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?

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.

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.

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.

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.

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?

Quote from: eleman on January 24, 2014, 09:44 AM

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

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.

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.

Quote from: eleman on January 24, 2014, 12:46 PM

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.

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.

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:

Quote from: eleman on January 24, 2014, 09:44 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.

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?

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.

Quote from: tomos on January 24, 2014, 12:40 PM

Quote from: eleman on January 24, 2014, 09:44 AM

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

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.

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.

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!

Quote from: tomos on January 24, 2014, 01:41 PM

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.

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.

[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.

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

Quote from: mouser on January 24, 2014, 01:32 PM

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

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.

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.

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.

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.com/do/search?query=Byzantine+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?

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?

It has already been done. Primecoin.

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

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

http://primecoin.org/static/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.

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.

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.

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/en/faq#how-are-bitcoins-created), emphasis mine:

Quote

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.

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.com/calculators/dogecoin-mining-calculator/?h=660.00&p=500.00&pc=0.10&pf=2.00&d=1135.92830608&r=500000.00000000&er=0.00000217&hc=300.00

And more specifically:

http://bitcoinwisdom.com/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.

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/news/business-25861717
http://news.yahoo.com/blogs/sideshow/prove-it--bank-blocking-customers-from-making-large-withdrawals-without--evidence--of-spending-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.

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

http://www.businessinsider.com.au/a-lot-of-it-pros-want-bitcoin-paychecks-2014-1

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