Video Of The Week: Bitcoin Mining

I think this is the most interesting of the six Trust Disrupted episodes:


Comments (Archived):

  1. jason wright

    blocktech is the new grammar.

  2. LE

    This short length of this left more questions than it answered.

  3. hemang c subramanian

    I don’t think what the video says about a group of actors in one country deciding to stop or block out transactions arising from another country (or set of countries ) can happen.this is because::: 1) The source code for mining and validating transactions is not controlled by developers in one country and the Bitcoin core developers would never let that happen… In fact there are few core developers for the country in question ..There is no technical way to do that..unless the core were overriden…2) an event of an attempt at something like that….would affect the value of the eco-system so much that all the past investments of everyone would be affected…including those of the miners…therefore game theoretically everyone would be worse off, if such an attempt were made.. It is in the best interest of everyone – including the miners to keep increasing the network of users, miners and application developers

    1. ZekeV

      I would agree that is not likely to happen, at least for very long. The protocol is surprisingly robust even today where mining is almost centralized. Even if the protocol fails, there is a powerful incentive for honest nodes to migrate to a repaired network.

    2. Hao Wu

      politics. The video is highly biased.

  4. ZekeV

    Over time, bitcoin price and mining difficulty should correlate strongly. If you want to acquire bitcoin, you should mine at the margin when market price outpaces difficulty X electricity cost, and buy for cash when the opposite is true. Even if you have invested $50mm in mining plant, if the price of electricity goes up where cost to mine > cost to buy, you should suspend mining and buy for cash in the market.The funny thing about miners is that they tend to sell the bitcoin they have mined within a short period of time. To me this indicates that the miners are severely under-capitalized. They should be holding their bitcoins as long as possible. To the extent they aren’t able to do this, it’s b/c they can’t — all their capital is in mining equipment, and they need to sell into the market to cover operating costs. Either that, or miners are surprisingly agnostic about the long-term future of bitcoin.

    1. Vivek Kumar

      Seems like a good risk mitigation strategy. They have big investments in mining equipment which is dependent on the long term future of bitcoin

      1. ZekeV

        I would put that in the bucket of “surprisingly agnostic about the long-term future of bitcoin.” If you are sitting on a diamond mine, is the right strategy to sell all the diamonds you find (as long as price is greater than cost)? Or, is it smarter to do like DeBeers and control the available supply over a long period?But perhaps there is no individual miner who controls anything like the portion of total supply of diamonds controlled by DeBeers — in which case, big capital should be invested in creating such a monopoly. And even DeBeers has to worry about the increasing quality of artificial diamonds. To analogize artificial diamonds to alt coins, perhaps it makes sense for the mega-capitalized bitcoin miner also to branch out into other PoW altogirthms.

    2. Richard

      The Value / Risk ration for Bitcoin for seems way to low vs the legacy system and their options (distributed private ledger)

      1. ZekeV

        Well, what kind of risk are you concerned about? The advantage of bitcoin vs contractual options is that you do not have counterparty risk in bitcoin (assuming we are talking about actual bitcoin, not pretend bitcoin or btc-denominated accounts).If you’re just saying that the price of btc tokens is too high, OK, then you can buy altcoins that are cheaper but have similar characteristics. The risk/return might not make sense for you in btc right now, but I could equally well say that about a legacy option depending on the reference security. I can’t say that about options in the abstract b/c it depends on the specifics, just as it doesn’t make sense to say that about bitcoin in the abstract.If you are saying that you prefer the anonymity of a gray market as opposed to pseudo-anonymity of bitcoin, OK, then you can now buy zcash which has very good privacy features (which I predict will be added to other coins in the near future, by the way).That said, I don’t think it is bad to be skeptical. Bitcoin is certainly risky, and unfortunately I think a lot of people are going to lose money speculating on bitcoin-derived stuff over the next 5 years or so. The folks like DCG guys that are talking up every project they touch, indiscriminately, on twitter I think are not behaving in an ethical manner and will have some egg on their face some years down the road.

        1. Richard

          Your focus is bitcoin as speculative investment, and perhaps this is what bitcoin should be marketed as: a form of entertainment / gambling.But Bitcoin is sold as a solution, and again and again and again without a problem big enough to justify the risk.

          1. ZekeV

            I guess I misunderstood what you meant by value/risk. To me that is a question to do with financial characteristics. Finance is the primary use case of bitcoin, and in that regard it has already been quite successful. There are other uses, such as tracking digital assets, and there are already successful implementations using bitcoin for that purpose. So what you are saying is just not reality.To pick a couple examples: Hundreds of millions USD value has been invested in new bitcoin-related companies, in bitcoin, and relying on bitcoin otc web of trust. Bitcoin is also currently used to track assets in the deckbound game, which is a very promising use case and company. Namecoin (the first clone of bitcoin) is used to power ZeroNet, which is a successful p2p web with html pages, email, and other services built on top. This is used in the wild already.Skeptics such as yourself and JLM are very hard to convince. I can point to the price of bitcoin, and you say it is irrationally high. In fact many in these comments have been saying that since 2011-2012, like an apocalyptic cult that keeps postponing the date of the supposed Rapture. I can point at use cases that are already successful businesses worth tens or hundreds of millions USD, and you say those are not “big enough”. But then why is bitcoin still viable as a financial asset, and why hasn’t the price gone to zero?

          2. Richard

            People spend hundreds of millions of dollars on app emoji’s and well as baseball cards. That doesn’t mean that we will be using steff curri’s emoji to buy milk. That reason why bitcoin hasn’t gone to zero is the same reason Soylent hasn’t, VC.

          3. ZekeV

            Bitcoin is not for buying milk, and there is no reason I would ever want to use it for that purpose. The examples I gave have nothing to do with that use case (consumer payments) which I happen to think is a red herring. Swap contracts are also not good for buying milk. Domain names are not good for buying milk. Real estate is not good for buying milk. Why is that a fatal flaw? You may be making an argument that is more directed toward someone like Roger Ver, or Brian Armstrong, who want to see bitcoin as a network for consumer payments. That is not my view.

          4. Richard

            Swap contracts are for lowering risks, domain names are for identifying ip addresses, real estate has inherent value, what big problem is Bitcoin solving ? Now that it needs to solve a problem, just as horse racing doesn’t solve a problem. As to mining Bitcoin, I’m still perplexed as to why this system needs miners at all? I can see why the diamond industry need miners in rural Africa, but a Bitcoin miners in rural china? Any system with miners in china seems like it could just be automated to produce bitcoins via some Marcov Chain.

          5. ZekeV

            The three examples I gave above are finance, digital asset registry (e.g., deckbound game), and distributed key/value store (e.g., used to power censorship-resistant web). I don’t think these are obscure use cases at all, but whenever I bring them up in a conversation here it doesn’t seem to get people excited the way I think it should.The fundamental innovation of bitcoin is of course to resolve the byzantine generals’ problem, and mining is how it accomplishes that. I’m not a math person, but from my understanding Markov chains would not be useful in solving bitcoin blocks b/c the SHA-256 encryption algorithm makes it practically impossible to predict the next state based on the previous one.

  5. William Mougayar

    Today, miners have power, but their role and influence will diminish over time.

  6. Frank W. Miller

    Goodness gracious. Has anyone modeled the total amount of electricity that will be wasted to mine all these bitcoin?

    1. Frank W. Miller

      I just did a quick google. Apparently I am late to this question. I see estimates between 400MW and 14 GW per day by 2020. This seems reasonable based on what I saw over the weekend where they’re building “mines” next to all the Dams in China. Sorry, but this is just plain stupid. There is absolutely no reason that that kind of power should be used for something so wasteful IMO. I raised my eyebrows when I heard FB was building their data centers on the arctic circle to keep them kewl. Now we’ve really stepped into the realm of riduculousness. I’m sure lots of the readers here are liberal climate change types. Don’t they have anything to say about this?

  7. jon blondyn

    Thanks for sharing this! Especially love your blockchain-oriented posts. This concept of ‘miners’ and what they are working at solving has been hard for me to grasp. This video addresses a unique angle on elucidating the function of mining. Has helped me to better visualize the system

  8. Mike

    Let us not forget that miners are still beholden to the incentives built into Bitcoin. This all works because it’s an elaborate and brilliant Mexican standoff.

  9. Gullivery…Per this Radiolab story, Bitcoin is commonly used by cyber criminal for ransom and money laundry. Very concerning.

  10. Hu Man

    Did anyone notice how dirty that river looks?The guy opening the beer bottle with his teeth was classic. Looks like a fun place to work. The noodles looked great, too!

  11. Stanislas Marion

    It’s sad that, after all these years covering Bitcoin, Popper still doesn’t understand it. Miners, no matter how much hash power they have, do not control Bitcoin. Only full nodes enforce the rules of consensus.

  12. jason wright

    the path of least resistance is the one the majority follow. Sounds like something Confucius would have said. Not the right way for the contrarian though.

  13. Twain Twain

    From the video, it looks like Chinese miners own the decision power of governance and which transactions are registered on the Blockchain.Meanwhile … in AI … the Western models for Natural Language understanding (e.g. Google Word2Vec and Stanford GloVe) are deeply flawed:https://uploads.disquscdn.c…Yet the Chinese have had a framework for the coherency of every thing (including a symbolic language that precedes the symbolic structures of Computational Linguistics) since 800BC — in the form of the YinYang from I Ching (The Book of Changes). https://uploads.disquscdn.c…What does this mean for the future of global technology? Here’s Kipling … https://uploads.disquscdn.c…”There is neither East nor West, border, nor breed, nor birth.”That means there’s only UNITY, DEMOCRACY & BOUNDLESS POTENTIAL FOR ALL.

  14. LE

    Save some of your heart for plan b. And be sure to always hedge your bets.

  15. Twain Twain

    LOL! The only certainty is uncertainty.So let the head deal with hedges and keep the heart for hope.

  16. William Mougayar

    That power will decrease over time.

  17. Twain Twain

    How so? Do you see other governments reducing the mining costs?

  18. William Mougayar

    Not for that reason. The more Bitcoin halfing, the more distributed the hashing becomes, and when 90%+ of Bitcoins are mined, then the overall incentives also become more spread out. For non-Bitcoin blockchains, they tend to lean more towards GPU mining, which again means more equalized mining. Finally, while miners are important in the early parts of a blockchain’s lifecycle, the ecosystem becomes diverse, and they are just one segment of it, so they can’t be the only determining factor in influencing the future of a blockchain. Especially when you D-POS in the mix.

  19. Twain Twain

    A-ha, thanks for explaining.