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Offline Frodo03

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He starts talking about the issues with Bitcoin mining and PoW at 1:01:20 and goes until 1:03:34. Only a few minutes long.

https://www.youtube.com/watch?v=tBcJ5rsAGaI

Anyone care to "dumb down" what he's saying? I'm still new to crypto, if you can't already tell.

Thanks :)
« Last Edit: August 27, 2014, 11:36:10 AM by Frodo03 »

Offline Riverhead

Link? :)

Offline Frodo03

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Ah! Gah, there we go. Sorry!

Offline santaclause102

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It's simple:

- Bitcoin has to maintain security. Security depends on amount of hash power. Hasing power consumes electricity which is not paid by tx fees but by issuing new bitcoins and paying them to miners (=dilution of existing bitcoiners, as money supply increases).

- If all security expenses are paid by tx fees one transaction costs a lot (8 usd and up) if security should be sustained.

- mining can only be profitable if you have very powerful and costly mining equipement that consumes little energy per hashing power. Therefore mining gets centralized into the hands of a few who can afford this equipement. Plus: mining pools (needed for lowering volatility in block award profits) centralize it further.

Offline Riverhead

He starts talking about the issues with Bitcoin mining and PoW at 1:01:20 and goes until 1:03:34. Only a few minutes long.

https://www.youtube.com/watch?v=tBcJ5rsAGaI

Anyone care to "dumb down" what he's saying? I'm still new to crypto, if you can't already tell.

Thanks :)


Ok, I'll do what I can but I'm sure others will chime in with better explanations.


A few things first. I don't know what your knowledge of all this stuff is so I'll assume you're completely new. Please don't take offense if it comes across as condescending.


1) Bitcoin uses Proof of Work as its security model. This basically means that to "find a block" a computer takes guesses at the solution to a hash. This is a linear operation. Like guessing a number between 1 and billion with no hints as to where in the spectrum it will be. You just mindlessly take guesses until you get it right. How many guesses a second you can push a guess through the SHA-256 hash to check your answer is your hash rate. The number of possible answers is referred to as difficulty.


2) The big thing Dan was getting at was the work in #1 is completely useless. If you "mine" away for months and months burning thousands on power and another mining operation finds a block you flush that round and move on to the next one. The months and months of work produced nothing of any use to anyone. What this ends up meaning for Bitcoin is that the only thing paying for these expensive mining operations is the block reward (the coins that are minted when you find a block). The transaction fees in the block are trivial compared to the cost of running a miner.


3) So now we have really expensive mining that is mostly a waste of time. To mine at a scale that can be profitable requires huge data center level installations. How many people can put one of those in their basement? So Dan's point here is that only a few can afford to do mining at that scale so you're back to a few actors controlling the entire currency. The few super miners account for much more than the 51% required to attack the blockchain. As long as they remain good actors everything is kind of OK except now you're back to a centralized trust scenario.


4) As mentioned in #2 these operations are only profitable due to the block reward. What happens when all the coins are mined? There is no way a massive mining operation can survive on transaction fees alone unless each transaction cost hundreds or thousands of dollars. No one would use such a system. With no miners mining the network cannot function.


5) Enter Delegated Proof of Stake. Rather than requiring massive amounts of power to be spent trying to guess a hash value why not just elect your miners to produce blocks that are signed? Rather than trusting the mining operations you trust delegates. These delegates are known, voted for, and trusted. Since they are not competing in a block lottery there is no need for massive computing power. Just sign your block and wait for your turn again. The transaction fees should easily cover the running of a delegate server.


6) If a delegate starts behaving badly the community can vote them out by simply no longer supporting the delegate and doing any transaction (send your balance to yourself).


Hope that helps.

Offline Frodo03

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Ah okay that clears things up.

Seems like Mr. Larimer is practically saying that Bitcoin can ultimately never succeed. He did mention in the video that "PoW is dead".

At this point though, Bitcoin's network effect is so massive compared to other coins that it seems unlikely that a problem like this would go completely unsolved and therefore doom the entire network. I've got to imagine that maybe Gavin or some other people are working for a solution.

What do you guys think? Have you sold your Bitcoin or are you still hodling?

Offline santaclause102

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The question what the bitcoin community will do about this is very interesting and very hard to predict.

First I think the problems mentioned above and pointed out by Daniel are major especially long term. Dillution is 10% per year for Bitcoin (= currenctly ~ 600 millions usd spent for tx processing). NO ONE will hold bitcoins long term if they get diluted 10% per year and no one will pay >10 USD per transaction.

The quality of discussion about POW issues is so low. I'd say that Gavin does not really get  the problem: http://youtu.be/biLcK0wgBJM?t=20m25s
What he said here does not at all touch on the question asked by the gentlemen which is about the inefficiency of POW not about who mines. Exchanges are likely to provide delegates in the future with DPOS.
The guy in the red t-shirt is can not be more far of track: He said there are always two sides to a trade. He forgot that overall the demand (for BTC) decreases compared to the supply if miners do not want to hold Bitcoin. The fact that the Bitcoin Foundations held this panel is telling.

The issue you and many others, me included, have here is that humans tend to follow the biggest and most establisehd crowd. Reality and crowd visdom (there is bitcoin which is THE cryptocurrency and everything is just "altcoins") often do not match and still we are inclined to follow what is traditionally supported (now for 3 years) and has build up a lot of blurry idiology around it.
« Last Edit: August 27, 2014, 01:30:54 PM by delulo »

Offline theoretical


> NO ONE will hold bitcoins long term if they get diluted 10% per year

This is not strictly true.  As long as the GDP of the Bitcoin economy grows faster than 10% per year, long-term long BTC positions can still be profitable.

Bitcoin is still small compared to fiat, so there's still plenty of room for it to grow.  Once Bitcoin has penetrated every market it can, its growth will become dependent on increases in real economic activity, rather than eating markets currently served by Paypal, cash or credit cards.  There might be some room for this to happen due to productivity gains allowed by the fundamental nature of cryptocurrency, but those one-time gains won't last.

So in the long term you're right -- but the "long term" in this case is a very long time, and it's conceivable that holding Bitcoin for months or years may still be profitable in the meantime.
BTS- theoretical / PTS- PZxpdC8RqWsdU3pVJeobZY7JFKVPfNpy5z / BTC- 1NfGejohzoVGffAD1CnCRgo9vApjCU2viY / the delegate formerly known as drltc / Nothing said on these forums is intended to be legally binding / All opinions are my own unless otherwise noted / Take action due to my posts at your own risk

Offline santaclause102

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As long as the GDP of the Bitcoin economy grows faster than 10% per year, long-term long BTC positions can still be profitable.
Such growth would be solely driven by speculation (by definition). Speculation, if it is well informed, must be based on a future prospect of real world adaption and a scenario with a BTC equilibrium price. In this equilibrium price situation it would not make sense to hold BTC. So if we assume that POW can not compete against POW alternatives in this equlibrium phase plus we assume that Bitcoin will not switch to a more effective mechanism then investing in BTC is a dead end. Therefore I said it is a very interesting question whether Bitcoin will adapt. BTT discussion and the position of the Bitcoin foundation does not seam to indicate that. 

Offline bitmarket

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You may find this article I just wrote for publication useful.

Headline: Hot Crypto Trends in Q4 of 2014

Author: Max Wright www.SuccessCouncil.com

In August of 2014, in front of a small crowd at a regional Bitcoin event in Raleigh, North Carolina, a panel of 6 of the arguably brightest minds Crypto were asked, "What is the most pressing issue facing Bitcoin today?"

The unanimous answer: A more efficient consensus algorithm.

For those of you who do not know, Bitcoin is secured by a consensus of “who owns what” by what is called a Proof of Work consensus algorithm.

Satoshi understood that decentralization is the key to a disruptive technology in the field of payments and currency. By creating a system that used many individuals, but relied on none, the system would be sufficiently decentralized so that it could never be thwarted. Much like Bitorrent.

It was genius.

Without going into the technical details, every single day 3600 Bitcoins (approx $2 million worth) are created and given to the many individuals (called miners) who secure and run the Bitcoin network.

Said another way... The people who own Bitcoins are paying a security force(miners) via the mechanism of inflation, $2 million per day for that security service.

In return, Bitcoiners can participate in a trustworthy, frictionless, pseudonymous, instant payment system without the interference of third parties.

Obviously those who participate find this a to be a great deal. Myself included.

Lets take a deeper though look to make that $2 million in inflation a little more tangible. Because most of the individuals who are providing that security service have electricity, hardware and time costs, they must sell most of the Bitcoins they receive to cover their cost.

For the sake of round numbers lets say that 25% of that $2million is kept in Bitcoin by the miners as profits and 75% are sold to pay for the hardware and electricity costs.

That means that every single day, at least $1.5 Million of new money must enter the Bitcoin eco system to hold prices stable.

Said another way, if there was a more efficient way to provide security and consensus for Bitcoin, then rather than just keep prices stable, the first $1.5 million per day or half a billion dollars per year would drive Bitcoin prices up significantly.

It is easy to see why the Bitcoin brains trust in North Carolina said the most pressing issue is to find a more efficient consensus algorithm.

The challenge for any algorithm is to create efficiencies without sacrificing security.

This is why I think the altcoin space is so important. With over 700 altcoins, I see it as a huge lab experiment to test out different consensus algorithms.  Survival of the fittest, if you will. 


Whichever altcoin and underlying consensus algorithm proves worthy, can be "stolen" by Bitcoin.

So has a superior algorithm to Satoshi's original Proof of Stake been invented yet? Well only time will tell, but I suspect the answer is Yes.

Dan Larimar published a whitepaper on a concept he called Delegated Proof of Stake (DPOS)  in April of 2014. Among the Bitcoin intellectual elite opinions were divided. Some loved it. Some hated it.


There is no question it is vastly more efficient, easier to use and can safely confirms transactions in 10 seconds compared to Bitcoin’s 1 hour. 

But the Billion dollar question is:  Will a security weakness be discovered?

I have been watching Dan and his coding team with keen interest since April as they worked around the clock until the first altcoin based on DPOS, BitsharesX, was released in late June.

Within 30 days BitSharesX had gone from nothing to the 3rd biggest altcoin with a market cap of over $100 million, as of the time of printing this article, and rising fast.  Really fast.

But will BitSharesX stand the test of time? And if so, What and when will the Bitcoin community do?

If Bitcoin were to adopt a DPOS consensus algorithm too soon, then there may be a security flaw discovered afterwards which would be devastating.

However if DPOS is superior and the Bitcoin community adopt it too late, then they may miss the boat and be displaced as the number 1 Crypto out there.

But its very early days. I don't think anyone would suggest DPOS has earned its stripes just yet. It will however, will be very interesting to watch this Crypto soap opera play out... Especially if BitSharesX keeps climbing in value like it has.

Disclaimer: Max Wright owns both Bitcoin and BitSharesX.

Wright's critique of the security conerns of DPOS can be found at www.SuccessCouncil.com
Host of BitShares.TV and Author of BitShares 101

Offline vegolino

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Enjoyed reading the article.

Thank you Max  :)

Offline santaclause102

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Enjoyed reading the article.

Thank you Max  :)

 +5%

Offline bitmarket

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Enjoyed reading the article.

Thank you Max

Hopefully it gets published at a few major locations.   :)
Host of BitShares.TV and Author of BitShares 101

Offline liondani

 +5% for Max
  https://bitshares.OPENLEDGER.info/?r=GREECE  | You are in Control | BUY | SELL | SHORT | SWAP | LOAN | TRADE |  

Offline xeroc

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With over 700 altcoins,
Last time I checked there were like 180 .. crazy ..
Give BitShares a try! Use the http://testnet.bitshares.eu provided by http://bitshares.eu powered by ChainSquad GmbH

 

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