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Author Topic: Advantage of free electricity and future value question  (Read 2009 times)
btcgolong
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August 14, 2011, 05:04:28 PM
 #1

Obviously miners with cheap (or even free, i.e. other people paying for your electricity) electricity have an advantage over people paying for it. I know many of you are mining for the speculative (future) value of bitcoin, but I don't see the price of electricity going anyplace but higher, I would think when the coin output is cut in half, we are going to lose at least 50% of the miners unless the value of bitcoins increases and also stabilizes.

But for those with free electricity they can mine until their hardware burns out, that's a big competitive advantage, although those with free electricity won't have it forever (graduate college, move out of their rented condo, etc).

When will YOU stop mining?

Are you going to mine no matter what happens for the next 5-6 years (lets say prices stay continue to bounce around under $10) because you believe in bitcoin. I know it's tough to make a decision based on today's value, because if bitcoin "makes it" coins could be worth (pardon the pun) a "pretty penny". So, what has to happen to make you stop mining?



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August 15, 2011, 04:21:33 PM
 #2

It's actually a complete myth.  All "free electricity" means is you've got a few months before your landlord notices the overall power bill for the entire apartment double, at which point he's gonna investigate for about 5 minutes with an electrician and a no-contact ring amp meter then evict you.  No, it hasn't happened to me or anyone I know but it definitely would.
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August 17, 2011, 02:13:42 AM
 #3

Hopefully by the time the block reward drops, the transaction fees per block will meet or exceed 25BTC.  If this is the case, miners will make approximately the same as they do now.

I figure transaction fees will only rise with time as the system gets larger.

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August 17, 2011, 04:11:08 AM
 #4

I will mine as long as its profitable.  While I sure would like to see bitcoin become mainstream I like to limit risk.  As I mine i convert it to USD to pay electric bill, pay for my video cards.  I suppose once my hardware is paid for -- i might only sell enough coin to cover my electric.  which at 7.2 cents per KWH isn't a lot from my 4 video cards.

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August 17, 2011, 11:02:16 AM
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It's actually a complete myth.  All "free electricity" means is you've got a few months before your landlord notices the overall power bill for the entire apartment double, at which point he's gonna investigate for about 5 minutes with an electrician and a no-contact ring amp meter then evict you.  No, it hasn't happened to me or anyone I know but it definitely would.

The other great source of 'free' electricity is that of the employer's.  It works great... until someone discovers who is eating all the power and that person gets fired.  So worth it for a few dozen bitcoins.

There is also the third minor category of using the parents' electricity.  That works great... until dad rips junior a new one over the sudden escalation in power usage.  The added bonus is that many people are on scaled power charges.  The more you use the more all electricity in the household costs.  It's a great profit driver and efficiency measure in one.


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August 17, 2011, 01:49:29 PM
 #6

It's actually a complete myth.  All "free electricity" means is you've got a few months before your landlord notices the overall power bill for the entire apartment double, at which point he's gonna investigate for about 5 minutes with an electrician and a no-contact ring amp meter then evict you.  No, it hasn't happened to me or anyone I know but it definitely would.

In many countries, it is extremely difficult to evict tenants.

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August 17, 2011, 02:04:29 PM
 #7

In the United States it can take up to 6 months to evict a tenant if I remember correctly.

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August 17, 2011, 05:08:39 PM
 #8

Hopefully by the time the block reward drops, the transaction fees per block will meet or exceed 25BTC.  If this is the case, miners will make approximately the same as they do now.

I figure transaction fees will only rise with time as the system gets larger.

The transaction fees don't need to be that high assuming the bitcoins gain value against energy.  Just because energy will have a higher cost in dollars doesn't mean that higher cost will translate to bitcoins.

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August 17, 2011, 05:36:47 PM
 #9

Hopefully by the time the block reward drops, the transaction fees per block will meet or exceed 25BTC.  If this is the case, miners will make approximately the same as they do now.

I figure transaction fees will only rise with time as the system gets larger.

The transaction fees don't need to be that high assuming the bitcoins gain value against energy.  Just because energy will have a higher cost in dollars doesn't mean that higher cost will translate to bitcoins.

I just meant that mining hopefully won't get less profitable even though the intrinsic reward goes down.  Transaction fees should hopefully make mining just as, if not more, rewarding as before.

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August 17, 2011, 07:17:17 PM
 #10

Hopefully by the time the block reward drops, the transaction fees per block will meet or exceed 25BTC.  If this is the case, miners will make approximately the same as they do now.

I figure transaction fees will only rise with time as the system gets larger.

Does anyone have an estimate of about how many transaction fees are paid in one block right now?
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August 17, 2011, 09:32:28 PM
 #11

So wait, when it goes down reward will be "Reward + Transaction fees"?
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August 17, 2011, 10:30:00 PM
 #12

Quote from: Block Explorer
Generation: 50 + 0.0045 total fees
Generation: 50 + 0.16253335 total fees
Generation: 50 + 0.0035 total fees
Generation: 50 + 0.01405 total fees
Generation: 50 + 0.0005 total fees
Last 5 blocks with any transactions (there was one that only had the generation transaction).

Right now the reward is "reward + fees" but the fees constitute to almost nothing giving a reward of ~50BTC.  I'm hoping that by the time the generation award of 50BTC drops to 25BTC that the fees will be at about 25BTC per block.  If this happens than "reward + fees" will still be ~50BTC.

As the network grows more fees will be pushed through the system.  I'm merely speculating about the amount of fees that will eventually be collected.

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August 18, 2011, 06:37:46 AM
 #13

It's actually a complete myth.  All "free electricity" means is you've got a few months before your landlord notices the overall power bill for the entire apartment double, at which point he's gonna investigate for about 5 minutes with an electrician and a no-contact ring amp meter then evict you.  No, it hasn't happened to me or anyone I know but it definitely would.

I don't know about the tenancy laws in your state, but where I live it's illegal to evict someone because of "excessive electricity usage". The landlord can only kick the miner out after the lease expires.

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August 18, 2011, 11:33:46 AM
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Quote from: Block Explorer
Generation: 50 + 0.0045 total fees
Generation: 50 + 0.16253335 total fees
Generation: 50 + 0.0035 total fees
Generation: 50 + 0.01405 total fees
Generation: 50 + 0.0005 total fees
Last 5 blocks with any transactions (there was one that only had the generation transaction).

Right now the reward is "reward + fees" but the fees constitute to almost nothing giving a reward of ~50BTC.  I'm hoping that by the time the generation award of 50BTC drops to 25BTC that the fees will be at about 25BTC per block.  If this happens than "reward + fees" will still be ~50BTC.

As the network grows more fees will be pushed through the system.  I'm merely speculating about the amount of fees that will eventually be collected.

Wow I did not expect numbers that low. This means that if there are ten times as many BitCoin users as there are now, the tx fees will still be nothing. The only way this will change is if there are 1000 times as many transactions as right now.
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August 18, 2011, 01:48:56 PM
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Quote from: Block Explorer
Generation: 50 + 0.0045 total fees
Generation: 50 + 0.16253335 total fees
Generation: 50 + 0.0035 total fees
Generation: 50 + 0.01405 total fees
Generation: 50 + 0.0005 total fees
Last 5 blocks with any transactions (there was one that only had the generation transaction).

Right now the reward is "reward + fees" but the fees constitute to almost nothing giving a reward of ~50BTC.  I'm hoping that by the time the generation award of 50BTC drops to 25BTC that the fees will be at about 25BTC per block.  If this happens than "reward + fees" will still be ~50BTC.

As the network grows more fees will be pushed through the system.  I'm merely speculating about the amount of fees that will eventually be collected.

Wow I did not expect numbers that low. This means that if there are ten times as many BitCoin users as there are now, the tx fees will still be nothing. The only way this will change is if there are 1000 times as many transactions as right now.

Not quite.  As the volume grows a higher percentage of people will likely attach fees.  Just to give an incentive to get their transaction included in the next block.

I know if there were 100 times the volume I would include a fee more often.

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August 18, 2011, 05:36:15 PM
 #16

The current fees are 0.0005. Correct?

How many fees would it take to get to 25 bitcoins? 50,000. Wow, that's a lot.

As a miner, I hope fees never go up, it'd cripple the ability to make micropayments using bitcoins. Also, what happens if bitcoins shoot over 100 USD each, and the fee is say .05 bitcoins, I highly doubt anyone will spend 5 dollars to send 1 dollar to a friend. Obviously, the solution is to lower the fee again.

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August 18, 2011, 06:08:12 PM
 #17

Technically speaking, you can choose whether or not to attach a fee and how much of one to attach.

The current client just enforces a particular fee policy.  I figure eventually this will be removed and the market/users will decide what is a fair fee based on their transaction, the miners, and priority they need.

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August 18, 2011, 07:48:15 PM
 #18

It's actually a complete myth.  All "free electricity" means is you've got a few months before your landlord notices the overall power bill for the entire apartment double, at which point he's gonna investigate for about 5 minutes with an electrician and a no-contact ring amp meter then evict you.  No, it hasn't happened to me or anyone I know but it definitely would.
Depends a lot on scale. If the increase is small enough then that scenario is pretty unlikely.

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August 19, 2011, 04:01:30 PM
 #19

There's a glitch right now in the client to include a lower than normal fee.  Here's a slightly problem though.  I dunno how many transactions can be put in a block and how many a pool can handle but what if it gets to the point where if you don't add a fee, your transaction could be put on hold indefinitely?  Like it could take weeks or months to go through because nobody's picking it up and it's getting swamped by other transactions?
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August 20, 2011, 06:38:21 AM
 #20

There's a glitch right now in the client to include a lower than normal fee.  Here's a slightly problem though.  I dunno how many transactions can be put in a block and how many a pool can handle but what if it gets to the point where if you don't add a fee, your transaction could be put on hold indefinitely?  Like it could take weeks or months to go through because nobody's picking it up and it's getting swamped by other transactions?

Well I think that's the point really isn't it? Eventually when the block generation reward drops to zero the idea is that only transaction fees will  be paid.  The reason is that the original design assumption is that miners/pools will only process transactions with fees attached because there is no incentive to include the ones that don't.  The block generation fees are really  just a quite successful strategy to attract the necessary hashing power to the network to make it secure enough to resist attack.

Currently the incentive to include transaction that have no fees is that if two block solutions are found in a near tie then the solution which has processed the most work will be accepted by the network.  However, when there is not an incentive to find a block for the sake of finding a block alone then you can see how it may not be in a miners best interest to include transactions with no fee.

Also as I understand it the design of the system is such that we are only hashing for a result based the block header.  This should mean that we won't run up against a limit to the number of transactions processed in a block.  If this were an issue I would also expect someone to be pointing the flaw out in this forum which I haven't seen yet.
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