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Bitcoin Mining Reward About To Halve
First time accepted submitter ASDFnz writes "The reward for successfully completing a block (also called mining) is about to halve from 50 bitcoins to 25. From the article: 'Bitcoin is built so that this reward is halved every 210,000 blocks solved. The idea is as bitcoin grows the transaction fees become the main part of the reward and the introduction of new bitcoins slows down to a trickle. This also means that there will only ever be 21,000,000 bitcoins in circulation.' You can watch the countdown here."
My parents won't let me mooch off their electricty forever.
Bitcoin is the greatest real-world experiment in Austrian economics. For once we'll get to actually see if a "deflationary spiral" will actually occur when the rate of money creation slows, or if the Keyensians were just full of it. Whether bitcoin actually succeeds or not, we'll at least get some really good data.
Yea it's too bad nobody ever though of that or else they might have made sure each one is divisible to eight decimal places or something.
A BitCoin can be divided up into 8 decimal digits. So one BitCoin contains 1 billion discrete units that can be used for transactions.
The answer was cleverly hidden on their public wiki, the last place anyone would ever think to look!
https://en.bitcoin.it/wiki/Mining
It's the same as setting cash on fire. If you lost your private keys the unspent outputs they control can never be spent.
It's a proof-of-work calculation that records a transaction history. Basically, it's to prevent double-spending; if someone attempts to transfer the same bitcoin to two different people, the person who gets it is the person who had more computational effort go into recording them as having it. If the amount of computational effort in recording transaction histories were low enough, someone could double-spend by recording an alternative history on a powerful computer and having it supersede the transaction history everyone thought they were using.
In order to encourage people to put effort into recording the history, there's a reward for doing so. This lead (perhaps predictably) to "mining", where people race to record the transaction history first in order to get the reward.
So there is a purpose to mining, but it's only to keep the Bitcoin system itself running. If people stopped mining (perhaps because the reward got low enough), Bitcoin would collapse. (It's envisaged that once the mining reward gets low enough, people transferring bitcoins will pay a transfer fee to the miners to encourage them to keep mining, and they'd get their income that way instead.)
(1)DOCOMEFROM!2~.2'~#1WHILE:1<-"'?.1$.2'~'"':1/.1$.2'~#0"$#65535'"$"'"'&.1$.2'~'#0$#65535'"$#0'~#32767$#1"
Correction: It should be 0.1 billion, or 100 million discrete units, for each BitCoin. Anyway, it's enough granularity for most practical purposes.
So what you are saying is, if I happen to have some Bitcoin units, I should hang on to them as long as possible, because eventually people will have divided Bitcoin units up to the point where the handful I saved up will be worth a fortune? Sounds like a great currency (except for the whole "this is going to fail" part)!
Palm trees and 8
They're being used quite a bit for online gambling because they allow for instant deposits, instant withdrawals, zero risk of charge-back, and for some online casinos, provably fair wagering.
Bitcoin will let us see if money is something that can truly exist without government, or if the anarchists were full of it. Bitcoin's success or failure will almost certainly tell us more about this than about deflationary spirals.
Palm trees and 8
Get rid of them now. I suggest you send any bitcoins you have to this wallet address: 1AeCTNhF3Sovi8fkjq7Buy8sYoc2C4xoo4
There are also a few VPS and VPN providers who accept bitcoins for the same reasons, and because now they can sell their services to customers anywhere in the world without being limtited by the legacy banking system's inability to process payments from certain places.
Here's the highest-level view possible: a bunch of anarchists thought that an interesting cryptographic trick would let them have money without government, and then a bunch of opportunists realized that they could scam people with Bitcoin much in the same way that bankers scam people with unusual investments.
Palm trees and 8
1) One BitCoin and one account is as good as the other, so you can swap them outside the system. I can send you 100 BTC from my account A to your account B, then get back 50, 25 and 25 BTC back randomly delayed from your other account C to my other account D. Sure, all the transactions are public record but there's no link between the 100 BTC I used to have in A and the 100 BTC I have now in D. Only the swapping service could possibly link those transactions together.
2) If you can both acquire and spend your money anonymously then the transactions are meaningless, say you do anonymous rent-a-coder work for BTC and use those BTC to pay for web hosting that you only access anonymously. That's the essence of a currency right there, you can make money for doing work and then spend it on what you choose. Yes if any point you're tied to an identity they can try rolling transactions both forwards and backwards to see where you got money from and what you spent money on.
That's not really one of the problems with BitCoins, the main reason is exactly this that the supply is diminishing. Hoarding old coins from when they were easy to make only seems like a better and better idea, unless of course the BitCoin economy collapses because everyone's hoarding. I bet a lot of the people that offer services for BitCoin are the same as those hoarding large BTC reserves, the pyramid game only works if they can sucker more people to join in.
Live today, because you never know what tomorrow brings
Yep. That's a feature of any currency without inflation, and why inflation is actually a good thing. It discourages hoarding. Neutral or deflationary currencies are only good for the people who already have a lot of them.
Just because you're paranoid doesn't mean there isn't an invisible demon about to eat your face
Since now they girls doing video clips for bitcoins! http://www.videos4btc.info/
I'm no crypto expert; but it was my layman's understanding that the bitcoin setup is(barring presently unknown attacks) unforgeable; but that there is nothing particularly special about the "Genesis block" at the beginning of the bitcoin block chain, aside from mutual acceptance of it.
Given that, while it is not possible to forge a bitcoin or to produce more than 21,000,000 of them, it should be possible for anybody who feels like it to simply define a new Genesis block and go hashing merrily away. The products of this block chain will be distinguishable from the products of any other block chain; but user convention could assign them value in exactly the same way as it did the old ones(or, more probably, they would trade at a discount against the 'original' bitcoins).
Any speculation on whether the people-who-care-about-bitcoins of the world are sufficiently rabid about some sort of deflationary theory of currency to prevent that, or will we start seeing N different distinct block chains trading between one another as well as select real world commodities?
Gold has actual mechanical uses (electrical contacts.) It also has bauble value.
BitCoins have zero intrinsic value, and they require electric and Internet connectivity to be used. Gold requires a civilization level just a step above pure anarchy to be useful.
IMHO, it is sort of suspicious that there is this ramp where early adopters get these bonuses, and people hopping on late end up having to put a lot more resources in for the same coins... that combined with the value of the currency going up/down in insane swings, makes it useless as anything other than a novelty.
Apart from silk road, bitcoins have practically zero value in the vast majority of financial transactions
"Apart from the types of situations that it's useful in, it's not useful in any situations."
Gold is even useful in a real anarchistic society.
"Ubuntu" -- an African word, meaning "Slackware is too hard for me". - stolen from Dan C alt.os.linux.slackware
I used to be big on the BTC mining thing. These days, however, it just doesn't matter anymore.
I got into BTC fairly early, back when it was profitable to run the mining software on a single workstation to suck up unused cycles. At that time, it was actually profitable to invest in dedicated hardware to mine coins- so I (and a lot of other people) eventually did. My first dedicated rig was a HP ML350 G5, which set me back about $4000. It ran two 8 core processors and basically sat around all day mining bitcoins.
Later on when the GPU accelerated mining took off, I bought and built four systems from off the shelf components, and the ML350 was rededicated to running ESXi with a bunch of VMs for mining and managing the four slaves. Each slave had 3x ATI GPUs, later those were swapped out for NVidia GPUs for other various software reasons.
Then the FPGA (and later ASIC) players came into the game. It started with development boards (FPGA boards purchased direct from the chip manufacture), but later spiralled into custom FPGA boards in nice cases that you could stack or keep around on a metal shelving system easily enough. Now, the custom FPGA boxes for BTC mining basically put the GPU miners out of business- the introduction of FPGA hardware increased the BTC mining difficulty to the point that it was pointless wasting the power mining with anything other then.
The problem was that by the time the FPGA market exploded, it was *barely* worth investing in the hardware to get in that late in the game. Previously, buying a few PCs and loading them with GPUs was a cheap way to make some extra cash. FPGAs however cost a hell of a lot more and the difficulty of mining BTCs had increased so much that you would barely break even, and you'd be bloody lucky if you actually made any money in the end.
But FPGAs weren't good enough. People started thinking that they could build silicon to do things even faster, and thus the ASIC market started to emerge and take off. The problem here is that while an ASIC kicks the shit out of an FPGA (and anything that came before the FPGAs)- they're so expensive and the BTC difficulty has been bumped up so much by the initial ASIC wave and the FPGAs before it... That... Wait for it...
Investing in ANY form of ASICs to make **any** kind of reasonable money... Means that you'll never actually break even.
That's right, the ASICs they've got out there are so powerful and the BTC chain is becoming so difficult to mine, that if you invested $10K+ (which is what you'd have to spend) for a reasonable ASIC setup- you would never actually make any money. If your ASIC box is profitable, it won't be for long since the more ASIC miners join in on the party- the more difficult it becomes to mine BTCs.
So the whole system has kind of spiralled into nothing. Mining isn't profitable anymore. Even if you invest in serious hardware. It just doesn't matter anymore, and now that the "reward" for mining BTCs is about to halve- it's even more of a waste of time then it was before. You could have made money in the beginning if you were there, but if you weren't- it's not worth investing even a dollar into hardware to mine BTCs anymore. That train has long since departed.
BTC is basically just a currency now. Mining is vastly irrelevant and always will be, now that we've got FPGAs and ASICs flying around.
-AC
Depends if you consider "hoarding" to be a bad thing in itself. Some of us just call it "saving". Such a currency would put a break at the constant need to invest in stocks and other stuff, as well as the need for governments to promote savings/insurance/retirement artificially. It would diminish the risk and eliminate a lot of compulsive consumption (better spend it right now in any way than to loose it to inflation right?).
I'm not saying that you are wrong though, just saying, that every coin has two sides, and bit-coins seem no exception.
The reality is that all these sites are using Bitcoin for is a transaction mechanism. They are not keeping their rake in bitcoins, they are exchanging it for cash because that is what the real world operates in. Similarly, the people making the wagers are exchanging their cash for bitcoins in order to play the game. In essence bitcoins are just being used as a payment processor for these sites.
Also, people who think bitcoins are not under government control are woefully mistaken. Aside from the pittance of coins one can mine, how do you propose to get any substantial amount? You need to go to an exchange. How do you purchase using that exchange? Using your credit card. Which is easily regulated.
IE - government can force Visa and Mastercard to shut down all bitcoin exchanges whenever they want to, effectively killing the currency for all intents and purposes. They only reason they don't do this is because it is not relevant enough to care.
Maybe, but I still think the more likely scenario is that nobody but those who are already using them will ever use them. They will be held onto with people talking about their potential value as everyone else goes on with their day-to-day business.
Uh. The ASICs that are about to hit the market start at less than $200.
If you walked up to the checkout at Target with 10 lbs of gold you wished to trade for 10 lbs of chocolate, I imagine you'd be successful. Now if you tried with $1,000,000,000 worth of bitcoin, I imagine that you'd be unsucccessful.
Learn to love Alaska
Such a currency would put a break at the constant need to invest in stocks and other stuff
Yes, it would. Investing in stocks and "other stuff" is, likewise, a good thing. Investments, really, are a form of loan. You're giving someone money with the expectation that, if the enterprise they're spending your money on succeeds, you'll receive your initial investment back, plus some. All commercial loans are backed by investments in "stocks and other sutff" - your mortgage, your small business loan, venture capital, everything. The interest you get on your savings account? That's made by the bank investing on your behalf.
If you disincentivize investing, all that grinds to a halt. Nobody can buy a house, because there's no money in mortgages - just stick it in the bank, and either you won't lose money (inflation-neutral) or you'll become richer (deflationary). Nobody who isn't already rich can start a business, or take on tertiary education, because nobody will loan them money.
You'll end up with a starkly divided society: the wealthy class, who can afford new houses, and cars, and to start new businesses, and the underclass who cannot afford a house or a car because they cannot get a decent job because they cannot afford an education because everybody's got their money locked up in their bank vaults appreciating instead of out backing student loans, small business loans and mortgages.
Just because you're paranoid doesn't mean there isn't an invisible demon about to eat your face
That's debatable. You seem to be taking things a little to the extreme when you say "no one". People will still invest, they are ambitious. God, people still go to CASINOS. Investments are risk, and not necessarily a good thing, especially if compulsory. Also, our economy based on loans and debt is far from healthy. Ask people who lost their retirement funds.
I understand where you are coming from, that's why I said you were partially right. But any real economy is a matter of balance. The current incentive to spend and invest (because it's not always investment) is countered by governments creating saving incentives. If we change the incentive, governments can for instance create separate incentives for investment or to create companies, tax redistribution, etc, etc. The economy is much to complex a creature that a single change has a clear outcome.
So a deflationary currency could impose a different balance, which might be better than the current one (the bar is not too high). One where debt and risk do exist but have a higher entry bar (and are not the ONLY way). Also, inflation somewhat depends on continuous, exponential growth (and slashdot has had that conversation many times). Last time I checked, the 99% was hardly investing and all the consequences you mention are becoming true with the CURRENT schema! I could easily invert all your train of though to get the exact opposite conclusion. IMHO, it's a good thing to see if the bitcoin schema works.
Does anyone have a good estimate as to how much wasted electricty is going to "creating" bitcoins?
-- these are only opinions and they might not be mine.
How on Earth does SETI@Home benefit society? Even if by some bizarre coincidence, we actually detected evidence of intelligent life outside of the solar system, the likelihood that society would benefit by that is basically nil.
Directly, on the positive side, it would pretty much kill some religions, or at least transform them into less harmful variants that don't preach that humans are unique and masters of everything.
On the negative side, it would probably trigger some new ones. If people can believe in Xenu, Kolob, Ezekiel or John's revelation, they most certainly would be able to start cults based on extrasolar intelligence too. Hopefully, most of them will put on their Nike sneakers and leave us.
Indirectly, it would likely renew interest in space exploration, which I think might benefit us all, and especially our descendants and their chance of survival.
You confuse anarchy and chaos.
OMG you're right. I can't believe all the people who've been working on this project for the last three years missed these numerous fatal flaws.
Please, go onto the Bitcoin forums and let them know what you've discovered right away so they all know it's time to give up and go home.
Yes. You can charge 0.00000001 Bitcoins. (Although it would generally take a much larger fee than that to get timely transaction processing)
If more divisibility than this were ever required, this could be migrated to, provided the majority of network participants agreed. Increasing the divisibility this way would probably be uncontroversial if ever it were in such widespread use that it made sense - but other features such as the 21 Million limit would never get majority consensus to be changed.
Right now, we've been looking at a consistent 1E6-2E6 BTC worth of transactions a day. That's, at current prices, about 1E7-2E7 USD per day in transactions. 365 days of that, is about 7E9 USD, which is actually more than the economy of Somalia. So what kind of "trouble" are "we" in, anyway?
GENERATION 26: The first time you see this, copy it into your sig on any forum and add 1 to the generation.
There is a major difference between political anarchy and chaos. In political anarchy you still have order, but instead of a central government controlling everything it's done with voluntary contracts at the individual level. One of the core beliefs an anarchist has is personal freedom via volunteerism is the only real kind of freedom. There will still be a need for money in a society like that. It could be gold, silver, beads, goats, or whatever the two people doing business agree on.
If you or I believe that's a viable political structure is a different conversation.
"Ubuntu" -- an African word, meaning "Slackware is too hard for me". - stolen from Dan C alt.os.linux.slackware
It's also empirically true. Sustained macro deflation ends in war, misery, or depression, or some combination of the above. At some point it is easier to take the deflationary currency than earn it. This has already started to happen with bit coins: when the processing power required to break it is less than the processing power to earn it, virtually the only rational thing to do is break wallets.
Fugue for Aaron Swartz
With a gold standard (that no longer even exists, of course) it's only inflationary if the new supply of gold grows faster than economic expansion. Otherwise even gold can be limiting and deflationary.
Bitcoins, on the other hand, will be completely deflationary due to their very finite and rate limited supply. Using them as a currency would encourage hoarding and completely dry up lending, pretty much sending economic growth down the toilet.
I mean, seriously, can't geeks get over bitcoins' digital nature and understand basic the economics and psychology behind this? How about imagining bitcoins are WoW gold and new supply just stopped completely. Basically anyone who hoarded them is now "rich", and anyone new to the game and without them is screwed. Sort of like how it would happen in real life if we went back on the gold standard, let alone a "bit coin standard".
Gold has actual mechanical uses (electrical contacts.) It also has bauble value.
BitCoins have zero intrinsic value, and they require electric and Internet connectivity to be used. Gold requires a civilization level just a step above pure anarchy to be useful.
IMHO, it is sort of suspicious that there is this ramp where early adopters get these bonuses, and people hopping on late end up having to put a lot more resources in for the same coins... that combined with the value of the currency going up/down in insane swings, makes it useless as anything other than a novelty.
I find it pretty unfair that the early gold miners got such large bonuses. It's much harder to mine gold nowadays. No more standing by the river with a sieve will do it :-(
People already pay mining fees, typically 0.0005BTC / transaction. Right now you get about 0.1 BTC in mining fees from a block, and 50 BTC from the built-in reward (which functions a a way of distributing bitcoin initially). As the reward halves every 4th year and number of transactions supposedly rises, a higher percentage of a miners income will stem from tx fees.
You can make a transaction without paying a fee, but not all miners will include your transaction in their block, and thus your transaction may take a long time to be confirmed.
What?
The main advantages of Bitcoin over other types of "real" money:
* it's censorship resistant (can't be shut down, just like bittorrent)
* it has low transaction costs and low barrier to entry (freedom of economic transaction)
* it can be transmitted via the internet globally in short time (max 1 hour)
* it's cheap and easy to secure against theft and loss
The additional advantages of Bitcoin over FIAT currencies:
* the supply is limited
* it's open source and not controlled by banking cartel or government, open to anyone
The disadvantages of Bitcoin:
* its acceptance is very low, to say the least
* it's hard to understand and therefore hard to trust
* it offers an ideal playground for criminals and scammers
* you can add your own criticism here
How is 5%/year (compound) growth not an example of exponential growth?
'Hoarding' (saving) currency itself is only useful if the interest rates on all investments are so terrible (low, or maybe even negative) that you can't make money by investing in anything. But in a legitimate economy, that is not controlled by central banking and central government this does not happen, because the more money people save, the lower the interest rate becomes, because there are so many savings, their value is going down. USA 1800 to 1917 has conclusively shown that money that is intrinsically valuable and is slightly deflationary is still not 'hoarded' but is used for investments because there is no manipulation by the central government. Central government was basically irrelevant, it wasn't spending much on anything because it wasn't doing much of anything, and so it was cheap and didn't meddle with individuals investing their money in businesses, whichever way they wanted.
There is a huge disconnect today between value of savings (interest rates) and real existing savings. The interest rates are so manipulated by the central banks that it seems like the system is flush with cash (is that the saying?) The interest rates are at historic low, actually they are negative, and the only people who can find yield are banks that borrow at 0% from the Fed and then lend to the Treasury at 2-3%. This means that the government has completely crowded out all private investments while sending an insane fake signal into the market that there are huge savings in the system, but there are none, the system is deep in debt, it has no savings. Whatever meagre savings that individuals manage to collect are irrelevant, because their share of government debt has gone through the stratosphere.
I think that Bitcoins have their use, but they have no intrinsic value at all, they are based on confidence, always were, based on the confidence in the protocol. Bitcoins are valued because people trust the protocol, and surely that protocol is much more trustworthy than any government and any opaque bank. So the interesting part about Bitcoin is will the trust in protocol be enough, because again, there is no intrinsic value?
So when you say: "Bitcoins will perish because people hoard them", the point is that hoarding something without any use that can be used to invest doesn't make sense if the economy allows any investments in the first place (more precisely if the central government doesn't prevent investments, which is the case now).
However hoarding a resource that has no intrinsic value is dangerous. If you want to hoard and not to invest, you do not use Bitcoin, I think people understand that, that's why it will not be a problem in itself. Bitcoin is for circulation, it's not a good safe haven, it has no intrinsic value.
For example storing 1,000,000 USD in Bitcoins for too long is in fact dangerous, you do not want to do that. Either you invest that money or store it in something else (not dollars, not cash, either an investment vehicle or real money, gold or other inflation hedges, property, valuables, etc.) and let people keep trading in Bitcoins.
----
As a side note I heard some people talking about using flash drives to pay in Bitcoins, but this breaks the way that the protocol prevents double spending, if you copy your Bitcoins onto a thousand flash devices and pay with them somehow and they are not verified by the seller, you can doublespend plenty. So a seller will not accept your file unless he can record the transaction in the network, which is only a prudent thing to do, otherwise it's the seller who will be out of money.
You can't handle the truth.
I can't see any reason for the parent comment to be at -1, that seems like a moderator with an agenda at work. So I'll use my excellent karma to repeat what roman_mir says here:
So how stable is the bitcoin exchange rate these days? Can I start using it seriously yet for receiving as payment for services?
no, the point i made was that it wasn't a viable political structure. at least in my opinion. i'm not concerned with the difference between anarchy and chaos on a theoretical level. i'd like to see it in practice, but then again i don't. unless self-interest is extinguished, no perfect system can be devised. a system's flaws might just be what keeps them viable, if not perfect.
The miners put most of the computational effort in for you; typically you pay a small fee to encourage them to put your transaction into the chain. Usually the buyer will pay the transaction fee, and the seller won't count the sale as complete until it goes sufficiently far back in the train. (In other words, while Bitcoin transactions are instant, it takes a nontrivial amount of time to determine for a fact whether a transaction happened or not. And as such, a cautious seller won't release the goods immediately, but wait until there's enough effort in recording that version of events that nobody's unlikely to override it with a new one.)
So if the mining stopped, nobody would be recording transactions any more. As such, double-spending would be trivial; you could repeatedly do a small amount of mining to satisfy one person that they had the coin, then a bit more to change the history's idea of where the coin went and give it to someone else (or a second account you control). As such, people would have to wait for a very long time in order to be satisfied that a transaction were genuine if there were no mining, and this would make transactions basically impossible. A currency is worth nothing if you can't meaningfully trade it.
(1)DOCOMEFROM!2~.2'~#1WHILE:1<-"'?.1$.2'~'"':1/.1$.2'~#0"$#65535'"$"'"'&.1$.2'~'#0$#65535'"$#0'~#32767$#1"
4% growth a year is exponential, any %age growth is. If growth were linear, the percentage year on year would asymptotically decrease each year, closer and closer to 0% each year.
Oolite: Elite-like game. For Mac, Linux and Windows
In other words, it's the same as the current civilization? If I want to use knots in rope as money and can find someone who accept them as currency, I can do so right now.
"There is a major difference between political anarchy and chaos. In political anarchy you still have order, but instead of a central government controlling everything it's done with voluntary contracts at the individual level. "
There is no difference. In a real anarchy you pay for 'protection' to your local gang, which replace the government quite quickly.
As opposed to an individual who would rob, murder, and kidnap anyone who doesn't agree with their arbitrary laws ?
Why would one enter a voluntary contract when there isn't a central authoriaty to enforce it?
Time is what keeps everything from happening all at once.
Short answer: Transactions require fees. Currently, since the transaction count is easily manageable and block reward is high, most miners process the transactions that have very low or no fees. However, as the block reward diminishes, fees will replace them.
Long answer:
Users have the incentive to pay a high fee so that their transactions get into a block. Miners have the incentive to get every transaction they can get into a block to collect the highest total fees, thus accepting lower fees.
The mechanics actually is even more complex, because there is less incentive to use Bitcoin if the fees get too high, which would cause the value of coins to get lower, which would in turn decrease the mining incentive, thereby decelerating the increase in difficulty, which would reduce mining costs, which would cause the fees to go lower.
So the commonly accepted fee will be at the equilibrium. Since the Bitcoin economy (at least as it is currently) has a very low friction, the equilibrium is rapidly reached.
One concern is how the standard will be extended from now on. We don't want a centralized authority to dictate block sizes and whatnot, but we don't want it to become too hard to develop the system to fix problems. Hopefully the open source philosophy will help us there.
He's taking the piss because Bitcoin has in fact solved the problem of how to distribute fees to miners without any of the problems you claim will exist, and that's trivially verifiable by anyone who takes the time to learn about how the system works. His wider point which you missed - if you think you've found a obvious and gaping flaw in its design, you're probably wrong, or at least you're going to find yourself in the middle of complex debates with no clear resolution (eg, about Austrian vs Keynesian economics).