Question for those with technical knowledge of Bitcoin software

[gregaryb]

Is it the case that Bitcoin consumes an excessive amount of electricity due to the fact that so many are competing for the last of the mined Bitcoins.

I.E. An unnecessary amount of computing power is being applied to settling transactions.

And logically that should end when the last Bitcoin is minded?

And there is no longer any incentive to setup large Bitcoin mining operations?

From then on the price of using Bitcoin will be contributing you own computing power to settling transactions?

And total power consumption by Bitcoin will fall to more reasonable levels similar to our current centralised digital banking services?

[Upgrade00]

I.E. An unnecessary amount of computing power is being applied to settling transactions.

I wouldn't call the computing power being used unnecessary, as it is what secures the network against attacks.

And logically that should end when the last Bitcoin is minded?

And there is no longer any incentive to setup large Bitcoin mining operations?

There would still be transaction fees which are paid to miners and the popular idea is that at that time the value of Bitcoin would be much larger and transaction fees would be sufficient incentive to encourage mining.

From then on the price of using Bitcoin will be contributing you own computing power to settling transactions?

And total power consumption by Bitcoin will fall to more reasonable levels similar to our current centralised digital banking services?

What do you mean by contributing your own power? There would always be miners to confirm transactions and nodes to verify then to keep the network running smoothly.

[kano]

Every statement made in the OP is incorrect.
Read up about it first rather than copy paste something you read on twitter or facebook.

[gregaryb]

I wouldn't call the computing power being used unnecessary, as it is what secures the network against attacks.

My understanding was that if you install the bitcoin wallet software then you are automatically part of the verification network?
That was the very foundation of the distributed verification network?
And everyone with a wallet has a copy of the block chain?

There would still be transaction fees which are paid to miners and the popular idea is that at that time the value of Bitcoin would be much larger and transaction fees would be sufficient incentive to encourage mining.

My understanding was that mining new Bitcoins was a temporary phase as the supply of Bitcoins rose to its maximum.
Then after that there would be no mining of new Bitcoins.

What do you mean by contributing your own power? There would always be miners to confirm transactions and nodes to verify then to keep the network running smoothly.

Because if you have a Bitcoin wallet running on your device then your device contributes to the overall verification of transactions?

Every statement made in the OP is incorrect.
Read up about it first rather than copy paste something you read on twitter or facebook.

The above was not pasted from anywhere.

They are legit questions based on my current understanding of Bitcoin that I have tried to piece together from multiple sources.

I had little doubt that my understanding was inaccurate or incomplete.

[Upgrade00]

My understanding was that if you install the bitcoin wallet software then you are automatically part of the verification network?
That was the very foundation of the distributed verification network?
And everyone with a wallet has a copy of the block chain?

To be part of the verification team, you will need to run your own node and save your own copy of the blockchain, if you're using Bitcoin core, you can run a node it, however not all wallet softwares operate like that and for some you do not need to save a copy of the blockchain.

My understanding was that mining new Bitcoins was a temporary phase as the supply of Bitcoins rose to its maximum.
Then after that there would be no mining of new Bitcoins.

There would be no more coins to be mined, but transactions would still need to be confirmed, and miners would be needed to confirm them. Except that in this case, they are only paid by the fees on the transaction with no coinbase reward.

Because if you have a Bitcoin wallet running on your device then your device contributes to the overall verification of transactions?

Yes, if you run a full node wallet. You can however use a wallet like electrum connected to different servers.

[gregaryb]

So why does the Bitcoin verification system require the puzzle solving that uses so much power?

How exactly does the verification process work with the puzzle?

I have read that this method of verification makes Bitcoin difficult to scale up to truly global system and instead results in increasing transaction processing times.

Or is this simply because the number of Bitcoin users is or was rising faster than the number of node providers?

[kano]

So why does the Bitcoin verification system require the puzzle solving that uses so much power?

The amount of power is simply the result of the number of miners who are involved.
If, as in e.g. today, the difficulty drops about 28%, then there's about 28% less power used now than 2 weeks ago.

How exactly does the verification process work with the puzzle?

It's not a puzzle, it's a simple roll of a dice.
Google will give you millions of hits explaining it.

I have read that this method of verification makes Bitcoin difficult to scale up to truly global system and instead results in increasing transaction processing times.
Or is this simply because the number of Bitcoin users is or was rising faster than the number of node providers?

Nothing to do with the number of nodes or even the number of miners.
It's simply to do with the number of transactions per day it can handle, which is not very many.

[gregaryb]

So I was about right then. That the power consumption issue of Bitcoin is due to the number of miners competing for the last new Bitcoins. A temporary phase.

So what is the bottle neck with Bitcoin transaction verification that make it difficult to scale up to the a good proportion of the global population?

It sounds like it is what I have suspected for some time. That it won't be Bitcoin that becomes the true global currency but one of its descendants where the scaling problem has been solved.

[Node1]

I think you should see bitcoin as something like digital gold where the value of things should be measured with, not as a form of cash for daily payments at the supermarket. It is not designed for a purpose like this.

[NotATether]

So why does the Bitcoin verification system require the puzzle solving that uses so much power?

How exactly does the verification process work with the puzzle?

I have read that this method of verification makes Bitcoin difficult to scale up to truly global system and instead results in increasing transaction processing times.

Or is this simply because the number of Bitcoin users is or was rising faster than the number of node providers?

Bitcoin's POW algorithm that powers the verification system requires miners to find a hash with a sufficient number of zeroes at the beginning. As more miners join, the number of zeroes required at the beginning increases proportionately (well it doesn't work exactly like that, there's actually a maximum value the submitted hash should not be larger than called a nonce, but I'm trying to keep things simple).

More miners joining is not the problem, in fact this balance between more miners and higher difficulty keeps block generation times steady. The problem is the number of transactions that can fit in each block, or the block size, is simply too small to achieve big transaction throughput.

As the number of users increases, more transactions will pile up but only a constant number are getting included in blocks.

Increasing the block size is one solution, but do this too much, and the blockchain will be too big to fit on consumer disks.

I think you should see bitcoin as something like digital gold where the value of things should be measured with, not as a form of cash for daily payments at the supermarket. It is not designed for a purpose like this.

Nah, cash replacement was clearly something that Satoshi had in mind when he designed it. There's a reason the words "Electronic Digital Cash" are in the whitepaper title after all. But the implementation hasn't quite scaled to fill this purpose so far.

[Node1]

You are totally right about that what probably was in Satoshis mind. At least it is the way i think about it at its current state given the actual block size / transactions per second.

In my opinion it is very unlikely that we will ever have a global digital cash completely unregulated from major governments. I think it is more likely we could see a substantially transparent financial system build on bitcoin rather than „only“ bitcoin itself.

But we will see where bitcoin is heading. Core updates can and most likely will be implemented in the future which could drive BTC in any direction.

[kano]

So I was about right then. That the power consumption issue of Bitcoin is due to the number of miners competing for the last new Bitcoins. A temporary phase.
...

No that's not correct. Miners will continue mining forever
(I did clearly say that everything you said in the first post was wrong and that you should at least read up about how it all works)

You don't ever stop getting bitcoins for finding blocks.
Read up about what a block is.
It's a finder reward plus the reward of the fees for the transactions included.
Only the finder reward will eventually be zero.

[gregaryb]

So I was about right then. That the power consumption issue of Bitcoin is due to the number of miners competing for the last new Bitcoins. A temporary phase.
...

No that's not correct. Miners will continue mining forever
(I did clearly say that everything you said in the first post was wrong and that you should at least read up about how it all works)

You don't ever stop getting bitcoins for finding blocks.
Read up about what a block is.
It's a finder reward plus the reward of the fees for the transactions included.
Only the finder reward will eventually be zero.

Then there is a hole in my understanding some where.

My understanding was that there will be an absolute maximum number of Bitcoins in the system at some date in the future.

After which no more NEW Bitcoins can be created.

That mining is acquiring ONLY newly minted Bitcoins.

That after the last new Bitcoin is 'minted' miners will be paid a fee by those wanting their transactions verified (from what you have previously said).

And that when the last new Bitcoin is 'minted' their will be less incentive for miners to create large 'data centers' (that consume a great deal of power) and compete for the those last newly minted Bitcoins.

Where in that is my understanding inaccurate?

[kano]

...
Where in that is my understanding inaccurate?

Read what I said.
No idea why you are assuming you can ignore the fees.

[Node1]

If a miner finds a block, there is a block reward of actual 6,25 „new“ bitcoin plus the amount of transaction fees of valid transactions included in the block. Mining is not only acquiring new bitcoin. There will always be transaction fees and there will always be mining to manage transactions. Even if the reward of new bitcoin will be gone at some point the block reward will always contain the transaction fees.

[gregaryb]

Thank you for that.

That is where the gap in my understanding was!

I had thought that miners were only paid the newly created Bitcoin when they settled a transaction.

And that this would be REPLACED with a fee for service when the last Bitcoin was minted.

[mikeywith]

So what is the bottle neck with Bitcoin transaction verification that make it difficult to scale up to the a good proportion of the global population?

There are two main bottlenecks, one being the block size and two is the average block time, if the block size was unlimited it could handle all the transactions in the world, but large blocks have some serious disadvantages too (it's a long-debated subject which you can read about if you want), the second issue is the 10 mins block time, so even if the transaction fee was close to zero because of the block size, it still wouldn't make sense to pay with bitcoin for your morning coffee, so BTC as is and without any second layer solutions simply can't do.

Think of bitcoin as a final settlement system, when you pay with Paypal or credit card, the balance of the receiver will change instantly and so is yours, but what happens between your bank and his bank or what happens between the central bank of your country and the central back of another country takes days if not weeks to finally settle, bitcoin provides that in a few minutes (if enough fees are paid)

[BlackHatCoiner]

I think you should see bitcoin as something like digital gold where the value of things should be measured with, not as a form of cash for daily payments at the supermarket. It is not designed for a purpose like this.

It is cash. It has exactly the same features cash has except the fungibility.

So what is the bottle neck with Bitcoin transaction verification that make it difficult to scale up to the a good proportion of the global population?

If you leave the block size as it is, you'll see that around 7 transactions per second can be made on-chain. This is obviously not a good proportion of the global population. If you increase the block size, you'll see that decentralization will be harder to achieve. For example, if one block could weight up to 10 MBs, then terabytes of disk space would be required to run a full node. In a nutshell, scaling in the first layer is a double-edged sword. What we do need is second layer solutions that are more practical and can indeed scale the system.

Read what's the Lightning Network: Basics of the Lightning Network.

[uneps]

So I was about right then. That the power consumption issue of Bitcoin is due to the number of miners competing for the last new Bitcoins. A temporary phase.

So what is the bottle neck with Bitcoin transaction verification that make it difficult to scale up to the a good proportion of the global population?

It sounds like it is what I have suspected for some time. That it won't be Bitcoin that becomes the true global currency but one of its descendants where the scaling problem has been solved.

Yes, I think so too.  Bitcoin goes up because of the many enthusiasts of the players.  If there are many players who compete, the price of bitcoin soars.  If there are no mining operators, the price will automatically fall.  Like what the Chinese state did forbid bitcoin mining.  Bitcoin is down to half the price.

[DannyHamilton]

Is it the case that Bitcoin consumes an excessive amount of electricity due to the fact that so many are competing for the last of the mined Bitcoins.

No.

Bitcoin does not consume an excessive amount of electricity. It consumes exactly the amount of electricity necessary to meet the current demand for security.

While the amount of electricity consumed is a result of the amount of competition in the market (specifically a result of the number of hashes computed and the current efficiency of the hashing equipment in terms of hashes per joule), it has nothing to do with the quantity of remaining bitcoins.  Instead, it is driven more by the total reward earned per block and the current bitcoin exchange rate.

The block reward is the sum of the current block subsidy (the "new bitcoins") plus all the transaction fees from all the transactions in the block.

Let's assume for a moment that the average block reward is 6.322 bitcoins, and that the current exchange rate is $50,000 (USD). That's a reward of $316,100 per block. With an average of 144 blocks peere day, that works out to $45,518,400 in revenue to be shared amongst all the miners in the world. If the total cost of running all the Bitcoin hashpower in the entire world is less than $45,518,400 per day, then there is enough profit for miners to spend money on more hashpower (to get a larger share of that $45,518,400 for themselves).  This increases the total worldwide hashpower in operation (and therefore the total electricity used). On the other hand, if the total cost of running all the Bitcoin hashpower in the entire world is greater than $45,518,400, then the miners with the least efficient equipment and the most expensive electricity will operating at a loss.  They will shut down their equipment to avoid going broke (or after they've gone broke).  This reduces the total worldwide hashpower in operation (and therefore the total electricity used).

Now imagine what happens if the bitcoin exchange rate were to collapse. At $1,000 per bitcoin, the total daily revenue to be split between all the miners of the world would only be $910,368.  The world won't be able to profitably use as much electricity if the total worldwide revenue drops from $45.5 million per day to $910 thousand per day!  A LOT of equipment will be shut off, and electricity use will plummet.  Equally, if the exchange rate were to go "to the moon!" and reach $500,000 per bitcoin, then the total daily revenue to be split between all the miners of the world would increase to $455 million! That would allow for a LOT more electricity use.

Notice that as bitcoin becomes more valuable, the amount of electricity needed to secure it increases (providing the needed increase in security for the increase in value), and that as bitcoin becomes less valuable, the amount of electricity needed to secure it decreases (providing a reduced security for the reduced value).

Now, over time, the block SUBSIDY (new bitcoins) will slowly decrease (cut in half approximately every 4 years). Meanwhile, as bitcoin becomes more popular, the sum of the TRANSACTION FEES may increase some.  Eventually, at some point, the transaction fees will be more than half of the reward, and the subsidy will drop to less than half of the reward.  This transition will continue until, in about 120 years or so, the subsidy drops from 0.00000001 BTC per block to 0.0 BTC per block, at which time the ENTIRE reward will consist solely of the transaction fees.

This reduction in subsidy will slowly reduce the total reward unless the fees increase an equivalent amount (which they historically have not).  Therefore, if the exchange rate were never to change again, the amount of electricity used would slowly decrease over the next 120 years as the total amount of bitcoins earned in the block reward shrinks.  However, historically the exchange rate has increased faster than the subsidy has shrunk.  If that were to continue then the total amount of electricity would increase.  As you can hopefully see by now, the driving forces are:

Total bitcoins earned per block  X  Exchange rate  = Amount of electricity consumed X Average cost of electricity

If you increase or decrease any value in that equation, then one or more of the other values will need to change to keep the equation in balance.

I.E. An unnecessary amount of computing power is being applied to settling transactions.

Incorrect.  Exactly the necessary amount of computing power is being applied to CONFIRM transactions.
I've noticed that there are some words (such as "verfied" and "settling") being thrown around in this conversation that can cause confusion. If we are going to talk about the mining process and the full node process then it is important to understand that the "verification" of transactions and blocks is NOT the same thing as the "confirmation" of transactions that happens in the process of "solving" and "broadcasting" a block.

And logically that should end when the last Bitcoin is minded?

"Bitcoin Mining" is just very misleading and confusing name for "bitcoin transaction confirmation".  The process of confirming transactions will continue for so long as bitcoin continues to exist, and as discussed above the reward will slowly transition from 100% subsidy to 100% fees.  It's called "mining" only because in the very early days nobody paid any transaction fees, so the block reward consisted entirely of the block subsidy (the new bitcoins that were included in the block).  

And there is no longer any incentive to setup large Bitcoin mining operations?

As discussed, the incentive is currently the total reward multiplied by the bitcoin exchange rate. The exchange rate is involved in that equation only because the miner needs to pay their electric bill with their local currency. If we ever reach the point where electricity is priced in bitcoins, then the total block reward will BE the incentive.  The exchange rate then wouldn't matter.

From then on the price of using Bitcoin will be contributing you own computing power to settling transactions?

There you go using that word "settling" again.  That's not something that happens with bitcoin transactions.  They are verified, and they are confirmed. Solo miners (and mining pools) confirm transactions by including them in the blocks that they are trying to solve.  Nodes verify transaction by checking to make sure that all the transaction requirements (such as signatures and inputs from UTXO) have been met before relaying them to any peers.

The price of USING bitcoin (as a transaction sender) will continue to be, as it is now, the transaction fees that you pay when you create your transactions.

And total power consumption by Bitcoin will fall to more reasonable levels similar to our current centralised digital banking services?

The total power consumption of our current centralized banking services is much MUCH higher than the current total power consumption of Bitcoin.

My understanding was that if you install the bitcoin wallet software then you are automatically part of the verification network?

No.  If you install a bitcoin node, then you are part of the verification network.  Some wallets (such as Bitccoin Core) have a node built into them, but many do not.

That was the very foundation of the distributed verification network?

No, the foundation of the distributed verification network is the bitcoin node.  However, a process of "confirmation" was created to solve the Byzantine Generals problem. This confirmation is what we are paying the miners for via inflation (the subsidy) and transaction fees.

And everyone with a wallet has a copy of the block chain?

Everyone with a full node has a copy of the blockchain.  Pruned nodes, SPV wallets, and custodial wallets do not. Although all full nodes have a full copy of the blockchain, only solo miners and mining pools extend the blockchain by creating, solving, and broadcasting new blocks.

My understanding was that mining new Bitcoins was a temporary phase as the supply of Bitcoins rose to its maximum.

The existence of the subsidy is a temporary (and dwindling) phase as the supply of Bitcoins rose to its maximum.  The process of transaction confirmation (also known as "mining") is an intrinsic property of the proof-of-work solution to the Byzantine Generals problem. It will continue for so long as bitcoin exists and will do so using an amount of electricity that is approximately equal to the value of the block reward.

Then after that there would be no mining of new Bitcoins.

New bitcoins will stop being included in the blocks that are created, but the process of creating, solving, and broadcasting blocks will continue.

Because if you have a Bitcoin wallet running on your device then your device contributes to the overall verification of transactions?

If you have a full node (which may or may not be a wallet) running on your device then your device contributes to the overall verification of transactions. However, it does NOT contribute to the confirmation of transactions (the inclusion of transactions in solved blocks).

They are legit questions based on my current understanding of Bitcoin that I have tried to piece together from multiple sources.

You need some new sources.  Your current sources are misinforming you to a significant degree.

I had little doubt that my understanding was inaccurate or incomplete.

That's an understatement.  You'd have understood more if you accepted that you knew nothing, rather than any belief that you had any understanding at all.

So why does the Bitcoin verification system require the puzzle solving that uses so much power?

The verification system does not.  The confirmation system does.

How exactly does the verification process work with the puzzle?

All transactions are verified before they are relayed to any peers.  Then solo miners, and mining pools, also verify eeacch transaction before they include it in a block that they are building (so they can avoid wasting time solving an invalid block).

The "puzzle" is a proof that you acccomplished a process that requires some time and energy.  As such, anyone that might want to maliciously interfere with the confirmation process would need to have access to more time and energy than the combined rest of the bitcoin mining population.  This makes malicious activity prohibitively expensive, and results in a situation were anyone with that much time and energy would be MORE PROFITABLE participating honestly for the block reward than they could attain from any malicious activity. This is the security that comes from the proof-of-work, and is the reason why it is important for the cost to go up as the value being secured goes up.

I have read that this method of verification makes Bitcoin difficult to scale up to truly global system and instead results in increasing transaction processing times.

You have read from a bad source of information.  While bitcoin does have scaling challenges (which I believe it can and will overcome), the cause has nothing to do with the fact that it is proof-of-work, and the scalability has already been significantly increased since the initial version in 2009.

Or is this simply because the number of Bitcoin users is or was rising faster than the number of node providers?

No.  The number of nodes has no effect on the number of transactions bitcoin can handle or on the confirmation times for the transactions.

So I was about right then. That the power consumption issue of Bitcoin is due to the number of miners competing for the last new Bitcoins. A temporary phase.

No. You were wrong.
There is no "issue" with the power consumption.
The power consumption has nothing to do with the number of remaining bitcoins.
The mining (confirmation) process is not temporary.
The amount of power used will be determined by the total reward in the future (it may go up or down depending on the future exchange rate and transaction fees).

So what is the bottle neck with Bitcoin transaction verification that make it difficult to scale up to the a good proportion of the global population?

There is no bottleneck in the verification process.  There is a bottleneck in the confirmation process as the weighted size (in vBytes) of each block is limited by the current protocol rules, and each transaction uses some amount of vBytes.  Therefore, solo miners and mining pools choose the transactions with the highest fees until they've reached the maximum block weight, and then all the remaining transactions must wait for a later block.

It sounds like it is what I have suspected for some time. That it won't be Bitcoin that becomes the true global currency but one of its descendants where the scaling problem has been solved.

In my opinion, it is far more likely that Bitcoin will be the true global currency as scaling solutions are put into place for bitcoin.  Furthermore, regardless of scaling solution, a significant number of users will almost certainly use custodial services such that their transactions don't need to be included on the blockchain at all.

Then there is a hole in my understanding some where.

Ansolutely.

My understanding was that there will be an absolute maximum number of Bitcoins in the system at some date in the future.

Correct.  More specifically, the total number of bitcoins will not exceed 20,999,864.76792854 BTC.  It will likely be less than that due to lost and unspendable bitcoins.

After which no more NEW Bitcoins can be created.

Correct.  Beginning at block height 6,930,000, there will no longer be a block subsidy of NEW bitcoins.

That mining is acquiring ONLY newly minted Bitcoins.

Incorrect.  Mining (also known as confirming transactions or solving blocks) allows the creator of the block to assign to themselves a block subsidy of newly minted bitcoins PLUS all the transaction fees of all the transactions included in the block.

That after the last new Bitcoin is 'minted' miners will be paid a fee by those wanting their transactions verified (from what you have previously said).

They will receive the sum of the fees from all the transactions included in their block.  Those fees are paid by the sender of the transaction as an incentive for the miner to confirm (include in the block) the transaction.  Verification happens by every node on the network and does not result in any revenue.

And that when the last new Bitcoin is 'minted' their will be less incentive for miners to create large 'data centers' (that consume a great deal of power) and compete for the those last newly minted Bitcoins.

It's impossible to know what the incentive will be, as we don't currently know how much revenue will be available from transaction fees.

Where in that is my understanding inaccurate?

See above.

I had thought that miners were only paid the newly created Bitcoin when they settled a transaction.

They are paid BOTH with the inflationary subsidy of new bitcoins AND the transaction fees of the transactions that they include in their block.

And that this would be REPLACED with a fee for service when the last Bitcoin was minted.

It will be, but it will be a smooth transition of lower and lower subsidies over the next 120 years as the fees become an ever-bigger percentage of the reward.