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Bitcoin 'Miners' Face Fight For Survival As New Supply Halves (reuters.com) 164

SpzToid quotes a report from Reuters: On Saturday, the reward for [bitcoin] miners will be slashed in half. Written into bitcoin's code when it was invented in 2008 was a rule dictating that the prize would be halved every four years, in a step designed to keep a lid on bitcoin inflation. From around 1700 GMT on Saturday, instead of 25 bitcoins up for grabs globally every 10 minutes, worth around $16,000 at the current rate BTC=BTSP, there will be just 12.5. That means only the mining companies with the leanest operations will survive the ensuing profit hit. "The most important thing is to be the most efficient miner," said Streng, the 26-year-old co-founder of German firm Genesis Mining, which has "mining farms" in Canada, the United States and eastern Europe, as well as in Iceland. "When the others drop out, that means that they leave the market and give you a bigger share of the pie."
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Bitcoin 'Miners' Face Fight For Survival As New Supply Halves

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  • Other motivations (Score:5, Insightful)

    by stikves ( 127823 ) on Saturday July 09, 2016 @05:15AM (#52476977) Homepage

    With smaller players dropping out of the game, soon it might become a "single player" game after all. If this scenario happens, then a single entity controlling 51% of the keychain nodes can potentially disrupt the entire BitCoin economy by effectively "rewriting history".

    I'm not sure this is a good thing. Every advancement seemed to have moved the needle to this direction. While everyone was able to run CPU miners is was very democratic. Then GPUs came, but still people could drop in a few hundred, and continue. After FGPA, and the ASICs, it's not just very large firms, where smaller people can only "rent" nodes, and hope they can trust the infrastructure.

    We might need a "reset", where ASIC is no longer viable, but I'm not sure that would still be possible.

    • Re:Other motivations (Score:4, Interesting)

      by TeknoHog ( 164938 ) on Saturday July 09, 2016 @05:35AM (#52477031) Homepage Journal

      We might need a "reset", where ASIC is no longer viable, but I'm not sure that would still be possible.

      Many if not most altcoins started because they wanted to avoid the ASIC path, by choosing more elaborate hash functions. Of course, it's always possible to design ASICs for these too, even if they end up looking like special versions of GPUs. Besides hash functions, many altcoins have other interesting features that might end up in Bitcoin some day.

      However, it's easier to start using the altcoins themselves than hard fork Bitcoin. With cryptocurrencies and automated exchanges, there's less need for everyone to stick with the same coin.

    • by AK Marc ( 707885 )
      Also, Bitcoin, as it sits, is environmentally abusive. Increasing processing demands, higher costs, more energy wasted to make more coins and process transactions. Between that and the problem of a single entity winning a blockchain war, Bitcoin can never sustain. Better would be to re-write it with low processing for "minting" new coins, and centralize the creation of coins. Whether a government does this, or an independent non-profit company would depend on which governments, if any, would be interest
      • Also, Bitcoin, as it sits, is environmentally abusive. Increasing processing demands, higher costs, more energy wasted to make more coins and process transactions. Between that and the problem of a single entity winning a blockchain war, Bitcoin can never sustain. Better would be to re-write it with low processing for "minting" new coins, and centralize the creation of coins.

        A centralized minting process would undermine the whole raison d'être of bitcoin, thus will never happen. While your fears are somewhat correct, they are outdated. In the past the value of bitcoin was inherently tied to the production costs of bitcoin where there is a very narrow margin of profit above the minting costs from production. Thus if bitcoin every did go mainstream than the electrical costs to mint such bitcoins would also similarly skyrocket .

        Thus in the past there were 2 types of bitcoin t

        • by Khyber ( 864651 )

          " there are other options that allow bitcoin to scale where "layer 2" payment channels that are onchain and secure can occur that will allow bitcoin to scale to over 100k txs per second"

          That's pretty fucking slow, actually. Bitcoin won't be viable for shit until you can process a few million per second.

          • " there are other options that allow bitcoin to scale where "layer 2" payment channels that are onchain and secure can occur that will allow bitcoin to scale to over 100k txs per second"

            That's pretty fucking slow, actually. Bitcoin won't be viable for shit until you can process a few million per second.

            Visa averages around 2k tps (transactions per second) with daily peak rates of 4k tps , and a capacity of 56k tps. I like your optimism however , as you are probably suggesting that bitcoin needs much higher throughput than Visa for AI and machine to machine txs which I would agree. Don't worry, as the Lightning network will eventually be able to handle your demands - https://lightning.network/ [lightning.network]

            • Bitcoin won't be viable for shit until you can process a few million per second.

              Visa averages around 2k tps (transactions per second)

              Visa is not supporting a speculative investment scheme. Bitcoin is more analogous to high frequency wall street trading, not actual consumer transactions. Bitcoin is *currently* primarily a speculative investment scheme.

              • Visa is not supporting a speculative investment scheme. Bitcoin is more analogous to high frequency wall street trading, not actual consumer transactions. Bitcoin is *currently* primarily a speculative investment scheme.

                99.9% of speculation and btc day trading happens offchain within exchanges though.

                • by drnb ( 2434720 )

                  Visa is not supporting a speculative investment scheme. Bitcoin is more analogous to high frequency wall street trading, not actual consumer transactions. Bitcoin is *currently* primarily a speculative investment scheme.

                  99.9% of speculation and btc day trading happens offchain within exchanges though.

                  Doubtful. Leaving bitcoins in an exchange is universally considered high risk and that transferring the coins to your wallet is highly advised.

                  • 99.9% of speculation and btc day trading happens offchain within exchanges though.

                    Doubtful. Leaving bitcoins in an exchange is universally considered high risk and that transferring the coins to your wallet is highly advised.

                    Although modern exchanges are regulated , insured and more secure I agree with you its typically not wise to leave you coins on an exchange. Regardless , my statement is 100% accurate because one cannot effectively daytrade if they are constantly removing their coins from exchanges. I don't daytrade but know a large part of the community who does and they don't often

        • In the past the value of bitcoin was inherently tied to the production costs of bitcoin where there is a very narrow margin of profit above the minting costs from production.

          What makes you think this has changed? The price has roughly doubled with a reward halving upcoming.

          Thus if bitcoin every did go mainstream than the electrical costs to mint such bitcoins would also similarly skyrocket .

          No, bitcoin could switch from a proof of work system to a proof of ownership system. The problem with the later is the initial distribution of coins, but that is a problem for a new coin not an established coin that is already widely distributed.

          • In the past the value of bitcoin was inherently tied to the production costs of bitcoin where there is a very narrow margin of profit above the minting costs from production.

            What makes you think this has changed? The price has roughly doubled with a reward halving upcoming.

            Today the cost of bitcoin production dropped from ~1.6 million per day to around 820k a day USD and the price remained the same.

            No, bitcoin could switch from a proof of work system to a proof of ownership system. The problem with the later is the initial distribution of coins, but that is a problem for a new coin not an established coin that is already widely distributed.

            There are many more problems with proof of stake than you imply. Take a look at the security concerns the Ethereum community has with a bad actor controlling a significant stake and their upcoming wishes to switch to proof of stake as an example.

            • by drnb ( 2434720 )

              In the past the value of bitcoin was inherently tied to the production costs of bitcoin where there is a very narrow margin of profit above the minting costs from production.

              What makes you think this has changed? The price has roughly doubled with a reward halving upcoming.

              Today the cost of bitcoin production dropped from ~1.6 million per day to around 820k a day USD and the price remained the same.

              Look at a historical chart. It ramped up in anticipation, speculation. It doesn't just double on the day. People have been expecting the doubling, so miners stay around, and have been buying as a result.

              https://www.coinbase.com/chart... [coinbase.com]

              No, bitcoin could switch from a proof of work system to a proof of ownership system. The problem with the later is the initial distribution of coins, but that is a problem for a new coin not an established coin that is already widely distributed.

              There are many more problems with proof of stake than you imply. Take a look at the security concerns the Ethereum community has with a bad actor controlling a significant stake and their upcoming wishes to switch to proof of stake as an example.

              You are merely re-stating the problem I described earlier, and bitcoin is widely distributed and beyond such concerns. This issue we both refer to is a big problem for coins that are born proof of stake, not those who switch to proof of state once mature.

      • by dak664 ( 1992350 )

        This was obvious at the outset, the profits from mining would diminish and increasing fees would be needed to pay for the energy cost of each transaction. As i recall there was some handwaving about this being an academic consideration only.

        • by AK Marc ( 707885 )
          It was an academic consideration when bitcoin was created. It's not a practical problem, and one of the many reasons Bitcoin will never succeed.
    • Even among people who can afford hardware, there is a lot of effective consolidation because of 'pools'. These aren't irrational behavior: if you have a small amount of hashing capacity going it alone might pay off handsomely but will probably pay nothing, while pooling more or less guarantees a return proportional to your hashing capacity; but also leaves you largely at the mercy of the infrastructure.
      • Even among people who can afford hardware, there is a lot of effective consolidation because of 'pools'. These aren't irrational behavior: if you have a small amount of hashing capacity going it alone might pay off handsomely but will probably pay nothing, while pooling more or less guarantees a return proportional to your hashing capacity; but also leaves you largely at the mercy of the infrastructure.

        While there are some valid concerns over pool mining centralization this is widely overblown concern due to 2 reasons. First is the fact that p2pool is only around 1% more inefficient than mining at the largest pool and removes these risks you suggest and there are many active members mining there and growing. Secondly it is trivial to point your hash rate at another pool and most miners automate this for uptime and other concerns.

    • That is why Bitcoin includes transaction fees. As the block rewards get lower, transaction fees will become a larger part of the incentive for miners to keep mining. Eventually there will be no new bitcoins, at which point 100% of the money from mining will come from transaction fees.
    • The mining will take a familiar pattern as resources become scarce and the artificial value of the precious stone rises. Capitalists will exploit human labourers running slave computers and we will all be using the term, "blood coins."

      Then as global economies switch to organic foods and free range farm animals along with organic produce, BTC will be labeled, "conflict free coins."

      Those who know history are bound to predict it.

    • by mysidia ( 191772 )

      We might need a "reset", where ASIC is no longer viable, but I'm not sure that would still be possible.

      You would need most of the Bitcoin users to agree.
      I think you're talking about a hard fork here, because miners with an existing investment in ASICs are not going to support this.
      Therefore, you need a new community of miners (with no ASICs), and the rest of the public choosing the new fork and abandoning the fork supported by the current crop of miners.

    • by codebonobo ( 2762819 ) on Saturday July 09, 2016 @08:34AM (#52477387)

      With smaller players dropping out of the game, soon it might become a "single player" game after all.

      Be aware there are also strong forces occuring that are pushing the decentralization of mining right now. Most principly hitting Moore's cliff with ASIC manufacturing will insure that newer generation ASICs only are slightly better than older generation ASICs.

      can potentially disrupt the entire BitCoin economy by effectively "rewriting history".

      This isn't true and not the consequences of a 51% attack. History cannot be re-written by a 51% attack as the amount of energy needed to ourun the longest chain with the most proof of work going several confirmations back is insurmountable. This is typically why the historical record of bitcoin txs are referred to as "immutable" . A 51% attack could potentially create double spends or prevent txs occurring in the present, not several confirmations past.

      We might need a "reset", where ASIC is no longer viable, but I'm not sure that would still be possible.

      This is of course possible and the code has already been written in the event of an unlikely attack from miners. This is unlikely to be needed however because there are both forces that drive centralization of mining and forces that drive decentralization of mining and a more likely outcome in the future is a mix of p2pool mining with some large industrial locations.

    • by Solandri ( 704621 ) on Saturday July 09, 2016 @11:08AM (#52477997)

      I'm not sure this is a good thing. Every advancement seemed to have moved the needle to this direction. While everyone was able to run CPU miners is was very democratic. Then GPUs came, but still people could drop in a few hundred, and continue. After FGPA, and the ASICs, it's not just very large firms, where smaller people can only "rent" nodes, and hope they can trust the infrastructure.

      Which causes deflation (need less of the currency to buy the same thing - in other words the currency's value goes up). Which is the whole reason countries moved off the gold standard. The rate at which new gold was being mined was not keeping pace with the rate at which the economy was expanding (population and productivity increases), causing deflation, which destabilized the economy (you could "make" more money by stuffing it under a mattress, than by using it to do something economically productive).

      We might need a "reset", where ASIC is no longer viable, but I'm not sure that would still be possible.

      Which is exactly what governments do with a fiat currency - adjust the availability of the currency to stabilize and moderate its value, to maintain a slight inflation rate.

      And we've come full circle. The folks who rejected fiat currencies and advocated bitcoin have learned the lesson governments learned with gold eighty years ago, and are advocating changes to make it behave more like a fiat currency.

      • > (you could "make" more money by stuffing it under a mattress, than by using it to do something economically productive).

        That's only true if the rate of deflation was greater than the nominal rate of return on other investments. Stock earnings, as measured by the S&P 500 have grown at an average of 6.6% over the last 55 years, plus paid out a few percent in cash dividends on top of that. If the dividends were re-invested, then total earnings would grow around 8.8%. If your money were deflating a

      • Which is exactly what governments do with a fiat currency - adjust the availability of the currency to stabilize and moderate its value, to maintain a slight inflation rate. And we've come full circle. The folks who rejected fiat currencies and advocated bitcoin have learned the lesson governments learned with gold eighty years ago, and are advocating changes to make it behave more like a fiat currency.

        Bitcoins volatility is a fair criticism of it as a currency. Just keep in mind -

        1) Bitcoin is becoming less volatile with each passing year

        2) Bitcoin isn't just a currency, so even in the offchance it fails as a currency it can still be very valueable as a protocol, or asset class, or store of value , or just for the blackmarket , or.for smart contracts and an immutable ledger , or . ect..

        3) Bitcoin is already more stable than certain fiat currencies, remember bitcoin only needs to be valuable to cert

  • Why such a hard step instead of a constant progression?

    • The rule, as written, is simple and unambiguous. Literally integer division followed by a rightshifting.

      • by allo ( 1728082 )

        And it has a hard step, causing turbulence in bitcoin exchanges and so on.

        If you want it easy, you could even publish a rule giving the rate for each day until the "next step", then there is a small step at 12am every day. Way better.

        • by dbIII ( 701233 )
          To make it way better do not a have a deflationary pyramid scheme to speculate on at all.
          The only reason it prospers is because it's easier to swap tokens from an obvious scam than move real money about without various banking sharks taking a cut. Pretty sad isn't it?
          • by allo ( 1728082 )

            Yeah, i still see some pyramid scheme ... the early adopters are rich as fuck now if they believed in it and invested, while people mining now have investet as lot of real money in their mining farms, which probably now are just garbage, because running them costs more than they get from them.

            This doesn't stop me to just buy bitcoin and pay with it, but it's a unfair game with respect to "free money" in the early days.

    • by ladoga ( 931420 )

      Why such a hard step instead of a constant progression?

      That's a good question. Maybe because it was simple? Anyway that's what Satoshi came up with and it will have to do. The decision has been criticized for unnecessary turbulence/price volatility which it causes.

      Many newer cryptocurrencies such as Monero have opted to smoothly decreasing supply instead.

      • by allo ( 1728082 )

        I am not that much into bitcoin, but i guess before such steps there is a lot of mining activity, which ceases after the step to wait what happens to the price then?
        A smooth decrease would not cause such things.

  • it always comes back to the banksters.
    • Actually a decrease in the money supply would both cause an increase in secondary lending rates (because money is more scarce and therefore more burdensome to loan) and also in a fractional reserve system like the one you are complaining about could be caused by an increase in the federal funds rate as opposed to a decrease like you claimed. But don't let your complete lack of knowledge regarding monetary policy stop you from opining on something you know nothing about.

      For those who actually care, if the c

  • by Antique Geekmeister ( 740220 ) on Saturday July 09, 2016 @08:22AM (#52477361)

    Sell the equipment and resources to the miners, skim the illicit trade hidden from governments, and rob your clients blind as an exit strategy seems to be the result of Bitcoin operations. Are there _any_ bitcoin markets that show legitimate handling of client transactions for more than a few months without turning to direct theft from clients?

    • Sell the equipment and resources to the miners, skim the illicit trade hidden from governments, and rob your clients blind as an exit strategy seems to be the result of Bitcoin operations. Are there _any_ bitcoin markets that show legitimate handling of client transactions for more than a few months without turning to direct theft from clients?

      There is real value created in minting virgin bitcoins as it allows miners to trade an ASIC and electricity for heat and fungible currency. While there has indeed been some scamming ASIC manufactures "premining on ASIC's" while the clients wait on preorders, and there does indeed exist some fractional reserve cloud mining operations, a normal user can now buy an ASIC from several reputable manufactures , have it immediately delivered with no pre-order wait time, and expect a profit if their electrical costs

  • Dimitri at a Rave last night learning about the 21 million limit and bitcoin being disinflationary.

    https://www.youtube.com/watch?... [youtube.com]

    • Disinflationary - You keep on using that word. How about instead of trying to mislead people you just write "deflation"? You can't? The rubes would catch on and not add to the pyramid scheme?

      The entire thing is a scam baited for geeks and really pisses me off.
      • Disinflationary - You keep on using that word. How about instead of trying to mislead people you just write "deflation"? You can't? The rubes would catch on and not add to the pyramid scheme? The entire thing is a scam baited for geeks and really pisses me off.

        I have been using the word "deflation". I have no reason to avoid using this word as it doesn't strike fear in my heart like it apparently does to you. It is a simple fact that bitcoin often behaves deflationary in the economy as the US dollar has lost 99.98 % against bitcoin in the last 6 years due to high demand and the fact that the minting supply is disinflationary. This isn't always the case however as you can see bitcoin behaved inflationary in 2014 due to a relatively high inflation minting rate of ~

You see but you do not observe. Sir Arthur Conan Doyle, in "The Memoirs of Sherlock Holmes"

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