Really nice post nullius, thank you.
I spent a few minutes rereading it. Perhaps the correlation between mining costs and bitcoin price is not as straightforward as I thought.
I like how you simplified for me what miners are doing: Security. But here is where I start to get lost. Doesn't security become more and more expensive to provide? And essentially that concept is what drives the Bitcoin prices higher at the end of the day? The fact that we know we are going to have to waste more resources to provide that additional security.
So basically this is how I'm simplifying it in my own head:
mining fees = security = always increasing = bitcoin price rise
Remember what I said: Miners provide only one component (albeit a very important one). The
validation of the network is done by all full nodes. That’s critical to security; and miners can’t override full nodes, because full nodes will reject consensus-invalid blocks from miners. Miners provide ordering of transactions, which full nodes could not otherwise agree upon. But the validation rules are written into the nodes’ code, and change very rarely.
Full node operators don’t get paid for the security they (we) provide. We do it for other reasons: Using a full node is the most independent, most private,
and most secure way to use Bitcoin. Also, some of us have altruistic ideals about Bitcoin and want to see it succeed. It is not necessary to pay nodes, because the cost is negligible compared to the cost of mining: An ordinary computer with a few hundred GB of free hard disk space and a good Internet connection, all
preferably being run 24/7. Core has a policy of keeping node resource use low enough that anybody can afford to run a node. I know a story of a (literally) homeless person who ran a node (!), with a second-hand laptop and public wifi hotspots; though that was rare, and it did not work out so well in the long run. By contrast, as you know, even a small mining outfit requires a huge upfront investment and ongoing cost.
Now, back to the main issue here:
There is a connection between mining cost and Bitcoin value, but it is rather the inverse of what you say.For their part of securing the network, miners must provide security which no single person or entity in the world can break. This requires that no single person or entity can have a big enough proportion of mining power to execute a so-called “51% attack”. Subtler attacks to corrupt the network could actually be done by a single entity with only about 30% of hashrate; but let’s not complicate the discussion for now. The point is, it must be impractical for any single person or entity to control a majority of hashpower on the network. In this context, “impractical” means somewhere between so expensive as to be ridiculously unprofitable, and infeasible to the degree that nobody could do it even if they were willing to
lose money.
Well, you may ask: Couldn’t somebody rich just go out and buy lots of ASICS to boost their hashpower? Yes, yes indeed. The reason why this does not result in a single party having “51% attack” power is that miners are in constant competition with each other. Each wants a greater percentage of the hashpower, because a greater percentage of hashpower translates directly to a higher probability of finding blocks (and thus getting paid). Miner X will buy a bunch of new hardware, and then Miner Y will buy new hardware to keep up, and Miner Z will compete with both of them. That way, each miner’s selfish interest prevents the others from taking over the network hashpower.
This is by design.It is an ingenious design, by the way. Unfortunate in certain aspects—but ingenious! In this and many other ways,
Bitcoin secures itself by relying on the power of human selfishness. Everybody’s greed forces everybody else’s greed under control. It is the most reliable system ever yet conceived in this world; for in the realm of human affairs, there is nothing more reliable than depending on people to be selfish!
The problem is, this results in constantly increasing resource use. There is a limit to that increase: The limit is the value of Bitcoin. Miners X, Y, and Z will cool down their competition a bit and reach a sort of equilibrium, when the cost of more hardware and electricity exceeds the value they would get from having more hashpower. The higher the value of Bitcoin rises, the higher that limit is raised.
Thus, as you can see: The difficulty and expense of mining does not control the value of Bitcoin. Rather, the inverse: The value of Bitcoin limits the difficulty and expense of mining. If Bitcoin were to crash and stay that way, then many miners would go out of business; and the survivors would continue operating on a smaller budget, using less hardware and electricity. They would compete less, because further competition would be unprofitable. Mining difficulty would drop.
Note also another ingenious feature: The higher the value of Bitcoin, the fiercer the miners’ competition to secure its Byzantine fault tolerance—and thus,
the higher the difficulty of breaking that security, commensurately to the value which must be secured.
That is how Bitcoin could stay secure both in the beginning, when the coins were almost worthless, and now, when the network as a whole secures the equivalent of hundreds of billions of dollars in value. Higher value
causes higher security—indirectly, but nevertheless. Again, this is by design. Satoshi’s design. It is a thing of beauty, in itself.
You have definitely spent the time to learn the Crypto space and I respect that. I apologize if I only bring abstract ideas to the table like "can we make bitcoin more eco friendly?" instead of having the technical solutions. I'll try to learn from you. I'm here because I want to be convinced... if you can believe that. I'm still going to make topics that express my opinion but ill make a concerted effort to increase the quality of my posts
I appreciate that last sentence, particularly.
If you want to learn with an open mind, Bitcoin is a beautiful and challenging world. I suggest you should brush up on the basics with the documentation at
bitcoin.org, as well as the
Bitcoin Wiki. Then, you will be better equipped to ask smart questions here on this forum. There are plenty of helpful people here. For my part, I like being helpful, too (although I am not so nice as others when I see something I think is stupid).
I would also suggest you “lurk” awhile. Make fewer posts, read more posts, until you get a feel for things. Unfortunately, there
is currently a surfeit of low-quality posts; that is why I get so angry, you see. But you will still find many intelligent threads; and the archives here are a gold mine of information, if you know how to search them. Satoshi Nakamoto used to post here, before he vanished. The Core developers also used to post here much more frequently, although most of them don’t post much anymore. Some do.
I’m happy to help here, if/when I see that it’s actually building something in a positive direction.
