Rethinking the Bitcoin PoW mechanism: Does it really waste energy?


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Isn’t it worthwhile to spend 4.5 billion US dollars on mining for a payment system that can settle US$1.38 trillion a year?

Original title: “View | PoW Effective”
Written by: Dan Held
Translation: Ajian

Many people think that Bitcoin’s proof of work (PoW) mechanism is “a waste of electricity.” I am thinking about explaining to everyone: In fact, everything is energy, and currency is also energy. The evaluation of energy is subjective. Finally, how does the energy consumption of PoW compare to the existing control system. This article is a mixture of the original ideas of many people in the circle-all I have done is to gather, refine and combine these statements.

Work is energy

“Work” is regarded as a unit of energy, starting from the French mathematician Gaspard-Gustave de Coriolis: He defined energy as “work done”.

A long time ago, all the work done in economic activities came from manpower, and all these energy came from food.

About 1 million years ago, humans learned to use fire by accident. As a result, humans can drive more energy, because we can not only eat to maintain temperature, but also get warm from the fire. Therefore, this additional energy consumption improves our living standards.

Thousands of years ago, our energy consumption increased further because we started raising livestock. Animals can replace humans, provided that these labors must also have food. We need a lot of food to meet this energy demand, but our lives will become more prosperous.

In the past few hundred years, we have invented large-scale machines that can do work by themselves. In the beginning, energy came from water and wind, then it became cheaper things like coal and natural gas, and now it is nuclear energy (nuclear fusion/nuclear fission). Whether it is machinery or biology, all work is done by consuming energy.

Our economic life is not based on money, but on work and energy. Everything in our lives is closely related to the price of energy. Purifying water requires energy; transporting goods also requires energy; manufacturing products requires energy; cooking is no different; even refrigerators and freezers require energy. In the free market, the unit cost of each commodity reflects the energy consumed by a unit of that kind of product. Because the free market encourages people to produce high-quality and inexpensive goods, the energy consumption of each product in the production and manufacturing is minimized. Money is a representative of the work required to produce goods and services, so it can also be thought of as stored energy.

In the first half of the 20th century, industrial leaders such as Henry Ford and Thomas Edison were interested in using “energy yuan” or “energy units” (commodity currency/energy currency) to replace gold and the U.S. dollar . This concept was very popular at the time because they also had some of the characteristics of a sound currency, including: accurate definition of statistical units, easy measurement/difficult to forge, divisible into smaller units, and homogeneity (that is, each unit is related to There is no difference in the other unit). However, energy currency is also flawed: it is difficult to transfer and store.

“To make men and women covet something, just make that thing hard to get.”

— Mark Twain

Fast forward to October 31, 2008, when Satoshi Nakamoto publicly published a Bitcoin white paper. The proof-of-work used by Bitcoin was originally invented as a means of defending against email attacks. Only later Satoshi Nakamoto used it in digital currency. PoW mining, in a nutshell, is the use of specialized machines (such as ASIC) to convert electrical energy (via block rewards) into Bitcoin. The machine will repeat the hash operation (both guessing and voting) until it solves a cryptographic puzzle and receives Bitcoin (block reward). This cryptographic puzzle proved that the miner spent a lot of energy (in the form of ASIC and electricity) and proved that the miner did work. Bitcoin has a voting mechanism similar to capitalism, “take the risk with real money to obtain voting rights”, consume energy and use ASICs to produce hashrate (votes). —— Hugo Nguyen

When Satoshi Nakamoto designed PoW, he fundamentally changed the formation mechanism of human consensus, turning political votes into non-political votes (hash value), relying on the conversion of energy. Proof of work is also proof of consumption, or verification that energy has been consumed. So where is it important? It is that this is the easiest and fairest way to verify things in the physical world in the digital world. PoW has nothing to do with physics, not code. Bitcoin is a super commodity, which is forged by energy, and is the basic commodity of the entire universe. PoW casts electrical energy into digital gold.

If and only if Bitcoin’s ledger is difficult to make, it is/is not tamperable. The work proved to be “very expensive”, which is true, but this is a feature, not a disadvantage. To this day, the term “defend” still means building a thick physical wall to enclose that valuable thing. The new world of cryptocurrency is not so intuitive, there are no tangible walls to protect our money, and there are no doors and locks. Bitcoin’s public ledger is protected by its assembled hash power, that is, the total energy it spends on building walls. This design is expensive and transparent, which means that if you want to remove the wall, you have to pay the same amount of energy (without forgeable luxury and waste).

Translator’s Note: This is actually not rigorous. To remove the PoW wall, you only need to pay the same number of hashes, not necessarily the same amount of energy, because the computing efficiency of the machine (the number of hashes generated per unit of energy input) will become higher and higher.

Energy consumption

Critics of cryptocurrency always say: Bitcoin’s PoW is rubbish, and within a few years (such as 2020), the world will be ruined by Bitcoin! You may have also noticed that most of the articles promoting “the end of the world” are based on an analysis by Alex De Vries. This person is a “financial economist and blockchain expert” who works for PricewaterhouseCoopers in the Netherlands and is the author of the Digiconomist website. His estimate has received many fair criticisms, and the main point lies in its poor energy consumption calculation formula. The key indicator he chose “Average power consumption per transaction” is also deliberately misleading readers for the following reasons:

  • Energy consumption is based on the number of blocks, and the number of transactions in a block is uncertain. Packing more transactions does not mean that more energy needs to be consumed

  • The economic density (economic density, or “economic value”) of a single bitcoin transaction is also increasing (batch transactions, Segwit technology, Lightning Network, etc.). Because Bitcoin is increasingly becoming a settlement network, the economic value protected by each unit of energy is also increasing exponentially

  • The average energy consumption of a single transaction is not enough to measure the efficiency of Bitcoin’s PoW mechanism and should be defined based on the security of economic history. Energy consumption protects the bitcoins that have been mined, and as the inflation rate drops, this ratio will become lower and lower (Translator’s Note: Not sure what the “proportion” here refers to, if it is mined The ratio of the number of bitcoins to its theoretical maximum number should be continuously increasing). One bitcoin “accumulates” the energy spent in mining all blocks. A researcher, LaurentMT, proved through empirical research: Bitcoin’s PoW will become more and more efficient, because the increased cost will be offset by a greater increase in the total value protected by the system.

Now we know what the correct KPI for the ROI (return on investment) of energy consumption should be. Let’s take a look at the changing trend of the energy cost of Bitcoin’s PoW.

The growth rate of ASIC efficiency is slowing down. Because of the slow growth in efficiency, we are based on the fact that the competition between manufacturers will become more intense because profits are decreasing.

Viewpoint | PoW is

Viewpoint | PoW is

The total cost of mining will continue to shift from the initial acquisition cost (capital expenditure) of ASIC equipment to the continuous energy expenditure (operating cost). Because the physical location of the mining center is irrelevant to the Bitcoin network (mines can be migrated), miners move to areas where they can produce additional electricity at the lowest marginal cost. In the long term, this is likely to create a more efficient world energy market, because Bitcoin miners are arbitrage of electricity prices on a global scale. The cost of Bitcoin mining will become the minimum value of excess electricity. This is also expected to solve a problem of renewable energy sources (such as hydrogen and biogas): power is predictable and will be wasted if it is not used immediately. In the future, Bitcoin mining can help renewable energy with variable output power-energy manufacturers can turn on mining machines on demand to convert the extra power into Bitcoin.

In the past, aluminum was also a common way to “export” electricity in countries with surplus renewable energy (such as Iceland). Smelting bauxite (also known as aluminum ore) requires huge energy consumption, and this conversion is one-way (is it very similar to a hash function?). The same concerns surrounding aluminum’s “abnormal” energy consumption have been going on for 40 years, starting in 1979 (including concerns about centralization). But all such companies are constantly looking for cheap energy and preferential policies on this planet. Because the aluminum manufacturing industry has been developing for decades, the power consumption per kilogram of aluminum is also declining.

Viewpoint | PoW is

“This global energy network liberates idle assets and enables new assets to emerge. Imagine a 3D printed map of the world, in which places with lower energy prices have low terrain, and places with expensive energy have high terrain. In my opinion, Bitcoin mining is like pouring a glass of water on the surface of this map. The water will flow between valleys and gaps until it becomes a level everywhere.”

—— Nic Carter

Bitcoin is the last buyer of all electricity, which will create a platform to encourage everyone to develop new utilization schemes around unused energy; these energy sources, without Bitcoin, would not be developed by themselves.

“When will the energy used to produce PoW no longer increase? To be precise, that is, enough energy manufacturers start to directly produce PoW, and the marginal return per kilowatt of electricity running PoW = one kilowatt of electricity sold to the grid When the marginal benefit of PoW-that is, the “premium” of PoW drops to 0. I call this equilibrium point the “Satoshi Nakamoto” point. I estimate that when the power consumption of PoW accounts for 1-10% of the world, This equilibrium point will come.”

—— Dhruv Bansal

Some people complain that Bitcoin mining does not “do useful things”, such as finding prime numbers. Although it sounds like a good idea to add secondary rewards to people who do work, it introduces a security risk. Separating the rewards may lead to a situation where “working for a secondary function can get more value than working for the main function” (Dergigi). Even if the secondary function is harmless (such as heat), every X hash operation is expected to get not only 100 US dollars, but also an additional 5 US dollars (because you provide heat), this “mining stove” is not It improves the hardware efficiency, which leads to an increase in the difficulty of block production and an increase in the energy used by unit blocks. Fortunately, Bitcoin will never encounter this problem, because its security is protected by a pure workload proof algorithm.

Note: Bitcoin is already providing this society with very useful things (if not, then mining will not make money), and it is irrational to require miners to mine entirely out of altruism.

Relative cost

No matter what you do, it consumes energy (the first law of thermodynamics). You want to say that a certain use of energy is more or less wasteful. This is completely pretentious, because all users have to pay the same price to use electricity.

“As long as people find a use worth paying for electricity, electricity is not a waste. Those who pay for electricity get Bitcoin in return.”-Saifedean Ammous

From the perspective of thermodynamics, the entire universe is an ultimate closed system. The additional power consumption caused by Bitcoin is much less than that of the existing legal currency system; the legal currency system not only requires banking infrastructure, but also violence and political machinery. The use of electricity to protect the framework of the financial system is the result of a “positive sum”. Below, I roughly compare the existing financial, military, and political systems (notes are at the bottom of the article).

The graph is inspired by @hassmccook and his original article: “Economic and Environmental Costs of Bitcoin Mining”.

Viewpoint | PoW is efficient

Type I civilization

On the way to chasing cheap energy, we will create greater abundance for the world. Bitcoin, through the use of these new and completely different energy sources, can not only bring us to the Kardeshev type I economic stage, but even bring us closer to the Kardeshev type I energy civilization (we have achieved a Kardeshev index of about 0.72) (Translation Note: Kardeshev, an astronomer in the former Soviet Union, proposed to evaluate the level of advancement of civilization based on the amount of energy available to it. Type I civilization can use all available energy on the planet in its hometown.) With Bitcoin mining as an incentive , The time required for us to realize Type I civilization may be shortened from 200 years to decades. Once it reaches stage I, there is no need to restrain the growth of energy consumption, and everyone can enjoy a higher standard of living.

Viewpoint | PoW is efficient

The pressure to find cheap electricity will push people to build nuclear fusion reactors. Nature has pointed out the direction for us, and planets use the nuclear fusion of stars to become a source of energy. Mankind is already on the road to build nuclear fusion reactors to imitate nature. It is estimated that it will take decades and US$80 billion in research funding to unlock nuclear fusion technology. The fuel for nuclear fusion (mainly deuterium) is available everywhere in the sea and can meet the energy needs of the earth for millions of years. Nuclear fusion has many characteristics of renewable energy, for example, it can be used as a long-term energy supply, and it will not cause the greenhouse effect and air pollution. Nuclear fusion can provide very high power generation density and uninterrupted power transmission. On the other hand, the production cost of nuclear fusion will not be restricted by diseconomies of scale. Both hydropower and wind energy must be gradually laid into less-than-ideal environments because of the optimal location being developed. But even if a large number of fusion stations are manufactured, the production cost will not increase too much, because the raw material (sea water) is very abundant and available everywhere.

“Water, water, it’s all water, but not a drop can be drunk.”

—— Samuel Taylor Coleridge

Nuclear power and other cheap energy sources will solve many humanitarian problems such as the shortage of clean water. We are surrounded by sea water, but desalination of sea water requires a huge amount of energy. The cost of desalinating seawater is now higher than using fresh water, groundwater, water recycling, and water-saving technologies.

Human beings will not stop exploring, up to mountains, down to the bottom of the sea, as small as atoms, and as large as time and space; to grow, not to be constrained by energy. We want to win the stars.

A system that can settle US$1.38 trillion in payments each year can also bring us all cheaper energy. Isn’t it worth everyone’s spending US$4.5 billion on mining? I think the answer is yes.

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