"This is fine."And then there's the environmental problem. The environmental problem? Aren't we talking about digital coins? Yes, which makes it even stranger. Solving all those complex puzzles requires a huge amount of energy. So much energy that the two biggest blockchains in the world -- bitcoin and Ethereum -- are now using up the same amount of electricity as the whole of Austria. Carrying out a payment with Visa requires about 0.002 kilowatt-hours; the same payment with bitcoin uses up 906 kilowatt-hours, more than half a million times as much, and enough to power a two-person household for about three months.
And the environmental problem is only going to grow. As miners put more effort into solving the puzzles (ie, building more of those dark server caves in Alaska), the puzzles will automatically become more difficult, requiring more calculation power. It's an endless, pointless arms race in order to facilitate the same number of transactions with more and more energy.
Previously, previously, previously, previously, previously, previously, previously, previously.
Let's just ignore the environmental cost of bitcoin. I mean, that's just carbon emissions which will kill billions of people in 50-100 years: those people aren't us and so matter much less than us (most of those people won't even be white, and so clearly count for almost nothing in the minds of the kinds of people who like bitcoin). Ideological purity is obviously much more important than billions of human lives.
Let's just worry about the transaction cost. The current wholesale electricity price in the UK seems to be around £25/MWh. From the quote a bitcoin transaction costs around £0.906MWh. So let's imagine the only cost of doing the transaction is the electricity (all the mining machines, all the infrastructure to support them, whatever profit the mining people want to take, that's all zero, because magic). And let's say I'd like the overhead cost of a transaction to be 1%. The smallest transaction I can commit is £2,265. What's the smallest transaction I might want to commit? Well if I have £10 in the bank and I'm getting 0.1% interest and I'd like that credited monthly, the transaction is about £0.001 (a penny of interest a year, credited monthly). If I want to pay 1% overhead on these transactions I need to batch about 2 million of them into one bitcoin transaction.
So, well, to do that, I will need some kind of robust system which stores these things until I'm ready to commit them into bitcoin. That system is going to need to be bomb-proof, because losing this stuff is going to be a disaster. And 'bomb-proof' does mean proof against bombs: it probably does not need to withstand a full-scale nuclear war but it certainly must be robust against, say, someone flying an airliner into part of it because that is a thing that happens. 'Robust' means that in the case of an event like that happening it must not lose any data and it must be up and running again within a few minutes.
That system ... is the system banks already have.
In my naive view it looks like the author of this article is conflating the cryptological act of mining new coins (which indeed require increasing amounts of energy) with the act of transacting coins (i.e. creating new blockchain ledger entries). He mentions a few times about miners being involved with transactions. That is true when a new Bitcoin is mined and its existence is posted to blockchain, but is mining required every time someone buys a burger with preexisting Bitcoin?
I’m guessing my understanding is just incomplete. Anyone care to shed some light on how transferring existing Bitcoin requires compute intensive mining? I can understand how the ever-expanding nature of a blockchain ledger will require more resources simply to process the longer and longer strings though that seems to grow linearly over time. Also isn’t there a way to trim or retire old long ledgers?
Regards,
Winnie the Blockchain Dummy
Mining coins and transacting with bitcoin are the same thing. It's the possibility of getting a new bitcoin that provides the incentive for miners to maintain the ledger.
Transacting coins, i.e. making a Bitcoin transaction, requires adding that transaction to the bitcoin ledger. That's what a transaction is in bitcoin - an entry in the blockchain ledger. Each new block in the blockchain contains the set of new transactions that are bitcoin. And creating a new block on the blockchain is done by "mining" - solving the hard mathematical problem that adds this new set of transactions to the chain, as well as simultaneously conjouring the mining reward into one of your own wallet addresses.
So yes, all transactions require mining to occur in order for those transactions to exist on the blockchain, and to be part of bitcoin. If no mining happens, no transactions can be recorded, which means that no transaction can happen.
To add to the other replies here, electricity usage doesn't scale with the length of the ledger, it scales with how many miners are competing to validate the latest block. Only one miner "wins" each block, everyone else just wasted their electricity.
The proof-of-work can be made easier or harder, and it's automatically adjusted if the miners start getting too fast or too slow, but it has to remain slow enough to avoid inflation / miner goldrush and fast enough for transactions to be verified in a reasonable time.
Ok then maybe my confusion is the term “transaction” which from you guys’ responses sounds like the act of registering a new Bitcoin. What I meant was paying in Bitcoin, i.e. transferring money from one person to the other as in this quote:
Even an economics dummy like myself can see that a finance system that includes ever-increasing cost per payment will eventually grind to a halt on its own friction. Surely there aren’t enough idiots out there to prop up such a deeply flawed “designed to fail”
pyramid schemefinancial instrument that enthusiastically. Coincidentally Bitcoin popped up 17% today."Surely!!"
"Not surprisingly, the most enthusiastic bitcoin and blockchain proponents are the ones who understand neither databases nor economics."
But... but... it's accepted by PayPal!
PayPal wouldn't associate themselves would poorly-thought-out/potentially illegal transactions, would they?
Sorry: "...themselves WITH..."
At no point have PayPal ever said that they will allow cryptocurrency transfers in or out of their network. You can buy BTC from them, you can hold it in your account, and you can sell it back to them later. That's it. It's a day trading app, but with Bitcoin. The Bitcoins themselves never leave PayPal - and in fact they don't really exist at all. They're really just an agreement with PayPal that you would like some of your USD-denominated balance to be exposed to the volatility of some BTC/USD exchange rate.
Oh, you want to "buy something with Bitcoin"? Great. What actually happens is that you sell some of your virtual BTC on PayPal for whatever the current rate is, and PayPal use the resulting dollars or euros to pay the merchant, who probably doesn't even know (and certainly doesn't care) that you used neckbeard pedo pesos to pay for whatever boondoggle you bought "with Bitcoin".
With all of these announcements (the PP one is practically identical to Revolut's FWIW), what matters is whether they allow BTC flows in and out of the payment network. That's the important part, because that's how the money laundering gets in.
If there are no cryptocurrency inflows / outflows then it don't mean shit - and I'll raise a glass to the first firm who are fucking stupid enough to Leeeeeeroy Jenkins that KYC / AML fractal omniclusterfuck.
I was gonna say that you're just splitting hairs, but... you're not even doing that.
Your first sentence is "PayPal doesn't do that!", whilst the rest of your comment is "Here is EXACTLY how PayPal does the thing I said that they don't!".
I'm sorry you can't read. The total number of Bitcoins that will be transferred in or out of Paypal is zero. The number of Bitcoin ledger transactions that will be generated by this Paypal product is zero, because when you "buy Bitcoin" from Paypal you are not buying anything - instead you are engaging in a bet with Paypal about the USD/BTC exchange rate. If you win your bet (that BTC will increase in value) then Paypal pays you the extra USD that you would have won if you had had real Bitcoins - which you at no point actually had. That's it.
If you don't understand the notion of a synthetic financial instrument then you should probably not be participating in this thread, and you should definitely not be doing anything involving fucking Bitcoin.
Is that you, Winklevoss? You and your fellow ubermensch brother still making unfounded hyperbole just 'cause you happened to be the first two screwed over by Zuckerberg?
Not surprising that enough have pulled the wool over their own eyes: plain old stock exchange shenanigans have taken them in before.
But are there really enough fools to power a “liquid” exchange with so much friction? If it really costs a three month power bill for every payment then a single modestly funded prankster could take the whole thing down with a few days automated eBay-PayPal-Bitcoin churn of buying and selling high volume one dollar trinkets.
Something like that. A transaction is like "take 1.71 bitcoin from my wallet and put it in wallet 123456". Bitcoin users announce their transactions to everybody on the planet, including all miners.
All miners build up a block of about 2000 transactions and compete to sign it first. The first transaction in every block is always "take $REWARD bitcoin from $THIN_AIR and put it in wallet $MINERS_WALLET", which is how bitcoins are created. Whichever miner signs their block first is accepted by the other miners and wins the reward.
This $REWARD halves every so often, which dissuades miners, but also ultimately limits how many bitcoins there will ever be, which helps retain their real-world value. But at some point, bitcoin processing will just stop, because it will cost miners more than they get in reward, even if they win every block.
To save electricity, you could cut down the number of miners, but with that comes the risk that one miner, or a colluding group of miners, could effectively control all transactions. If they don't like you, they'll throw your transactions out of the block before they sign it. You'd have reinvented Visa, banks and the US forcing the SWIFT network to deny banking to its political enemies. Decentralised banking has value, even though bitcoin is a giant waste of electricity.
Thanks for the detailed explanation Kyzer. This means that Bitcoin is no longer suitable for ordinary visa/PayPal type retail transactions due to the huge transaction costs then. It could be fast approaching its end of life as an investment tool as well. Once the transaction cost exceeds even the wildest expectations of profit, nobody can afford to trade and the exchange volume drops to zero. Seems like an event a good analyst could predict to +- one month.
On an unrelated note, my employer makes engineering software used by chip designers. We have a suite of tools used for low power design. On of the most common techniques is to shut down parts of the chip that are idle, even if for a few dozen clock cycles. Most of your phone or laptop is probably shut down between keystrokes. Anyways one of the example designs we used to distribute for the low power tools was a Bitcoin mining processor. I wouldn’t be surprised if there are arrays of mining processors churning away right now based on that example. Kind of ironic that an example of how to reduce power can get used to waste it.
I was under the impression we were already there or very close.
"Imagine if keeping your car idling 24/7 produced solved Sudokus you could then trade for heroin. That's Bitcoin."
Aren't a large fraction of these coins mined by botnets, distributing the work to compromised internet devices? Such as IOT appliances or website ads running on a browser?
Therefore, the party receiving value from the work is not the one responsible for the energy to produce it and does not care how (in)efficient their enterprise is.
IIRC it stopped making financial sense to do this "mining" on your own equipment around 2014 or 2015, as the computer's work became too difficult. First PCs, then graphics cards, then special ASICs, all stopped being efficient enough unless you could use someone else's electricity.
At least for Bitcoin, not really. Even with hornets of IOT machines, the math is too hard to do without specialized hardware.
I've heard a similar argument for blood diamonds. I mean, they're not your child slaves toiling in the open pit mines, and a De Beers is an investment that lasts forever.
FWIW This is a translation of an article from 2018. Pretty sad that this was all obvious in then and people are still blockchaining things at random.
Every single article that makes claims about bitcoin energy use cites Digiconomist. Can't journalists find somebody else to interview? Maybe somebody who's actually published a peer-reviewed study on the subject? Maybe somebody who doesn't just average a country's power grid's composition and assume all miners in the country in question draw from this mythical national power grid, instead of, say, moving to be around cheap, under-utilized, state-sponsored hydroelectric power?
I'm not saying he's wrong. He's just got a lot of incentive to continue coming up with more and more alarming numbers.
Given than energy is very, very fungible, it doesn’t matter. Yes, they can take advantage of “cheap” electricity, but they’re depriving others of it, not using electricity no one else would use.
Electricity is extremely fungible, except where it isn't. Like, say, in a country where the electrical grid is not unified.
Maybe so, but the only halfhearted rebuttals I've ever seen have been from people saying, "you fool, the genius bitcoin farmers all do utility arbitrage, so they're only burning like half of what that article said. And rising. Wake up sheeple."
If you draw the trends out far enough, you end up with a Dyson sphere, computing nonsense mathematics, forever. But I mean, a Dyson sphere--that's pretty cool, right?
Pretty cool for sure!
Then this happened (via BBC News):
Be it COVID or crypto,
Trumpjust can't help catching (and spreading) viruses to his gullible cult.