Does anyone here use Bitcoins?

[eleman]

Now did my reading, but I'm still none the wiser as to why do we burn power? Assume that I'm not a huge fan of Ron Paul, so the "alternative to government conspiracy" brand of arguments would also not make much sense to me.

[wraith808]

Anything we do that generates revenue in some way has a cost.  Why should this be any different?  What makes this the thing that makes power the consideration?

[eleman]

But it doesn't.

The other things we used to generate money, for instance mining gold, had an actual use other than just generating money. Actually, the original function of gold (making shiny things women like, using in alloys to make rust resistant weapons etc.) predated the use as legal tender.

This one doesn't have another function. You just burn electricity, and assure yourself that you'll be paid for it. No intrinsic purpose whatsoever.

[wraith808]

But it doesn't.

The other things we used to generate money, for instance mining gold, had an actual use other than just generating money. Actually, the original function of gold (making shiny things women like, using in alloys to make rust resistant weapons etc.) predated the use as legal tender.

This one doesn't have another function. You just burn electricity, and assure yourself that you'll be paid for it. No intrinsic purpose whatsoever.

-eleman (January 23, 2014, 09:42 PM)

Gold has no intrinsic value.  The only value is what people place on it.  When people mine gold, they use power for all sorts of things, under the assurance that they will be paid for it, out of the fact that people want it.

[eleman]

Gold has no intrinsic value.  The only value is what people place on it.  When people mine gold, they use power for all sorts of things, under the assurance that they will be paid for it, out of the fact that people want it.

-wraith808 (January 23, 2014, 10:18 PM)

I'd disagree with this. Cavemen (or perhaps cavewomen) were attracted to shiny things, so they were attracted to gold, even before it became a medium of exchange. In the iron age it was also used as an ingredient in copper alloys to make them more sturdy. And yes, it predates the minting of the first coin by Lydians. Today we still make jewelry, in addition to substantial use in industry. 10% of all gold mined is used in industrial purposes. If it had been cheaper, the ratio would undoubtedly increase.

So, gold always had and always will have an intrinsic value. What's the intrinsic value of bitcoin hashes? It looks more and more like the shares of the South Sea Trading Company.

[wraith808]

Just because someone is attracted to something doesn't define an intrinsic value.  I think intrinsic value is pretty much universally taken to be characterized in terms of the value that something has “in itself,” or “for its own sake,” or “as such,” or “in its own right.”  Gold has no value in and of itself, other than as you say as a shiny bauble.  Therefore, gold has no intrinsic value.

The concept of the intrinsic value of gold is more related to the belief that gold is a safe investment vehicle is based on the presumption that a rare shiny yellow metal has intangible value because it has been used as a store of value and a commodity currency in the past. While this holds today, that does not mean that in the future, gold will be regarded as a "precious metal."

With that in mind, the fundamental intrinsic value of gold, in my opinion, is equivalent to the demand for gold in productive applications.  Not as jewelry, but in production- the same yardstick that you are using in bitcoin vs. the electricity used.  While it is true, as you say, that gold can and is used in electronics, that is not the store placed on its value.  Indeed, if that was the only thing that gold was useful for, it would be as valuable as other metal materials used for the same purpose at the same rarity, especially as the reserve would be larger as jewelry applications would not compete with the use in productive applications.

As such, if you take away the perceived value because of shiny baubles, there is not much in the way of intrinsic value in gold.  It's value is what people see it as.

[tomos]

Yeah, it's getting down to what *is* money - and what do we want money to be like. Maybe even what do we want the world to be like. When you think about it, once we're fed, clothed and have a roof over our heads, we as a society can chose to do anything we want after that. I know that many people dont get beyond working to get enough for those basics. There are people who argue that fiat money causes scarcity. I'm not expert enough to know if that's true. But I do know (look at Ireland) that where it screws up, and there's a shortage of money, you are then screwed - you might be able to work, there might be people who would like you to work for them, but without the money nothing works. (There are other ways to allow people to work i.e. without fiat money, but that's moving onto another topic I think.)

I dont know how Bitcoin as a currency will affect any of this - not much really I suspect. But if it became popular/usable as a currency - it might, in & of itself, be the regulation for the money-system that the governments these days are failing to implement.

[eleman]

Just because someone is attracted to something doesn't define an intrinsic value.  I think intrinsic value is pretty much universally taken to be characterized in terms of the value that something has “in itself,” or “for its own sake,” or “as such,” or “in its own right.”  Gold has no value in and of itself, other than as you say as a shiny bauble.  Therefore, gold has no intrinsic value.

-wraith808 (January 24, 2014, 12:46 AM)

I wouldn't discount the shine as a source of value. Value is defined as the likelihood to get something else in return. I could imagine shiny rocks buying services to some caveman in a cave bordello. In other words you could use it in barter, even before the invention of money. I can't imagine that for random strings of numbers.

And I wouldn't discount jewelry as a functional use. People like it, so it is valuable. In your logic, aesthetical choices do not deserve value, and for instance, you would not pay extra for a fancy house paint color, given limewash is cheaper, and does the bare function of keeping the walls clean. But we do pay extra to paint our house walls green, pink, champagne etc. don't we? Because our sense of aesthetics imposes the function, hence the value. Saying electronics count as a legitimate use, but jewelry doesn't isn't very consistent.

So, gold is valuable in and of itself. Perhaps not the value it fetches today, as it is also considered as a safe investment instrument as you mention, but still some. Say it would command $4 per gram, rather than today's price of $40. But it would command "a price" nonetheless.

What would Bitcoin hashes go for, if it weren't for the implicit agreement that they are a medium of exchange?

[tomos]

^ I think you're getting bogged down here eleman:
Gold has some value based on it's use industrially and on it's use in jewellery. So, moving on - where does that leave us, money, the dollar, and bitcoin?

Off the top of my head, things of value are: food, your time, things we make that other people want. If we only use things of actual value for trading, we will have to revert to barter :-/

What would Bitcoin hashes go for, if it weren't for the implicit agreement that they are a medium of exchange?

-eleman (January 24, 2014, 03:44 AM)

the same as todays dollar - and all other money I know of. Not an argument against Bitcoin, unless you also use it as an argument against money as we know it today.

[eleman]

What would Bitcoin hashes go for, if it weren't for the implicit agreement that they are a medium of exchange?

-eleman (January 24, 2014, 03:44 AM)

the same as todays dollar - and all other money I know of. Not an argument against Bitcoin, unless you also use it as an argument against money as we know it today.

-tomos (January 24, 2014, 06:40 AM)

Well, I'd also raise the same argument against the dollar, or peso, or lira, or euro, whatever, if it did needlessly contribute to global warming. Sure they do (dead trees), but not at the scale applicable to bitcoin mining I reckon.

Does someone have solid statistics on this? i.e. you get x dollars worth of bitcoins after burning y dollars worth of electricity on a rig that cost z dollars to build.

That would really bring our discussion to some solid footing here.

[wraith808]

Well, I'd also raise the same argument against the dollar, or peso, or lira, or euro, whatever, if it did needlessly contribute to global warming. Sure they do (dead trees), but not at the scale applicable to bitcoin mining I reckon.

-eleman (January 24, 2014, 06:46 AM)

But they do.  Maybe not as directly... but they do.  It's *all* digital these days, truth be told.  The paper money that we hold is just a representation of digital systems in place, especially in this day and age of fractional reserve banking, quantitative easing, and creative accounting.

So why should bitcoin be held to a different standard?  It's value is in the same thing as all of our other digital banking and such- in the reliability of the transactional data and the ability to conduct those transactions with a measure of security.

You keep harping on how gold has intrinsic value based on the shine, i.e. from your last post:

I wouldn't discount the shine as a source of value. Value is defined as the likelihood to get something else in return. I could imagine shiny rocks buying services to some caveman in a cave bordello. In other words you could use it in barter, even before the invention of money. I can't imagine that for random strings of numbers.

-eleman (January 24, 2014, 03:44 AM)

But now you've gotten yourself in a logical hole.  Just because you can't imagine cryptographic strings being worth much- apparently many others can.  And as such, by your definition, doesn't that give it 'intrinsic value'?  After all, people want it, right?

[eleman]

Well, I'd also raise the same argument against the dollar, or peso, or lira, or euro, whatever, if it did needlessly contribute to global warming. Sure they do (dead trees), but not at the scale applicable to bitcoin mining I reckon.

-eleman (January 24, 2014, 06:46 AM)

But they do.  Maybe not as directly... but they do.  It's *all* digital these days, truth be told.  The paper money that we hold is just a representation of digital systems in place, especially in this day and age of fractional reserve banking, quantitative easing, and creative accounting.

-wraith808 (January 24, 2014, 07:13 AM)

But they don't require otherwise useless consumption of cpu cycles, do they? They consume only what is necessary for the transactions. Sending 1000 bytes there, saving 300 bytes here. No otherwise useless effort is involved, just to make them artificially precious.

You keep harping on how gold has intrinsic value based on the shine, i.e. from your last post:

I wouldn't discount the shine as a source of value. Value is defined as the likelihood to get something else in return. I could imagine shiny rocks buying services to some caveman in a cave bordello. In other words you could use it in barter, even before the invention of money. I can't imagine that for random strings of numbers.

-eleman (January 24, 2014, 03:44 AM)

But now you've gotten yourself in a logical hole.  Just because you can't imagine cryptographic strings being worth much- apparently many others can.  And as such, by your definition, doesn't that give it 'intrinsic value'?  After all, people want it, right?

-wraith808 (January 24, 2014, 07:13 AM)

You're deliberately missing the point. I claim that gold has a value regardless of the assumption of it being a medium of exchange. Bitcoin hashes do not have that VALUE REGARDLESS OF THE ASSUMPTION OF THEM BEING A MEDIUM OF EXCHANGE. See the phrase "in and of itself".

Anyway, this is slowly evolving into a flame war, and I don't want to be a jerk (I feel I will be in my next post, if I'm not already). So I won't reply anymore.

[mouser]

I try to avoid this bitcoin stuff because the whole world of finance seems completely insane and make-believe to me.

However, i am somewhat interested in the technology issues.

I think the points being made about other currency (gold, diamonds, etc.) being intrinsically mostly worthless -- and in that sense not particular different from virtual/digital currency, are all valid.

But what I think eleman touched on which is odd about bitcoin is that, if i'm understanding it correctly, one of the key ideas of bitcoin is that by design it MUST require huge amounts of otherwise-useless cpu cycles, in order to simulate/create scarcity.

It's a key property you have to have scores of high-powered computers doing nothing but churning through useless operations 24 hours a day, 365 days a year to do "work" that is of no value other than to purposefully slow down the generation of these digital tokens.

That does strike one as wasteful.

But now the interesting technological question that comes to mind is, could you flip that?

Could you make a new crypto/digital currency where the work required to virtually "mine" such things was actually PRODUCTIVE USEFUL work?

Like a crypto/digital coin which was generated by successfully solving protein folding problems, etc.

Such a thing would still enforce rarity/scarcity by requiring massive cpu cycles -- but those cycles themselves would be producing useful work.

It would be as if coal/diamond/gold mining helped the environment.. Now *that* could be revolutionary.

[tomos]

What would Bitcoin hashes go for, if it weren't for the implicit agreement that they are a medium of exchange?

-eleman (January 24, 2014, 03:44 AM)

the same as todays dollar - and all other money I know of. Not an argument against Bitcoin, unless you also use it as an argument against money as we know it today.

-tomos (January 24, 2014, 06:40 AM)

Well, I'd also raise the same argument against the dollar, or peso, or lira, or euro, whatever, if it did needlessly contribute to global warming. Sure they do (dead trees), but not at the scale applicable to bitcoin mining I reckon.

Does someone have solid statistics on this? i.e. you get x dollars worth of bitcoins after burning y dollars worth of electricity on a rig that cost z dollars to build.

That would really bring our discussion to some solid footing here.

-eleman (January 24, 2014, 06:46 AM)

when I replied there I didnt realise that was still your main focus. It is unfortunate that there is this waste involved. It would have been great it it could have been doing something useful. But that's not the case - and cannot be changed in retrospect. And I dont think it's going to stop the forward march of bitcoin.


and good post above mouser!

[wraith808]

You're deliberately missing the point. I claim that gold has a value regardless of the assumption of it being a medium of exchange. Bitcoin hashes do not have that VALUE REGARDLESS OF THE ASSUMPTION OF THEM BEING A MEDIUM OF EXCHANGE. See the phrase "in and of itself".

Anyway, this is slowly evolving into a flame war, and I don't want to be a jerk (I feel I will be in my next post, if I'm not already). So I won't reply anymore.

-eleman (January 24, 2014, 07:22 AM)

I wasn't deliberately missing the point- I was debating the merits of your argument.  Gold does have productive value, as I conceded.  But it's *worth* isn't directly proportional to that value, nor based on it.  It's based on, as you put it, the value of it being shiny, more than that productive value, which skews the argument towards it being more like bitcoin than not.  10% goes towards production- is that correlative to the amount of energy put into mining it?  Not at 10%.  If correlated, there would be a lesser demand, and a lesser investment of industry towards mining it.  I also didn't intend any flame war- it wasn't devolving into such on my side.  I do apologize if you viewed it that way, and if I said anything that you construed as being towards you instead of your argument (it doesn't seem that I did... but then that is, I guess subjective).

Thanks for the conversation.

when I replied there I didnt realise that was still your main focus. It is unfortunate that there is this waste involved. It would have been great it it could have been doing something useful. But that's not the case - and cannot be changed in retrospect. And I dont think it's going to stop the forward march of bitcoin.

-tomos (January 24, 2014, 07:41 AM)

But is that waste?  It's providing a very real service, i.e. taking fiat out of the hands of the rich, and putting it into the hands of all of us.  That's not a waste to me. 

85 people have as much money as half the world

I strongly recommend that no matter where you stand on the issue, you actually read Adam Smith (The Wealth of Nations). He knew and said that the top oligarchs were not "job creators" but rather would concentrate on "rent-seeking" which is not Capitalism. Supply Side "economics was a betrayal of Smith that ignored human nature and was never ever right. Jobs are created by small business and by high tech. Both of which across 6000 years were always crushed by owner-oligarchy.

Capitalism of the true, creative and open variety is one of the top VICTIMS of oligarchy. Read… Adam… Smith...

... but that's getting out of the technological aspects of Bitcoin, so I'm going to stop right there.

[tomos]

when I replied there I didnt realise that was still your main focus. It is unfortunate that there is this waste involved. It would have been great it it could have been doing something useful. But that's not the case - and cannot be changed in retrospect. And I dont think it's going to stop the forward march of bitcoin.

-tomos (January 24, 2014, 07:41 AM)

But is that waste?  It's providing a very real service, i.e. taking fiat out of the hands of the rich, and putting it into the hands of all of us.  That's not a waste to me.

-wraith808 (January 24, 2014, 08:22 AM)

[edit] didnt mean to be stroppy here, but I think you might have misunderstood my post [/edit]
I just said that there is 'waste involved' (I didnt say/imply that it wasnt worth it).

from my post prior to the one you quoted:

But if it became popular/usable as a currency - it might, in & of itself, be the regulation for the money-system that the governments these days are failing to implement.

-tomos (January 24, 2014, 02:50 AM)

[wraith808]

Ah... I get it.  But from a philosophical standpoint, if it's worth it, is it waste?    But yes, I get your meaning.  There is waste in the process, and cutting that would be better, as it would be the waste in burning fossil fuels in automotives and such, with the greenhouse emissions and reduction of those.

And to be sure... I'm not one of the real bitcoin advocates.  I just enjoy a good debate, especially about abstract ideas, especially when they intersect with technology, and was just enjoying myself as there's not been one of those around here in a while.  And I do see the benefit from that level, especially in terms of fiat and who holds it.

[Renegade]

Well, seems like a lot going on here since I last checked.  Wraith808 posted down in the Basement, which directed me over here.

INTRINSIC VALUE

This is most often an unproductive discussion that boils down to, "well, that's not what *I* mean by 'intrinsic value'." It's like debating with Humpty Dumpty. "There's glory for you!"

So, I'll be (mostly) clear about how I'm going to use (abuse?) that term... I mean that it has a use. Not very complicated. Not sophisticated. Not difficult. Not full of BS. It has a use. Period. Note that I have used a very broad definition. That is intentional.

Suffice it to say that (I believe) the most proper definition of "intrinsic value" requires this qualification: "to <who>?"

Remember, "value" is subjective, and requires someone to place value on some "thing" ("thing" can also be "event"). To talk about value outside of some kind of agency is to entirely miss the point. Agents place value on things/events. "What is it/that worth to me/you?"  

Nuff said there.
 
ENERGY CONSUMPTION

This is a bit of a silly argument. "Bitcoins are causing the Earth to melt! OMG! Shut it down!" I'll refer people here. All activity requires energy. All of it. There are no exceptions. If you want output, you have to have input first.

A splash of anarchism

I try to avoid this bitcoin stuff because the whole world of finance seems completely insane and make-believe to me.

-mouser (January 24, 2014, 07:32 AM)

And no less insane than the world of government.

In any event, the problem is already solved.

Peercoin.

However, i am somewhat interested in the technology issues.

-mouser (January 24, 2014, 07:32 AM)

Ah! And how we shall explore some of your musings below~!

But what I think eleman touched on which is odd about bitcoin is that, if i'm understanding it correctly, one of the key ideas of bitcoin is that by design it MUST require huge amounts of otherwise-useless cpu cycles, in order to simulate/create scarcity.

-mouser (January 24, 2014, 07:32 AM)

You're not understanding it properly.

1) The CPU cycles are not worthless. I'll explain below.
2) They do not simulate/create scarcity. I'll probably skip this as it's going off into a non-tech area. (2 things to address there though.)

It's a key property you have to have scores of high-powered computers doing nothing but churning through useless operations 24 hours a day, 365 days a year to do "work" that is of no value other than to purposefully slow down the generation of these digital tokens.

-mouser (January 24, 2014, 07:32 AM)

No. This is a complete mischaracterisation of what is happening. It isn't remotely close.

The next bit will meander a little, so please stick with me.

The genius behind Satoshi Nakamoto's invention (or one aspect of his genius) is that he solved a general computing problem called the "Byzantine Generals' Problem". Previously all attempts at digital currency have failed because they could not solve the "double-spend" problem (a specific case of the Byzantine Generals' Problem). So, people could spend the same digital currency more than once in the same way that you copy a file. Satoshi solved this problem so that coins cannot be spent twice.

More on the 'general' problem here:

https://startpage.co...+Generals%27+Problem

In short, he solved it. The solution is the "blockchain", a public ledger of accounts.

Now, in order to ensure that people don't access other people's ledger entries (entries in the blockchain - where your bitcoins are stored), we use cryptography.

The cryptographic problems are very difficult to solve, but very easy to verify.

Grab a Sudoku and solve it. Now, verify that it is correct. THAT'S IT! It took you a long time to solve, but you verified it very very quickly.

Bitcoin and other crypto currencies do the same thing.

And thus, the Byzantine Generals' Problem is solved.

The energy is not wasted. It is securing the network and the blockchain. There is no minimum or maximum amount of computing power than "must" be thrown at the network/blockchain. It can be more or less. However, the more computing power thrown at the network/blockchain, the less chance that a malicious miner can fudge entries and double-spend.

The double-spend is now known as a "51% attack".

Another splash of anarchy!

"Democracy" is the original 51% attack!

A 51% attack is where you acquire 51% of the network hashing power and then use it maliciously against the network/blockchain.

Yet another splash of anarchy! (Remember the cypherpunk roots.)

This is exactly the same as how the majority in a democracy force their will on the minority.

With the power behind Bitcoin now, a 51% is virtually impossible. Search for videos with Andreas Antonopolous for more information on why that is so.

Hopefully I have outlined the cryptography reasons why the energy isn't wasted.

tl;dr - The energy used to secure Bitcoin is much the same as how you might spend resources to guard your home/business with locks, fences, CCTV, guards, dogs, etc.

But now the interesting technological question that comes to mind is, could you flip that?

-mouser (January 24, 2014, 07:32 AM)

I think I've already established that it's not wasted. I skipped quite a bit, but you can read the paper for the details on exactly how it happens. But... to answer the question again from a different perspective...

YES!!!

Could you make a new crypto/digital currency where the work required to virtually "mine" such things was actually PRODUCTIVE USEFUL work?

-mouser (January 24, 2014, 07:32 AM)

It has already been done. Primecoin.

http://primecoin.org/
http://www.ppcointalk.org/
https://bitcointalk....x.php?topic=251850.0
https://bitcointalk....x.php?topic=245953.0

First non-hashcash proof-of-work in cryptocurrency, pure prime number based proof-of-work

http://primecoin.org.../primecoin-paper.pdf

Abstract

A new type of proof-of-work based on searching for prime numbers is introduced in peer-to-peer cryptocurrency designs. Three types of prime chains known as Cunningham chain of first kind, Cunningham chain of second kind and bi-twin chain are qualified as proof-of-work. Prime chain is linked to block hash to preserve the security property of Nakamoto’s Bitcoin, while a continuous difficulty evaluation scheme is designed to allow prime chain to act as adjustable-difficulty proof-of-work in a Bitcoin like cryptocurrency.

...

Primecoin is the first cryptocurrency on the market with non-hashcash proof-of-work, generating additional potential scientific value from the mining work. This research is meant to pave the way for other proof-of-work types with diverse scientific computing values to emerge.

I highly recommend reading that paper if you are interested in some of the technical details. It's fascinating stuff. They've really done their homework well.

Like a crypto/digital coin which was generated by successfully solving protein folding problems, etc.

-mouser (January 24, 2014, 07:32 AM)

The example you've given probably isn't a good one. This is cryptography... not a division of the life sciences. If there is general class of mathematical problems that relates to life sciences, then perhaps. I don't know though. Those are questions for cryptographers to determine. (And specifically, those questions are NOT for biologists or physicists to answer.)

Now, could you tack on some kind of life science problem or problem in astronomy or cosmology? I suppose so, but it would not have any value for the network. It would be "busy" and meaningless work for the network. HOWEVER... Do note that Primecoin DOES the kind of work that you've hinted at and *IS* meaningful to the network. i.e. The work it does is both productive and meaningful.

Specifically, you need a class of problems for which you can continually generate solutions, and not a class of problems for which at some point you have generated all the possible solutions.

The classes of problems that Primecoin addresses are well beyond my grasp as I'm not a cryptographer and I don't have an advanced degree in mathematics.

Such a thing would still enforce rarity/scarcity by requiring massive cpu cycles -- but those cycles themselves would be producing useful work.

-mouser (January 24, 2014, 07:32 AM)

Scarcity has nothing to do with anything as far as the Bitcoin technology goes, unless you mean for a 51% attack. If you mean rarity/scarity in the economic sense, then that's an entirely different question and completely irrelevant to the Bitcoin technology.

i.e. The computing power does not create any kind of scarcity --- but there may be a scarcity of computing power.

tl;dr - Well, not really a summary, but hitting 2 main points made above in several posts... Primecoin and Peercoin solve different problems: the problem of scientific usefulness over and above the securing of the network/blockchain, and energy consumption, respectively.

[mouser]

You've made some interesting points Ren, but I'm not sure how to square them with the stuff I read.

Here is the (official?) bitcoin faq page (http://bitcoin.org/e...are-bitcoins-created), emphasis mine:

The Bitcoin protocol is designed in such a way that new bitcoins are created at a fixed rate. This makes Bitcoin mining a very competitive business. When more miners join the network, it becomes increasingly difficult to make a profit and miners must seek efficiency to cut their operating costs. No central authority or developer has any power to control or manipulate the system to increase their profits. Every Bitcoin node in the world will reject anything that does not comply with the rules it expects the system to follow.

Bitcoins are created at a decreasing and predictable rate. The number of new bitcoins created each year is automatically halved over time until bitcoin issuance halts completely with a total of 21 million bitcoins in existence. At this point, Bitcoin miners will probably be supported exclusively by numerous small transaction fees.
Why do bitcoins have value?

Bitcoins have value because they are useful as a form of money. Bitcoin has the characteristics of money (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics rather than relying on physical properties (like gold and silver) or trust in central authorities (like fiat currencies).

To me that (and other discussions i read when searching for "bitcoin + scarcity") seems to confirm my point -- that it is a central element of design that huge amounts of cpu have to be churned through, solely because it is essential that one not be able to quickly mine coins.  That's the whole point of the scarcity thing, which still seems key to me.  The design of the system simply does not allow allow a situation where mining coins is energy cheap and efficient.  By design if someone found a way to mine the coins for half the energy cost, it would simply mean that the next day everyone would be running twice as many computers to mine bitcoins.

In fact, the scarcity-by-design and spread-of-mining-over-all-miners nature means that that the amount of cpu resources and energy costs will ALWAYS rise to a cost near the expected value of the coins.  If you think that a coin will be worth $1000 then you would be willing to spend a little less than $1000 on your energy bills and hardware costs to mine a coin (or spent that much money infecting people's computers with bots to do so).  The system is designed to force people to churn through that cpu time and energy cost because by design it must -- those extra cpu cycles are not benefiting anyone they are simply there to impose an (artificial) cost on users in order to enforce a limited supply.

My point was that it doesn't have to be that way.  You could find a way to keep exactly the same properties (of scarcity, limited supply, protection against attack, etc.) but have the cpu work required for mining actually be useful, in-and-of-itself, for other purposes.

Thanks for the links to primecoin -- i look forward to reading about it.

[Renegade]

You've made some interesting points Ren, but I'm not sure how to square them with the stuff I read.

Here is the (official?) bitcoin faq page (http://bitcoin.org/e...are-bitcoins-created), emphasis mine:

The Bitcoin protocol is designed in such a way that new bitcoins are created at a fixed rate. This makes Bitcoin mining a very competitive business. When more miners join the network, it becomes increasingly difficult to make a profit and miners must seek efficiency to cut their operating costs. No central authority or developer has any power to control or manipulate the system to increase their profits. Every Bitcoin node in the world will reject anything that does not comply with the rules it expects the system to follow.

Bitcoins are created at a decreasing and predictable rate. The number of new bitcoins created each year is automatically halved over time until bitcoin issuance halts completely with a total of 21 million bitcoins in existence. At this point, Bitcoin miners will probably be supported exclusively by numerous small transaction fees.
Why do bitcoins have value?

Bitcoins have value because they are useful as a form of money. Bitcoin has the characteristics of money (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics rather than relying on physical properties (like gold and silver) or trust in central authorities (like fiat currencies).

To me that (and other discussions i read when searching for "bitcoin + scarcity") seems to confirm my point -- that it is a central element of design that huge amounts of cpu have to be churned through, solely because it is essential that one not be able to quickly mine coins.  That's the whole point of the scarcity thing, which still seems key to me.  The design of the system simply does not allow allow a situation where mining coins is energy cheap and efficient.  By design if someone found a way to mine the coins for half the energy cost, it would simply mean that the next day everyone would be running twice as many computers to mine bitcoins.

In fact, the scarcity-by-design and spread-of-mining-over-all-miners nature means that that the amount of cpu resources and energy costs will ALWAYS rise to a cost near the expected value of the coins.  If you think that a coin will be worth $1000 then you would be willing to spend a little less than $1000 on your energy bills and hardware costs to mine a coin (or spent that much money infecting people's computers with bots to do so).  The system is designed to force people to churn through that cpu time and energy cost because by design it must -- those extra cpu cycles are not benefiting anyone they are simply there to impose an (artificial) cost on users in order to enforce a limited supply.

My point was that it doesn't have to be that way.  You could find a way to keep exactly the same properties (of scarcity, limited supply, protection against attack, etc.) but have the cpu work required for mining actually be useful, in-and-of-itself, for other purposes.

Thanks for the links to primecoin -- i look forward to reading about it.

-mouser (January 24, 2014, 08:42 PM)

Blah... I had a huge write up, but it was overly complicated and long. I'll just simplify.

Coin scarcity and block rate have nothing to do with energy. Compare gold vs. platinum at 2500 and 130 tons per year of annual production and $1,270 and $1,430 prices - supply (scarcity) doesn't determine value. Demand does. Many coins have the same scarcity as bitcoins, but... big difference. Supply of fixed limit coins is always 100% or less. It's the demand that is driving things - not the scarcity. If it were scarcity, we would see the same effects on other coins, which we don't.

Mining energy costs are not strictly coupled to price. Check out some calculators. Here's an example:

http://www.coinwarz....000217&hc=300.00

And more specifically:

http://bitcoinwisdom...m/bitcoin/calculator

You can see there that energy costs are not particularly important. The important part is the cost of the hardware. Hardware costs easily eclipse the costs of energy.

http://cointerra.com/
https://www.kncminer.com/

Hardware quickly becomes obsolete, as you can see in the calculator above. As hardware approaches obsolescence, energy costs become important. e.g. If you mine bitcoins on a CPU, you are only wasting energy. It's like pissing into the ocean and expecting the tides to rise. CPUs are obsolete for SHA-256 mining.

i.e. Energy costs are only important for obsolete hardware. Moore's Law ensures that hardware becomes obsolete quickly.

For scarcity, the limiting factor then isn't energy, it's hardware. Just try to buy some decent Bitcoin mining hardware... just try... It's almost impossible. Chances are you can pre-order, but you can't just get hardware easily. You can get obsolete hardware though.

Obsolete hardware gets removed from the network, and often put onto other coins. e.g. GPU mining on scrypt, CPU on Primecoin algos, etc.

But making the computing power useful is best done through algos like Primecoin's. SHA-256, scrypt, Blake, Quark, and other algos aren't useful beyond securing the network, which is the first and primary goal of the algo. If it can't do that, it can't be used, which makes things like finite problems pretty useless for crypto.

[Renegade]

Crypto is about to go nuclear!

http://ethereum.org/
http://ethereum.org/ethereum.html

Watch the video.

More in the Basement.

[Renegade]

I think many would do very well to read the following. They illustrate with extreme clarity how Bitcoin is safer than banks:

http://www.bbc.co.uk...ws/business-25861717
http://news.yahoo.co...-need-222425920.html

I'll leave out quotes for the sake of civility. Comments should probably be directed to the crypto thread in the basement.

[Renegade]

People looking to ditch the Rand:

http://www.news24.co...oin-Save-Us-20140124

The Rand is Dying Can Bitcoin Save Us?

A perfect storm has formed and the Rand continues its plummet.

The key factors contributing to the decline: a balance of trade deficit, poor economic data globally and a mining sector hit particularly hard by weak global resource markets.

South Africa, as one of the ‘BRICS’, was often touted as an emerging market to watch. These days it finds itself in less auspicious company; the so-called ‘Fragile Five’ (India, Indonesia, Brazil and Turkey).
The economic fundamentals are poor and citizens are left with few options. Most feel powerless. With few options available many are forced to watch their real wealth, denominated in Rand, evaporate.

More at the link.

Is anyone beginning to see the currency war that's going on? No? Oh... well perhaps this...

http://www.coindesk....-bank-backs-bitcoin/

Head of Russia’s Largest Bank Backs Bitcoin, Again

Sberbank may not be a household name in the west, but it just happens to be the third-largest bank in Europe.

It’s also the biggest bank in Russia and eastern Europe, with nearly half a trillion dollars in assets and a workforce of 300,000.

The bank is owned by the Central Bank of Russia and it is headed by German Gref, who served as the Russian Minister of Economic and Trade from 2000 to 2007. Gref’s tenure was marked by a period of economic reform and liberalization. Judging by his recent statements, he is still open minded when it comes to monetary issues.

More at the link.

And more on the current currency wars:

http://www.cnbc.com/id/101307137
http://www.moneymorn...he-currency-war.html
https://www.google.c...ency+war&tbm=nws

Oh, the carnage is going to be a sight to behold!

[Renegade]

More IT pros than not want to get paid in bitcoins:

http://www.businessi...oin-paychecks-2014-1

Once people get paid in bitcoins at scale, it's game over and Bitcoin wins.

[wraith808]

Truthfully, I can see why- for the same reason I don't use direct deposit in many cases.  Leaves a money trail that can be reversed.  Tracing is fine... it's the reversal that alarms me.