55. On Bitcoin Mining as a Waste of Resources

55

On Bitcoin Mining as a Waste of Resources

THE ARGUMENT that bitcoin mining is a waste of resources has often been reported in the media. If Satoshi were not anonymous and were still involved, his interviews would inevitably include this question. Thus, seeing the answer he would likely give presented in these posts is illuminating.

Bitcoin minting is thermodynamically perverse

Posted by gridecon, August 06, 2010, 01:52:00 PM

Let me begin by saying that Bitcoin is an amazing project and I am very impressed with the implementation and the goals. From reading these forums it seems to be understood that debate about the design and operation of the bitcoin economy ultimately serves to strengthen it, so I hope these comments are taken in that spirit. *EDIT I have been convinced by further research and discussion that Bitcoinis actually highly efficient compared to most traditional currencies, because the infrastructure required to support a government issued fiat currency represents a much larger investment of resources than Bitcoin’s cpu power consumption. I am leaving this thread active though because it has been generating a lot of interesting discussion.*

I believe that the amount of energy input required to the bitcoin economy represents a serious obstacle to its growth. I think in the long-term, transactions may be even more serious than minting in this regard, but I will for the moment discuss minting because it is more precisely bounded and defined. The idea that the value of bitcoins is in some way related to the value of the electricity required, on average, to mint a winning block is generally accepted, but the precise nature of this relationship is contentious.

One argument is that anyone who chooses to generatecoins is actually making the choice to purchase bitcoins with electricity/computational resources, and that because some/ many people are in fact making that choice, bitcoins haveat least that much “value” to the generators, who can be assumed to be maximizing their utility. A contrasting argument is that cost of production is different than market value, andthe most objective measure is the current market conversion price to a more liquid and widely traded currency such as the US dollar.

My contention is that both of these arguments miss the point and the real problem, which is the fundamental perversityof wasting large amounts of energy and computations ingenerating the winning blocks for the minting process. The minting process exists because of the necessity of actually “printing” the currency, and certain desirable properties of crypto-math for making the currency’s behavior predictable. The fact that the current minting process requires a large energy input of computational work is highly unfortunate and has the perverse consequence that bitcoin may actually be “destroying wealth” in the sense of wasting energy producing a digital object worth less than the resources invested in it.

As is often pointed out, a currency does not necessarily have, or need to have, any inherent value a medium of exchange is a useful tool and can have value purely as a consequence of social convention. The cost of production of bitcoins in electricity consumed represents a waste, a “thermodynamic burden” that the currency has to carry. Consider a hypothetical alternative digital currency called“compucoin”, which purchases cpu cycles from nodes on the network. The market value of this currency would converge very closely with the cost of electricity required to generate cpu cycles. Instead of costing cpu cycles to mint, the value of the cpu cycles the coins could be exchanged for would create a rational basis for the currency’s value and integrate it withan existing market. I imagine that alternatives to Bitcoin (many of them probably sharing a lot of Bitcoin’s source code) will inevitably emerge and Bitcoin’s current minting process makes the currency “expensive” in terms of energy input. I believethis places it at a competitive disadvantage to other currencies and can only hinder its widespread adoption and long-term value. *Edit as mentioned above, I am now much more optimistic about Bitcoin long term. I still think compucoinswould be a cool idea, though!*

Re: Bitcoin minting is thermodynamically perverse

Posted by satoshi, August 07, 2010, 05:46:09 PM

It’s the same situation as gold and gold mining. The marginal cost of gold mining tends to stay near the price of gold. Gold miningis a waste, but that waste is far less than the utility of having gold available as a medium of exchange.

I think the case will be the same for Bitcoin. The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used. Therefore, not having Bitcoin would be the net waste.

Quote from: gridecon on August 06, 2010, 04:48:00 PM

As an overall point, I also do not agree with the idea that the very high computational burden of coin generation isin fact a necessity of the current system. As I understand it, currency creation is fundamentally metered by TIME and if that is the fundamental controlling variable, what is the need for everyone to “roll as many dice as posible” within that given time period? The “chain of proof” for coin ownership and transactions doesn’t depend on the method for spawning coins.

Each node’s influence on the network is proportional to its CPU power. The only way to show the network how much CPU power you have is to actually use it.

If there’s something else each person has a finite amount of that we could count for one-person-one-vote, I can’t think of it. IP addresses . . . much easier to get lots of them than CPUs.

I suppose it might be possible to measure CPU power at certain times. For instance, if the CPU power challenge was only run for an average of 1 minute every 10 minutes. You could still prove your total power at given times without running it all the time. I’m not sure how that could be implemented though. There’s no way for a node that wasn’t present at the time to know that a pastchain was actually generated in a duty cycle with 9 minute breaks, not back to back.

Proof-of-work has the nice property that it can be relayed through untrusted middlemen. We don’t have to worry about a chainof custody of communication. It doesn’t matter who tells you a longest chain, the proof-of-work speaks for itself.

Re: Bitcoin minting is thermodynamically perverse

Posted by satoshi, August 09, 2010, 09:28:39 PM

The heat from your computer is not wasted if you need to heat your home. If you’re using electric heat where you live, then your computer’s heat isn’t a waste. It’s equal cost if you generate the heat with your computer.

If you have other cheaper heating than electric, then the waste is only the difference in cost.

If it’s summer and you’re using A/C, then it’s twice.

Bitcoin generation should end up where it’s cheapest. Maybe that will be in cold climates where there’s electric heat, where it would be essentially free.

Re: Bitcoin minting is thermodynamically perverse

Posted by throughput, August 10, 2010, 12:27:30 PM

I think the discussion have eventually lost the ethic aspects of motivating the botnet creators toinvest even more resources in their business in case whenBTCs generated will deliver the value, comparable to the current uses of botnets.What if Bitcoin operation will outperform the other activities? How can you imagine, that botnet building process is done in a way, that benefit the community?

Quote from: jgarzik on August 06, 2010, 07:53:25 PM

Participation in the network as an honest node helps everyone.

Yes, but only when it is not against the computer owner’s will, he pays the electricity bill.

If it is, then he loses REAL money for an extra power consumption caused by 100% CPU load. So, Bitcoin motivates behavior of stealing computing power from innocent computer owners.

Well, you may now try to compare the social harm to the benefits, but do you really feel you have the moral right to do so?

Re: Bitcoin minting is thermodynamically perverse

Posted by Gavin Andresen, August 10, 2010, 09:26:14 PM

Quote from: throughput on August 10, 2010, 12:27:30 PM

So, Bitcoin motivates behavior of stealing computing power from innocent computer owners.

Sure, in exactly the same way the existence of credit cards motivates behavior of stealing credit card numbers from innocent credit card users.

Or the existence of bank accounts motivates hackers to try to break into your system to find out your bank account number.

existence of cars motivates some people to steal gasoline from innocent service station owners.

I believe the benefits of Bitcoin will outweigh the harm, and I further believe that I am capable of making that moral judgment. I might be wrong, and I might regret I ever got involved, but if I only ever did things that I was 100% certain were going to work out for the best I would never accomplish anything new and interesting.