Crypto Conversation

[weezie]

Bitcoin futures to be traded on Nasdaq in 2018? Some of you bean counters tell me what this really means.

I think it means the husband and I will be working till we drop.

[Jeffrey]

with a lot of hedging...

-jk

.... making even mo' money, mo' money, mo' money.

[left_hook_lacey]

with a lot of hedging...

-jk

So I shouldn't empty my 401k and put it in Bitcoin? My drunk uncle at Thanksgiving said otherwise.

[Ggallagher]

With all the discussion that goes on related to Bitcoin's financial and speculative aspects, I've seen little consideration related to the massive energy requirement associated with executing the hash calculations required to maintain the blockchain. So I'm curious as to whether all you folks that have been discussing this are aware of how this might factor into Bitcoin's future. And for the record, I have zero interest in investing in Bitcoin - I'm just kind of intrigued by the technical challenges associated with the energy demand.

Listed below are several factoids from articles that were published in the October issue of the IEEE Spectrum magazine. They all seem like things that would make me REALLY pucker up if I had the slightest inclination to invest in them - which I don't. So do any of these things seem like problems, or do you think they're getting addressed somehow???

INDIVIDUAL TRANSACTION ENERGY DEMAND

The current estimate is that the energy required to process a single Bitcoin transaction is 5,000 times greater than that required to process a single Visa Card transaction. That certainly suggests that scaling it up to be used as a common form of currency has a pretty big challenge.

INCREASING HASH CALCULATION COMPLEXITY

By design, the calculation that generates the blockchain is made more complex every two weeks. The estimate is that if the calculations done currently were being done on the same CPU's available in 2009 when Bitcoin was launched, it would consume more energy than is available on the planet. That's a pretty extreme statement, but even if it's only fractionally accurate - it's a LOT of energy.

CPU ARMS RACE

The reason that Bitcoin energy consumption has not gotten madly out of whack is that several companies have been designing purpose built processors that are optimized to execute the blockchain calculation. In a follow up message, I'll post a photo of some Bitcoin "mines". When you appreciate the scale of these mines, it pretty clear there are some companies that have a strong interest in providing the processors.

Another estimate in the article is that within about two years these current technology processors will be consuming about fourteen gigawatts of energy to execute the blockchain calculations. Which the author points out is the amount of energy currently consumed by the entire country of Denmark.

The article points out that Bitcoin's issue is the competitive nature of the blockchain calculation. Many "miners" are concurrently competing to complete each addition to the chain. Since the calculation is so overwhelmingly complex and being done on multiple processors, they just really suck up a lot of electricity. Some of the other crypto currencies use less demanding calculation strategies.

OK, that's probably more than anyone wanted to know about the technical side of this - but I am curious as to how widely understood the energy side of Bitcoin's challenge is.

[Ggallagher]

I mentioned in my earlier post that I'd provide a photo of a bitcoin "mine". This image shows a mining complex located in Mongolia. That happens to be a good location since there is a lot of available land and very cheap energy. There were also photos available of the inside of these mining facilities. Imagine the back end of an IKEA store with long aisles of floor to ceiling racks of the special built blockchain processing computers and you'll get the picture.

The article also mentioned a mine in Venezuela that the government had to shut down due to the load being imposed on their infrastructure.

Bitcoin Mine1.jpg

[Rich]

I mentioned in my earlier post that I'd provide a photo of a bitcoin "mine". This image shows a mining complex located in Mongolia. That happens to be a good location since there is a lot of available land and very cheap energy. There were also photos available of the inside of these mining facilities. Imagine the back end of an IKEA store with long aisles of floor to ceiling racks of the special built blockchain processing computers and you'll get the picture.

The article also mentioned a mine in Venezuela that the government had to shut down due to the load being imposed on their infrastructure.

I recall reading an article about someone running a mine in, I think, one of the Nordic countries so he could save on cooling costs. Those computers give off a lot of heat so they have to be kept in an area that is constantly cooled.

[left_hook_lacey]

I mentioned in my earlier post that I'd provide a photo of a bitcoin "mine". This image shows a mining complex located in Mongolia. That happens to be a good location since there is a lot of available land and very cheap energy. There were also photos available of the inside of these mining facilities. Imagine the back end of an IKEA store with long aisles of floor to ceiling racks of the special built blockchain processing computers and you'll get the picture.

The article also mentioned a mine in Venezuela that the government had to shut down due to the load being imposed on their infrastructure.

Bitcoin Mine1.jpg

Maybe I'm not as bright as most, but why is Bitcoin appealing? Why is it worth going through all this trouble just to process the computations? Is it a game that pays out money by completing the block chain? Is that the appeal? To solve the block first? The more I read about it, the more confused I get.

It's starting to sound eerily like when my kids try to explain Minecraft to me. A lot of the same terminology is used. And I don't understand why Minecraft is fun either.

[Ggallagher]

Maybe I'm not as bright as most, but why is Bitcoin appealing? Why is it worth going through all this trouble just to process the computations? Is it a game that pays out money by completing the block chain? Is that the appeal? To solve the block first? The more I read about it, the more confused I get.

It's starting to sound eerily like when my kids try to explain Minecraft to me. A lot of the same terminology is used. And I don't understand why Minecraft is fun either.

The appeal of completing each block chain calculation is in fact monetary. Each time a computer gets the calculation "right", the calculator receives some fraction of a bitcoin.

I'll dig the article out later today and confirm this, but off the top of my head I recall the article saying that the processors in one of the mines was earing about $300/day for completed calculations. Considering the very large numbers of processors in each of these mines, that adds up to a lot of money. Of course the energy cost, building maintenance and payrolls will add up to a substantial operating cost, but apparently it's profitable enough to justify building those large mining buildings.

I'll double check the numbers later today.

[Ggallagher]

I recall reading an article about someone running a mine in, I think, one of the Nordic countries so he could save on cooling costs. Those computers give off a lot of heat so they have to be kept in an area that is constantly cooled.

Cooling can be a big deal, but what was surprising in the article I read is that these facilities in Mongolia operate without any cooling. While it is plenty cool - if not brutally cold - in the Mongolian location in the winter, it is actually pretty warm during the summer. Not only are the blockchain processors designed for the specific purpose of executing the required hash calculation to "win" a block, they are also designed to operate at elevated temperatures. It pointed out that on the "cool" side of the computer aisles, the temperature runs around 100 degrees in the summer. That's where all the worker bees have to do their jobs of keeping all the processors operating. The article didn't mention what the temperature is on the hot side of the aisle, but it's bound to be very, very warm.

[Ggallagher]

The appeal of completing each block chain calculation is in fact monetary. Each time a computer gets the calculation "right", the calculator receives some fraction of a bitcoin.

I'll dig the article out later today and confirm this, but off the top of my head I recall the article saying that the processors in one of the mines was earing about $300/day for completed calculations. Considering the very large numbers of processors in each of these mines, that adds up to a lot of money. Of course the energy cost, building maintenance and payrolls will add up to a substantial operating cost, but apparently it's profitable enough to justify building those large mining buildings.

I'll double check the numbers later today.

OK, here are the financial numbers I said I'd dig into. And it looks like I was wrong in quoting the $300/machine-day number.

Back in June when the data was gathered for the articles, Bitcoins were going for around $4,000. Based on that value bitcoin miners were earning around $8 miilion/day for adding to the blockchain. About half that money was being earned in China. The specific mine that was visited in the article was earning around $300,000 day off their enormous collection of mining processors.

[nmduke2001]

With all the discussion that goes on related to Bitcoin's financial and speculative aspects, I've seen little consideration related to the massive energy requirement associated with executing the hash calculations required to maintain the blockchain. So I'm curious as to whether all you folks that have been discussing this are aware of how this might factor into Bitcoin's future. And for the record, I have zero interest in investing in Bitcoin - I'm just kind of intrigued by the technical challenges associated with the energy demand.

Listed below are several factoids from articles that were published in the October issue of the IEEE Spectrum magazine. They all seem like things that would make me REALLY pucker up if I had the slightest inclination to invest in them - which I don't. So do any of these things seem like problems, or do you think they're getting addressed somehow???

INDIVIDUAL TRANSACTION ENERGY DEMAND

The current estimate is that the energy required to process a single Bitcoin transaction is 5,000 times greater than that required to process a single Visa Card transaction. That certainly suggests that scaling it up to be used as a common form of currency has a pretty big challenge.

INCREASING HASH CALCULATION COMPLEXITY

By design, the calculation that generates the blockchain is made more complex every two weeks. The estimate is that if the calculations done currently were being done on the same CPU's available in 2009 when Bitcoin was launched, it would consume more energy than is available on the planet. That's a pretty extreme statement, but even if it's only fractionally accurate - it's a LOT of energy.

CPU ARMS RACE

The reason that Bitcoin energy consumption has not gotten madly out of whack is that several companies have been designing purpose built processors that are optimized to execute the blockchain calculation. In a follow up message, I'll post a photo of some Bitcoin "mines". When you appreciate the scale of these mines, it pretty clear there are some companies that have a strong interest in providing the processors.

Another estimate in the article is that within about two years these current technology processors will be consuming about fourteen gigawatts of energy to execute the blockchain calculations. Which the author points out is the amount of energy currently consumed by the entire country of Denmark.

The article points out that Bitcoin's issue is the competitive nature of the blockchain calculation. Many "miners" are concurrently competing to complete each addition to the chain. Since the calculation is so overwhelmingly complex and being done on multiple processors, they just really suck up a lot of electricity. Some of the other crypto currencies use less demanding calculation strategies.

OK, that's probably more than anyone wanted to know about the technical side of this - but I am curious as to how widely understood the energy side of Bitcoin's challenge is.

Would you mind giving a "cryptocurrency for dummies" explanation of the mining? Why does the block chain require a calculation and who decides if it's correct? Who gives more bitcoin for a correct calculation? Isn't the block chain just a ledger? If a transaction is recorded on the block chain doesn't everyone have access to view who participated in the transaction.

[Ggallagher]

Would you mind giving a "cryptocurrency for dummies" explanation of the mining? Why does the block chain require a calculation and who decides if it's correct? Who gives more bitcoin for a correct calculation? Isn't the block chain just a ledger? If a transaction is recorded on the block chain doesn't everyone have access to view who participated in the transaction.

Well if I tried to answer your question, it would certainly fall into the "cryptocurrency for dummies" class - I really don't know much on the subject, so I think I qualify as an official dummy. I was just startled by the energy perspective that was presented in the "Spectrum" special issue on the subject. So I was curious about how widely that aspect of the topic might be known.

I will look into the article and see if I can answer your hardest question - "Who decides if it's correct?" Actually the "program" decides, but I'll see if I can find something that provides a little more detail.

By the way, anyone that's interested in some of the current and historical "guts and feathers" of what's going on can see it at the site that tracks a lot of the live info https://blockchain.info/

To address part of your question, I mentioned in your earlier post that the daily mining revenue was about $8 million. Since June when the article was written, that number has risen to $25 million/day. So that's what the miners divide up daily for any new blocks that they "win". That money comes from the transaction fee that is charged when bitcoins transactions are processed. So it's pretty much like a service charge for each transaction. I don't know if there's any other income source, but currently there are about 340,000 transactions being completed each day - I've seen it as high as 440,000 transactions on some days. So there can be a fair amount of money generated from the fee applied to each transaction - especially with the bitcoins now being worth around $10,000.

And to answer one more question - then I have to go grill some steaks - you're right, if you go to the blockchain.info page I mentioned, you can in fact see each block and the roughly 50-digit alphanumeric "hash" that was the correct value the program was looking for. You can also see what entity generated that hash - so they captured the fee for that block. Something else that is kind of startling is that the "height" of the last block generated (I just looked a few minutes ago) is around 497,000. Each new block is coded to point back to the previous block until you get all the way back to the origin block that started it. Part of the security of the system (which I'm still kind of fuzzy on) is the fact that all the blocks are sort of tied together that way. It's my understanding that both the complexity of calculating each new block along with the fact that they're all tied together historically, is what prevents someone from just trying to throw in a new, fake block and cheating the system.

OK, that's it for now. And don't forget -- that lesson came from an OFFICIAL dummy. I think I got it right

I'll take a shot at your calculation question later.

[nmduke2001]

Well if I tried to answer your question, it would certainly fall into the "cryptocurrency for dummies" class - I really don't know much on the subject, so I think I qualify as an official dummy. I was just startled by the energy perspective that was presented in the "Spectrum" special issue on the subject. So I was curious about how widely that aspect of the topic might be known.

I will look into the article and see if I can answer your hardest question - "Who decides if it's correct?" Actually the "program" decides, but I'll see if I can find something that provides a little more detail.

By the way, anyone that's interested in some of the current and historical "guts and feathers" of what's going on can see it at the site that tracks a lot of the live info https://blockchain.info/

To address part of your question, I mentioned in your earlier post that the daily mining revenue was about $8 million. Since June when the article was written, that number has risen to $25 million/day. So that's what the miners divide up daily for any new blocks that they "win". That money comes from the transaction fee that is charged when bitcoins transactions are processed. So it's pretty much like a service charge for each transaction. I don't know if there's any other income source, but currently there are about 340,000 transactions being completed each day - I've seen it as high as 440,000 transactions on some days. So there can be a fair amount of money generated from the fee applied to each transaction - especially with the bitcoins now being worth around $10,000.

And to answer one more question - then I have to go grill some steaks - you're right, if you go to the blockchain.info page I mentioned, you can in fact see each block and the roughly 50-digit alphanumeric "hash" that was the correct value the program was looking for. You can also see what entity generated that hash - so they captured the fee for that block. Something else that is kind of startling is that the "height" of the last block generated (I just looked a few minutes ago) is around 497,000. Each new block is coded to point back to the previous block until you get all the way back to the origin block that started it. Part of the security of the system (which I'm still kind of fuzzy on) is the fact that all the blocks are sort of tied together that way. It's my understanding that both the complexity of calculating each new block along with the fact that they're all tied together historically, is what prevents someone from just trying to throw in a new, fake block and cheating the system.

OK, that's it for now. And don't forget -- that lesson came from an OFFICIAL dummy. I think I got it right

I'll take a shot at your calculation question later.

Thanks for the effort. I appreciate it. This block chain technology is making a lot of people rich but it is sure confusing.

[Ggallagher]

Thanks for the effort. I appreciate it. This block chain technology is making a lot of people rich but it is sure confusing.

Well I'm glad to try to help. I just hope I'm providing at least a little enlightenment instead of adding to the confusion.

And to that point, I need to revisit some of the content I provided in my earlier posts. I have several times referred to the "CPU's" that do the hash calculation for new blocks. I was using CPU generically and discovered this morning that CPU's are no longer even allowed to do the calculation. When Bitcoins were introduced in 2009 it was possible to do the calculation on conventional CPU's, but that is no longer feasible. The energy a CPU would consume executing the calculation costs more than the reward that is issued for "winning" the block. The on line articles I came across this morning indicated that the calculations are done on GPU's (often made by AMD or Nvidia).

So I won't write "CPU" anymore - sorry about that.

To your earlier question about "who decides a new block is valid", the following might clarify it at least partially. First of all, a new block is determined to be valid when its "hash" is found to have the correct number of zeroes. Seems like kind of an odd test, but that's how it's done.

For example, I just went on line where I captured the information on the last block to be rewarded. Its hash was the string immediately below.
0000000000000000008e6cdc72b58244fd81783000a4ed32d2 ede38cac13c2e9

The block was rewarded to BTC.com (whoever that is), and the random number their mining computer used that made the block go, "Bingo" was 4047555212. I believe the way it works is all the miners that were trying to solve that specific block had their programs trying different random numbers against the block's data set and calculation algorithm. At some point the hash I entered above popped up in the BTC system, and they won the block. The part I'm still fuzzy on is just how the number of zeroes in that string was determined to be the correct number. I'm assuming it's something programmatic, but I don't know that for a fact.

So there's at least part of the answer to how blocks get validated. But that actually raises another question that I'm not clear on. That question is "How does the time lag associated with completing a block not compromise the security?"

Bitcoins are supposed to be secure because of the complexity and cost of doing the block chain calculation. But there was an article in the WSJ last week dealing with the barriers of Bitcoin becoming a true replacement for currency. One of those barriers is the fact that a few days can elapse between the time I for example send you my bitcoin to buy something from you, and the time that specific transaction actually gets coded into a new block in the chain. You do have the option when spending a Bitcoin of paying a premium fee to accelerate its calculation time, but there will still be a non-trivial lag.

I do know that the public key/private key element of a transaction contributes to the security, but I'm still sort of fuzzy on exactly what the situation is for the period between shooting my Bitcoin to Amazon, and that transaction actually being integrated into a new block.

Seems like the more I learn, the less I apparently know. Not the first time that's happened

[moonpie23]

so, see if i've got this right.,.


bitcoin is the "fantasy league" of the computer geeks running the financial world?

[Dr. Rosenrosen]

I recall reading an article about someone running a mine in, I think, one of the Nordic countries so he could save on cooling costs. Those computers give off a lot of heat so they have to be kept in an area that is constantly cooled.

Oh great, a new source of global warming impact.

[nmduke2001]

I found this to be a really interesting article and it did make things a little clearer for me...

https://www.yahoo.com/news/200-000-b...160000088.html

[Ggallagher]

I found this to be a really interesting article and it did make things a little clearer for me...

https://www.yahoo.com/news/200-000-b...160000088.html

Interesting article - thanks for posting the link. After starting to learn more about Bitcoins in the last week or so, I got curious about the mechanics of the "wallets", and just for the fun of it created one for myself yesterday. I was impressed by the security associated with setting it up.

I think I will be safe from the predicament described in the article though - since I never plan on actually buying any bitcoins. But if anyone wants any practice in SENDING bitcoins, just shoot me a message. I'd be glad to send you a receiving address that you can try out

[OldPhiKap]

Interesting article - thanks for posting the link. After starting to learn more about Bitcoins in the last week or so, I got curious about the mechanics of the "wallets", and just for the fun of it created one for myself yesterday. I was impressed by the security associated with setting it up.

I think I will be safe from the predicament described in the article though - since I never plan on actually buying any bitcoins. But if anyone wants any practice in SENDING bitcoins, just shoot me a message. I'd be glad to send you a receiving address that you can try out

I started taking Bitcoins for payment of my mashed potatoes about five years ago. Never cashed them out. So I don’t want to brag, but — the “OPK Men’s Room at Cameron Indoor Stadium” signs are supposed to go up after the new year. Tax purposes dictated the delay.

Oh, and the “reserved” sign on the stall farthest to the right? I mean it.

[BigWayne]

I have done a chip for a customer that was making a mining machine a couple years ago. It was for litecoin, which is a similar ecurrency to Bitcoin. I have an inquiry right now from another company that is looking to do a chip for one of the ecurrencies. He wants to make a chip that has 1.7 Billion transistors on it to do it. The chips implement the algorithm to do the calculations in the most efficient way possible. The ROI for doing these chips is a very complicated thing to figure out because the variables are:

1) How many coins can the chip generate per unit of time.
2) How much power does the chip use.
3) How much do you have to pay for that power.
4) What is the value of the coin now and in the future.
5) How will #1 change over time. (Generally, a chip that makes 1 coin per unit of time today will only be able to make 2/3 or 1/2 a coin 90 days from now.)
6) How many other people are making mining machines right now at the same time you are (affects #5).
7) How long will the machine take to make.
8) How long can you run this machine before it costs more to run it than it produces. (Sort of like looking at the cost of mining gold out of ore that is always getting poorer in quality.)