Item — HN Reader

> I'm becoming more and more convinced that it's impossible to profitably mine bitcoins

I suspect that's been the case for a few years - at each time I investigated, in the pre-ASIC days starting from 2011, the electricity cost was roughly the same as the Bitcoin value, and the only people who seemed to be able to mine profitably were ones with "free" electricity (e.g. students in halls of residence).

2 comments

Ironically this is the free market working as expected, that the sale value should collapse to exactly the marginal cost of production. Profit can only be maintained by barriers to entry or market differentiation, and there's a constant threat of oversupply with no way to cartelise to reduce oversupply, OPEC-style.

No irony required. It's absolutely the free market working as expected, driving the price of a commodity to its marginal cost.

The difference is that for most goods, the marginal cost of production falls with increasing economies of scale. Bitcoin is the exact opposite: The block difficulty will continue to escalate as more miners enter the market. It's like running on a treadmill that keeps getting faster and faster. Oh, and instead of making you healthier, your treadmill pumps more and more soot into the air around you.

Yes. A bitcoin is basically a token that says that someone, somewhere has wasted a (quite large) amount of electricity on your behalf. It's an incredibly pure form of conspicuous consumption.

(Likewise with gold you know there's a pile of acidic tailings and a river full of arsenic to back it up, and with diamond mining quite a lot of real human suffering)

Though it's never wasting. You can phrase it better by saying that:

A bitcoin is basically a token that says that someone, somewhere has spent a (quite large) amount of electricity on your behalf to make sure that your bitcoins are secure and safe.

(The more computing power used, the harder it is to counterfeit transactions.)

The actual computation done is not computationally useful. It only "secures" your bitcoins in the sense that an attacker has to put more economic input into their attack to match the economic input of the mining network. The act of mining does not even check whether the transaction is valid - that is done by the host that decides which transactions to include and the rest of the network deciding to propagate a mined block. Mining just churns through a single hashing algorithm to deliberately expend power. You could also secure your network by introducing trust and actually securing the trusted nodes, without having to create an ecological travesty.

Except those computations aren't actually doing anything useful. They're not protein folding, they're not analyzing data, they're just computing for the sake of computing.

However ASICs continue to become vastly more efficient and powerful as well.

"No way to cartelise"

you could. check out proof of idle.

Mining operation KnC Group actually had to publish their earnings statement for a BTC-based fund they created in Sweden. Turns out, they have been losing money throughout 2014.

http://ftalphaville.ft.com/2015/04/29/2128137/calling-all-mu...