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Discussion (224 Comments)Read Original on HackerNews
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.
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.
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.
The electricity demand (and here I mean the overall cost of the electricity, so improvements in $ per kilowatt just mean you need to use more electricity) in proof-of-work systems fundamentally scales linearly with the overall valuation of the coins in the network, which means proof-of-work systems can never scale as large as their fanboys would have you believe.
Adoption doesn't necessarily correlate completely with price. Price can increase without much adoption, due to speculation. In theory, adoption could also increase without much price increase.
Electricity isn't the only requirement for mining. Hardware is also required. Miners can't simply use lots of additional electricity if the hardware isn't there. Yes, new hardware can be manufactured, but it takes time.
The block reward decreases over time. If it's using Europe levels of electricity at time X, then after a block reward decrease, it'll use Europe/2 amount of electricity. This decreasing also disincentivizes manufacturing new hardware.
Miners can have different efficiencies, due to different types of hardware, and different types of electricity generation. So while the least efficient miner will be operating at near breakeven, the most efficient miner will be making much more profit. So while the least efficient miner will use $1M of electricity to mine a $1M coin, the most efficient miner will use less dollars of electricity.
Not really. A fundamental purpose for any currency is to act as a "store of value". There is no way for bitcoin to represent a store of value (i.e. value commensurate to real-world goods) for a larger and larger portion of society without the price skyrocketing, especially since Bitcoin is inherently deflationary with a max number of coins.
Regarding your other paragraphs, I think this is a fundamental misunderstanding of how proof-of-work is designed to protect the network. The entire idea behind POW is that the total amount of work must be in direct relationship to the total value of the coins in the network, or else coordinated attacks become possible. I see this misunderstanding all the time in "the block reward decreases over time" argument. It doesn't really matter if miners get their payoff from block rewards or mining fees - they must (on average, over time) get enough reward to make their mining activity worthwhile, and, again, by the inherent design of POW, they need to spend enough on mining to make 51% attacks not worth trying. Just think about how your "If it's using Europe levels of electricity at time X, then after a block reward decrease, it'll use Europe/2 amount of electricity" sentence doesn't make any sense, because eventually in 2140 or so there will be no block rewards, so according to your logic no electricity at all would be required to run the network.
There is simply no getting around the fact that resource costs need to grow linearly with the total value of the network in POW systems.
Bitcoin's supply won't increase as costs go down, unlike other assets.
Um. That's a causative relationship, even if it's mediated, but it's still causative. And generally, the relationship is even more direct: the suppliers are quite reluctant to sell at the price lower than their costs unless they expect the prices go up soon enough™, so the lower boundaries for the prices exist.
Competing for it is more of a game that has a cost to participate in.
As price per coin goes up, more folks will find mining profitable and invest in mining operations. Difficulty goes up until it's no longer attractive for anyone to add to the global hash rate.
As price per coin goes down, less of those operations are profitable and fewer new people will find it to be a good investment. Difficulty stays the same or goes down. Due to capital expenses, difficulty is more sticky in the downward direction than upwards.
There is of course some marginal price action in between where there is in theory selling pressure from miners when it's less profitable to mine (to fund operational expenses and debt), but I don't think it's super material to the overall market volume these days.
Which in normal times, are something taken for granted, but once it does happen, the edge case collapse the entire system.
edit: the earlier language is not exact, the scenario is an exponential drop of value that results in exponential drop in miner willing to mine until this discrepancy can be resolved. i.e. the system is not protected against extreme volatility (e.g. -99% over a block cycle)
In practice it’s not much of an issue because bitcoin is not use for commerce but it’s a store of value and it some of the trades are not even on chain.
Which is when exactly, and how likely is that to happen? It hasn't happened yet in ~14 years, but I guess "never say never". There is a lot of money saying it won't happen very soon though.
What does this mean, sorry?
> the edge case collapse the entire system.
If you mean that if it reaches a certain point, the entire system will collapse, it means you don't understand the difficulty adjustment. If it's too expensive to mine, then some miners leave, which makes blocktimes be longer, but not to worry because the consequence of that it just that difficulty will go down, which means that you need less hashrate to mine (and maybe some of those miners that leave will come back because it is profitable again for them). This means that it is essentially impossible for all miners to leave at the same time; some of them stay even if at a loss, and some of them are just hobbyists that can already feed their miners with solar power (so there's really no loss for them in leaving them connected).
The problem with BTC going down is that it's a double whammy of not only BTC going down but also the cost of its shovels going up
Before: BTC pays $100k but a shovel costs $300
Now: BTC pays $70k but a shovel costs $$??
Bitcoin asked the right questions but came back with the wrong answers
Those are now being driven by massive AI demand and are likely to remain so for the forseeable future. So how would costs go down?
The goal in proof of work is to find a block hash less than a given value. That value is determined by the network difficulty. The lower the value, the more difficult it is to find a block, and thus the more expensive it will be to mine.
Difficulty is adjusted once every two weeks to target an average block time of 10 minutes. If the average block time during the preceding 2 weeks is less than 10 minutes, it means that blocks were too easy to find (i.e. the difficulty was too low relative to total hash rate of the network). Conversely, if the average block time was greater than 10 minutes, the difficulty was too great.
This is how it the network has maintained a roughly 10 minute block time as the hash rate of the network has grown over the past 16 years. The difficulty (i.e. cost) of finding a block is constantly being adjusted.
(Obviously the equipment doesn't go away. You can start it again. But if you can't make a buck doing something, you won't do it.)
I probably should look this up in wikipedia first.
If you don’t have busts, at some point your system will abruptly/violently cease to exist.
I follow Bitcoin from a theoretical point of view and I find it fascinating.
Something that boggles my mind a lot is this: Bitcoin, which is somehow a bit "programmable", and Ethereum (which is definitely programmable) are basically the most correct computers on earth. Due to the consensus that needs to be reached by thousands+ of machines. Even if they're imperfect, ECC-less (for the most part), machines.
Now they may still run code with flaws: but they'll all run it exactly in the same way. If, say, a bit-flip occurs on a machine, that machine won't create a block or won't sign a transaction accepted by others. Not part of the consensus. That is wild.
Then the other thing which boggles my mind and which relates to your comment: the "selling pressure on the market" by Bitcoin miners is, no matter what they do, halved every four years. There were, 8 years ago, still 1800 Bitcoins mined per day. Today it's 450.
And in two years (we're midway before the next halving), it's going to be 225.
And Satoshi Nakamoto planned, from the very start.
Maybe it doesn't make sense (economically or from a security point of view: who's going to secure the network when there's not enough block reward anymore?).
But miners will mine 225 Bitcoins per day, not 450, in two years.
And that is totally fascinating.
I find it horrible: The damage done to the planet doesn't correlate with the number of transactions. It's maximizing uselessness.
Based on bitcoin cryptobros, you need a certain amount of independent miners for the 'quality' of bitcoins. A bitcoin miner if its a state, can operate with a loss a lot longer if not even infinit, than the decentralized normal people (who do not exist anyway).
It also creates a lot of pressure on miners if you do not run your gpus, yuou are also at a loss, which can break the mining for everyone if too many in parallel go offline, than go olnine again because difficulty droped to much.
And if it becomes to volatile, no one wants to risk it anymore
Bitcoin hasn't been viably mineable on GPUs for over ten years. It requires specialized hardware.
As such, mining is typically restricted to those with massive capital investment in a single-purpose, so you really won't see random offloading and onloading of that capacity. As long as it's marginally profitable (with capital investment being a sunk cost, this is the price where it's more than ongoing costs), those miners will keep their machines running.
Monero is the only cryptocurrency today that's at least trying to implement the original "one CPU, one vote" vision but nobody really cares about it since number doesn't go up.
The cost of producing bitcoin is a combination of the marginal cost (running the miner you already have, i.e. mostly power) and paying for the miner that you bought.
If you buy a miner expecting a certain profitability but then the economics change, you can both end up with a loss long term (never able to recoup the cost of the miner) and still be better off continuing to mine (because the cost of the miner is a sunk cost, and as long as the revenue is larger than the marginal cost of running it, you'll at least recoup some of it).
They can't calculate correct price of mining because it's more complex and enerrgy costs are different in so many regions and inside the electiric producers etc. !
> ... according to Checkonchain's difficulty regression model
It's a guess based on oil costs (as a proxy for energy costs). Personally I think it is completely worthless.
The funny thing about bitcoin is that the rate of bitcoin discovery doesn’t change when they shut off their rigs so it won’t change supply. It would actually make more sense to sell all their bitcoin, flood the market with coins to do the price, wait for large miners to collapse and then restart mining at hopefully lower prices.
There are usually some fixed costs involved and you need cash flow. Without cash flow, your business can shut down pretty damn fast. With cash flow, your business can stay around longer, maybe long enough for the economics to shift.
This sort of thing happens with oil. There are oil producers which sell at a loss. There was even a brief moment when the price of an oil barrel went negative, which meant that if you gave somebody a barrel of oil, you had to pay them for the privilege of taking that oil off your hands. Oil producers did not all shut down when that happened.
I am a little doubtful of the $19k figure anyway.
> It would actually make more sense to sell all their bitcoin, flood the market with coins to do the price, wait for large miners to collapse and then restart mining at hopefully lower prices.
This kind of market manipulation is not so straightforward.
More accurate: The price for an _option_ to buy/sell oil was negative, not the price of the barrell itself.
In that circumstance you might sell your right to some oil for almost nothing rather than deal with the consequences of accepting it. You might even pay someone to take it off your hands.
Options is “right but not obligation”. Physically settled futures are an obligation at maturity.
Surely they should stop producing until its profitable again, or am I missing something?
Thankfully, it all worked out in the end very well. I don't know how anyone would put in the effort/money to get a major crypto farm going and plan to just cash out every month to pay bills. What's the point? I always thought of it as a long-term bet on the price going way up, which it did.
Compared to doing some work to getting 1 BTC per month, which you can then individually decide what to do with, instead of a lump sum you could cash out at any moment.
They may be hoping it goes back up.
If bitcoin miners are smart enough to have anticipated this, and decided not to hold onto bitcoin and just let it drop; and also to have repurposed their equipment, sold it to bigger fools, or have just run it into the ground, none of these ideas make any sense.
Why would they, though? The real answer is that governments and monopolists are propping up bitcoin through simply handing tax money to bitcoin holders, and in the case of the latter (also government tit-suckers) leveraging themselves to pump up bitcoin markets when they are down. I'm sick of humoring this because it was once mildly interesting technically. It's a criminal scheme and everyone involved needs to go to prison. When I hear a politician say the word bitcoin, I'm going to do everything in my power to damage that politician.
The way bitcoin exists, the provider accepts bitcoin; it doesn't accept other crypto. I would rather bitcoin, or something equivalent to exist than not.
There is also the case of people who hold value in bitcoin because it is more stable than their banks; go figure. This was the case in Argentina and Venezuela. That was also a gray area, but I think it would morally acceptable to do that even if it was prohibited
Now, it doesn't necessarily lower the cost of an attack because you can adjust the required output to a cost that is suitable.
GP probably didn't mean that hardware though, but rather the facility, electricity supply, cooling, etc.
Yes, it does but lacks depth, the problem here is they are diversifying not pivoting and by virtue of game theory for each miner they stand to win on others exit, as the mining difficulty goes down, but this is creating a loss-loss situation.
This happened to Wikileaks.
I for one don't.
Ethereum uses proof of stake now though (since 2022). Which happened in part because Ethereum is effectively centralized, or at least significantly more-so than Bitcoin.
Other than that, it is probably tradition at this point, like with Gold.
The compute supply/demand for mining is designed in the bitcoin algorithm to oscillate, and the mining game is about being able to forecast a complex combo of BTCUSD price, power price, hardware price and depreciation.
Remarks like the title of this clickbait article are strictly meaningless, they assume the instantaneous price of bitcoin / power / hardware is what's used to compute profitability, when in practice mining is basically a futures market.
Ie. Hidden away in a storage closet in a school or office, or in someone's house with an electric meter bypassed.
If a decent chunk of mining does that, then it could become uneconomical for those who do pay for their power.
As the other poster mentioned though, many miners won't be using oil-based energy sources, so it does make one wonder about cause and effect. Maybe a dip in BTC would've done it regardless of oil?
If you’re wrong, you lose your stable-coins.
Let us know how it goes :)
It may come to pass that "proof-of-work" was merely a good proof of concept to launch the idea; but proof-of-stake is (of course) better.
Prices are dropping so fast it seems like the cheapest way to power mining rigs.
Also free grid electricity for three hours a day in Australia will be interesting.