Any system of checks and balances will have its price. Look at what we do with gold: we dig it from a hole in Africa, we transport it in other countries, we dug holes or build vaults and throw it there. Like Warren Buffett said, it has no utility, if Martians were to look at the process they would scratch their heads.<p>Except for the guarantee of uniqueness. Which is one of the most powerful invariants against corruption and government-sponsored inflation, goals which are worth these effort.
The author misses the point. The security of the Bitcoin network (at least in terms of double-spending) is tied to the level of work required to generate a block. If everyone decided to use only 1% of their computing power, they'd use less electricity, but the Bitcoin network would then be 100 times less secure.<p>When people talk about "wasting resources", it's an indication they don't understand how Bitcoin works. One might as well complain about wasting resources on SSL when you could just send data in plaintext.
Isn't the waste also present even without bitcoin, too? Governments make complex laws and regulations in different industries. They do 'magic tricks' to make fiat currency appear and disappear. Banks do complex things to make a profit that largely do not correspond to creating real value for society. Competing companies do the same things, duplicating effort, mostly to make a profit. (e.g. Do we really need so many social gaming companies?) Companies also do other things that do not create real value (e.g. lobby politicians to gain political advantage).<p>A large part of human endeavor is not about increasing value in the world, but rather increasing value for oneself, possibly with the side-effect of decreasing value for others. It's just the way we are.<p>I don't think bitcoin's purpose is to aggravate or ameliorate this pervasive problem. To me, the point of bitcoin is to shift economic power from the circles of people who presume to rule the rest of us with complex economic policies and regulation that ostensibly keep the economy stable and growing.<p>With or without bitcoin, the 'waste' from competition still going to be there, and I have no reason to think that the adoption of bitcoin is going to increase the total amount of 'waste'.
> There is a solution to this problem. If someone releases a new Bitcoin client (and miners) that run on only 1% of the available processing power, and gets more than 50% of the network to adopt this new client, then total electricity costs drop would drop hugely<p>No, because you can't cryptographically enforce that all compatiable clients use only 1% of their available processing power.<p>If such a client took over the bitcoin network, somebody would use a patched version of that client that pretended to use only 1% of the computing power, but actually used all of it. There's no way the other clients could know, so the whole spiral would start anew.
My magazine have a two part series that argue the opposite that bitcoin mining is not wasteful:<p>1. <a href="http://bitcoinweekly.com/articles/the-wasted-electricity-objection-to-bitcoin-part-i" rel="nofollow">http://bitcoinweekly.com/articles/the-wasted-electricity-obj...</a><p>2. <a href="http://bitcoinweekly.com/articles/the-wasted-electricity-objection-to-bitcoin-part-ii" rel="nofollow">http://bitcoinweekly.com/articles/the-wasted-electricity-obj...</a>
I was worried about this so I worked out the math. It wasn't as bad as I expected.<p>Let's say it's 20 years from now, the total size of the bitcoin economy is $1 trillion, and there are 10 million bitcoins in existence. (We could find the number of bitcoins exactly, but 10 million makes the math easy and it's within a factor of 2 of the ultimate limit. There are about 6 million coins right now.)<p>$1 trillion / 10 million coins = $100K per coin, so we can expect people to spend almost that much money to generate a coin.<p>The rate of coin production is currently 50 per 10 minutes, dropping in half every four years, giving us 9 coins per hour in 2031.<p>That's 78K coins per year, at $100K per coin, or $7.8 billion in computer time and energy spent per year.<p>Let's say half of that is energy, call it $4 billion, including the energy to make the dedicated mining computers. At ten cents per kilowatt-hour, we're talking 40 billion kilowatt-hours per year. Divide by the number of hours in the year and we get 4.5 gigawatts.<p>In other words, a $1 trillion bitcoin economy can be run on the output of roughly five typical nuclear power plants (assuming it's 20 years from now).<p>If we get to $1 trillion in only 12 years, energy usage will be four times higher, since coins will be worth about the same but four times as many will be generated per hour.<p>If people use custom ASICs to generate coins, they'll be costly but more energy-efficient, weighting expenditures more heavily on hardware than energy.<p>People can grant transaction fees to miners to make their transaction go through faster. If transaction fees become prevalent, resource usage will be higher, since there will be additional reward for completing blocks. But $7.8 billion is already almost one percent of the bitcoin economy. If the average bitcoin changes hands once per year with a one percent fee, or ten times per year with a 0.1 percent fee, we add $10 billion to mining rewards and approximately double our resource usage.<p>Edit: $1 trillion is about equal to the amount of U.S. currency in circulation: <a href="http://en.wikipedia.org/wiki/Money_supply" rel="nofollow">http://en.wikipedia.org/wiki/Money_supply</a>
The way I understand bitcoins might be flawed but would certainly appreciate clarification ...<p>My problem with bit coins is that early people who start mining have a greater advantage than later ones. While that's not the classic definition of a Ponzi scheme (in the classic definition, payouts at each round are funded by new participants), it is a feature bitcoin shares with them. If someone started mining bitcoin when it first started, they have a significant stash created by now. As people start to assign value to the virtual currency, these people are getting a significant proportion of value for simply being early adopters.
I don't think the bitcoin system is in any way designed to benefit the miners. Its intent is to create a digital currency that has a guarantee of retaining its rarity in the future. Making mining difficult and inefficient is kind of the point.
The hypothetical solution is flawed: it would take not 50% of miners to adopt a 1% implementation; it would take 100%, since if only 1 defects, that one wins all the coins and all the cooperative 'prisoners' lose.
Don't the miners provide network services as well? Like how real mines don't just take from the ground, they also co-exist with civilian infrastructure built to keep the miners alive and functioning, and in bitcoin's case, the mining rigs dually enable transactions?
The same argument can be applied to gold: resources are being utterly and completely wasted on securing Fort Knox, let's shutdown it and store all gold on a lawn without guarding it.<p>Mining is securing the bitcoin network in the similar sense, as Fort Knox secures gold.
Here is another amusing example of resources being "wasted" creating money:<p><a href="http://www.npr.org/blogs/money/2011/02/15/131934618/the-island-of-stone-money" rel="nofollow">http://www.npr.org/blogs/money/2011/02/15/131934618/the-isla...</a>
Why can't we tie the bitcoin mining process to some sort of useful calculation? Maybe some variant of folding @home or something? We just need some problem with a hard to calculate, but easy to verify 'right answer' right?
This is just a "prisoner's dilemma". The alternative is that we trust everyone not to use their full ability to generate blocks. Obviously this would completely defeat the point of bitcoins.<p><a href="http://en.wikipedia.org/wiki/Prisoners_dilemma" rel="nofollow">http://en.wikipedia.org/wiki/Prisoners_dilemma</a>
Most of the time graphics cards aren't used for anything remotely as socially beneficial as contributing to the bitcoin network. Rather than complain about the waste, find a way to do something <i>more</i> useful with them and set up an equivalent reward system for people to respond to.
What you're proposing is a cartel of users who agree to only use 1% of their computing power. The Prisoner's Dilemma still applies and thus the incentive to cheat still remains because using more than 1% can give you a competitive advantage. By assuming every one will compete as much as they can the prisoner's dilemma disappears because there is a limit of how many resources a user can expand. The main issue is whether bit coin is a valid expenditure of those resources
So, when we waste our processing power on credits generated on limited supply by the Bitcoin network, it's a waste, but when we waste our time on acquiring credits created in limited quantities by the (Central) Banks it's okay.<p>I guess the issue here is that calculated bitcoins don't contribute anything. The grid should be used for something useful such as folding proteins or even SETI for that matter.
<i>There is a solution to this problem. If someone releases a new Bitcoin client (and miners) that run on only 1% of the available processing power...</i><p>It's fairly easy to throttle a bitcoin client.<p>But if they mean run slower but do the same amount of work that's not possible unless someone makes a dedicated chip to do the needed calculation.
Excellent article.<p>I would only add that we're using a LOT of energy to create a fake (read: virtual) resource. The best part about virtual resources is that they don't use many real resources, but this one is the opposite.<p>Granted, it's a 1-time cost, but as the article notes, it could be created with a much lower 1-time cost.
Personally, I'm more concerned by the resources that are being utterly and completely wasted discussing Bitcoin on HN.<p>Hasn't it been talked to death already? Is there really anything new to say?
No, you guys. You don't get it. Bitcoins are going to take over the world. We're ALL going to be part of an economy of Bitcoins, just like we all universally adopted Swatch Internet Time[1]!<p>[*1] <a href="http://en.wikipedia.org/wiki/Swatch_Internet_Time" rel="nofollow">http://en.wikipedia.org/wiki/Swatch_Internet_Time</a>