Is Bitcoin really decentralized, or are we being led like lambs to the slaughter?

in bitcoin •  12 days ago

Bitcoin-china-flag-750x400.png

Bitcoins Energy Consumption An Unsustainable Protocol
https://blockgeeks.com/bitcoins-energy-consumption/

A Single Bitcoin Transaction Takes Thousands of Times More Energy Than a Credit Card Swipe
https://motherboard.vice.com/en_us/article/ypkp3y/bitcoin-is-still-unsustainable

Bitcoin energy consumption - unsustainable?
https://bitcointalk.org/index.php?topic=2378238.0;all

Bitcoin Electricity Consumption: Unsustainable Cryptocurrency
http://www.businessworld.in/article/Bitcoin-Electricity-Consumption-Unsustainable-Cryptocurrency/29-11-2017-133168/

Is Bitcoin Unsustainable, and How Can It Be Made Sustainable?
https://bitcoinmagazine.com/articles/bitcoin-unsustainable-can-made-sustainable-1436386739/

All this talk of power consumption has led me to question a few things. Namely who actually controls Bitcoin? While outwardly it appears as though Bitcoin is a decentralized supply and demand priced currency in the hands of the people and thus immune to change I wonder how much truth there actually is to this.

As we have seen recently in regards to the high amounts of infighting and backbiting within the mining community, BTC is somewhat difficult to change but perhaps it is much easier to just shut down.

I say this based on the fact that the Bitcoin networks electricity consumption is directly proportional to the hash power required to solve a block. Without electricity to solve the blocks and gain the rewards the network simply stops.

So we must ask ourselves; who controls the two most essential elements (electricity and hash power) needed for the functionality of the block chain?

It’s not me, you or any other user that buys BTC, it’s not Coinbase, Kraken, Gemini, Bitfinex or any other exchange. While your insatiable greed and often irrational demand for BTC fuel higher prices; does it matter? But wait, this is the part where you tell me that your desire to buy BTC drives up the price and consequently makes it more profitable to mine.

While this is true to a degree, Bitcoin is not the hypothetical perpetual motion machine that can do work indefinitely without an energy source. This kind of machine in any form is impossible, as it would violate the first or second law of thermodynamics.

As you drive up the price, you increase the volume (aka number of transactions) which in turn increases the mining power dedicated to it based on profitability, which in turn increases the hash rate difficulty and likewise the amount of power required to solve a bock. From this point the miners profitability scales in reverse as costs in terms of energy consumption, equipment will begin to eat away at earnings in order to solve increasingly difficult blocks.

It is, at this point fairly common knowledge that the economic expenditures required to successfully mine Bitcoin have pushed mining into fewer and fewer hands throughout the globe and into regions with the cheapest energy costs; namely China. It is unlikely that this trend will reverse anytime soon as Solar remains non feasible in terms of mining. As a result the mining pool will grow ever smaller and more centralized with time.

So who actually controls BTC? In order of influence over the network I would say the most powerful player is most likely the Communist Chinese Government as the vast majority of BTC is mined in China by special arrangement between miners and Chinese government regulated and/or nationalized power plants.

Secondly I would say miners as they only operate so long as it is profitable to mine BTC; no business enterprise can continually operate at a loss. It requires new capital above existing expenses to sustain and expand mining operations commensurate with block mining difficulty. In the case of BTC the new capital for miners comes in the form of appreciation in BTC price as well as mining fees caused by heavy traffic.

But let us not forget that there is a point of diminishing returns as the hashrate and required power consumption begin to eat into profit margins.

Of equal interest is the fact that China is a communist nation. With that comes the ideological belief of the nation state that people cannot govern themselves and thus it is the job of the government to confiscate property and centralize economic resources into the hands of the state to meet its intermediate goals and better direct the efforts of the population.

It then becomes entirely possible that a single decree from the Chinese government could halt the bitcoin network in near entirety. While it may seem unlikely, they have previously demonstrated through exchange closures that they can and will do as they please; whenever and however they see fit.

So let us make the wild assumption that some in the Chinese banking industry have ties to those high up in the Chinese Communist party (do note the sarcasm). Let’s assume that the bankers and government officials feel threatened by Bitcoin. The bankers view it as a conduit to disrupting their financial stranglehold over the people. The government of China, being communist is pretty much anti Bitcoin by ideology in that self governance and control of one’s own assets is bad.

Let’s assume that there exists some twisted incestuous “good old boy” network between those in the Chinese Government and those in the Chinese banking industry.

Lastly let’s assume that their not dumb, know the blockchain concept is profitable, but need a way to control it for their own benefit. Maybe they create their own Cryptocurrency based on block chain technology (crazy right) and begin to nurture it into life in order to further their own agenda.

So what would happen if the Chinese government arbitrarily said “piss on Bitcoin” cut the power, seized equipment and generally acted in a communist fashion by using its powers to assimilate all things independent of the nation state?

Firstly, the sudden drop in hashpower would drop transaction speeds proportionate to the amount of hashpower lost. A loss of half the power would increase block intervals from 20 minutes to 1 month. A loss of 80 percent or so would push 2 hour block intervals into the realm of a year to solve. This sudden loss in hashpower would send transaction fees into the level of ridiculous.

At this point another scenario presents itself, let’s say the Chinese Government decides to throttle the network, as the new exorbitant fees would encourage mining in other areas. So they give and take just enough to slowly strangle the network with one hand and prevent alternative mining solutions in other areas, and with the other hand they put forth a coin that they control.

I know all of this sounds rather fantastic, but consider this. In order for Chinese miners to operate they must align themselves with the political ideologies of the government under which they operate. As a result any and all profitability they hope to attain is solely dependent upon their ability to maintain a positive mutually beneficial relationship with government officials and those in power.

The continuing consolidation of miners into smaller and smaller groups as a result of Bitcoins Proof of Work Concept begins to chip away at its outward appearance of a decentralized currency of the people, a way to set us free, be our own bank etc. The reality is that Bitcoin miners are controlled by those that control the power. Since governments control the power they comprise the asses that must be kissed and palms that need greased by miners if they wish to continue operations.

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Excellent and extremely well written post. 100% accurate in my opinion on the facts, most noteably on the effects a massive and sudden loss of hashrate would have on the blockchain (a dead chain for all intents and purposes), and the speculative scenarios possibly leading up to a disaster are all plausible. Upvoted, Rdsteemed and Followed!

I just loved your underplaying of the nail in the coffin. 😉

let us not forget that there is a point of diminishing returns

And you bibliography too! Great job!

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Really good, We really need these kind of post here!
This guy has a bright future in steemit

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Thank you so much.... :).. I call it like I see it..

Let's start thinking not in Bitcoin but #beyondbitcoin from now on
BITSHARES could be a great alternative in all aspects, specially as Decentralized currency and also because its real usability.
Good post

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Thanks for resteeming this. I wouldn't have seen it otherwise.

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It is only up to us to maintain the good quality at the platform dude...
Cheers

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I in many ways can see BTC as but the first evolution in something greater to come. The simple fact of the matter is that it is not 100 percent sustainable. A better technology will have to come out that is both faster and consumes less energy. Perhaps BTC in whatever from it become dominant (Cash, Gold, 2x) should relegate itself to a store of value and relinquish the idea of becoming an accepted everyday payment medium. Bitcoin has brand recognition right now which will only get you so far once other aspects of the commodity begin to fail; costs, speed, reliability, stability etc.

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Did you check Bitshares?

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I have a tab open to look at it, but have not had a chance to do any research into the topic yet. I typically do research in the evenings, when I am not actively trading.

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You're gonna like it. A lot.

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My opinion - the IOTA crypto architecture can and will prevent "attacks" such as the one you mention in the article. IOTA is fee less - proof of work is done by each user in a distributed computing model. IOTA is inherently scale-able - the more users making transactions, the higher the network throughput. This is due to the fact that for every transaction a users posts they have to do proof of work on two transactions. This makes IOTA's network transaction rate exponentially scale-able. This also makes it improbable that any single entity or group could control network hash throughput.

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IOTA is fundamentally different. It is not conventional block chain. It uses the "tangle" data structure which is not the same as a "block chain" ledger data structure. This is why it can achieve fundamentally different results.

what if people started seeing bitcoin transaction times and bigger and miners are not profitable, wont they choose etherium or litecoin. Given the trust in Crypto is what matters to me more than just bitcoin. I see possibility of lot of cryptos coming into lime light. Already bitcoin itself has 6 forks I guess. Why just not use the other cryptos and trouble bitcoin.

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I agree, and I have made posts in regards to the fact that BTC just needs to be happy as the middle man for purchasing other coins. It will never make it as a stand alone method of payment for everyday things.

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i'm not buying the hype on the electrical costs. But I agree with your synopsis of the situation; at any time government can move to shut anything/anyone down.

I read an interesting article today where the author did some not very precise calculations to show that the total amount of electricity devoted to bitcoin mining is "less than 1% of all the electricity squandered by appliances and devices on stand-by" globally. If this is true, then all the talk about 'unsustainable' mining is nothing but the latest fud.

(i'll throw that link in here if you'd like, or you can duckduck Charles Hugh Smith Minimal Check Sensationalist Bitcoin and it should come up.

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Sure toss in the link..

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Found it... https://www.silverdoctors.com/headlines/world-news/charles-hugh-smith-crushes-the-bitcoin-uses-a-bunch-of-energy-meme/

"But then a few paragraphs down, we discover the electricity per transaction might only be 77 kWh– nobody really knows for sure. Hmm. 77 is 36% of 215, so the “shocking” consumption might overstate actual consumption by a factor of three?

Let’s choose a number between 77 and the “shocking” 215, since nobody really knows what the real number is: shall we guesstimate 135, or 2/3 of the high guesstimate? That would drop the annual consumption of bitcoin mining from 24 B kWh annually to 15 B kWh, less than 1% of the electricity wasted annually on stand-by devices doing no work whatsoever."

I think it is a matter of perspective. That said; if you were to divide the mining cost between all residents of the United States or base it on Power Consumed relative to the US it does look to be inconsequential.

In my article I'm not concerned with the planet, or the relative share of power usage BTC mining consumes proportionate to the nations of the earth or any other large metric.

I'm concerned with the power usage for mining relative to the businesses that operate it. Instead of comparing the Great Lakes ( 6 quadrillion gallons)-"Mining Power Consumption" to the Ocean (352 quintillion, gallons)-"US Power Grid", which makes them small. I'm comparing one of the Great lakes (mining costs) to the sum total of the five Great Lakes (mining industry).

That said even looking in that article I find this.. "consumption of bitcoin mining from 24 B kWh annually to 15 B kWh". A little more searching and it cost something like .08 cents per KWH in China. So if we do the math on that... 15,000,000,000 x .08 = $1,200,000,000 .00 (Low end) or 24,000,000,000 x .08 =$1,920,000,000.00 (High end) Dollars per year in electrical costs for mining, excluding labor, equipment costs etc. This price is born by the miners.

Which got me thinking... Whats the average transaction fee now? $5.00 I think.. Bitcoin can handle how many transactions per second? 7.. So lets math this shit out..

60 seconds in a minute, 60 minutes in and hour, 24 hours in a day, 365 days in a year = 31,526,000 seconds per year.

7 transactions each second = 220,682,000 transactions per year.

220,682,000 transactions per year x $5.00 = $1,103,410,000 US dollars in Transaction fees collected.

A figure that even at the low end is $100,000,000.00 (One hundred million dollars short) of the electrical costs spent to complete them. Herein is the paradox of diminishing returns. Without appreciation the miners are fucked. I did this in a hurry so correct me if my math is wrong...

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I think I see. For the miner the electrical costs become prohibitive. My brother mines in Texas and that's pretty much what he says.

Headlines usually refer to 'sustainable' as having to do with the biological health of the planet, rather than the financial health of cryptominers. Hence the confusion the headlines were designed to generate.

That aside, I still think you hit the nail on its head in this article. At any time governments can step in and use their power.

@pawsdog Really impressive post.
I hope this isn't the case.

Being just old enough to remember the USSR and having passing interest's in various topic's, I think/hope tying some of the major one's together with global issue's and data from history, BTC as a "store of wealth" is the most logical.

The electricity issue's could be covered by default by Australian Government Research in a longer term perspective with plan's for thing's like-
Smart Cities https://cities.dpmc.gov.au/
With Smart Factories https://www.businessinsider.com.au/tesla-completely-inhuman-automated-factory-2017-5?r=US&IR=T
Wind Farm and Mass Power Storage http://www.smh.com.au/business/energy/history-in-the-making-tesla-switches-on-worlds-largest-battery-in-sa-20171130-gzwhah.html
Solar Farm, Local Power Storage, Carbon Tracking and P2P Trading Currency https://powerledger.io/media/Necker-Island-Blockchain-Summit-Power-Ledger-Snapshot.pdf

West.
If the West was to pull back from oil war's to manufacturing again it will change the world a lot and the East will feel the economic loss.

East,
Putin has been talking about a Bipolar World Power for year's to stop the chance of global dominance by force and China is going threw a high rise in labor cost.

We now have two Petro Dollar's backed by Gold, USD and Chinese Yuan, West and East.
We may have two Digital Union Dollar Network's backed by BTC, like Ethereum and NEO, West and East.
With the technology coming out soon we are going to need something like this to continue a business based gold/fiat war.

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Very interesting. I remember the USSR as well, and Reagans first election :). It is having that benefit of time that allows one to see a bigger picture in most instances. At a point we learn that all is cyclic, that patterns repeat, that the greed and fear cycle of nations and humanity never really changes. It's always the same shit in a different form, always a new war, new crisis, new social issue etc. This is something I try and explain to my current wife whom is considerably younger than me, she was in elementary rocking out to Barny the purple dinosaur while at a time that I was getting kicked in the teeth by Marine Drill Instructors at Paris Island. Whats new is not so new, its just old shit in a new form. That experience is the best measure of future performance. She gets so pissed when I tell her something will not work, yet she does it anyway and it doe snot work. I tried to tell her that when I was 27 I did not know shit about life, and that when she gets where I am she will look back and say the same thing, and that when I was 27 I would of likewise been pissed if someone older called me an idiot.. lol.. not due to lack of IQ, but due to lack of experience.. I will look more into these global currency wars...

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I'm a single father for that reason, lol.

A major influence IMO is generation direction steering, media and advertising lost Gen Y but regained them recalling them Millennial's https://www.nytimes.com/2015/09/20/fashion/move-over-millennials-here-comes-generation-z.html
Factoring in with Trump at the helm of the West and the trade sanction's placed on so many in the past decade.

With a currency system like this over the next 20 year's or so we can give job's to the robot factorie's while most people can earn a living showing how cool their life is....like getting $20 to post a pic of your dinner on SteemBook.

This is just a small part as well of one direction I can see society's evolving, but the main word in my post was HOPE, because as your saying Hindsight isn't looking good for it.
Just a quick post, I need to go to work so have a good day :)

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Yes it does seem somewhat as though it is headed in an odd direction.

Great post. Thanks. I wanted to know if you researched on the bitcoin past mining numbers prior to China getting involved. I have a feeling a lot of the rise in price of bitcoin is not a global rise but a central rise based in China. People who mined around 2009 - 2012 must have millions of bitcoins by the time China took control? I now believe even more that China is a significant reason why bitcoin prices are rising.

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True but in the early days, it was a hobby, a niche and Bitcoin meant nothing.. those millions of coins were worth less than dirt then, so many were lost. I agree once it became a business as is the case now with the miners in China, things changed...

The new God.coin that's being launched is actually designed to eliminate that exact instability and decentralize the value away from rapidly-adapting corporate entities capable of mining far more than what is ethical. It is backed by actual worth, namely gold and silver. Bitcoin laid the social groundwork, but a better beast will soon carry the burden far more efficiently.
Here's a sort of intro if you want:
https://steemit.com/ico/@prime-cleric/god-coin-ico-coming-shortly

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Thank you for the post, I will have to check that out. Good info...