Crypto currency and solving real world problems

[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.

 

[Dullard]

My understanding:
It is true that the 'difficulty' is adjustable. The potential problem with that is that the 'difficulty' is also the 'security' for the blockchain. 'Proof of Work' systems use that difficulty to to create a statistically difficult situation for those with ill intent - they have to hit the lottery a number of times (in a row) to be in position to 'rob the bank.' A reduction in the difficulty or the number of active miners both serve to reduce the difficulty for evil-doers.

https://www.bitpanda.com/academy/en/lessons/what-is-a-51-attack-and-how-is-it-prevented/

The thing that I'd add to Russ' list is:
The ultimate value (and survival) of most cryptocurrencies depends on them being used for lots of transactions - It keeps the transaction rates up to incentivize miners. I know lots of folks who bought cryptocurrencies (as an 'asset'); I don't know a soul who actually used it as currency (more than once). The only valid argument (IMHO) for crypto value is based on utility, but most crypto isn't in the hands of folks who intend to 'utilize' it - they're counting on 'everyone else' to utilize it (and drive up the value). I guess we'll see how that works.

 

[BWV]

Like any ponzi/pyramid scheme it collapses once it runs out of new money, the details become unimportant

However the incentive for a majority attack increases as mining becomes uneconomical

 

[jack action]

Like any ponzi/pyramid scheme it collapses once it runs out of new money, the details become unimportant

The major problem here is that most unsophisticated investors currently view Bitcoin as an investment. It’s not — it’s a currency, a vehicle of trade, a means to an end. Currency is the oil that keeps the engine running smoothly, but it’s not the engine itself.

The reality is that the majority of current Bitcoin holders see themselves as investors, not users, and have fallen prey to investment bias, sunk cost fallacy, money illusion, escalation of commitment, and a host of other cognitive biases. Not many of us say we’re “invested” in USD or CAD or GBP, because we understand that’s not a national currency’s primary purpose.

As a currency, Bitcoin is an extremely intriguing innovation.
As an investment, it is the biggest Ponzi scheme ever invented.

 

[Dullard]

Interesting:

https://www.coindesk.com/business/2...r-btc-holdings-to-cope-with-market-headwinds/

 

[Vanadium 50]

How is that related to this thread, other than being about Bitcoin?

 

[Dullard]

Really? Did you read any of the 30 (or so) posts preceding your question.

 

[Vanadium 50]

Suew did. The only thing I see in common I see is "Bitcoin".

Why don't you explicitly state the point you are trying to me.

 

[Dullard]

Miner incentives
in-built features to regulate Miner population
Economics of the Bitcoin ecosystem

These were all discussed in the thread. The article describes them in action.

p.s. the Socratic B.S. may be OK for your students, but it's offensive to others.

 

[Melbourne Guy]

In other words, instead of trying to make money, why doesn't everyone just do everything for free. Good luck with that.

I'm late to this thread, but this piqued my interest. Some social media platforms are essentially this. LinkedIn, for example, generates revenue from user content that those users cannot monetise. And of course, the open source software community epitomises the concept of people doing things for free. Neither of these are as comprehensive as your statement, @phinds, but people seem very happy to do a lot for free...where 'free' equates to monetary gain, presumably those who participate on LinkedIn etc. are realising an intangible benefit for their efforts.

 

[phinds]

but people seem very happy to do a lot for free...where 'free' equates to monetary gain, presumably those who participate on LinkedIn etc. are realising an intangible benefit for their efforts.

Yes, THEY get a benefit. The benefit of "free" communication with hoards of other people. They do NOT join social media in order to get a benefit for someone other than themselves with no benefit to themselves other than feeling good about themselves, but that's what some in this thread are proposing --- totally selfless acts of charity. Again, good luck with that.

 

[Melbourne Guy]

Yes, THEY get a benefit. The benefit of "free" communication with hoards of other people. They do NOT join social media in order to get a benefit for someone other than themselves with no benefit to themselves other than feeling good about themselves, but that's what some in this thread are proposing --- totally selfless acts of charity. Again, good luck with that.

The use of the word 'free', @phinds, is what I reacted to. I don't mind if you now extend it to encompass intangible benefits, but there are arguably "totally selfless acts of charity" in the world. Probably not in the blockchain world, but if there are, we can rest assured that they are captured in the immutable amber of the decentralized, public ledger

 

[Baluncore]

They do NOT join social media in order to get a benefit for someone other than themselves with no benefit to themselves other than feeling good about themselves, but that's what some in this thread are proposing --- totally selfless acts of charity.

@phinds
How much do you get paid to post on this forum?
If you are not paid, why do you do it.

 

[phinds]

@phinds
How much do you get paid to post on this forum?
If you are not paid, why do you do it.

I am NOT arguing that charitable (unpaid) actions don't occur**, I am arguing that they have little to nothing to do with bitcoin mining. You keep bringing up a red herring that has nothing to do with the discussion at hand. Explain to me how BITCOIN MINING becomes a charitable action. THAT is what we are discussing and you keep changing the subject.

** see this:
https://www.physicsforums.com/threads/who-edits-wikipedia-and-why.1015035/#post-6630034

 

[jack action]

No, you wouldn't. The coin community would have zero reason to compensate you in any way since you would have done nothing of direct value to them.

This is where you err. The coin community pays a miner to validate their transactions. The same way a merchant pays a bank to validate that a client has indeed transferred money into the merchant's account when the client pays with his debit card.

 

[phinds]

This is where you err. The coin community pays a miner to validate their transactions. The same way a merchant pays a bank to validate that a client has indeed transferred money into the merchant's account when the client pays with his debit card.

? What I was arguing against was a proposal that does NOT validate transactions and thus has zero monetary value to the coin community and miners.

 

[jack action]

? What I was arguing against was a proposal that does NOT validate transactions and thus has zero monetary value to the coin community and miners.

You were arguing about this proposal:

"How cool would it be if instead of wasting all this CPU power, the computational problem that is the origin of a bitcoin hash could be something useful, like calculations needed by research projects that will advance humanity, or something like that?"

It DOES validate transactions. The way transactions are validated is by solving a pointless puzzle by many miners; the first one to solve it is winning the bid. It is to ensure that more than one miner does the validation process such that none write whatever they want in the blockchain.

The proposal is to replace these useless calculations with ones that are actually needed to be done, thus not wasting all that energy. Two birds, one stone.

 

[phinds]

You were arguing about this proposal:

The proposal is to replace these useless calculations with ones that are actually needed to be done, thus not wasting all that energy. Two birds, one stone.

But the useful calculations don't validate the block chain, so I reject that as a useful proposal.

 

[jack action]

But the useful calculations don't validate the block chain, so I reject that as a useful proposal.

What they are doing now is validate the blockchain once - which is trivial - and then revalidate it over and over until the answer fits an arbitrary condition for competition purposes only.

It's the useless "over and over" part that would be replaced by useful calculations, just to win the competition.

 

[phinds]

What they are doing now is validate the blockchain once - which is trivial - and then revalidate it over and over until the answer fits an arbitrary condition for competition purposes only.

It's the useless "over and over" part that would be replaced by useful calculations, just to win the competition.

So you would allow a single miner to validate a blockchain? Sounds like a recipe for fraud and is the very reason why multiple validations are required.

 

[jack action]

So you would allow a single miner to validate a blockchain? Sounds like a recipe for fraud and is the very reason why multiple validations are required.

NO! The one who solves the real-life problem first will get paid.

For example, say that the problem to solve is to answer queries for a search engine. Say, the one who is the first to answer a query that its SHA hash value is a number below a certain threshold wins the pot. So every miner has validated the transaction once (confirmed by the fact that they all have the same answer) and then they enter this little competition to see who gets paid by doing useful work that would be done anyway.

Not only do they get paid by the Bitcoin community, but the search engines would even be willing to pay them as well.

I'm not saying this is a valid example, but that is the dream.

 

[phinds]

NO! The one who solves the real-life problem first will get paid.

Why? What does solving the real-life problem have to do with validating the blockchain?

 

[jack action]

Why? What does solving the real-life problem have to do with validating the blockchain?

It creates competition between miners. To make sure that more than one will validate the blockchain.

 

[Melbourne Guy]

So why don't computers solve real world problems instead and profit from it as well?

This question has been around since the introduction of bitcoin, @kolleamm, and the only blockchain projects I can see where there is even a hint of a method to make a profit are the BIONIC ones where you need to purchase some additional kit to participate.

For example, http://radioactiveathome.org/boinc/ requires that you purchase a radiation sensor, which could (should?) have a profit margin attached:

"The project uses dedicated hardware sensor; without it the app does nothing and no credits are granted."

The underlying issue with a hashing function that 'solves real world problems' is that generating the hash is already 'useful work' because it helps secure the network against attacks. Also, the kinds of 'useful work' that can be performed seem to be limited due to the requirements of how the hash function operates to implement security.

Aside from that, considerations of how ‘useful work’ might be performed are complicated because you need problems that can generate many proof-of works per time unit and those results have to be verifiable as correct within the process. That eliminates a lot of use cases, as you can likely imagine. Also, unless the reward is decentralised, there is a risk the network could be hijacked, and the reward stolen (or the problem altered so the network is solving something else!).

It may be possible for the hashing function to double up and do something else you deem more useful, but in my mind it's somewhat like asking security guards who spend their days watching CCTV footage to multitask because they've all that time to spare!

 

[russ_watters]

How is that related to this thread, other than being about Bitcoin?

To me it looks pretty clearly like a response to the question I asked in post #36:

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

And most of the posts that followed were about that issue.

 

[russ_watters]

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.

Ok, thanks, I wasn't aware of that feedback loop (decreasing the difficulty of the computations). That is confusing to me though as I thought the mining was designed to get more difficult over time.

 

[phinds]

... as I thought the mining was designed to get more difficult over time.

Yeah, so did I ... for bitcoin at least. I read that it gets harder and harder to create new coins as the number of coins remaining to BE created approaches zero.

 

[jack action]

The Bitcoin blockchain is designed to add a new block every 10 minutes (other cryptocurrencies have other time limits). It doesn't matter whether you have slow computers or supercomputers, the difficulty of the task is adjusted for the time period desired. Since the task is to obtain a correct hash (an integer) of the block below a certain threshold, it is just a question of making that threshold closer or farther to zero.

What decreases with time is the reward from mining a new block, which halves every 210,000 blocks mined, or roughly every four years:

Bitcoin Halving​

After every 210,000 blocks mined, or roughly every four years, the block reward given to Bitcoin miners for processing transactions is cut in half. This event is referred to as halving because it cuts in half the rate at which new bitcoins are released into circulation. This is Bitcoin's way of enforcing synthetic price inflation until all bitcoins are released.

This rewards system will continue until around the year 2140, when the proposed limit of 21 million is reached. At that point, miners will be rewarded with fees, which network users will pay, for processing transactions. These fees ensure that miners still have the incentive to mine and keep the network going.

 

[Vanadium 50]

There seems to be an...ergodic...discussion of the original question. It's also been 6 weeks wince we saw the OP.

A few points to try and clear away some of the brush:

1. There needs to be some kind of barrier to each of us "printing" as much crypto as we would like.
2. There needs to be someone handling the blockchain.

Most, if not all, cryptos solve these problems simultaneously. Crypto is "mined" by managing the blockchain.

There is another point:
3. In the competition between cryptocurrencies, low transaction costs are an advantage. This is a`lso true with "regular" money: we write checks rather than send couriers with cash. And now we don't even write checks: everything is electronic. Lower transaction costs.

It's perhaps worth pointing out that today anyone can donate time, money or cycles to worthy causes. This question is essentially"can we force users of our crypto to donate cycles to my favorite worthy cause?" Tne answer is that there are limits to how much one can increase transaction costs before people drop one crypto for another. I think it's also a question about where it's a good idea for me to force you to donate to my favorite worth cause. It certainly stretches the definition of "donate".

 

[fluidistic]

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.

You're not the first one, and some people took action. Many cryptocurrencies don't require PoW, or mining. There exist proof of stake now, with many different implementations.
Ethereum is going that way.
Algorand uses a variant of proof of stake, where there is a single blockchain (no forks, unlike with bitcoin and ethereum), every new block is validated by randomly picked validators using byzantine agreement. It's carbon neutral. It's so efficient, low fee and secure that it's apparently the backbone of what has been implemented in el Salvador (and other places, apparently).

El Salvador ain't using bitcoin. We can't donate BTC to random salvadoreans by looking on the bitcoin blockchain. It's using something closed source (so that its government can hide what it's doing with the money), no public blockchain. It uses something pegged to the bitcoin.

 

[Melbourne Guy]

Ethereum is going that way.

So people hope. It's taking a long time to get there, @fluidistic, with deadlines come and gone, though I note they just completed the first successful test merger, so perhaps we'll see it soon!

 

[Melbourne Guy]

El Salvador ain't using bitcoin.

That is very interesting...and surprising. I don't expect the mainstream media to get the details right of any tech story, but I hadn't seen that there is a Gov controlled layer running a private blockchain, that's 100% different to what's been reported

 

[fluidistic]

That is very interesting...and surprising. I don't expect the mainstream media to get the details right of any tech story, but I hadn't seen that there is a Gov controlled layer running a private blockchain, that's 100% different to what's been reported

Just have to look at the correct news. Google returns https://cryptosrus.com/breaking-el-salvador-banks-are-using-wrapped-bitcoin-on-algorand-to-transact/.
I would say that's credible, since Micali really went to Central and South America according to his twitter account.
Or directly from Algorand's website: https://www.algorand.com/resources/...lop-its-blockchain-infrastructure-on-algorand.

 

[Melbourne Guy]

Just have to look at the correct news.

Aha, I thought you had first-hand knowledge of this, @fluidistic, now I have to do some research because Google returns so many things, it's hard to sort fact from fiction ☹