If we had as of precise data on both energy & resource consumption as we have on Bitcoin mining we could remove all taxes and create a consumption/VAT tax based on how much resources and energy something used. That could go a long way in shifting costs that are socialized back in to their consumers and producers.
See my post below about energy credits. Perhaps proof of work does not achieve this like I think, but "precise data on both energy & resource consumption" should not be necessary if the value of the currency is directly linked to the abundance of energy.
Just an example: The poorest 5 percent of households use 247 gallons of gas per year, on average. The richest 22 percent, with incomes over ten times higher, each use about four times as much.
The basic issue is as wealth increases people spend more on services which have lower energy needs than say food. A cheeseburger takes not just energy to cook much energy to manufacture. An account on the other hand uses much less energy per dollar spent.
That depends on how you look at it. If you look at it as a change from the current system it would likely be mostly a benefit to the rich.
If you see it as an alternative to paying nothing (we wipe the slate clean and then consider each system by comparing it to that) the rich will still pay by far the most.
If you are concerned with a minimum form of income, you can always give a certain amount of credits to each person at no cost to them.
You can hypothecate the tax to provide energy efficient modifications to houses (insulation, LED lighting, double glazing), and to provide a small amount of free energy to poor people (subsistance levels of heating and cooking).
The Bureau of Printing and Engraving budgeted $14.35 million in FY2017 for "Communication, utilities, and misc. charges." If we assume that 100% of that is electricity costs, and that electricity costs 12¢/kWh, then we get somewhere in the region of 120 million kWh in FY2017 to produce USD. That is 0.1% the annual electricity consumption of Argentina.
I don't know, but the infrastructure for fiat currencies can achieve efficiency gains through scale.
Bitcoin cannot, on a very fundamental level: energy expenditure for mining must at all times be so high that an attack is financially unattractive. So energy usage has to increase linearly with the market cap - and completely independant of how many transactions there are.
Most Fiat currency and transactions are electronic, so they cost infinitesimal amounts of energy to ‘coin’ and transactions are just simple addition and subtraction. Conversely, bitcoin cost a relatively vast amount of energy to mine, are extremely bulky to store compared to a fairly compact numeric value, and also can cost a huge amount of energy per transaction since every transaction is highly complex and is replicated across the entire network. I can’t put numbers on that, but bitcoin is horrendously complex, computationally costly and energy costly across all the aspects of its operation compared to fiat currency electronic transactions.
Physical fiat currency might be a different story, but bitcoin doesn’t address the problem of physical money so it’s not really relevant.
I think it's only fair to include the cost of governments and armies in these costs, i.e. the value of GBP/USD is in part secured by guns and everything that comes with it.
In a very simplified way, proof of work is a way to roughly uniformily distribute the block generation "queue". In a network without identities how do you prevent someone creating hundreds of accounts to have a hundred times more chance to be next in line? You give them a hard problem, and now the odds of you being next in line is proportional to your computing power, which you can't multiply effortlessly.
Proof of Stake says that instead of distributing the work queue proportionally to the computing power you demonstrated to have, it does it proportionally to the amount of currency you have saved. It similarly prevents the attack where one could create infinite personalities to get in line, with different trade offs. In particular, beside the energy savings, it can be a much more scalable model, where you don't have to wait 10min in average for someone to solve the hard problem and instead you can know right away who are the next people eligible to generate the next blocks.
You can look at the block rewards and mining fees as interest on your investment. The "saved" part is interesting too - I've seen variations where you have to lock your stake for a longer period (trading rewards for liquidity) or where you have to "burn" an amount of stake, permanently taking it out of circulation to get a spot on the line.
The inflation rate and actual utility of the currency are important factors too - if most of the currency is already distributed and the inflation is low (thus block rewards are low), the richer don't get much richer. If the utility is high, redistribution occurs more naturally as well.
Perhaps the inflation is not low but there are other distribution mechanisms that distribute currency based on utility in a higher rate than block rewards (for example on steem, of all newly minted coins in a block ~5% goes to the block creator, ~65% goes to content creators, ~6% to commenters, ~17% to curators and 7% as interest to those that have commited their stake in a long term deposit).
But yeah, in the end it indeed is a factor which is one of trade offs I mentioned, but there are ways to combat it.
For block rewards you'd have to mine. In particular you'd have to have a server running a node joined in the network ready to generate a block whenever your number is called.
Not everyone would want to do that, so there's usually a mechanism to indicate you want to be eligible to do so, depositing your coins or similar.
That's for block rewards - nothing prevents a blockchain currency to be designed to generate inflation and add interest on everyone's investment - some do exactly that.
If it works as described, yes, but no more so than any other investment - and if the interest/profit on those coins are higher it will draw capital from other places, which will decrease the interest/profit on the coins.
The problem is in the details: how do you use this to reach consensus? How do you agree on a randomness source to picks the "winners"? How do you prevent people from mining multiple parallel histories, devolving the system into proof of work?
Because PoW enabled trustless transactions AND a provably equitable distribution of the coin via distributed minting. "I can prove that this is not a scam to waste your time and money."
Other non-mined coins would never have taken off because they would never have gathered the critical confidence/interest that Bitcoin did. Only after PoW paved the way could others have any faith in DPoS or other coins.
Something I've been thinking about is that proof of work "coins" are basically energy credits. When energy is cheap, miners can lower their fees and keep the same return, leading to more economic activity. When it is expensive, they need to raise their fees to stay profitable, thus reducing economic activity.
I think this makes sense. Wouldn't it be beneficial if economic activity scaled with energy availability? It also creates a direct incentive to develop and utilize the most efficient energy sources possible, without regard for the politics between various stakeholders (hydro vs oil vs coal vs wind vs solar, etc).
This isn't how fees work. Fees are based purely on supply and demand. The payer sets their fee level when they create the transaction, and it's up to the miners which transactions they will include. Since there is always an excess of transactions, the miners typically select transactions to maximise their payoff.
If miners were to "lower their fees", they'd be accepting low-fee transactions and excluding high-fee transactions, which makes no sense for anybody. The miners would be getting less money than they could, and the people paying high fees don't even get any better service for it.
The miners must set a rough minimum fee though. If energy costs rise enough at some point the miners will need to slow/shut down unless the sum value of the fees (in whatever currency is used to pay for the energy) rise above some threshold.
I'm not even considering the block reward, consider when there are only fees (or block reward is negligible). In that case profitability is determined by energy/hardware costs vs fees.
If costs go up (eg energy becomes scarce) the minimum fee also need to rise. Each "unit" of economic activity using the currency will be more expensive when energy is scarce than when it is abundant. This is a natural feedback loop.
If costs go up, mining activity drops. Miners can not increase transaction fees. All they can do is accept the fee they're offered or not.
If they're mining blocks at all, they want to accept the maximum fee that is offered. If they say "you guys aren't paying enough, I'm going to stop mining", then other miners will just get the fees that people are offering instead, and when the difficulty adjusts downwards, the miners that stopped mining might start mining again.
You seem hung up on the fact that miners do not broadcast a fee as part of the protocol. Ok, nobody is arguing with that in this thread...
It is just like I will not pay $2000 for a cheeseburger. I am not going to advertise that, I simply will not buy it. There is some maximum price that I set for myself.
However, the role of difficulty adjustments is a better point. As energy costs rise there could be two (non mutually exclusive) effects:
1) Fewer transactions are made with higher fees
2) Mining slows down, leading to a difficulty decrease, leading to less secure transactions
Less secure transactions means waiting for more confirmations to get the same level of confidence there will be no double spend. Is this not another, less extreme, way to slow economic activity in the face of increasing energy costs?
When energy becomes cheaper, miners can do more mining, leading to an increase in blocks. Given that people are only willing to pay so much for a transaction to complete, there is only so much demand at a certain price point. Once the supply of blocks increases, you eventually have price points where the demand no longer matches the supply. At this point a miner would lower their fee until the demand increases back to supply.
Supply and demand drives prices, but it does so through individual actors setting prices they are willing to pay/accept (or by algorithms that have been setup by some human who set up the rules by which it will set prices).
They're not "lowering their fee". That's not how it works. They might stop mining altogether, but it can never cost more to include a transaction than not to include it, unless including it pushes out another transaction that pays a higher fee.
So a miner will never reduce the cost to include a transaction into their block, even when they aren't getting enough to fill up the block?
>They might stop mining altogether
Maybe, but any market can experience short term irrationality. Maybe it takes them a few hours to stop mining in which they lose money. Or maybe stopping operations costs enough money that the miner won't stop even at a small loss, at least for some amount of time.
> So a miner will never reduce the cost to include a transaction into their block, even when they aren't getting enough to fill up the block?
Sure, if you want to twist the wording like that, they "lower the fee" to the point where they can fill the blocks. But they're not really "lowering their fees". They don't even have a concept of the fee level they're "charging". They can either accept the fees that are available or not.
If they are mining at all then they want to accept the best fees that are available. There is literally no rationale for them to be mining non-full blocks when fee-paying transactions are available to put in the blocks. It's not like it costs more to mine a larger block. The cost to mine a block is fixed, so you may as well get as much fees as you can find.
>They can either accept the fees that are available or not.
Couldn't the same be said of a brick and mortar store? They either accept the offers they are given or they don't. That for some item they only accept offers of exactly 9.99 (plus tax), rejecting not only lower offers but higher offers, doesn't change that the interaction can be described in the same fashion.
All the rest also applies to normal supply and demand. When you do a production run of some item, the cost tends to be fixed per item. Doing another run at a different time may cost different, and it is possible for something extreme to happen (factory accident), but in general the cost of production of a single run is the same.
I see nothing about this that would void basic economic reasoning, where things like 'reducing fees' happens in certain conditions.
And economics can easily account for that. Instead of saying the cost needed to product some number of blocks changes over time by 0, you instead say it changes over time by f(t). You then subtract f(t) (or add, depending upon how you treat the sign) from any actual decrease in cost to mine, and then apply the same logic.
Say the cost to mine falls by x (cheaper energy or some others amount), and x < f(t). x - f(t) < 0. The decrease in cost is less than 0, meaning the cost effectively increased since it didn't decrease by the amount needed due to the built in difficulty increase.
Normal economics works this same way due to scarcity, though the default change in cost into the future is far less sure of a thing. Take mining gold. Given that gold is mined from the cheapest to mine spots first, the more gold you mined, the more the cost of mining the same amount of gold. Maybe a new mine filled with easier to mine gold is found, maybe a current mine runs out of gold much sooner than expected, but it works in a similar manner.
does anyone else think that articles like this are fueled self interested parties who don't have a stake in crypto?
if crypto is here to stay, wont more efficient mining hardware, potentially more efficient software, and things like recent advances in solar relax these fears in reality?
> does anyone else think that articles like this are fueled self interested parties who don't have a stake in crypto?
Journalists aren’t supposed to have a stake in the subject they cover. That’s the point. Not having a stake in cryptocurrency is “disinterested,” not “self-interested.”
There are plenty of journalists with conflicts of interest. It's not ethical, but they do. Financial columnists sometimes don't even admit their conflicts, it's crazy.
In the long run hardware efficiency shouldn't matter. At longer time scales the cost of the electricity consumed will always trend towards the value of the reward.
Just by the simple mechanism of people seeing an opportunity to profit and buying hardware and turning it on.
The energy invested in adding transaction blocks to the Bitcoin blockchain (which requires iterating through nonces until one is found that can partially reverse a cryptographic hashing algorithm, consuming computing power) is what makes the blockchain immutable.
Consider: Modifying a transaction block from, say, 3 days ago, is practically impossible, because it would require burning the same amount of energy the entire network has burned over the past 3 days in an instant, before the network invests even more energy adding more transaction blocks. Forget about trying to modify or revert transactions from more than a few days ago.[a]
The energy invested in Bitcoin is securing the transaction history.
There is value in that, no?
[a] Edit: I mean modifying a transaction right now, without forking the blockchain. Please see maxerickson's comments and my responses below.
You don't have to match the energy burn, just the hash rate (so efficiency matters).
You also don't have to do it all at once, you just have to be faster than the network (If the private blocks are calculated 10% faster it only takes ~10 days to go back in time 1 day). But of course this attack isn't practical, actually executing it would demonstrate that the public network was a farce.
> You don't have to match the energy burn, just the hash rate (so efficiency matters).
Of course, but I don't know how anyone could be a lot more efficient that current miners, who are in a rat race to increase the efficiency of their mining operations. They probably think about energy consumption every waking hour of the day.
> You also don't have to do it all at once, you just have to be faster than the network (If the private blocks are calculated 10% faster it only takes ~10 days to go back in time 1 day)...
Of course, but by then the Bitcoin network would have invested ~10 more days of energy into the network, and now instead of being one day behind, one would be ~10 days behind. One would have a different, forked blockchain far behind the original one, with no hope of catching up.
If one wants to modify a transaction from a day ago over time, one must burn at least one day's worth of Bitcoin network energy consumption much faster than the network, in order to keep up with the network. If one wants to modify a transaction from a day ago right now, one must burn at least one day's worth of Bitcoin network energy consumption in an instant.
PS. Note that I mean without forking. SORRY if that wasn't clear in my earlier comments!
You just have to have the "higher" energy cost, you don't need to have the same blockchain. So if you are 10% faster, you can go back in time an interval t once you have burned ~10t.
This is why the demonstration would fracture Bitcoin; it would reveal the hidden mining power and second there would be a bunch of discussion of ignoring the higher cost chain and sticking with social consensus.
> Re your PS, there will still be an old and new consensus blockchain no matter how fast you calculate the replacement.
Yes, of course. In fact, at any point in time there are always multiple blockchains, one for every miner burning energy to add a new block.
However, only the longest blockchain (with the greatest proof-of-work) is valid. As soon as there's a longer valid blockchain, the miners discard their individual work-in-progress blockchains and switch to the one with the most proof-of-work.
That longest blockchain is the Bitcoin blockchain. That is the blockchain one would have to modify to alter the transaction history in the Bitcoin network without forking.
FWIW, I don't think we disagree; I feel like we've been talking about slightly different things until just now.
We are kind of talking about different things. I'm talking about how at the protocol level the contents of the longest chain do not matter, it is by rule the "consensus blockchain".
It naturally flows from there that as long as you can calculate blocks faster than the network, you can rewrite past transactions, with the speed difference restricting how far back you can rewrite.
There's no need to do it in an instant and doing it in an instant isn't any different than doing it more slowly (other than the amount of hidden hash power revealed).
