Four Strikes Against Bitcoin

[TellerOfTruth]

The four strikes against Bitcoin:

First, Bitcoin mining is illegal.  Do the research, bitcoin mining has all the legal elements of prize, chance, and consideration which makes it a lottery (see for example http://www.blankrome.com/index.cfm?contentID=37&itemID=2300 ).The mining computers necessary for Bitcoin's ongoing operation are legally no different than networked slot machines under US State laws.    Instead of "three cherries", your mining rig is trying to produce via a random process a "crypto hash" with a set number of continuous zeros.  Hey, who cares that your winning computed crypto "hash" file is no better whatsoever in supporting Bitcoin holders / the blockchain than the trillon trillion other valid crypto hash files calculated and immediately tossed in the trash by losers.  Be the first to calculate a valid crypto "hash" solution that ALSO coincidentally contains an irrelevant bunch of leading zeros and win a prize! Running a bitcoin mining operation in the US as an individual or business entity is an illegal lottery and its proceeds (mined Bitcoins) are subject to confiscation at any time by State Attorney Generals.   Their press release could come at any time...

Second, current bitcoin mining exponential growth is unsustainable.  The key graph at  https://blockchain.info/charts/hash-rate?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address shows that mining Bitcoin currently takes 300,000,000+ GHash / sec of computer power to keep this ponzi scheme going.  Take for example a modern mining rig like a Butterfly Labs Monarch ( http://www.butterflylabs.com/monarch/ ) that costs $850 and uses 490W to produce 700 GH/sec of hash power for mining Bitcoins.  If the entire Bitcoin mining ecosystem were Monarchs (which it isn't, it is a mix of equipment mostly less efficent and already obsolete compared to Monarchs), then there's 300,000,000 / 700 = 428,571 Monarchs out there at an installed infrastructure cost of 428,571 * 850 = $364 million dollars.  This installed base of mining computers currently generate 25 Bitcoins / hit * 6 hits / hour * 24 hours / day = 3600 Bitcoins / day (currently worth $244 each at this writing, see http://coinmarketcap.com ) for a total of $878,400 per day.  If Bitcoin rates were roughly stable (ha!) this would be around $320 million per year.  The average annual return on a mining rig is thus currently below its average cost so the current Bitcoin mining ASIC arms race and its exponential growth cannot be funded.  That's why the super-mining union CEX.io has already pulled out: http://www.coindesk.com/cloud-mining-suffers-hash-rate-plateaus/

Third, Bitcoin mining is hugely wasteful and inefficent.  There's only 6 * 24 * 365 = 52,560 winners per year in the Bitcoin lottery that injects new coins into the Bitcoin ecosystem (inflation!).  With 500,000+ mining computers out there, 90+% of them will run all year and never get a hit, all the while sucking up at least 500,000 * 850 = 425,000 KWh per hour of electricity.  At 15 cents per KWh average, the current Bitcoin system is burning at least $64,000 per hour / $560 million per year in electricity. 

Finally, Bitcoin mining is unnecessary.  Instead of 500,000+ competing "Proof of Work" (PoW) mining computers in the back room supporting Bitcoin behind the scenes, second-generation cooperative "Proof of Stake" (PoS) cryptocurrencies like the pioneering NXT can field the infrastructure necessary to support a vast population of coin holders with only a tiny network of a few hundred $35 10W Raspberry Pi 2 toy educational computers ( http://www.raspberrypi.org/raspberry-pi-2-on-sale/ ).   Such PoS networks cooperate solely to support coin owners instead of primarily competing for miner prizes, making them far more cost-effective and efficent.   Bitcoin is a dinosaur that cannot evolve to achieve this crucial advantage.

Bottom line: The current Bitcoin system has at least $364 million in sunk infrastructure costs and burns at least $560 million a year in power.  The ONLY source of "income" to support this burden is (1) appreciation of the existing 13.8 million Bitcoins and (2) mining of 1.3 million new Bitcoins per year.  Do the math - these numbers just don't add up to a stable system that's gonna work.

Four strikes, and Bitcoin's out.

[Lauda]

Here we go again. Another thread dedicated to FUD. 

[TellerOfTruth]

Here we go again. Another thread dedicated to FUD.  

Facts...(and)...Unwelcome...Data

[AgentofCoin]

You are in the wrong section. You should move this to: Development & Technical Discussion.
If you want serious answers, go there.
If you stay here, you are a FUDer.

[RodeoX]

Thanks for the warning. But I have made a lot of money ignoring warnings like these. You need a better lawyer before giving up so easy.

1. Bitcoin mining is a service not a lottery. Miners work for a living. They are not just scratching off lotto cards. Nor do they pay to play, which is why a lottery is gambling.

2. Bitcoin mining sustains it's self because it can scale up and scale down. It is like gold mining. We know where a lot of gold is that can't be mined because it is unprofitable. If the price goes up, then it will get mined. Same with bitcoin, if it's not profitable then there is too much supply and mining drops off.

3. Your argument is also true of the internet. Unfortunately the universe demands energy for work.

4. I have no interest in weak PoS systems. The market seems to agree.

Bottom line, it is working and continues to grow.

[gargantuar]

Anyone newbie with a handle like "telleroftruth" is likely entirely dishonest.

[pedrog]

Well, your first point is only relevant for the USA.

Bitcoin mining only grows if price goes up, nothing more sustainable than that.

Bitcoin mining is also a distribution system, pretty efficient one.

NXT promotion...

[slaveforanunnak1]

DERP DERP DERP... OMG .. DERP DERP

Hey look every boddy, this guy is so smart! he figured it out!! Where have you been?

PISS OFF

[Dissonance]

The four strikes against Bitcoin:

First, Bitcoin mining is illegal.  Do the research, bitcoin mining has all the legal elements of prize, chance, and consideration which makes it a lottery (see for example http://www.blankrome.com/index.cfm?contentID=37&itemID=2300 ).The mining computers necessary for Bitcoin's ongoing operation are legally no different than networked slot machines under US State laws.    Instead of "three cherries", your mining rig is trying to produce via a random process a "crypto hash" with a set number of continuous zeros.  Hey, who cares that your winning computed crypto "hash" file is no better whatsoever in supporting Bitcoin holders / the blockchain than the trillon trillion other valid crypto hash files calculated and immediately tossed in the trash by losers.  Be the first to calculate a valid crypto "hash" solution that ALSO coincidentally contains an irrelevant bunch of leading zeros and win a prize! Running a bitcoin mining operation in the US as an individual or business entity is an illegal lottery and its proceeds (mined Bitcoins) are subject to confiscation at any time by State Attorney Generals.   Their press release could come at any time...

Second, current bitcoin mining exponential growth is unsustainable.  The key graph at  https://blockchain.info/charts/hash-rate?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address shows that mining Bitcoin currently takes 300,000,000+ GHash / sec of computer power to keep this ponzi scheme going.  Take for example a modern mining rig like a Butterfly Labs Monarch ( http://www.butterflylabs.com/monarch/ ) that costs $850 and uses 490W to produce 700 GH/sec of hash power for mining Bitcoins.  If the entire Bitcoin mining ecosystem were Monarchs (which it isn't, it is a mix of equipment mostly less efficent and already obsolete compared to Monarchs), then there's 300,000,000 / 700 = 428,571 Monarchs out there at an installed infrastructure cost of 428,571 * 850 = $364 million dollars.  This installed base of mining computers currently generate 25 Bitcoins / hit * 6 hits / hour * 24 hours / day = 3600 Bitcoins / day (currently worth $244 each at this writing, see http://coinmarketcap.com ) for a total of $878,400 per day.  If Bitcoin rates were roughly stable (ha!) this would be around $320 million per year.  The average annual return on a mining rig is thus currently below its average cost so the current Bitcoin mining ASIC arms race and its exponential growth cannot be funded.  That's why the super-mining union CEX.io has already pulled out: http://www.coindesk.com/cloud-mining-suffers-hash-rate-plateaus/

Third, Bitcoin mining is hugely wasteful and inefficent.  There's only 6 * 24 * 365 = 52,560 winners per year in the Bitcoin lottery that injects new coins into the Bitcoin ecosystem (inflation!).  With 500,000+ mining computers out there, 90+% of them will run all year and never get a hit, all the while sucking up at least 500,000 * 850 = 425,000 KWh per hour of electricity.  At 15 cents per KWh average, the current Bitcoin system is burning at least $64,000 per hour / $560 million per year in electricity. 

Finally, Bitcoin mining is unnecessary.  Instead of 500,000+ competing "Proof of Work" (PoW) mining computers in the back room supporting Bitcoin behind the scenes, second-generation cooperative "Proof of Stake" (PoS) cryptocurrencies like the pioneering NXT can field the infrastructure necessary to support a vast population of coin holders with only a tiny network of a few hundred $35 10W Raspberry Pi 2 toy educational computers ( http://www.raspberrypi.org/raspberry-pi-2-on-sale/ ).   Such PoS networks cooperate solely to support coin owners instead of primarily competing for miner prizes, making them far more cost-effective and efficent.   Bitcoin is a dinosaur that cannot evolve to achieve this crucial advantage.

Bottom line: The current Bitcoin system has at least $364 million in sunk infrastructure costs and burns at least $560 million a year in power.  The ONLY source of "income" to support this burden is (1) appreciation of the existing 13.8 million Bitcoins and (2) mining of 1.3 million new Bitcoins per year.  Do the math - these numbers just don't add up to a stable system that's gonna work.

Four strikes, and Bitcoin's out.

1) The legality of Mining and bitcoin changes from  jurisdiction to Jurisdiction you cannot make a blanket statement like that.  Currently in the US mining is not illegal.

2)  The growth of hashing has nothing to do with the stability and viability of the network as it automatically adjusts to the hash rate.  If the hasrate goes down the ability to use bitcoin in unaffected. Many miners will go out of business the stronger ones will adapt and thrive welcome to capitalism.  Do your homework.

3) Bitcoin does use a lot of electricity I'll give you that.  Cars also use a lot of energy but the benefits  outweigh the costs. Bitcoin if it reaches its potentional will be well worth the cost.  Also miners have a strong incentive to reduce costs and energy usage.  Over time the costs will go down per KW.

4) If there are better ways to transmit value over the internet that a wide number of people adopt then bitcoin will be obsolete and that's a good thing.  But until then bitcoin is here to stay.

[Morecoin Freeman]

The four strikes against Bitcoin:

First, Bitcoin mining is illegal.  Do the research, bitcoin mining has all the legal elements of prize, chance, and consideration which makes it a lottery...

I literally stopped reading here. How do you come up with such crap?

[cellard]

lol at this NXT/Stellar bagholder.

[LiteCoinGuy]

Here we go again. Another thread dedicated to FUD.  

Facts...(and)...Unwelcome...Data

just use the "search" function. you will find answers.

[franky1]

i think the OP is mad that a friend of his told him he can make lots of money while remaining in his basement using just his computer  and then scream out that the world is unfair as they can only make 25c a day by trying to blame bitcoin with some illegal practices and flaws that dont exist

usually i am more helpful and tell these people the 50,000 different ways to get hold of bitcoin. but today. im just gonna laugh that the OP's narrow mindedness

[TellerOfTruth]

1. Bitcoin mining is a service not a lottery. Miners work for a living.

Actually, the "service" that miners "do" is legally considered to be the "consideration" part of the lottery known as Bitcoin.

Bottom line, it is working and continues to grow.

Something that has consumed hundreds of millions of dollars fielding hundreds of thousands of useless computers only to lose 75% of its value in the past 15 months is not "working" or "growing".  It's a burst bubble.

[TellerOfTruth]

i think the OP is mad that a friend of his told him he can make lots of money...

Nope.  I've made my share of profit on Bitcoin.  But I hear the music stopping and I see how few chairs are out there.  Don't you? 

I laugh that the OP's narrow mindedness

As I shake my head sadly at yours.

[RodeoX]

1. Bitcoin mining is a service not a lottery. Miners work for a living.

Actually, the "service" that miners "do" is legally considered to be the "consideration" part of the lottery known as Bitcoin.

Bottom line, it is working and continues to grow.

Something that has consumed hundreds of millions of dollars on hundreds of thousands of useless computers only to lose 75% of its value in the past 15 months is not "working" or "growing".  It's a burst bubble.

If you don't have to pay to get in then it's not a lottery. I suppose you could call it a contest, but there is nothing wagered like a lottery. I doubt any court would find otherwise.

As far as the "burst bubble", I think this is a common confusion about bitcoin. People often seem to think in terms of stocks and investments when thinking about bitcoin. But it is nothing like that. I have made some good money in bond markets and trading stocks. Each trade is really a bet on the business behind the stock offering. Those companies need my money to launch a plan to make more money. That's my return. If they fail to raise enough the price could drop and the company could become insolvent and POP! the bubble bursts and the stock is worthless.

Bitcoin is not a business, there are no mouths to feed, bitcoin does not need money to work. It worked just fine when the price was $0.06, it worked fine when the price was $1000. There is no minimal threshold that is required to keep bitcoin from becoming insolvent.

In short, price is not an indicator of growth. Price is an indicator of supply and demand, adoption shows growth. There are more businesses now than ever accepting bitcoin and the list grows every day. I'm shocked by how quickly it's all happening. Two years ago I could buy alpaca socks and used computer parts with bitcoin. Now I buy whatever I want and no longer use cards on the internet.

~Cheers

[TellerOfTruth]

I literally stopped reading here. How do you come up with such crap?

Read more than the first two sentences and see.  The references and calculations supporting my claims are clearly stated.

[AgentofCoin]

Here is the original intent from the Whitepaper, as to your "Prize" argument.

"6. Incentive
By convention, the first transaction in a block is a special transaction that starts a new coin owned
by the creator of the block. This adds an incentive for nodes to support the network, and provides
a way to initially distribute coins into circulation, since there is no central authority to issue them.
The steady addition of a constant of amount of new coins is analogous to gold miners expending
resources to add gold to circulation. In our case, it is CPU time and electricity that is expended.
The incentive can also be funded with transaction fees. If the output value of a transaction is
less than its input value, the difference is a transaction fee that is added to the incentive value of
the block containing the transaction. Once a predetermined number of coins have entered
circulation, the incentive can transition entirely to transaction fees and be completely inflation
free.
The incentive may help encourage nodes to stay honest. If a greedy attacker is able to
assemble more CPU power than all the honest nodes, he would have to choose between using it
to defraud people by stealing back his payments, or using it to generate new coins. He ought to
find it more profitable to play by the rules, such rules that favour him with more new coins than
everyone else combined, than to undermine the system and the validity of his own wealth."
https://bitcoin.org/bitcoin.pdf

It is a means to secure the network. Not a "prize" or "reward" and that is the end game.
In a lottery, the " "prize" or "reward" is the point. Its a game of chance.
Bitcoin isn't a game of chance, but intended to be a payment network that is still in its early stages.
You are misconstruing Bitcoins intent and objective, in order to fit into gaming law.

[TellerOfTruth]

If you don't have to pay to get in then it's not a lottery. I suppose you could call it a contest, but there is nothing wagered like a lottery. I doubt any court would find otherwise.

You do not understand the legal definition of "consideration" in this context.  You have to pay  to buy the mining computer, and electricity to run it, which is your "entry fee" for the Bitcoin lottery.  The value of that entry fee flows to "Bitcoin" as a "consideration" when you calculate a block to be added to its blockchain - a function vital to the continuation of Bitcoin.  If Bitcoin used every single block generated by all miners, it would be "buying" a "service" and would be a business.  Instead, a random chance function (leading zeros in the block) is used to award a prize to one single block winner every ten minutes.  All other blocks generated by all other losers (which are cryptographically valid but lack the winning zeros) are discarded.  

I know it's uncomfortable to acknowledge that Bitcoin mining is a lottery, but legally it is.  Protests to the contrary, or silence so far on this point from State law enforcement or courts, are irrelevant.   Favorable federal legal rulings so far from IRS or DOJ are also irrelevant, since gaming law is handled on a State level.

So far the States have yet to speak up on this point of law - Bitcoin as an illegal lottery.  It will not be a good day for Bitcoin when they do.

[cheekychap]

Here we go again. Another thread dedicated to FUD. 

That too from a newbie like everytime.