Crypto currency and solving real world problems

[DaveC426913]

Has no one yet brought up the SETI@Home Project of the nineties, or the protein-folding apps that followed?

These are real world problems that were being solved with the donation of idle time of millions of personal computers.

 

[kith]

No, not "you" (the person doing the mining), the person who defined the problem to solve and benefits from the solution. They make money. The miners would want a piece of that.

But there's no simple way for them to get it. Whether a cryptocurrency protocol is adopted or not is not decided by the miners but by how many people use the currency for their real world transactions and investments. The value of the currency is what determines the reward of the mining.

So as long as the main product of the system is the currency, you need to argue more about the potential users of the currency and less about the miners.

 

[Office_Shredder]

Bravo! I think this is the root of the mathematics behind the Bitcoin manifesto. The real-life computation that fits into this criteria is narrow, indeed. Calculating Prime Numbers is a good one! Maybe PI sequence? Interesting stuff to search for!

Are these actually good? How do you verify the next digit of pi efficiently? How do you verify a number is prime efficiently?

 

[LucasB]

Are these actually good? How do you verify the next digit of pi efficiently? How do you verify a number is prime efficiently?

I have no idea. The Pi one I made up. The prime number one exists and is open-source:

https://github.com/primecoin/primecoin

Primecoin is an experimental cryptocurrency that introduces the first scientific computing proof-of-work to cryptocurrency technology. Primecoin's proof-of-work is an innovative design based on searching for prime number chains, providing potential scientific value in addition to minting and security for the network. Similar to Bitcoin, Primecoin enables instant payments to anyone, anywhere in the world. It also uses peer-to-peer technology to operate with no central authority: managing transactions and issuing money are carried out collectively by the network. Primecoin is also the name of the open source software which enables the use of this currency.

For more information, as well as an immediately useable, binary version of the Primecoin client sofware, see http://primecoin.org.

 

[Office_Shredder]

I have no idea. The Pi one I made up. The prime number one exists and is open-source:

https://github.com/primecoin/primecoin

That's pretty cool, but his isn't looking for more primes, it's looking for specific sequences of prime numbers. The site even observes there's a prize for a one million digit prime, so if I just submit a list of million digit numbers they're going to struggle to verify if my list is legitimate. I'm not smart enough to check the technical details but I assume there's something preventing me from doing that.

That said, good example.

 

[russ_watters]

But there's no simple way for them to get it.

I'm not sure why that would be true. All it really takes is identifying what miner solves what problem, and then the company they are working for pays them for it. SETI@home tracked user stats. If I remember correctly there was even a public leaderboard.

Whether a cryptocurrency protocol is adopted or not is not decided by the miners but by how many people use the currency for their real world transactions and investments. The value of the currency is what determines the reward of the mining.

That's a different issue. I do wonder though if the value drops below the energy cost, do miners stop mining? And what happens to the currency then?

 

[BWV]

I do wonder though if the value drops below the energy cost, do miners stop mining? And what happens to the currency then?

Then the incentive and potential for a majority attack increases

 

[Dullard]

Then the incentive and potential for a majority attack increases

Or the transaction fees go up.

 

[russ_watters]

Or the transaction fees go up.

How do the miners get a cut of the transaction fees?

 

[Dullard]

Specific to Bitcoin, I believe they get all of the transaction fees. That's how they are 'encouraged' to include your transaction in their block (they don't have to include any). As the 'reward' for solving a block reduces toward zero (by design), the fees will be the entire incentive for the miners- that implies (to me) that those fees are going to increase dramatically.

Edit: I'm addressing only the fees 'built into' Bitcoin. Exchanges charge fees in addition to those.

 

[russ_watters]

Specific to Bitcoin, I believe they get all of the transaction fees.

How are they paid? Are they slicing off the top of each transaction?

 

[Dullard]

As I understand it, you actually have to tender a user-specified fee with every transaction. A bigger fee will typically get you faster execution. The 'built in' problem that I see (maybe I'm confused) is that the long-term viability of the mining business (with the 'award' part of the compensation ever-decreasing) hinges on increasing transaction volume, increasing transaction fees, or both. The number of transactions which can be 'immortalized' in a single block is limited and the amount of space required for a single transaction varies with the details of the transaction - that will (likely) be a larger factor in future fee structure.

I don't want to start a debate about the merits of one coin vs another (or the whole ecosystem). Many of the 'alternative' coins are attempts to address the assorted perceived limitations of the original Bitcoin (and/or spawn). 'Proof of Work' vs 'Proof of Stake' is one of those 'forks in the road.'

Disclaimer:
I was approached by a customer about designing him a crypto-mining farm (shipping container) which could be located at flare-gas sites - I won't even get into what a huge challenge that is. I decided that I needed to understand his business to evaluate how much time I was willing to spend (before he started paying me). What I know is from that research (not any actual involvement). I decided that he needed to be a cash customer. It's possible that my imagination is too limited.

 

[anorlunda]

No, not transaction fees. The bitcoin protocol awards newly minted bitcoins to miners. That increases the number of bitcoins in circulation. I guess that is like the government printing more money.

https://en.wikipedia.org/wiki/Bitcoin_network#Mined_bitcoins
By convention, the first transaction in a block is a special transaction that produces new bitcoins owned by the creator of the block. This is the incentive for nodes to support the network. It provides the way to move new bitcoins into circulation. The reward for mining halves every 210,000 blocks. It started at 50 bitcoin, dropped to 25 in late 2012 and to 12.5 bitcoin in 2016. The most recent halving, which occurred in May 2020 (with block number 630,000), reduced the block reward to 6.25 bitcoin. This halving process is programmed to continue a maximum 64 times before new coin creation ceases.

 

[Dullard]

Not sure what you're saying. There are transaction fees. Right now, the 'award' is significantly larger than the transaction fees, but it's not hard to see what happens as the award continues to be cut in half - and ultimately to 'zero.' If the value of the coin increases at a high rate, all is good (until creation completely stops).

https://river.com/learn/how-bitcoin...their transaction validated on the blockchain.

 

[anorlunda]

Not sure what you're saying. There are transaction fees.

Yes, but the people who process the transactions and collect transaction fees are not necessarily the same people as the miners.

 

[Dullard]

Essentially Incorrect.
The 'premium' paid to the miners is the sum of the 'award' and the transaction fees. That's not to say that there aren't additional 'transaction fees' extracted by exchanges, etc. - that really depends on exactly what you're doing. The fact that an exchange (if you're using one) may be the one to 'collect' the transaction fee which is submitted with your transaction (as part of their probably-larger total fee) doesn't change the facts that the miners collect as described in my first sentence.

 

[jack action]

@anorlunda , from your Wikipedia source:

Transactions​

A bitcoin is defined by a sequence of digitally signed transactions that began with the bitcoin's creation, as a block reward. [...]

[...] Common transactions will have either a single input from a larger previous transaction or multiple inputs combining smaller amounts, and one or two outputs: one for the payment, and one returning the change, if any, to the sender. Any difference between the total input and output amounts of a transaction goes to miners as a transaction fee.

Process​

A rough overview of the process to mine bitcoins involves:

1. New transactions are broadcast to all nodes.
2. Each miner node collects new transactions into a block.
3. Each miner node works on finding a proof-of-work code for its block.
4. When a node finds a proof-of-work, it broadcasts the block to all nodes.
5. Receiving nodes validate the transactions it holds and accept only if all are valid.
6. Nodes express their acceptance by moving to work on the next block, incorporating the hash of the accepted block.

Mined bitcoins​

By convention, the first transaction in a block is a special transaction that produces new bitcoins owned by the creator of the block.

The miner will receive the block reward and the transaction fees only if the miner achieves the proof-of-work before the others.

 

[anorlunda]

OK, I stand corrected.

 

[Vanadium 50]

This question seems at best only peripherally related to crypto. Why don't we require that someone presenting a paper dollar (or some other currency) perform some action beneficial to society before we accept it?

 

[anorlunda]

This question seems at best only peripherally related to crypto. Why don't we require that someone presenting a paper dollar (or some other currency) perform some action beneficial to society before we accept it?

I already offered the idea of not consuming the CPU power (and electrical power) and sparing the world the environmental impact. Nobody seemed interested in that.

 

[phinds]

I already offered the idea of not consuming the CPU power (and electrical power) and sparing the world the environmental impact. Nobody seemed interested in that.

Because negative externalities are of no interest to the miners who make money from the bitcoin process (and others). These are not altruistic people.

 

[Baluncore]

Why don't we require that someone presenting a paper dollar (or some other currency) perform some action beneficial to society before we accept it?

We pay tax when we earn a dollar, and a consumption tax every time we hand it on.

 

[Mark44]

We pay tax when we earn a dollar, and a consumption tax every time we hand it on.

That's not always true. For example, just this week I sold a motorcycle part on eBay, which garnered a few untaxed dollars. I used some of the money to buy food, another untaxed transfer of money.

 

[russ_watters]

This all sounds like a recipe for a death spiral to me:

1. Bitcoin value drops, reducing the mining incentive.
2. Miners quit, reducing supply of transaction executors.
3. Transaction fees go up.
4. Bitcoin becomes less efficient and less popular.
5. Goto 1.

 

[kith]

This all sounds like a recipe for a death spiral to me:

1. Bitcoin value drops, reducing the mining incentive.
2. Miners quit, reducing supply of transaction executors.
3. Transaction fees go up.
4. Bitcoin becomes less efficient and less popular.
5. Goto 1.

The effort for mining a block isn't fixed. It is determined by how many leading zeros the calculated hash value needs to have and if the transaction rate gets too low, I believe this number of zeros is adjusted dynamically. Also the block size has been increased in the past.

(That's not to say that death spirals won't occur. I'm very skeptical of cryptocurrencies keeping their value over the long run.)

 

[phinds]

The effort for mining a block isn't fixed.

Exactly. Bitcoin has a limited number of coins that can EVER be created and as that number is approached, the effort gets harder and harder. See post #54

 

[kith]

I'm not sure why that would be true. All it really takes is identifying what miner solves what problem, and then the company they are working for pays them for it. SETI@home tracked user stats. If I remember correctly there was even a public leaderboard.

Sure. But weren't you talking about the miners refusing to mine if they wouldn't get a piece of the value of the byproduct (the hypothetical SETI computations)? I was just pointing out that the main product (the block reward associated with the currency) provides enough incentive to mine if the currency is valuable enough.

That's a different issue.

No, it's my main point (see above). Maybe we are talking past each other.

 

[jack action]

This all sounds like a recipe for a death spiral to me:

1. Bitcoin value drops, reducing the mining incentive.
2. Miners quit, reducing supply of transaction executors.
3. Transaction fees go up.
4. Bitcoin becomes less efficient and less popular.
5. Goto 1.

#3 will not necessarily happen. As miners quit, the ones who stay have more chances of getting the reward with less competition; thus less wasted computation time leading to lower costs and fees.

Ultimately, hypothetically speaking, if there was only one miner left, he would do all the transactions and get all the rewards, thus increasing the mining incentive for others to jump in.

 

[russ_watters]

The effort for mining a block isn't fixed. It is determined by how many leading zeros the calculated hash value needs to have and if the transaction rate gets too low, I believe this number of zeros is adjusted dynamically. Also the block size has been increased in the past.

That's just the other side of the coin from my #1: Cost of mining increases. The rest of the death spiral still follows.

 

[kith]

That's just the other side of the coin from my #1: Cost of mining increases. The rest of the death spiral still follows.

I was talking about your #2. If miners quitting leads to a decreasing transaction rate, a downward adjustment of the difficulty of the computations is triggered because there is a target transaction rate. As a result, the mining cost decreases to the point where enough miners rejoin to reach the target transaction rate. There is a feedback loop in the system which you seem to be unaware of.