Bitcoin mining pointless?

[kripke]

I'm ill-informed and completely new to this so please forgive my impertinence.

From my very limited understanding of what Bitcoin mining involves my first impression is that it seems a colossal waste of energy.

My understanding is that a computer mines bitcoins by solving mathematical puzzles whose difficulty increases as time goes on. These puzzles are pointless in that they do not pertain to anything in the real world. Completing these puzzles does not achieve anything unlike something like Folding@Home or SETI.

Electricity is used to power computers to complete these puzzles. All of the overheads (energy, hardware, time, effort etc) are less than the price fetched by the resultant bitcoins so for some people it makes sense to devote their computer or server farm's time to mining them. This much is crystal clear.

It seems to me though that this is very strange exercise. Nothing real is being produced by the huge amount of electricity used to mine these bitcoins. Something virtual, certainly, but it seems odd that something virtual should have to have so much real tangible energy spent on it to imbue it with value.

I understand that there has to be some sort of labour process (machine rather than human in this case) for the Bitcoin to have any intrinsic value, but this does seem to be quite an energy inefficient way to go about it.

I think I have probably misunderstood something quite fundamental. I'm not trying to criticise this community but rather just understand exactly how this Bitcoin mining works and see what I've failed to understand.

[Blackasaurus]

Pointless? Mining makes money...
Or are you trying to ask how do the coins themselves have worth, like how/where do the people you pay in coins get paid in cash?

[gusti]

Pointless? Mining makes money...
Or are you trying to ask how do the coins themselves have worth, like how/where do the people you pay in coins get paid in cash?

No.
The correct answer is that the whole btc network relies on the proof of work made by all the participants, including the miners.
No mining, no bitcoin network.

[kripke]

Pointless? Mining makes money...
Or are you trying to ask how do the coins themselves have worth, like how/where do the people you pay in coins get paid in cash?

No.
The correct answer is that the whole btc network relies on the proof of work made by all the participants, including the miners.
No mining, no bitcoin network.

So what of the difficulty of the task that the miners have to complete? This is artificially inflated for a particular reason fundamental to how the btc network works?

[BitcoinBonus]

Mining does serve a very important process, that of setting into "stone" the transactions so that there is no dispute that a given exchange has happened.

Transactions are validated by being included in a block.  Blocks are a group of transactions plus a "nonce".  The nonce is added to the end of the transaction list and then the whole thing is hashed to produce a certain number of 0's at the beginning of the hash.  This can only be done by the brute force trying of each possible nonce until a hash is found.  Because it is computationally intensive to find such a nonce, and the longest block chain is always chosen when a double spend attempt is detected, in order to be able to spend coins twice the maligned user would have to control over 50% of the computing power to even have a real chance at success.

Once all of the bitcoins have been mined, the transaction fees will be the reward that keeps people who were mining (or others) to continue doing the computations required to keep the bitcoin transactions validated in blocks.   As they compute the blocks that validate the transactions they'll get the reward of the transaction fees in those blocks.

Thanks to yrral86 for help answering this http://bitcointalk.org/index.php?topic=4132.0;wap2

Compared to the energy that is going into mining gold or many other resources I think we are getting quite a bargain in mining bitcoins.  

Bitcoin Mining can be thought of as a Proof of Time:  http://bitcointalk.org/index.php?topic=6009.0  

[gusti]

Pointless? Mining makes money...
Or are you trying to ask how do the coins themselves have worth, like how/where do the people you pay in coins get paid in cash?

No.
The correct answer is that the whole btc network relies on the proof of work made by all the participants, including the miners.
No mining, no bitcoin network.

So what of the difficulty of the task that the miners have to complete? This is artificially inflated for a particular reason fundamental to how the btc network works?

Difficulty is self adjusted by the network, to keep the block generation (and therefore the btc generation) at a regular pace.
But, as total hashrate capacity is bigger, the whole network is more secure, and less likely to be attacked.

[kripke]

Pointless? Mining makes money...
Or are you trying to ask how do the coins themselves have worth, like how/where do the people you pay in coins get paid in cash?

No.
The correct answer is that the whole btc network relies on the proof of work made by all the participants, including the miners.
No mining, no bitcoin network.

So what of the difficulty of the task that the miners have to complete? This is artificially inflated for a particular reason fundamental to how the btc network works?

Difficulty is self adjusted by the network, to keep the block generation (and therefore the btc generation) at a regular pace.
But, as total hashrate capacity is bigger, the whole network is more secure, and less likely to be attacked.

So there is is an inefficiency then in that the difficulty is self-adjusted to restrain the rate of block generation? I can understand that proof of work and proof of time is necessary for the whole btc network to work but it seems that making the tasks of proof of work and time more difficult than the ought to be introduces a lot of potentially unnecessarily wasted energy.

If more and more people start mining and btc generation is to be kept constant then say the few dozen mega watts used presently to generate the bitcoins could multiply very rapidly. What I find hard to accept is that this is all self-imposed. Unlike gold mining where extracting ore is necessarily difficult, the generation of BTC is just contingently difficult.

You and BitcoinBonus have eloquently explained why btc network requires proof of work and time but I'm not sure if the way things are set up at the moment is the most efficient method of ensuring a consistent generation of bitcoins and fulfilling the role that mining has.

[FooDSt4mP]

Mining does serve a very important process, that of setting into "stone" the transactions so that there is no dispute that a given exchange has happened.

Transactions are validated by being included in a block.  Blocks are a group of transactions plus a "nonce".  The nonce is added to the end of the transaction list and then the whole thing is hashed to produce a certain number of 0's at the beginning of the hash.  This can only be done by the brute force trying of each possible nonce until a hash is found.  Because it is computationally intensive to find such a nonce, and the longest block chain is always chosen when a double spend attempt is detected, in order to be able to spend coins twice the maligned user would have to control over 50% of the computing power to even have a real chance at success.

Once all of the bitcoins have been mined, the transaction fees will be the reward that keeps people who were mining (or others) to continue doing the computations required to keep the bitcoin transactions validated in blocks.   As they compute the blocks that validate the transactions they'll get the reward of the transaction fees in those blocks.

Thanks to yrral86 for help answering this http://bitcointalk.org/index.php?topic=4132.0;wap2

Compared to the energy that is going into mining gold or many other resources I think we are getting quite a bargain in mining bitcoins.  

Bitcoin Mining can be thought of as a Proof of Time:  http://bitcointalk.org/index.php?topic=6009.0  

You're welcome.  Just quick clarification since I initially misinformed you: it's not a specific number of 0's, the hash has to be less than a certain number when interpreted as an unsigned integer.  The way we're not limited to powers of 2.  If we only looked at 0's, the difficulty would be much less fluid.

[FooDSt4mP]

Pointless? Mining makes money...
Or are you trying to ask how do the coins themselves have worth, like how/where do the people you pay in coins get paid in cash?

No.
The correct answer is that the whole btc network relies on the proof of work made by all the participants, including the miners.
No mining, no bitcoin network.

So what of the difficulty of the task that the miners have to complete? This is artificially inflated for a particular reason fundamental to how the btc network works?

Difficulty is self adjusted by the network, to keep the block generation (and therefore the btc generation) at a regular pace.
But, as total hashrate capacity is bigger, the whole network is more secure, and less likely to be attacked.

So there is is an inefficiency then in that the difficulty is self-adjusted to restrain the rate of block generation? I can understand that proof of work and proof of time is necessary for the whole btc network to work but it seems that making the tasks of proof of work and time more difficult than the ought to be introduces a lot of potentially unnecessarily wasted energy.

If more and more people start mining and btc generation is to be kept constant then say the few dozen mega watts used presently to generate the bitcoins could multiply very rapidly. What I find hard to accept is that this is all self-imposed. Unlike gold mining where extracting ore is necessarily difficult, the generation of BTC is just contingently difficult.

You and BitcoinBonus have eloquently explained why btc network requires proof of work and time but I'm not sure if the way things are set up at the moment is the most efficient method of ensuring a consistent generation of bitcoins and fulfilling the role that mining has.

You want as many miners as possible so the 50% power necessary to attack the network is as large as possible.

[gusti]

Pointless? Mining makes money...
Or are you trying to ask how do the coins themselves have worth, like how/where do the people you pay in coins get paid in cash?

No.
The correct answer is that the whole btc network relies on the proof of work made by all the participants, including the miners.
No mining, no bitcoin network.

So what of the difficulty of the task that the miners have to complete? This is artificially inflated for a particular reason fundamental to how the btc network works?

Difficulty is self adjusted by the network, to keep the block generation (and therefore the btc generation) at a regular pace.
But, as total hashrate capacity is bigger, the whole network is more secure, and less likely to be attacked.

So there is is an inefficiency then in that the difficulty is self-adjusted to restrain the rate of block generation? I can understand that proof of work and proof of time is necessary for the whole btc network to work but it seems that making the tasks of proof of work and time more difficult than the ought to be introduces a lot of potentially unnecessarily wasted energy.

If more and more people start mining and btc generation is to be kept constant then say the few dozen mega watts used presently to generate the bitcoins could multiply very rapidly. What I find hard to accept is that this is all self-imposed. Unlike gold mining where extracting ore is necessarily difficult, the generation of BTC is just contingently difficult.

You and BitcoinBonus have eloquently explained why btc network requires proof of work and time but I'm not sure if the way things are set up at the moment is the most efficient method of ensuring a consistent generation of bitcoins and fulfilling the role that mining has.

Do you have an improved, better way, to accomplish the same tasks ?  ;-)

[BitLex]

and about inefficiency and wasted energy:

what amount of energy is wasted to produce the so called 'real money' ?
what amount of energy is wasted by all those security- and computer-systems that watch over the so called 'real money' and keep track of and allow transactions?
what amount of energy is wasted producing and driving around thousands of big armored trucks with armed guards to transport that so called 'real money' from Alice to Bob?

nothing real is produced by that huge amount of energy.
besides that you even pay your bank and government to waste it, how silly is that?


the small amount of energy needed to keep the bitcoin-network going doesnt even get close to a fraction of that.

[rezin777]

So there is is an inefficiency then in that the difficulty is self-adjusted to restrain the rate of block generation? I can understand that proof of work and proof of time is necessary for the whole btc network to work but it seems that making the tasks of proof of work and time more difficult than the ought to be introduces a lot of potentially unnecessarily wasted energy.

If more and more people start mining and btc generation is to be kept constant then say the few dozen mega watts used presently to generate the bitcoins could multiply very rapidly. What I find hard to accept is that this is all self-imposed. Unlike gold mining where extracting ore is necessarily difficult, the generation of BTC is just contingently difficult.

You and BitcoinBonus have eloquently explained why btc network requires proof of work and time but I'm not sure if the way things are set up at the moment is the most efficient method of ensuring a consistent generation of bitcoins and fulfilling the role that mining has.

Perhaps you could create the next bitcoin and make it less energy intensive in the process? I'm sure if you have a better design, people would flock to it! I await your offering.

[kripke]

and about inefficiency and wasted energy:

what amount of energy is wasted to produce the so called 'real money' ?
what amount of energy is wasted by all those security- and computer-systems that watch over the so called 'real money' and keep track of and allow transactions?
what amount of energy is wasted producing and driving around thousands of big armored trucks with armed guards to transport that so called 'real money' from Alice to Bob?

nothing real is produced by that huge amount of energy.
besides that you even pay your bank and government to waste it, how silly is that?


the small amount of energy needed to keep the bitcoin-network going doesnt even get close to a fraction of that.

That is precisely the thing though, you would expect a great deal of energy to be wasted in the protection transfer etc of 'real money' but it does not follow or seem immediately obvious that the same should be the case for virtual money.

I definitely agree that the energy required by the bitcoin network is a fraction of that expended by banks etc and everything that involves. What I think is interesting however is whether the amount used by bitcoin is necessary. If bitcoin takes off and becomes more mainstream (which I think it definitely has the potential to do) this issue may become more relevant. As the number of bitcoins generated tends to 21m (or however much it is) and the difficulty increases (compounded by a larger, crowded user base of miners), who is to say what the global energy expenditure on bitcoin mining will be? C/GPU time - thus energy - appears essentially wasted when the computer is completing the task of 'hashing' or what not that has been made more difficult to complete as a method of curbing the production rate of btc.

I don't know precisely what proof of work entails but if it needs to be beefed up or elongated to slow down the rate at which btc is generated then surely the 'filler' could be some computation that is of greater general use? Like folding proteins or working out further digits of some transcendental number or something! Perhaps I can't see the wood for the trees but it seems extraordinary that wastage should be intentionally built into a system. I'm not picking on bitcoin in particular, just in general the idea that it is self-imposed perplexes me.

I'm no genius and have no answer as to how to complete the same task more efficiently, but supposing that raising the difficulty is necessary to stem the rate of btc generation then perhaps the 'filler' or whatever that makes the task more difficult could be replaced or interspersed with genome sequencing or protein folding or something?

[Jim Hyslop]

So there is is an inefficiency then in that the difficulty is self-adjusted to restrain the rate of block generation? I can understand that proof of work and proof of time is necessary for the whole btc network to work but it seems that making the tasks of proof of work and time more difficult than the ought to be introduces a lot of potentially unnecessarily wasted energy.

If more and more people start mining and btc generation is to be kept constant then say the few dozen mega watts used presently to generate the bitcoins could multiply very rapidly. What I find hard to accept is that this is all self-imposed. Unlike gold mining where extracting ore is necessarily difficult, the generation of BTC is just contingently difficult.

You and BitcoinBonus have eloquently explained why btc network requires proof of work and time but I'm not sure if the way things are set up at the moment is the most efficient method of ensuring a consistent generation of bitcoins and fulfilling the role that mining has.

Block creation is deliberately designed to be held at a fairly constant rate of one block every ten minutes, on average. There are various reasons for this. The technical reason is to actually improve network efficiency - without the constraint, you would get a lot more machines generating blocks at about the same time, causing a lot more wasted time and network bandwidth. The economic reason is to ensure a predictable rate of money supply, which helps control the Bitcoin value.

In other threads, several miners have indicated they would be glad to buy hardware that is much more power efficient than their current setups (no pun intended :-D ). And I think most miners are sensitive to environmental concerns about wasted electricity. Environmental concerns are frequently mentioned in the Mining subgroup, particularly when comparing various hardware to use.

[gusti]

There is no such a wastage at all. Bitcoin relies on cryptography.
You need a computational powerful network to be inmune to attacks.
And computation power = energy consumption
Simple as that. 

[BitLex]

difficulty is NOT raising to keep the network going,
difficulty is raising, because more and more people start mining.

it's NOT necessary to issue more coins,
it happens, because more and more people want to GET those coins.

the system would also work if only 1 computer would generate all coins/blocks,
but it would be a weak system, that could easily be shut down, or attacked.

to make it strong and secure, it's a good thing to have thousands and millions of computers running, instead of just 1,
so it's a good thing that difficulty is raising, because it makes it harder and harder for the fiend.
 

[Jim Hyslop]

I don't know precisely what proof of work entails but if it needs to be beefed up or elongated to slow down the rate at which btc is generated then surely the 'filler' could be some computation that is of greater general use? Like folding proteins or working out further digits of some transcendental number or something! Perhaps I can't see the wood for the trees but it seems extraordinary that wastage should be intentionally built into a system. I'm not picking on bitcoin in particular, just in general the idea that it is self-imposed perplexes me.

Basically, a very simplified way of looking at it is that you have to find a particular value of n such that f ( n ) returns a desired value (you nit-pickers in the back row keep quiet! I said this is simplified). The function f is designed in such a way that changing the value of n even the tiniest bit gives a completely unpredictable result; f( 1 ) might give 33929494, and f( 2 ) might give 4. So the only way to find the value of n that solves the problem is by brute force: try each possible value of n until you find one that works. The value of n that solves the problem is called the proof of work.

The function f and the value n have an important use in Bitcoin, so the solution is not just some pretty value that gets put on the fridge for a few days then quietly gets buried in the recycling bin.

Your idea of using 'useful' calculations to maintain the rate is interesting, but I'm not that it can be worked in. The problem has to fulfill two criteria. First, it has to be something that can be dynamically adjusted to compensate for more and more computers coming online to solve it. Second, the problem must be difficult to solve but easy to verify the solution, because every client will verify the solution at least once, if not several times. And, let's face it - we're dealing with money. A lot of people will be very motivated to claim they found a solution, so we must be able to check their claim quickly and easily.

'Useful' calculations could probably meet the first criterion by varying the number of folds, or the number of digits to solve, and so on.

With the current setup, finding the solution is very hard, but checking whether the solution is correct is, comparatively speaking, trivial. If someone says "Hey, the answer is 542214675," you don't have to try all the values from 1 through 542214674 - all you have to do is plug 542214675 into f and verify that the result meets the requirements. I'm not sure the same thing can be said about folding proteins, extending a transcendental number, and so on - I suspect you would have to duplicate the entire work effort to verify its legitimacy.

[chungenhung]

if it is pointless to you, then you don't need to participate.
Some people also think SETI is pointless, so they choose not to participate.

[grndzero]

if it is pointless to you, then you don't need to participate.
Some people also think SETI is pointless, so they choose not to participate.

Although running calculations for bitcoin has a lot higher percentage of returning something useful than SETI. You can get coins that can be used to purchase goods and services and converted to real world currency.

[farmer_boy]

I think the fundamental reason for the wasteful computations is the 10 minute bound. It has turned out that the difficulty of the sha256 problem can be varied easily. What other computations that do not involve a third party (like Folding@Home) exist in which the time to solve the problem is predictably related to some integer?

Even if you would use Folding@Home or world community grid. What would happen if Folding@Home stopped existing? If you want to change the problem, you would need to have a way to vote in a distributed way over another computation to be performed with some piece of code for the verification of the work performed. This is in principle possible, but how are you going to get an agreement on which particular piece of code? I think all of these have solutions, but they require work, where bitcoin as it is now is pretty solid (until someone breaks sha256 (which will surely happen before the last million coins is generated)).