A fundamental issue about Bitcoin

[bstatic]

Hi. For the longest time I ignored Bitcoin and it wasn't until a week before the "crash" (2 weeks ago) that I began researching it after seeing the BTC prices soar. I've since installed the client and tried mining. I've been thinking about Bitcoin a lot recently and found some fundamental issues that I would like your opinions on.

I've learned that BTC is generated whenever a new block is found on the blockchain. The BTC is given to the finder or a mining pool which then splits the amount between the miners.

In a capitalist economy (most of the world) however, money is created by central banks and those banks are regulated (well, to some degree) and we put our trust into those banks to control the creation of money to adjust to the economy.

How can Bitcoin ever be a viable economy when the BTC created is going unregulated to individuals and most of it to early adopters? I feel that this fact is being brushed off to easily by people.

Also in the next few months, Avalon and Butterfly Labs are going to ship out incredibly powerful Bitcoin ASIC mining hardware to its customers that have 1000% to 10000% mining capacity of GPU miners (more and more specialized chipsets are coming out with extreme hash rates).

This will put GPU miners completely out of the market in under 6 months and all the wealth generated will go to those groups who bought or manufactured the most powerful mining hardware aka the "elite".

I would like to hear your thoughts on this issue and whether or not you think the fundamental concept of BTC (or money in general) generation could have been done differently.

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[antimattercrusader]

Well, IMO, you do have a bit of a point about the potential "new" wealthy elite being created.

However, in all aspects of life, there are lost opportunities. If indeed BTC takes off and early adopters become very wealthy, those who did not will not be adversely affected. Just not positively affected. I am one of the people who missed the opportunity with ASICs, and such is life. That doesn't change Bitcoin's excellent utility as a medium of exchange.

One plus of the potentially upcoming BTC elite, they didn't earn their status by basically stealing from society and oppressing innovation. Quite the opposite, in fact. Should BTC take off, the early adopters (IMO, including those who risked their funds on ASIC) should be well rewarded. It was, and still is, a risky venture. They're putting their funds, time, and energy into making this network work. And if it indeed works, they should enjoy the benefits.

[wamatt]

This will put GPU miners completely out of the market in under 6 months and all the wealth generated will go to those groups who bought or manufactured the most powerful mining hardware aka the "elite".

Bitcoin does not change key motivations within the human population. If all wealth was equally distributed within a few decades (perhaps sooner), we'd start to see the typical power law (80/20) rule emerging again.

Some people care more about creating wealth, others care more about happily spending it today. A gross simplification, and there exist many other facets. However, I've seen these archetypes play out with the people around me, throughout my life.

[bstatic]

Well, IMO, you do have a bit of a point about the potential "new" wealthy elite being created.

However, in all aspects of life, there are lost opportunities. If indeed BTC takes off and early adopters become very wealthy, those who did not will not be adversely affected. Just not positively affected. I am one of the people who missed the opportunity with ASICs, and such is life. That doesn't change Bitcoin's excellent utility as a medium of exchange.

One plus of the potentially upcoming BTC elite, they didn't earn their status by basically stealing from society and oppressing innovation. Quite the opposite, in fact. Should BTC take off, the early adopters (IMO, including those who risked their funds on ASIC) should be well rewarded. It was, and still is, a risky venture. They're putting their funds, time, and energy into making this network work. And if it indeed works, they should enjoy the benefits.

The problem with these ASIC miners is that they are literally "money making machines". To consider it unfair is a matter of perspective but it is certain that the perceived "everyone can mine Bitcoins" mentality from infomercials is an illusion as those with the most miners will come to hold the most BTC and thus control the value of the currency.

I am trying to raise awareness about this issue, maybe you can help me.

This will put GPU miners completely out of the market in under 6 months and all the wealth generated will go to those groups who bought or manufactured the most powerful mining hardware aka the "elite".

Bitcoin does not change key motivations within the human population. If all wealth was equally distributed within a few decades (perhaps sooner), we'd start to see the typical power law (80/20) rule emerging again.

Some people care more about creating wealth, others care more about happily spending it today. A gross simplification, and there exist many other facets. However, I've seen these archetypes play out with the people around me, throughout my life.

In this case one group (the elite) will exploit and profit immensely on BTC sales to the other group (the unsuspecting public). You didn't describe how this model has played out with the people around you, only that they did.

[Crypto Canary]

I am trying to raise awareness about this issue, maybe you can help me.

There already is awareness of this issue... which is proven by the fact that very few people actually use bitcoin, and even still, fewer actually use it as a currency.

[odolvlobo]

Many of the problems in the world are caused by people putting their trust into the creation and distribution of money by banks. Bitcoin solves this problem. Bitcoin is regulated by rules, and not by politics, favoritism, nepotism, and violence.

There is no distribution of wealth problem. The wealth created by mining bitcoins is a tiny fraction of the total wealth in the world,. Consider that if a single person owned all of the bitcoins, they would have less than a billion dollars and would not be even close to being the richest person in the world.

[Anon136]

asics are not that expensive. I dont think a 1200 dollar investment is enough to qualify anyone as "elite"

[bstatic]

Many of the problems in the world are caused by people putting their trust into the creation and distribution of money by banks.

There is no one cause for the problems in this world. What you said might be one of them but I think there are problems that run much deeper than that, which I won't go into now.

Bitcoin solves this problem. Bitcoin is regulated by rules, and not by politics, favoritism, nepotism, and violence.

I don't see how Bitcoin solves any problems. It is actually unregulated and the way that BTC mining will progress, most of the wealth will go to the "big" mining pool guys which puts them in a position to control the market and make huge profits.

asics are not that expensive. I dont think a 1200 dollar investment is enough to qualify anyone as "elite"

What you are talking about is a 25 Gh/s ASIC miner. At 25Gh/s you will make 1.64 BTC/day at the current difficulty of 7672999. We are in the pre-ASIC days right now. When Avalon/BFL have shipped out their hardware, the difficulty will rise exponentially (and it already has, see this link).

In 3 months (and 6 difficulty re-calculations later) lets say the difficulty will be 30x what it is today. At 25Gh/s you will make 0.05 BTC/day at the 30x difficulty of 230189970. You are going to be needing a lot more units very fast. This will drive small scale mining out of business and only the biggest guys will remain with the most hardware.

[Anon136]

Many of the problems in the world are caused by people putting their trust into the creation and distribution of money by banks.

There is no one cause for the problems in this world. What you said might be one of them but I think there are problems that run much deeper than that, which I won't go into now.

Bitcoin solves this problem. Bitcoin is regulated by rules, and not by politics, favoritism, nepotism, and violence.

I don't see how Bitcoin solves any problems. It is actually unregulated and the way that BTC mining will progress, most of the wealth will go to the "big" mining pool guys which puts them in a position to control the market and make huge profits.

asics are not that expensive. I dont think a 1200 dollar investment is enough to qualify anyone as "elite"

What you are talking about is a 25 Gh/s ASIC miner. At 25Gh/s you will make 1.64 BTC/day at the current difficulty of 7672999. We are in the pre-ASIC days right now. When Avalon/BFL have shipped out their hardware, the difficulty will rise exponentially (and it already has, see this link).

In 3 months (and 6 difficulty re-calculations later) lets say the difficulty will be 30x what it is today. At 25Gh/s you will make 0.05 BTC/day at the 30x difficulty of 230189970. You are going to be needing a lot more units very fast. This will drive small scale mining out of business and only the biggest guys will remain with the most hardware.

im sorry but this doesnt explain how economy of scale is beneficial. Im not saying it isnt, just that your comment doesnt explain why we should expect that it is. If it costs 2.9 dollars a day in electricity and nets him 3 dollars a day leaving him a profit of 10 cents a day than having 1000 units doesnt make it any more profitable. he still only makes 10 cents per unit. Cramming more in a room doesnt make each unit more profitable.

on the contrary someone who is running 1 asic could "borrow" his parents electricity and the heat given of by the unit could be used to heat his house, where as the heat given off by 1000 units would be a liability not an asset.

[Razick]

This will put GPU miners completely out of the market in under 6 months and all the wealth generated will go to those groups who bought or manufactured the most powerful mining hardware aka the "elite".

The people who invest in hardware will reap the rewards; that's how the free market works and it's the best way of doing things.

[johnyj]

In a capitalist economy (most of the world) however, money is created by central banks and those banks are regulated (well, to some degree) and we put our trust into those banks to control the creation of money to adjust to the economy.

Central bank can inject money and withdraw money to/from fianancial system, but that could not adjust economy. The injected money just goes into commercial bank's pocket, could not magically create job and help the economy, and this process require exponential growth forever, which is not sustainable in the long run