When Ever Harder Is Your Business Plan – Bitcoin

At the heart of Bitcoin is a very interesting bit of Tech. It is also the eventual downfall. The big question is: Is the downfall now?

Key to Bitcoin is the mining of new coins. This is also the process by which current transactions are processed. By design, it is ever harder to mine a new coin. So as usage of Bitcoins increase, more folks do more mining and also do more transaction processing.

https://www.bitrates.com/guides/bitcoin/how-are-bitcoin-transactions-processed

What is Bitcoin Mining? And Who are Bitcoin Miners?

Bitcoin mining is basically the computing process required to record and display transactions on the Blockchain. It is also the means by which new Bitcoins are released into the system. Anyone can mine Bitcoin. All you need is the hardware powerful enough to perform the mathematical operations required to organize encrypted transactions into “blocks” on the Blockchain.

Increasing difficulty of mining has reached the point where only ASIC based systems (Application Specific Integrate Circuit) are economical. That was when Bitcoin was over $15000 / coin. It is much less now, at $4000 and dropping today. The difficulty of mining has not gotten less…

In the news was folks with Bitcoin mining equipment turning it off. Why feed it electricity if the cost to mine a coin exceeds the present value?

Also in the news was that Bitcoin was having a fall off in folks using it for actual buy / sell transactions due to the length of time it has been taking. Up to several (many several…) seconds. Other forms of payment are near instant. Nobody wants to be “That Guy” at the head of the Coffee Line standing there for 40 seconds as his payment goes through.

Think that “time to process” will get faster with fewer miners operating equipment?

At some point the cost to mine becomes too high to support the mining operations. That point is dependent on the exchange rate (value) of Bitcoins. When mining operations stop or reduce, speed to process transactions and the number of transactions that can be processed also stop or reduce. The cost to mine by design always gets higher…

IMHO, we hit that point at about $10,000 / Bitcoin. During the time Bitcoin jumped up to about $20,000 / coin and the miners all moved to custom built dedicated mining gear since nothing else could make a profit. Now, at $4000 / Bitcoin, even ASIC based mining is not making a profit (there will be some folks with sunk cost in equipment and a cheap local electricity cost who will stay in the game).

We ought to see an ever slower process of making a Bitcoin purchase, and ever decreasing interest in Bitcoin.

What can prevent this? Only an ever increasing price for Bitcoin. Something not in evidence…

So, in conclusion, it is my opinion that the design basis of bitcoin that depends on mining for distributed transaction processing also includes in it the seeds of demise, and that we are at that moment “on the cusp”, or perhaps a ways over the cusp…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money, Tech Bits and tagged , . Bookmark the permalink.

15 Responses to When Ever Harder Is Your Business Plan – Bitcoin

  1. Sandy MCCLINTOCK says:

    I think I agree with you EM. They say that the total electricity usage of Ireland is required to drive Bitcoin! (but this is not true for Dash that uses a simpler validation system I am told).
    My son is a small scale miner and finds the waste heat from his ASIC based systems to be a great way of heating his apartment in winter. So perhaps there will a winter speed improvement at the head of the coffee line, with a slowdown in summer. ;)

  2. Larry Ledwick says:

    It is basically a mathematical Ponzi / pyramid scheme where the folks who got rich were the originators and the early adopters who simply sat on their bitcoins and urged others to mine them as they got expensive to mine. I would bet many of those early adopters have quietly cashed out as the digital currency peaked out over 12,000 – 14,000 $ each, know full well that in the long run their coins would eventually become nearly worthless.

    Once bit coin went ballistic a thousand other similar digital currencies cropped up riding it’s coat tails and reputation for being the “in thing” for the digital players. Those were most assuredly intentional skim operations feeding on the bit coin frenzy.

    First rule of hot tip investing, where every where you turn folks are saying “buy XYZ” it is time to get out and stay far far away. Good deals that will make you rich legitimately are kept quiet by the players so they can use their inside knowledge to prosper. If they need you to buy in to get rich it is some variant or cousin to a Ponzi scheme.

  3. Saighdear says:

    Hmmm very interesting for a quick browse over morning coffee…. thinking laterally: The End of the Universe is then indeed nigh, – for the same reason – but as yet we don’t see and understand fully the “programming ” about infinity really going on forever – ie Universe is Increasing in size – Now its been a Loong time since my SChool days and have had to read so much tripe in the Media – that one easily unlearn stuff, -BUT ins’t the ENTROPY of the Universe DECREASING ?
    I’ve just done a kwik search – am none the wiser – Some folk don’t know the difference between ENTHALPY ( Heat energy ) and ENTROPY ( disorder ) and are confused with EMPATHY ( good grief Man! ).
    Help me out somebody !

  4. Simon Derricutt says:

    I’ve always looked at Bitcoin as a Ponzi scheme. It is also designed to waste computer power and electricity, whereas the basic idea of blockchain only needs a good hashing algorithm and distribution among the other computers in the net to avoid faked transactions. The design isn’t fit for purpose, and of course there’s absolutely nothing supporting the perceived value of a Bitcoin either. AFAIK the blockchain itself is now around 10Gb in size and can only grow larger with each transaction, so it is really somewhat similar to a cancer. Imagine the Black Friday sales if you were paying by Bitcoin. Paying for everything might take until the next one comes around. Also, of course, since the transaction fee is paid in bitcoin, when the “value” was high then even spending a few bucks would cost you $100 or more effectively. Not something you’d want to buy a coffee with.

    The End of the Universe is around 13.8 billion light-years away, and getting further away at a rate of 1 light year per year as far as we know. It’s known as the Hubble radius. Not exactly near…. However, by a quirk of quantum mechanics that distance affects us here and now (and defines inertia and gravity), so maybe in some ways you could say it’s near. The total entropy (according to standard theory) can only increase, and as regards what’s actually at the end of the universe that’s gaining a new volume of around 4.pi cubic light years each year, and so you know that much less about where stuff could be (same amount of stuff, but bigger volume to find it in) and so the entropy of the universe as a whole must increase because the universe is getting bigger. I figure it is possible to engineer a situation where the total entropy actually decreases by the correct use of fields, since fields increase order, but though I can show situations where that happens to a small extent, making something that has a large (and thus practically useful) effect is not yet available. Maybe next year, though. I haven’t found a way to affect empathy.

  5. Larry Ledwick says:

    Interesting question will there be a constructive use for all that bit coin mining hardware re-purposed to some other use such as to assemble super computer clusters? Seems you have a lot of expensive fast processing hardware now sitting idle looking for a new use case.

    If it is not crunching bit coins what can you use it for?

  6. Gary says:

    The reason gold has remained a medium of exchange and store of value (money) is that the supply has kept pace with the growing population. It’s not so common as to be unstable in value over the centuries and not so rare that more can’t be found reasonably economically. Everybody recognizes its qualities and accepts it in trade. Storage and transportation are easy. Bitcoin doesn’t compare.

  7. Power Grab says:

    Re: “If it is not crunching bit coins what can you use it for?”

    Room heater? ;-)

  8. E.M.Smith says:

    @Simon: Well, toss a rock at a border guard and their empathy goes down :-)

    @Power Grab:

    In fact, you are correct. As the ASIC is, by definition, Application Specific, that’s all it can do, while making heat…

  9. John Robertson says:

    Nice explanation of Bit coin.
    Last year the young fellows in my lunch trailer were all excited about Bit Coin and discussing their investments.
    The concept made no sense to me.
    So I asked what was the difference between Bit Coin and BreeX?
    Most had never heard of BreeX.
    One only intelligent response I got was from another senior tradesman;”30 years”.

  10. H.R. says:

    Simon Derricutt: “I haven’t found a way to affect empathy.”

    Well, in the immortal words of a former U.S. President:
    “Ah feeeel yore pain.”

    ~W. J. Clinton
    .
    .
    .
    @Power Grab – My theory is that all that excess heat went into spam phone calls. Prove me wrong. 😜

    P.S. If our landline rings while we are gone, and there is nobody there to hear it, is it really a spam call? (Nobody but the FCC knows, and they don’t actually care. FCC – Just another TLA that tells you you’re screwed… after you call in to tell them you’ve been screwed.)
    .
    .
    .
    Re Bitcoin: When you open a box of Cracker Jacks® and the prize inside is a Bitcoin, but you’re disappointed because you were really, really hoping for the itty bitty cheap plastic magnifying glass… it’s too late to sell.

  11. Chris In Calgary says:

    So a significant minority of technologically inclined humans has spent billions of dollars of electricity — up to 0.24% of the world’s electricity supply — on vaporware that will shortly collapse to zero value because the cost of producing one is more than its market value.

    And we call ourselves intelligent? Good grief.

    This is a mania that is on par with the Dutch tulip mania and other famous instances in history.

    More stats on Bitcoin here: https://digiconomist.net/bitcoin-energy-consumption

    These days economics is less about building a stable economy and more about a series of get-rich-quick manias that benefit only a tiny percentage of people. Not a good prognosis for the future.

  12. Saighdear says:

    How the conversation evolves: … they never taught / told me all that in Agri Economics… maybe I had a ‘Junior moment’ ? A kwik gargle took me tothe Wiki entry …’Research is difficult because of the limited economic data from the 1630s, much of which come from biased and speculative sources’ …. Yes isn’t that the case nowadays with MOST Journo led investigations? Typically the MSM comes under fire, NOT for reporting the News, but for TELLING Stories- ie MAKING the news. Our local STV (UK regional ITV ) tells us to listen for more Stories … what do they take us for? – I’m no’ a bairnie needin tae listen tae faerie stories. I Crave reporting of FACTS, pertinent to our Life in the area

  13. gallopingcamel says:

    I was planning to take a course on understanding Bitcoin, Liteon and other crypto currencies with the idea of hedging against inflation.

    Y’all just convinced me that it would be a waste of time. I will put my ill gotten gains into gold, silver and platinum given that it will take more than a computer glitch to vanish them.

  14. E.M.Smith says:

    @G.C:

    All you need to know is:

    Start “mining” the newest hot property and when it rises a lot above your entry price, sell 1/4 of your holdings at each doubling (or some such) and set aside maybe 1/16 for the potential of a rocket ride bubble. When it has gotten to be too long between mining a new “coin” to be racking them up fast / making much profit, move on to the next newest coin…

    In a Ponzi, you want to be in early and out before it’s late…

  15. H.R. says:

    @gallopingcamel: You may or may not take a hit on gold, silver, or platinum, but in the end you’ll come out ahead of bitcoin. Just my non-Bitcoin-holding humble opinion.

    Perhaps there is money to be made selling Bitcoin short? Maybe throw in a few tulip bulbs to sweeten the deal? 😜

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