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Earth The Almighty Buck The Internet

Is Bitcoin Mining a Real-World Environmental Problem? 595

Posted by samzenpus
from the ready-set-panic dept.
First time accepted submitter HeadOffice writes "Mark Gimein points out that Bitcoing mining uses a lot of power, enough that it is a real world problem: 'About 982 megawatt hours a day, to be exact. That’s enough to power roughly 31,000 US homes, or about half a Large Hadron Collider. If the dreams of Bitcoin proponents are realized, and the currency is adopted for widespread commerce, the power demands of bitcoin mines would rise dramatically. If that makes you think of the vast efforts devoted to the mining of precious metals in the centuries of gold- and silver-based economies, it should. One of the strangest aspects of the Bitcoin frenzy is that the Bitcoin economy replicates some of the most archaic features of the gold standard. Real-world mining of precious metals for currency was a resource-hungry and value-destroying process. Bitcoin mining is too.' However, not everyone is convinced that virtual mining is as bad for the environment as the real thing."
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Is Bitcoin Mining a Real-World Environmental Problem?

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  • Conversion (Score:3, Informative)

    by hugg (22953) on Sunday April 14, 2013 @07:36PM (#43448339)

    "About 982 megawatt hours a day, to be exact"

    982 MWh/day / 24 = ~41 megawatts

    Come on reporters, convert brain-dead units into normal units.

    • by Shavano (2541114) on Sunday April 14, 2013 @07:38PM (#43448355)

      "About 982 megawatt hours a day, to be exact"

      982 MWh/day / 24 = ~41 megawatts

      Come on reporters, convert brain-dead units into normal units.

      MWH is a unit of energy. It's also readily convertible to money.

      • Re:Conversion (Score:5, Insightful)

        by Anonymous Coward on Sunday April 14, 2013 @08:43PM (#43448777)

        So people are paying real money for electricity to then convert it to fake currency?

        • by kelemvor4 (1980226) on Sunday April 14, 2013 @09:08PM (#43448915)
          Correct. You can use a bitcoin exchange to convert real money into fake currency as well.
          • Re:Conversion (Score:4, Insightful)

            by hairyfeet (841228) <bassbeast1968@@@gmail...com> on Monday April 15, 2013 @12:43AM (#43449747) Journal

            Here is what I personally don't get, and maybe I'm wrong, maybe someone can enlighten me, but how EXACTLY is Bitcoins not a pyramid scheme?

            I mean the guys could make a mint that got in on the ground floor, because mining was super duper easy, but as more and more enter it becomes harder and harder and now I seriously doubt anyone that isn't stealing the electricity will ever break even.

            Now don't get me wrong, I like the IDEA of a completely non traceable currency, because like freedom of speech or a free Internet I believe the good far and away outweighs the bad, I just don't see how this particular system isn't a pyramid scheme. Maybe its the whole "mining" concept that is throwing me, who knows, but I looked at it last year and I just don't see how anybody getting in on the bottom today can even break even, kinda like...well a pyramid scheme.

            • Re:Conversion (Score:5, Insightful)

              by Jane Q. Public (1010737) on Monday April 15, 2013 @01:51AM (#43449933)

              "I mean the guys could make a mint that got in on the ground floor, because mining was super duper easy, but as more and more enter it becomes harder and harder and now I seriously doubt anyone that isn't stealing the electricity will ever break even."

              That isn't why they made a killing. First, it wasn't "super duper easy" even in the beginning. I made a couple of bitcoins back in the early days, and it took my laptop grinding away for a total of about a couple of days each (I ran it overnight when I was sleeping).

              That's not "super duper easy" when you consider that a Bitcoin was only worth about 50 cents to a dollar. You were lucky if you broke even on the electricity.

              Most of the people who made lots of money in the market were not bitcoin miners (though that has probably changed if anybody has half a brain). It was the investors. People who bought bitcoins hoping their market value would go up.

              But there's a problem with that, too, see. Last I checked (which wasn't very long ago), it was costing in the neighborhood of around $30 to mine a bitcoin, if you add up the amortized equipment cost, time and electricity. Yet Bitcoins went up as high as $250.

              Wouldn't you like to be able to make something for $30 and sell it for $250? Yeah, me too. Of course it's down from that now but it's still selling for about 5 or 6 times what it costs to make. That's a pretty good markup. So people who are making bitcoins TODAY are making a killing. Not just the initial investors (though they did pretty well).

              Which of course means more people will make Bitcoins, which means the price will come down, until the difficulty (cost) of making them is not that far from market price.

              All you are seeing right now is a bubble. As long as they are selling for lots more than they cost to make, you are going to have an irrational, lopsided market that could crash at any time. But it's hardly a "pyramid scheme". There is lots of opportunity right now for somebody to invest in hardware and make a lot of money... if they do it quick.

            • Re:Conversion (Score:4, Interesting)

              by SharpFang (651121) on Monday April 15, 2013 @03:22AM (#43450275) Homepage Journal

              As time goes by, new, more efficient methods of mining emerge. First there was CPU, then GPU, now we got FPGA.

              I guess next comes a dedicated ASIC, an order of magnitude faster than FPGA.

              With current difficulties CPU yields roughly 1-10 Mhash/s, GPU: 10-100, FPGA: 100-1000 (with rare exceptions.)

              Breaking even on a CPU is nearly impossible nowadays, but the FPGA yields still a decent ROI. And creating 100BTC on a CPU in the early days took about as much time and money as creating 100BTC nowadays on FPGA.

              Of course nowadays 100BTC is worth vastly more than early on, but that only means those who *bought* early got really rich. Those who mined early got rich only due to spending more time mining...

            • by SmallFurryCreature (593017) on Monday April 15, 2013 @05:14AM (#43450601) Journal

              It is isn't a pyramid scheme, it is just ruined by speculators. And the worst kind of speculators, the dumb kind that buys gold from vending machines because prices are at record heights.

              If you know ANYTHING at all about successful speculation, you know that you buy LOW and sell HIGH. The dumb speculators are however slow as well as dumb and only dive on say speculating in gold when prices are already high. Buy Apple stock 10 years ago. Smart. Buying Apple stock right now. Dumb.

              Bitcoin is seen as having a high value right now, like say comic books had a while ago and dumb people think that this is then worth investing in with the logic that if you buy high, you can sell at even HIGHER! And really cleanup!

              It doesn't tend to work that way. Instead, you can buy high because smarter speculators are SELLING high and they are selling because they don't think it is going to go any higher. Bitcoin as a anonymous paypal alternative has some merrit. As an investment, not so much. As a currency, none whatsoever. It would be like creating a currency out of comic books or bottle caps.

              Fallout fans may be familiar with that idea, it is silly but do you fully understand HOW silly it is? Bottle caps were garbage once. How can you put a real world value on an item someone may at any point find a whole stockpile off, or worse, the machines that make them in the millions? North Korea has its defacto currency, the US dollar. Even loyalty taxes to the state have to be paid in it. NK ALSO had projects to create huge piles of counterfeit US dollars. Some ended up in the rest of the world but the majority of counterfeit US dollars is in NK circulation. NK has flooded its own economy with counterfeit currency they can't even hope to spend anywhere because if you had any brains and a North Korean handed you a wad of dollars you check every note individually.

              Almost anything can be used as a currency, and has. Stamps have been used as currency almost exactly as Terry Pratchett described it in one of his latest books. In fact, paper money is an alterntive not that different from bitcoin to using real precious metals as barter counters. Nobody has a need for gold however, it was just for thousand of years convenient to barter for goods with a in between mechanism of gold/silver. I trade you my chickens for X gram of precious metal I have no need off because I know that I can barter that for clothes with that other guy.

              ANYTHING will do for that, and has. There have even been cases of shops creating their own low currency for giving chance to small for real currency. You give me your silver coin and I give you produce and a chit saying that you still have some spending power left in this shop.

              But what you NEED for a currency to be usable is some stability. Deflation is bad because it causes people to hoard and to much inflation hurts as well because if you pay me now, I will have far less tomorrow. Rampant speculation causing a currency to go rise and fall thousands of percent are useless. How am I going to price my goods when every second the currency has a different value.

              Say you are going to sell beer for REAL (and not just as a novelty value, bars can afford to "sell" some beer just for a smile if 99% of the customers buy it for hard cash) for 1 bitcoin you might get within a day get anywhere between a dollar and a 400 dollars.

              There is a reason people talk about HARD cash. Hard cash needs to be hard, have a consitent value. Salt worked once because people had a stable need for salt, a stable market existed so it could be reliable used to barter with. Comic books, baseball card, tulip bulbs and bitcoins don't.

              It makes no sense to invest in it, you can only speculate in it if you understand what buying low, selling high really means AND until the idiot speculation stops it is even useless as a paypal alternative because you can't mark your products in bitcoins when that goes up and down per minute.

        • by bistromath007 (1253428) on Sunday April 14, 2013 @09:22PM (#43448995)
          ...Bitcoin is an MMO?
        • Re:Conversion (Score:5, Insightful)

          by kiddygrinder (605598) on Sunday April 14, 2013 @10:21PM (#43449263)
          you can exchange it for other currencies or goods & services, how exactly is it a fake currency?
          • Re:Conversion (Score:4, Interesting)

            by goose-incarnated (1145029) <[moc.liamg] [ta] [narhtnalel]> on Monday April 15, 2013 @01:43AM (#43449907) Homepage Journal

            you can exchange it for other currencies or goods & services, how exactly is it a fake currency?

            Down at the local market I can exchange potatoes for other currencies or goods & services; that doesn't make potatoes a real currency though. Bitcoins are commodities. Nothing more, nothing less.

            • if you use it as a currency it's a currency, it's not a hoity toity term to describe government mandated units of exchange.
              • Re:Conversion (Score:4, Insightful)

                by hedwards (940851) on Monday April 15, 2013 @03:48AM (#43450343)

                It's a fake currency because it's not backed by any government and there's no requirement that anybody take it. Whereas even Microsoft points are guaranteed to be taken by MS unless they stop taking them with prior notice. And they'd likely give notice of when they plan to do that if that ever happens; BTC not so much.

                As much as folks disparage the USD, the fact of the matter is that I can at least be guaranteed that I can pay my bills with it and pay taxes, which is something that you cannot say about BTC.

                • All current currencies are "fake" (aka fiat) currency. And while the government does back currency, it is only of value because that is what the government requires in taxes, and the market demands of currency. However, when you realize that the government can take your currency (as in Cyprus) held in government backed banks, run by a government backed central banking system, you start realizing the government just might be the problem. Corrupt or bankrupt government means your value in currency is only as

            • Re:Conversion (Score:5, Interesting)

              by rioki (1328185) on Monday April 15, 2013 @02:25AM (#43450071) Homepage

              Actually you get it backwards. A commodity is something you can actually use. Gold for example is used as currency and is a commodity, since it is used to make jewelry or electronics. Bitcoin is just a currency, you can't use it for anything. If Bitcoins are complacently devalued they are not worth the "bits they are printed on". Commodity that is also used as a currency, retains value if the actual currency is fully devalued. For example after WWII cigarettes where used as black market currency. But once the situation normalized and people started to get real money in their hands and could buy something for it, the cigarettes as currency where useless, but you could still sell them as cigarettes for real money.

              About the fake part of Bitcoin, it's only fake as in there is not sovereign nation backing the currency, so what? Any currency is as good as the trust it is put into it by it's users. The currencies of nations tend to devalue too, as the users lose trust in that currency. For example during the perestroika in Russia many people used USD instead of the ruble, because they did not trust the ruble to be stable.

              • by DarkOx (621550)

                If anyone bothered to actually look up the definition of currency they would find one of its defined attributes is the condition of being generally accepted as a medium of exchange. Bitcoin is *NOT* generally accepted. That does not mean it can't become so; but it isn't a currency today.

                The real problem with society at so many levels comes down to people trying to use our currencies for that which they were never really designed. Currency, money, and commodity are not fully interchangeable.

                Money implies

    • Re:Conversion (Score:5, Informative)

      by Anonymous Coward on Sunday April 14, 2013 @07:44PM (#43448393)

      Considering that most people pay for their electricity by the kilowatt hour, the megawatt hour is not a bad unit to be using. It lets me say, for example, that it's about 200,000 times my average daily electricity usage (5 kWh on my last bill, probably because of the air conditioning). Much easier to compare scales.

      Mind you, megawatts aren't bad either ... they're just not as intuitively transformable to real-world scenarios for most people.

      • Re:Conversion (Score:5, Informative)

        by Pentium100 (1240090) on Sunday April 14, 2013 @10:03PM (#43449189)

        In my opinion, no.

        Reporters use the units of energy, so that the total would look much bigger than it is. 982MWh/day - I only use 1.2MWh in a month wow that's a lot, but remember that this is for the entire mining network, not for an individual miner. On the other hand, 41MW - that's not a lot, a hydroelectric power plant in my city is 100MW - that single power plant could power two bitcoin mining networks - I bet Google's servers use more power than this...

        • by Kenshin (43036)

          hydroelectric power plant in my city is 100MW - that single power plant could power two bitcoin mining networks

          How many houses and businesses could that power?

          I bet Google's servers use more power than this...

          Google is actually useful to hundreds of millions of people.

  • I guess it depends (Score:3, Interesting)

    by p00kiethebear (569781) on Sunday April 14, 2013 @07:36PM (#43448341)
    On where the power is coming from. Wind Powered bittcoin mining wouldn't be so bad right?
    • by ShanghaiBill (739463) * on Sunday April 14, 2013 @08:11PM (#43448613)

      On where the power is coming from. Wind Powered bittcoin mining wouldn't be so bad right?

      No. Electrical energy is fungible. So if you use wind power, there is less wind power available for others, so they have to use more coal power (or whatever). The result is the same as if you had just used the coal power directly. The only way it would make a difference is if the wind power was otherwise going unused (unlikely).

      • by jcr (53032) <jcr.mac@com> on Sunday April 14, 2013 @08:21PM (#43448657) Journal

        if you use wind power, there is less wind power available for others,

        Nope.

        You need to develop a sense of proportion.

        -jcr

        • by haruchai (17472) on Sunday April 14, 2013 @08:40PM (#43448759)

          He simply wanted to say "fungible"

        • by Nemyst (1383049) on Sunday April 14, 2013 @11:12PM (#43449453) Homepage
          Not really. Say your energy grid has 100MW wind and 500MW coal and you're using 400MW. If your BitCoin mining adds 100MW consumption, you could always say it's using 100MW of wind power, but then that means whatever was using that power before now derives it from coal. It's just swapping numbers around.

          Yes, it'd be hard to remove wind power from others, but that's only potential available energy, it's not realized and thus entirely irrelevant to the discussion, unless BitCoin mining magically builds wind farms.
        • by BitZtream (692029)

          So you think wind power is free energy? The original statement is most certainly true. Wind, like any other resource is limited. If you consume 100% of the energy in wind on the planet, you can't build another wind mill and get 100.1%. Wind farms slow and change the flow of wind.

          If you use it, you do take it away for others. Ask ANY sailor (as in on a sail boat) what happens when someone takes the wind out of your sail. That saying is literal even if you don't realize its usage.

      • Or perhaps I could just rely on nuclear energy, which has virtually none of the c word. We produce so much energy in Arizona that we actually sell it to California, and provide 25% of their energy supply. (A lot of their local governments want to boycott us still over SB1070, even though they have such little energy supply that they have rolling brown outs...such a poorly made decision.)

    • by whois (27479)

      I don't remember the term for it, but if you own a business it can be said that it makes a profit, but at the same time it loses money. The reason for this is it's not making enough money vs what an investor would get putting his money in a different investment. So let's say you're making your expenses plus 5%, the investor is mad because he might get a 6% interest rate if he loaned his money to someone else.

      I suspect the same thing would apply to generating electricity specifically to mine bitcoins. You

  • by Shavano (2541114) on Sunday April 14, 2013 @07:37PM (#43448343)
    982 MWH/day costs approximately $100,000 per day. Is the marginal utility of mining bitcoins worth more than $100,000 per day to the world economy? If so, carry on. If not, everybody please stop.
    • Re: (Score:3, Interesting)

      by Anonymous Coward

      I believe right now 3600 btc are mined per day. At 100$ each that's 360k per day. I wouldn't mine those profit margins.

    • by Mashiki (184564) <mashiki@NOspAM.gmail.com> on Sunday April 14, 2013 @08:03PM (#43448549) Homepage

      Kinda funny, but the windmills here in Ontario have a negative profit margin of roughly the same daily.

    • Depends where you live. It'd be more like $200,000 where I'm from. If you only pay $0.10/kWh then its ~$100,000. USA pays around 8-17c depending where you live, or 37c in Hawaii. I pay about 25c.

      The poor Australians pay 22-46c/kWh. They also run air conditioning for a good portion of the year. More bitcoin mining = more heat = more aircon load. It doesn't work the other way around in winter though, unless you heat your house with crappy heaters. Average heat pumps produce 4x more heat than they consume, so

      • by BitZtream (692029)

        I'm going to be pedantic.

        Average heat pumps produce 4x more heat than they consume

        Entirely untrue. Heat pumps MOVE energy from one place to another. They do not produce heat (well, ideally they do not, due to naturally being less that perfectly efficient they do) nor do they absorb it. When you turn on the heat, they just gather up some of the heat outside and provide it to you on the other end. When cooling, they just gather some heat from inside your home and dump it outside.

        Exception: Emerancy/backup/secondary heating units exist in most heat pumps to offs

  • Hard to say (Score:3, Interesting)

    by phantomfive (622387) on Sunday April 14, 2013 @07:37PM (#43448345) Journal
    Hard to say how bitcoin compares to mining gold and silver when you don't even know how much bitcoin is worth. If bitcoin gains enough value, they might be better for the environment than printed paper money.

    How much is bitcoin worth? There was an interview recently with some 'bitcoin millionaires', people who had a million dollars worth of bitcoin. That of course raises the question: if they sold their bitcoin, would there be enough buyers to actually get them a million dollars? Or would such a large sale cause the market to collapse?
    • Re:Hard to say (Score:4, Interesting)

      by cryptizard (2629853) on Sunday April 14, 2013 @08:17PM (#43448639) Homepage
      The other thing is that bitcoins have a finite shelf life, as opposed to precious metals which we know last almost indefinitely. Once a break is found for SHA-256 or Elliptic Curve DSA (the two cryptography primitives used by the bitcoin protocol), bitcoins will be worthless. It's not likely that this will happen any time soon, but 20 or 30 years from now? Definitely plausible. At that point, all the money spend on mining will essentially evaporate.
      • Re:Hard to say (Score:5, Interesting)

        by doublebackslash (702979) <doublebackslash@gmail.com> on Sunday April 14, 2013 @08:36PM (#43448737)

        IANABP (I am not a Bitcoin Proponent, I own exactly 0BC and will not in the forseeable future), but I am interested in the idea and mechanisms involved.

        If a break is ever found, suspected, or even slightly likely an orderly migration to better cryptographic primitives can be performed. If you are interested in knowing more the wiki [bitcoin.it] enumerates all the known possible attacks.

        • Makes sense, although I imagine if it actually happens it is going to be a lot more complicated than they think. Just look at the recent mixup with the two client versions that supported different block sizes.
      • by the_B0fh (208483)

        If you can break sha-256, most of Internet is essentially broken. Breaking EC would break a hell of a lot of shit too.

      • by NF6X (725054)

        The other thing is that bitcoins have a finite shelf life, as opposed to precious metals which we know last almost indefinitely. Once a break is found for SHA-256 or Elliptic Curve DSA (the two cryptography primitives used by the bitcoin protocol), bitcoins will be worthless.

        Contingencies for such things are already designed into the system. It's not a requirement that the system must always use SHA-256. If SHA-256 becomes too weak in the future, then the bitcoin protocol can be revised to use a replacement system. This would need to be done with planning an care, as the system does depend on the clients agreeing about what protocol is to be used. If SHA-256 was suddenly broken wide open with no warning, that might prove fatal to the system. However, it's more likely that there

    • oh, you mean like the 65+% slump Bitcoin carried over the weekend? Went from something like $260 to $105 or something daft...

  • That's "41 megawatts" for those of you who prefer it in non-retarded units. In case you were wondering, that's 0.003% of the US's electrical generation capacity. Yeah, that's a real environmental disaster, there. It's not a problem, it's a rounding error.

    • by BitZtream (692029) on Sunday April 14, 2013 @08:13PM (#43448625)

      it's a rounding error.

      So is every car on the planet, but that doesn't mean we don't consider the output of those cars, does it?

      Little things tend to add up quickly when you're paying absolutely no attention to efficiency.

  • Seriously? (Score:4, Insightful)

    by OhANameWhatName (2688401) on Sunday April 14, 2013 @07:39PM (#43448365)
    So we take a controlled monetary system and try to create a better monetary system and then spend effort analyzing how it fails?

    The problem with the existing monetary system isn't that it's controlled by a small group of people, it's that those people are corrupt and are manipulating the system. Bitcoin has the same problem, it's just obscured because the people 'mining' the system aren't a central group, they're a distributed group.

    This is crowd sourced corruption, nothing more. If you didn't expect there to be costs related to tens of thousands of people running resource intensive software to game a system designed to protect people from responsibility .. you're kidding yourself. Quit wasting time analyzing why bitcoin isn't going to get anywhere and just accept it.

    If you're able to game the monetary system, then it's lost it's value.
  • by Bananatree3 (872975) on Sunday April 14, 2013 @07:44PM (#43448395)
    Digital mining has one massive advantage over real-world mining - Moore's Law. In 5 years when FPGAs and GPUs are churning out 2-3x the current bitcoin rate at far less power requirements per bitcoin less power will be required to do the same work.
  • by Guspaz (556486) on Sunday April 14, 2013 @07:47PM (#43448411)

    Continuing my tradition of using Hydro-Québec's installed capacity as a unit of measurement, this "environmental problem" is only consuming 0.0011 Hydro-Québecs.

  • One thing I don't really understand is this:

    > The number of bitcoins in existence will never exceed 21 million.

    So once 21 million is hit...no more power is needed, because you can't generate more?

    When I read that, I thought 21 million is not a lot of coins for the whole world to use. It seems screwy to me. You run into the issue that you run into with gold, if that is the case. You can't buy a loaf of bread with gold because it is worth so much.

    > While the number of bitcoins in existence will never exceed 21 million, the money supply of bitcoins can exceed 21 million due to Fractional-reserve Banking.

    I've tried and tried to wrap my head around this, but it makes no sense to me. How can you have fractional-reserve banking if the coins have to match a digital signature? Fractional-reserve banking creates money out of thin air. How can you create bitcoins out of thin air? And if they are just used as backing for a fiat currency, who is to say that someone kept enough bitcoins in stock to cover the fiat money?

    • by Will_Malverson (105796) on Sunday April 14, 2013 @07:57PM (#43448493) Journal

      It's not quite that simple. Fractional-reserve banking creates promises of money out of thin air. You can do fractional-reserve banking with gold coins, barrels of oil, strawberries, or any other commodity.

      Even that's not quite fair to say, because every promise of money created is created at the same time as a right to future money, so the total net amount of money isn't changed.

      Many people get f-r banking and fiat currency confused.

    • Transaction fees (Score:4, Informative)

      by tepples (727027) <tepples@[ ]il.com ['gma' in gap]> on Sunday April 14, 2013 @08:06PM (#43448571) Homepage Journal

      So once 21 million is hit...no more power is needed, because you can't generate more?

      The 21 million BTC figure is asymptotic. The reward for a successful hash halves every so often as the total minted value approaches 21 million. But each Bitcoin transaction can include a voluntary "transaction fee", a tip paid to the miner who includes the transaction in the next block. After that point, miners will seek tips rather than newly minted bitcoins.

    • by Goaway (82658)

      So once 21 million is hit...no more power is needed, because you can't generate more?

      "Mining" actually means maintaining the Bitcoin public ledger. So it will still be needed once all coins have been mined. Profits will come from transaction fees instead of minting new coins, and power will still be used.

    • by Kjella (173770) on Sunday April 14, 2013 @08:37PM (#43448751) Homepage

      When I read that, I thought 21 million is not a lot of coins for the whole world to use. It seems screwy to me. You run into the issue that you run into with gold, if that is the case. You can't buy a loaf of bread with gold because it is worth so much.

      They can be divided into something like 0.0000000001 BTC so that is not an issue, if the economy got huge you'd price stuff in milli-BTCs or micro-BTCs. But you're getting close to why people think it's a pyramid scheme, to fit a trillion dollar economy in 21m BTC the exchange rate would have to rise to almost $50k/BTC. Actually $100/BTC already seems crazy, it'd put the total value at $2100 millon - until anyone big tries to cash out anyway.

      I've tried and tried to wrap my head around this, but it makes no sense to me. How can you have fractional-reserve banking if the coins have to match a digital signature? Fractional-reserve banking creates money out of thin air. How can you create bitcoins out of thin air?

      Let's say people deposit 100 BTC in the bank, now the bank lends 90 BTC to others while keeping 10 BTC as a fractional reserve, that might appear as 190 BTC (100 deposits + 90 loaned out) but it is only an illusion. If the people wanted to withdraw their 100 BTC the bank would be bankrupt because it only has 10 BTC in reserves, it is waiting for the other 90 BTC to be paid back with interest. In reality you'd probably secure yourself against bank runs like that by offering fixed interest rates so people can't withdraw all at once and cause a cash shortage and the bank could lend somewhere else with the loan portfolio as security. As long as none of the loans are defaulting, there's no real problem with this.

      The problem is when they are defaulting, like we saw now in the financial crisis, if those "90 BTC + interest" is full of rotten loans and only 80 BTC will ever be paid back then 80 + 10 (the reserve) = 90 BTC is less than the 100 BTC the bank owes people, the bank is bankrupt and the account holders lose part of their money. Really nothing of this is specific to Bitcoin, you can replace it with USD throughout and that is how fractional reserve banking works. Normal banks (that is, not the national bank) doesn't actually print any money, they just make it seem more if you count deposits and loans many times (since those money loaned can be deposited.to be loaned out to be deposited to be loan just minus the fraction in each round).

  • by hugg (22953) on Sunday April 14, 2013 @08:05PM (#43448569)

    I don't think many critics actually understand the dual purpose of mining. It's not only to govern the supply of new money, but also to protect the block chain. Many attacks require that the attacker control more computational power than 50% of the network, which is a lot of hardware.

    Eventually mining slows down and transaction fees become the dominant reward for mining new blocks. So transaction fees will essentially be the "security cost" for protecting the network against a centralized attack. It's anyone's guess where they'll eventually stabilize.

  • Completely by design (Score:3, Informative)

    by dbIII (701233) on Sunday April 14, 2013 @08:13PM (#43448627)
    It's so it's much harder for those that join in the pyramid late and to give the early adopters a deliberately designed very major advantage so long as the pyramid grows.
  • by gman003 (1693318) on Sunday April 14, 2013 @09:38PM (#43449081)

    Correct me if I'm wrong, but from my amateur knowledge of Bitcoin, doesn't mining both find coins in new blocks, as well as verifying transactions in exchange for a portion of the fee set aside for such? ie. when a transaction is performed, a small amount (under 1%) is typically marked as compensation for those who verify the transaction, which is needed as otherwise no-one would waste power on verifying transactions.

    According to that understanding, the mining process makes sense, as it's providing an incentive for early adopters to adopt. It will gradually taper off to zero, at which point all miners are paid by the transaction fees, which is the ultimate goal of the system.

    And honestly, computers verifying Bitcoin transactions has to be a lot more eco-friendly than the number of people needed to watch over credit and debit card transactions.

  • by slashmydots (2189826) on Sunday April 14, 2013 @10:45PM (#43449353)
    Outdated bullshit. The new ASIC mining chips run a 2 watts and are 12x faster than my 220W graphics card. This is a non-issue.

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