Explain the cryptocurrency cost conundrum

benyflyguy

benyflyguy

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So I was reading an article about how crypto mining farms have since started purchasing their own power plants to mine currency. I get that it takes a fair amount of power to fuel the cpu to do the math to get the crypto.
One of the arguments I read against crypto currency method from a sustainability standpoint was that it cost a lot of money to fuel the transactions. That’s where I get lost??!! Someone explain to me what about the transaction requires so much power. How much are we talking about anyway. they whole thing boggles me.
disclosure: I have no crypto
 
For all intents and purposes, most major currencies are cryptocurrency anyway. The gold standard for the dollar has been abandoned before my lifetime. The only real difference is that governments with really big missiles are backing them up.
 
I am not sure, but what I think folks who complain about the crypto currency power consumption are saying that the computer(s) energy cost to 1) maintain the record of the transactions (block chain) and 2) mine the crypto currency outweigh the value of of the currency itself. E.G. I spent $5.00 in electricity costs to mine $2 worth of BTC.

BTC advocates argue that Fiat money (where the underlying value is controlled by a government) has similar energy costs that are not accounted for. E.G. the cost of oil/gas to drive trucks of money from one repository to another.

I'm happy to be corrected about this.
 
Sac Arrow said:
For all intents and purposes, most major currencies are cryptocurrency anyway. The gold standard for the dollar has been abandoned before my lifetime. The only real difference is that governments with really big missiles are backing them up.
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The only difference is how easy a currency is to track to an individual.

One might argue that boring old greenbacks are technically harder to identify the owner of than most crypto.

There’s a reason our government illegally seizes cash regularly and calls it “civil asset forfeiture” if you’re just walking around with what they deem to be too much of it.
 
You've probably heard of cryptocurrency mining. That's how you get new cryptocurrency without buying it or transferring it from somebody else. Like in life, mining requires doing work. In this context, the work is solving complex math problems. The math problems involve lots of computation. The computation involves power.

You do lots of computations and you get cryptocurrency in return.

Bitcoin consumes about 0.6% of all electricity in the world.
 
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Crypto like bitcoin records transactions in an encrypted manner. Each time a new transaction takes place, the ledger [of all previous transactions] needs to be updated and verified. That means computing the previous hash*, appending the new transactions, and recalculating a new hash*. This takes processing power (which takes electricity). The bigger the ledger, the more there is to process. Bitcoin runs on a public consensus algo - so it has to be re-hashed multiple times to be valid.

* Wikipedia article on cryptographic hashes https://en.wikipedia.org/wiki/Cryptographic_hash_function?wprov=sfti1

edit: full disclosure: I used to run a Bitcoin mining farm from my loft in 2013-2014. It was nothing if not a huge fire hazard.
 
Its all voodoo to me. Humans placing value in something that has no inherent value, in an effort to make a profit.
 
The beauty of bitcoin is that its transactions are pretty much untraceable. The problem with bitcoin is egomaniacs like Elon are playing games with it. The blockchain tech is one of the strengths of the currency which allows it to be virtually hack proof, maintaining the integrity of the currency. There will only be a set amount of bitcoin ever, a large amount of it has already been mined. This is a key feature that separates bitcoin from other cryptocurrencies like Dogecoin which can printed like dollar bills. I like bitcoin and think it will be a good hedge against inflation, especially as we continue to print dollars to fund the exploding national debt.
 
This is going to sound crazy

For the block chain to work, it requires each transaction/block be verified. The verification process is computers guessing an encryption until the right source key is found, at which point the new block is verified. So essentially, every transaction requires a brute force solving of encryption to verify the blocks are valid and that takes a lot of computer cycles. All those computers running consume energy, so a reward, the one person who finds the solution is granted a small amount of bitcoin for the effort.

It's not precisely this, but it's close enough to understand why it takes a lot of energy.
 
PaulS said:
There will only be a set amount of bitcoin ever, a large amount of it has already been mined.
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What do you think is going to happen when it's all been mined? Who is going to verify the blocks for free?
 
PaulS said:
The beauty of bitcoin is that its transactions are pretty much untraceable. The problem with bitcoin is egomaniacs like Elon are playing games with it. The blockchain tech is one of the strengths of the currency which allows it to be virtually hack proof, maintaining the integrity of the currency. There will only be a set amount of bitcoin ever, a large amount of it has already been mined. This is a key feature that separates bitcoin from other cryptocurrencies like Dogecoin which can printed like dollar bills. I like bitcoin and think it will be a good hedge against inflation, especially as we continue to print dollars to fund the exploding national debt.
Click to expand...

I recently bought a small amount of of Ethereum just to hold and see if it takes off. It's the #2 cryptocurrency behind Bitcoin, but has some interesting applications in app development. It was a pure-speculative purchase, but I figure if it ever gets enough of a foothold with the "common man" it might double my money within a year or two (still not a large sum of money).
 
bflynn said:
What do you think is going to happen when it's all been mined? Who is going to verify the blocks for free?
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Transaction fees, part of the game with crypto. You need to use someone like coinbase to transact your crypto.
 
PaulS said:
The beauty of bitcoin is that its transactions are pretty much untraceable.
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For most people, it is trackable. You have to convert dollars to BC somewhere. Thats tied to a bank account. Tied to you. Unless you trade BC into other cryptos a bunch of times, when you convert back to dollars, IRS knows its you. Someone has to give you BC and you can never exchange it for real money to remain completely anonymous.

Its hard to track, but the IRS can find you.
 
PaulS said:
The beauty of bitcoin is that its transactions are pretty much untraceable.
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Actually, that's not quite it as pointed out in the post above. The real beauty is that if you can remember the passphrase and it has sufficient entropy then crypto is an asset that cannot be seized.
 
bflynn said:
This is going to sound crazy

For the block chain to work, it requires each transaction/block be verified. The verification process is computers guessing an encryption until the right source key is found, at which point the new block is verified. So essentially, every transaction requires a brute force solving of encryption to verify the blocks are valid and that takes a lot of computer cycles. All those computers running consume energy, so a reward, the one person who finds the solution is granted a small amount of bitcoin for the effort.

It's not precisely this, but it's close enough to understand why it takes a lot of energy.
Click to expand...
Verification isn’t hacking. It’s reperforming the same transactions and matching the hashes up. We start with the prior block, we add transactions (which are public in the sense of debit from this wallet, credit from this one), and we rerun the encryption. Once completed, we have a new verified block.

Even without the Bitcoin award for being the first to the new block hash, each transactions takes a cut as a transaction fee which is distributed among miners. It’s pennies compared to the award, so the question is, once awards go away, does the processing power as well? I exited mining because by 2014, to stay relevant I needed to take a big leap forward in scale (read $$$). More cost meant I needed more premium that I just didn’t see happening. If my work would have been compensated only by the transaction fee, like in a post-reward world, it would not have been profitable.

Blockchain will become mainstream, even if the currencies go away. It’s fantastic for record keeping in a low-trust environment because you can distribute processing and verification without giving up details of what’s inside.
 
We have a guy at work who’s heavy into mining. He basically says it pays for his new hardware every few months. Which he then gets the hand me downs to play with for his personal desktops.

Essentially he’s money laundering from his wife so he can buy a new computer every three to six months. Ha. A different kind of money laundering than many crypto people are using it for. Heheh.
 
PaulS said:
Transaction fees, part of the game with crypto. You need to use someone like coinbase to transact your crypto.
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Just to clarify. Transaction fees on some blockchains, such as Bitcoin, are already a major part of the mining profitability calculation, in addition to the amounts miners receive for mining a block of transactions, which is known as the block reward.

You do not need the participation of an exchange like Coinbase to have transactions mined (or verified). If you want to buy or sell cryptocurrency for other cryptos or government issue currencies, such as USD, then one will often use an exchange. But one can send or use transactions without the participation of an exchange.
 
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