comment. This is a content-free comment.

The easiest support for my argument would be looking at the list metals with a similar rarity to gold, and noting that gold is more expensive than all but platinum, despite having an annual production which is >15 times higher.

http://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth%...

Now, please provide a citation for your claim "gold's market value is mostly caused by demand from art and manufacturing processes". I claim that this wrong because 34% of all the world's gold is kept in vaults, and an additional 52% is stored in jewelry (of which a significant amount should be considered an investment by its owners due to the high market value).

http://en.wikipedia.org/wiki/Gold_reserve#World_gold_holding...

[TylerE]

The fact that you are putting words in my mouth ("gold's market value is mostly caused by demand from art and manufacturing processes") is an indication that you are not debating in good faith. Good day. I shall waste no further time or effort on you.

[waqasx]

so is mud. we dont use it as currency. why? gold has value for us not cuz of its uses, but cuz it is scarce and it is shiny and its an easy metal to work with

[TylerE]

Please point me to the nearest store selling items costing in excess of a month's salary made with mud.

Gold has unique chemical, mechanical, and electrical properties - it's not just any old commodity.

[waqasx]

Gold has unique properties like every element has. But gold jewellery costs a months salary cuz we believe it is valuable, it is purely psychological. Its cost has Nothing to do with its chemistry or value to society. Same goes for btc.

[TylerE]

Actually it does. One of those unique properties of gold is that it is incredibly non-reactive, which means it doesn't visible age, discolor, or tarnish. The value of that for jewelry should be self-evident. It's excellent ductility and malleability are valuable properties as well.

[idunno246]

My understanding is It's built in what happens when it's too expensive to mine by adding transaction fees. Or once there are no more coins to mine. The network still needs to verify, so the person in the transfer offers up coins to get it verified which go to the miners.

[humbledrone]

It is correct that after 21 million Bitcoins have been mined, other incentives will be required for mining to continue. Transaction fees are the likely choice.

If Bitcoin became a major currency, I think there might be other incentives, too. To speculate: a large government might want to run mining operations to make it more difficult for other governments to collude against them in a 51% attack. Of course if they did this, they'd probably want to pick up transaction fees as well.