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Author Topic: Does specialized asic centralize bitcoin?  (Read 763 times)
ihopedso
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March 26, 2013, 08:03:45 PM
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I have been following the stories and it seems like the next thing coming for mining is specialized ASIC mining machines.

These things cost a lot of money, centralizing the power to an elite group who can afford 30K+ machines. And more importantly, this could just be the beginning, leading to machines that cost millions to build in order to mine. Pushing out almost everyone.

Does this in a way undermine the concept of bitcoin as a decentralized currency? In the beginning everyone could take part in the supply of bitcoins, but it will become fewer and fewer.

I didn't think so with GPU mining but this seems to be a whole new level entirely.

What are you thoughts? Feel free to call me crazy and tell me how I'm wrong but preferably in a nice way. Preferably clear and in depth answers that can help everyone understand the situation we are facing better.
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coinomaly
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March 26, 2013, 08:35:29 PM
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short answer is no, it does not centralize bitcoin. it redistributes wealth to a few, but a few is an oligopoly at best. and oligopolies are still technically decentralized.

think of it this way: just because big banks hold billions or trillions of dollars, it does not centralize the currency in that bank. the banks are decentralized and competing against one another, and everyone else that has dollars at all. any little small business, or individual citizen. basically, it works like this:

1. someone makes lots of asics. in this case, avalon.
2. USD/EUR rich people become asic rich.
3. USD/EUR rich people become BTC rich people.

companies like avalon cannot consistently sustain massive profitability, and the bitcoin difficulty will skyrocket, making the competition harder, and further decreasing demand for expensive ASIC mining machines. to maintain profitability as an asic manufacturer you will need to make cheaper machines, which is possible. you just make smaller ones.

4. product segmentation occurs to capture more market share and value, 1 ASIC boards (e.g. jalapeno) come out at accessible prices.
5. USD/EUR poor people buy asics.
6. USD/EUR poor people get relatively richer in BTC, but not as fast as the guys that had the ASICs first because of hashrate->difficulty changes.
7. ASIC poor people (ie, people on GPUs) get f*cked completely at this point.

---
an aside: look at all the exchanging going on here.
USD/EUR->BTC->asic
BTC->asic
gpu/fpga->BTC->asic
gpu/fpga->USD/EUR->asic
gpu/fpga->EUR/USD->BTC->asic
gpu/fpga->BTC->EUR/USD->asic

note each of these has different, fluctuating exchange rates in and of themselves. the math is not as simple as have asic? more usd.
---

what you are confusing here is wealth distribution vs. centralization. everyone can still take part in the supply of bitcoins, even if there are ASIC guys. you don't need mining hardware to get a btc now, you can get one from mt gox by trading other commodities. some guy that has massive amounts of coins from GPU mining in 2010 is still powerful enough to make fluctuations on btc exchanges, especially because btc is FAR less liquid than other currencies.

a centralized currency is one in which one party can fundamentally control its flow. there is no central bank of bitcoin, no planning committee. what we may see is a heavy disparity of income distribution (economists call this a gini coefficient), but most likely bitcoins will fall into something pareto-like in distribution (80% of btc wealth is held by 20% of the population). but that's just distribution. it's not centralized.

the ASIC by itself will probably not cause centralization. a monopoly is required for centralization, and there is no monopoly on ASIC right now, and likely will not be. if someone sees a market opening they will build ASICs, just like the FPGA guys did and you had 10-20 vendors. you and 1000 other people could start an asic manufacturing cooperative if you wanted to, and build your own asics. nobody owns the exclusive right to asics. some people will just get richer first.
CoinSphere
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March 26, 2013, 08:49:18 PM
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I see ASICs as a natural result of the Bitcoin protocol. It's a free market. As long as the networks hashing power is distributed amongst different competitors, this will keep the network healthy. Let's say ASICs didn't become popular, the network difficulty would be lower and it would make it easier for a rich/resourceful entity to attack the network. We need our miners doing everything they can to make the most efficient, powerful, and distributed network as possible.
Fuzzy
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March 26, 2013, 08:52:40 PM
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Keep in mind, ASICs only showed up AFTER the first reward split, so half of all bitcoins ever went to CPU, GPU, and FPGA miners.
ihopedso
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March 26, 2013, 09:12:27 PM
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Keep in mind, ASICs only showed up AFTER the first reward split, so half of all bitcoins ever went to CPU, GPU, and FPGA miners.

Well even after all the coins are distributed the miners will still continue to maintain the supply because of transaction fees.

I see ASICs as a natural result of the Bitcoin protocol. It's a free market. As long as the networks hashing power is distributed amongst different competitors, this will keep the network healthy. Let's say ASICs didn't become popular, the network difficulty would be lower and it would make it easier for a rich/resourceful entity to attack the network. We need our miners doing everything they can to make the most efficient, powerful, and distributed network as possible.

I don't think there is anything natural about the bitcoin protocol, and it is not perfect and is not future proof. Its designed by a large group of people.

Also as an ecologist I can tell you for certain natural systems don't have a default equilibrium, they just have buffers to prevent too much change at once.

ihopedso
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March 26, 2013, 09:18:25 PM
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short answer is no, it does not centralize bitcoin. it redistributes wealth to a few, but a few is an oligopoly at best. and oligopolies are still technically decentralized.

think of it this way: just because big banks hold billions or trillions of dollars, it does not centralize the currency in that bank. the banks are decentralized and competing against one another, and everyone else that has dollars at all. any little small business, or individual citizen. basically, it works like this:

1. someone makes lots of asics. in this case, avalon.
2. USD/EUR rich people become asic rich.
3. USD/EUR rich people become BTC rich people.

companies like avalon cannot consistently sustain massive profitability, and the bitcoin difficulty will skyrocket, making the competition harder, and further decreasing demand for expensive ASIC mining machines. to maintain profitability as an asic manufacturer you will need to make cheaper machines, which is possible. you just make smaller ones.

4. product segmentation occurs to capture more market share and value, 1 ASIC boards (e.g. jalapeno) come out at accessible prices.
5. USD/EUR poor people buy asics.
6. USD/EUR poor people get relatively richer in BTC, but not as fast as the guys that had the ASICs first because of hashrate->difficulty changes.
7. ASIC poor people (ie, people on GPUs) get f*cked completely at this point.

---
an aside: look at all the exchanging going on here.
USD/EUR->BTC->asic
BTC->asic
gpu/fpga->BTC->asic
gpu/fpga->USD/EUR->asic
gpu/fpga->EUR/USD->BTC->asic
gpu/fpga->BTC->EUR/USD->asic

note each of these has different, fluctuating exchange rates in and of themselves. the math is not as simple as have asic? more usd.
---

what you are confusing here is wealth distribution vs. centralization. everyone can still take part in the supply of bitcoins, even if there are ASIC guys. you don't need mining hardware to get a btc now, you can get one from mt gox by trading other commodities. some guy that has massive amounts of coins from GPU mining in 2010 is still powerful enough to make fluctuations on btc exchanges, especially because btc is FAR less liquid than other currencies.

a centralized currency is one in which one party can fundamentally control its flow. there is no central bank of bitcoin, no planning committee. what we may see is a heavy disparity of income distribution (economists call this a gini coefficient), but most likely bitcoins will fall into something pareto-like in distribution (80% of btc wealth is held by 20% of the population). but that's just distribution. it's not centralized.

the ASIC by itself will probably not cause centralization. a monopoly is required for centralization, and there is no monopoly on ASIC right now, and likely will not be. if someone sees a market opening they will build ASICs, just like the FPGA guys did and you had 10-20 vendors. you and 1000 other people could start an asic manufacturing cooperative if you wanted to, and build your own asics. nobody owns the exclusive right to asics. some people will just get richer first.

I don't disagree about the what you are saying about the first generation of ASIC miners, but I'm trying to look a few generations out when the machines could potentially cost millions to make and each take up even larger percentages of the mining share.

I personally don't think bitcoin's original intention was to create an oligarchy, and personally don't like oligarchies. I'm personally for more distributed and democratic forms of power.
Jaw3bmasters
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March 26, 2013, 09:33:25 PM
 #7

I have been following the stories and it seems like the next thing coming for mining is specialized ASIC mining machines.

These things cost a lot of money, centralizing the power to an elite group who can afford 30K+ machines. And more importantly, this could just be the beginning, leading to machines that cost millions to build in order to mine. Pushing out almost everyone.

Does this in a way undermine the concept of bitcoin as a decentralized currency? In the beginning everyone could take part in the supply of bitcoins, but it will become fewer and fewer.

I didn't think so with GPU mining but this seems to be a whole new level entirely.

What are you thoughts? Feel free to call me crazy and tell me how I'm wrong but preferably in a nice way. Preferably clear and in depth answers that can help everyone understand the situation we are facing better.

ASIC probably de-centralized bitcoin.

Several pools will pop up. More options, More choice.

De-centralized.

Those old pool ops were on cloud nine...........

In Cryptography we trust.
coinomaly
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March 26, 2013, 10:01:34 PM
 #8

I don't disagree about the what you are saying about the first generation of ASIC miners, but I'm trying to look a few generations out when the machines could potentially cost millions to make and each take up even larger percentages of the mining share.

I personally don't think bitcoin's original intention was to create an oligarchy, and personally don't like oligarchies. I'm personally for more distributed and democratic forms of power.

i don't agree they will cost millions to make. and if they do, they will likely not be very profitable given the distribution. rewards will be very split by then, and the system re-adjusts difficulty levels to where this will probably be a losing race if you're dropping $5M+ on a mining asic. most people with that kind of funds will be working bitcoin exchanges and trading with algorithmic systems to capture value, since youd basically need to be an investment bank to have that type of capital to throw at mining.

the bitcoin model of cryptocurrencies creates pseudo-oligarchies by its early-adopter incentive policy. if you want to make a democratic form of power, you create a marxist even-allocation cryptocurrency where the allocation is entirely flat across users. you sign up for marx coin, you get 25 mxc, and you're done. which will never work, because that's not how people work. they want to be able to have the edge on something. i'd bet a lot of money that btc would never have taken off without its money supply growth structure that incentivized early adopters for their troubles. nobody would have given a shit.

the problem you have with wealth distribution and this money supply model is the same one i have. i agree it sucks, but it's better to take that up with human nature instead of bitcoin's design.
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