Bitcoin has the appearance of being decentralized and so impossible to change that people cannot even push through an increase in block size. While it may be true that Bitcoin is difficult to change, it is much easier to shut down. The Bitcoin network requires hash power and therefore electricity worth $1M per day. Without this hash power and electricity the network simply stops.
So the question becomes, who controls the electricity? In almost all cases, bitcoin is mined by electricity produced by government regulated and/or nationalized power plants. It just isn't profitable to mine with energy produced by Solar.
The largest mining firms has worked out special arrangements with the chinese government which controls the power company. Without political connections it is not possible to get permission to operate businesses that demand this level of power from the grid.
At any time, the bitcoin network can be halted by a single degree from the chinese government. They can simply cut the power to the mining farms and/or seize the hardware. Economies of scale have pushed mining into fewer and fewer hands and into regions with the cheapest power. This process is bound to continue which means that the vulnerability becomes worse over time. This is an old argument, and not really new.
What Happens when Power is Cut
A sudden drop in hashpower will drop the transaction rate by an equal proportion and extend the period of lower transaction rate. A 50% loss will create 20 minute block intervals and take at least 1 month to correct. A 90% loss will create 2 hour block intervals and take a year to resolve.
The bitcoin network is already saturated, the loss of 50% or 90% of its capacity for 1 month to a year would significantly increase transaction fees. The transaction fees would rise to encourage more hashpower to be added to the network that would have been unprofitable at the prevailing difficulty without the fees.
Illusion of Independent Policy
Bitcoin is controlled by the miners, miners are increasingly centralized in the hands of those who have political connections with various governments. Their profits depend upon maintaining those connections which in turn means they will tend to behave in ways that align with the prevailing government's demands.
So long as Bitcoin continues to rely on Proof of Work, control will ultimately land with the government which subsidizes electricity for bitcoin miners. Any appearance of independence of Bitcoin miners is likely an illusion. Who is really calling the shots on the block size debate? Miners or those who grant permission to draw huge sums of power from the grid?
Proof of Stake / DPOS Solution
Only Delegated Proof of Stake (DPOS) has the ability to remain independent of direct government control due to the much lower resource requirements for operating a node. All that is required is an internet connection and nodes are equally profitable in almost all jurisdictions. If any individual nodes are shutdown the protocol supports the rapid deployment of new nodes to restore full capacity in hours rather than months or years.
In a frontal assault on Bitcoin the government will win unless a hardfork changes the Bitcoin consensus algorithm. Alternatively their influence over hashpower will ultimately grant them the power to fully regulate Bitcoin transactions resulting in no recourse except to fork, but forking is impossible without an effective voting / governance system for Bitcoin.
All of that said, I think Bitcoin will continue to operate and grow in value. This may even be desirable for governments of the world as a means of "trapping" those who attempt to escape the coming global currency collapse. If they will ban cash over-night, start confiscating gold, and implement capital controls of every shape and form then you had better believe they would spend a fraction of the time and energy they do on those programs to cut the power to Bitcoin.
A real irony, indeed. Interestingly, a similar irony is seen with the divergence of the political systems of the United States and Canada.
The United States was deliberately designed to be a decentralized federal system. States' rights were given priority over the rights of the federal government. And yet, the United States is pretty centralized. State governors seem accustomed to acting as mandatories of the feds; in conflicts between the two, the states tend to roll over.
Canada was deliberately designed to be a centralized system. In opposition to the U.S. federal system, Canada's was designed to default to the federal level in cases of ambiguities. Unlike the U.S. system, the powers of Canada's provinces are enumerated; undefined powers are explicitly assigned to the federal government. And yet, the provinces are so powerful in the Canadian system that federal-provincial conferences take place regularly and are big news when they do - in part because some provinces' premiers will balk if they don't get what they want.
Why the paradox? Best answer I have is, some folks see a framework of rules as a challenge rather than as the rules of the game. They see the framework and decide to rail against it rather than live within it. I don't know why, but these folks tend to pretty good at getting their way. Thusly, the de facto rules-set becomes something quite different than what's sketched out by the de jure or formal rule-set.
When people start a'plottin' and schemin', ironies abound: that's for sure.
if states bend to the feds in USA, then weed would still be illegal in every state, and that's not the case
Good point, but that's a recent development that's contrary to trend. Looks at all of the federal-state disputes and you'll see the overall pattern.
Interestingly, this compliance is enforced by federal matching grants. In the 1980s, the Reagan Administration got the states to jack up the drinking age to 21 nationwide by threatening to withhold highway-fund matching grants to states who didn't have 21 as the minimum age.
Those states that legalized marijuana did so without the Obama Administration putting up a fight. Question worth pondering: will the Trump Adminstration fight it? From what I read, Trump's DHS pick is a hard-line Drug Warrior.
Trump will not touch weed, since it would cause a Political nightmare for Rep. in 4 years. Over 75% of the country is now for it (at least medical) Republicans are for States rights. If Sessions was President I would be worried however, I high doubt Trump would approve any crack down on Medical Marijuana. I expect them to actually legalize Medical fully in Jan. Trump is on record recently saying Medical is a States rights issue. Its hard to say what happens to Rec. weed. Mostly likely they would want to regulate heavily and tax it!
You could be right - to be quite frank, I hope you're right!
In a sense one may get the impression that Steemit inc's development team would be the government supplying the subsidized power to the miners/witness on on STEEM in the form of their weighty votes?
Not complaining in the slightest. It's good to know the core developers of STEEM took measure to protect their invention for the greater good.
I guess my actual question.. While I see how you've proven how BTC could infact be easily manipulated by govt's supplying the electricity.. How does our DPOS system work to prevent this?
[Tinfoil hat mode] Bitcoin appears to be on the verge of another bubble, possibly well into the thousands. During this bubble there will likely be a surge in tx activity on the bitcoin network, which is already at full capacity. The peak bubble price may be exacerbated because users wont be able to transfer bitcoin to the exchanges to sell in a timely manner, at least not without paying exorbitant fees.
This will be a great opportunity for attackers to further spam the network during this period. In fact, if they are really good, they may profit by transferring bitcoin to the exchanges well ahead of time and spam the network during peak prices, preventing users from transferring bitcoin to the exchanges to sell.
Many of us have been warning of this for years. The 1 mb block size limit is a joke. If segwit gets enabled, possibly combined with some form of capital controls somewhere, then this bubble could come to fruition.
UV and RS for you.
I am pretty open about the fact I am newer to all this Blockchain and Crypto stuff, many of us are, and there is so much to learn. That title caught my eye.
#MinnowLife lol
I have told people the only real way to shut this down, is by cutting the power or having an EMP knock everything out --- but even if the gov't does their usual False Flag or other similar nonsense they like to operate in -- by and large it cuts them out too, for the most part.
You raise a lot of other salient points and I also like the way you used #Steemit101 type language that someone like me can understand plainly.
Government and policy work, I understand. This stuff, I am working hard to learn.
Nice article combining very clear examples of BOTH of these for us all to consider.
I bet there will be some beauty nuggets of truth in here in the comments tonight!
Thanks for resteeming it.
NP brother. (Y)
With antminer S9 btc mining is still somewhat profitable except on the areas with high electricity cost.
just WHO hmm
Once we get space cheaper. The next big players will be space based miners. They will have a unlimited supply of solar energy and the block chain will be perfect for space transactions.
good perspective! Yes, the real energy, unleashed power is in space!
Unless there are other applications of getting to space (such as deploying satellites) that can help with the cost to get there AND the high cost of solar panels, it won't be profitable for miners to go to space. Interesting concept to think about tho!
oh yeah its going to be interesting times. When I say miner's I think hardware in space like a satellite just for mining crypto. Some day we might have space stations for people, more for the fun of it than anything else. With spacex and blueorigin making the next spacerace cheaper we will see satellites getting cheaper with bigger payloads. You are right for now, solar panels are not cost efective for enrgy. but think about mining the moon, moon dust has high percentage of silica, a big ingredient of solar panels. Cost will go down when we mine the solar system and build in space.
As long as we have decent communication speeds. Latency on speaking from terrestrial to space based satellites can be nasty.
I am new to crypto, but would the blockchain not be the perfect way of transferring money from mars to earth?
Transmission from Earth to Mars the challenges really have nothing to do with blockchain or the form of the digital data. It is more a matter of how long it takes information to travel that distance. There is a delay. That is the latency.
I really like Bitcoin. The old one. Low fees, decentralized nodes, no pools and farms. I also liked POW until I've learned that there are other solutions without that huge consumption.
Now, it is digital gold with a predictable supply. It's not for using but hoarding. No problem, it is a valid use case, but we need money to use, too.
But still, bitcoin mining is still profitable?
Its profitable for those who do it or it wouldn't happen. The problem is it is only profitable for those with connections to government.
Maybe in China, or if you want to build a massive installation. I thought the idea of decentralization was there would not be large entities which can effectively control, or cetralise control over the network.
That's correct @handsolo. However the manor Bitcoin has evolved from its inception was not anticipated by Satoshi Nakamoto or the early participants. @dans article plainly describes the influence of the Chinese over Bitcoin mining farms.
It's difficult to find out what the actual agenda is and who is behind the recent events to control paper currencies in places like India, Australia and Spain to name a few. Some may label the Chinese as the villain in a global power play against the economic might of the USA, but if anything that is only a surface explanation. I don't believe it, I see it as a misdirection tactic to obscure the real agenda, which I equate to the globalist's agenda. It's all about control of the masses.
Pay very close attention to "the war on cash" and how digital currencies like Bitcoin are treated by the media and politicians. Those will be sure signs of where they plan to lead us.
Well put. I think we are in for interesting times with respect to crypto evolution.
Due to power requirements? We are relying on a hydro power plant and I believe its cheap compared to other sources.
By cheap they are referring to how much YOU the miner are charged for that power. It has nothing to do with how cheap it is to produce. If you are producing your own power and it was sufficient then this would not be an issue. Yet, likely you like most of us have to purchase your power somewhere. If you get a DEAL on the price like Dan indicated in the article you end up dominating due to it being more profitable as you can run massive equipment that outperforms everyone else, and the cost to do so is less than it would be for other people if they were to try to buy that same amount of power/energy/electricity.
Thanks for the insights. I might have the advantage because I believe the cost power in my place is cheap compared to other countries.
If you have cheap enough electricity and the latest ASICs then yes.
Can you elaborate cheap electricity? At what point it becomes cheap with bitcoin mining?
Cheap means cheaper than everybody else. Some people also get it for free either through subsidies or outright theft.
I like Andreas Antonopoulos's take on it. He simply states that there is no guarantee that Bitcoin will be the cryptocurrency that takes us into the future.
I think that is the best way to look at it. Technology is moving at breakneck speed and is in the explosive exponential uptrend. Bitcoin could become redundant as a technological leader in a very short span of time.
That is a very nice notice.
Commenting on what you said (and totally agreed) I am coming with an argue and say that even if it is controlled somehow it is still decentralized. People can slowly start mining with renewable energy or somehow. And they will.
A hardfork is a solution to keep going also..
Also an easier way to control would be probably to shutdown internet...
To finalize my thoughts and all that you correctly said lets take it a step further and think that all this electricity is being provided by non renewable power... Petrol? Gas? Does this has anything to do... with... war? hmm.. but bitcoin is here to help people in need.. to liberate economies...
It's like bombing to kill and then give your hand to heal..
The centralisation of mining in China is a huge problem for bitcoin.
Even outside of China mining is limited to areas where electricity costs are low.
This means you could probably map out the most likely sites for mining on a world map without much effort beyond electricity tariffs.
Take out the power supplies to those areas as you suggest - e.g. the hydroelectic generators etc. and you could take out the majority of the miners.
At that point the difficulty will remain quite high for some time and any remaining miners would have problems solving any blocks.
The blockchain would essentially end up in limbo until more hashing power could be brought online or the damage repaired.
If at that stage Bitcoin is a major world currency it could result in a huge financial crisis.
As for bitcoin changing from POW - I don't think it will ever happen. Look how much trouble there has been over block sizes.
I think one of the major factors now holding bitcoin back is the divisions within the community and unless that changes it may prevent it from reaching it's true potential. It is just easier for interested parties to start with something new.
If bitcoin becomes a major world currency at some point this kind of strategic attack by terrorists or a world power could cause immense economic instability.
Bitcoin is better then as an alternate currency, backup currency, etc. Any country relying upon Bitcoin as their currency is basically putting their entire economy in the hands of disrupters.
I always felt that if bitcoin was completely independent from the banking system it would have been attacked with harsh regulations by now.
It's slippery soap, though. Countries are competing with each other, and know that businesses will go wherever the regulations are least onerous.
It's not the ethics of policemen or politicians which keep the corporate tax rate down, it's the existence of Lichtenstein et al.
This brings up something that I've been wondering about regarding the decentralization of currency in the form of Steem.
For all of the cryptocurrencies being traded digitally, doesn't the internet provider or cell phone provider essentially take the role of that "middle man" that decentralization is trying so hard to eliminate? Is there any way around this, i.e. a way to decentralize access to the internet?
Thanks for thoughts, just a noob here trying to make sense of it all.
What about personal devices that are hotspots that basically amplify a wifi connection? So you wouldn't be able to use it in parts of Alaska at first, but eventually it would have mass adoption.
But who provides the signal for the personal device?
Need to deregulate like the telephony industry in 80's, then allow consortiums to lease the lines that have been laid down. But, yes, someone could just turn it all off because it's decentralized. Would we then have to look into creating an entirely new internet?
At the end Yes. That's why we are pushing our R&D in IPFS and mesh net to become free of HTTP, SSL and DNS. check out our channel at @bitshares-munich
After studying what Andreas Antonopoulos had to say on the matter of Chinese miners, I doubt if there is anything significant to worry about since the government officials, power plant operators, etc., would rely on bribes from the miners in such a scenario. Even if the central government issued some kind of decree, bribes would take over, because the electricity managers and the petty offiicials would still be accepting bribes. This will be interesting to see what exactly happens in the future though.
A lot of my opinion came directly from this video by Andreas Antonopoulos titled, Currency Wars and Bitcoin Neutrality:
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I often hear bitcoin, but I do not understand about this company, brings the advantage to the buyer with no employment bitcoin, really ??
Thank you for reminding me that point.
Bitcoin in comparison to Steem is something I plan on touching.
The image of that Bitcoin mine is impressive. I never seen that one.
I need instructions on how to mine steem with the new equihash algo
I think you would have to install linux or run linux on a virtual machine. I never mined Steem. I kind think I would be able to succeed but I'm pretty sure I'll be making you a favor and referring you to the pros of the #mining channel of www.steemit.chat Let us know how it went if you try.
bitcoin was created by banksters to dissapear dollar and the bills and coins, and do that people pay all taxes like the guverment say, because many parts of taxes is for paying external debt, a debt to improve private enterprises but is paid by the common people.
very good read but we all need electric so i guess it will continue unless they cut all the power of the world
That's not the point. Due to its Proof-of-Work nature, Bitcoin mining will always be concentrated in areas with cheap electricity and even there you can't just simply pull 1 megawatt from the power network whenever you want to. In my area (Europe), you have to sign a special contract with local electric power supplier (state-owned) if you want to pull more than 5 kilowatts.
all cryptocurrency relies on various forms of literal slavery - i blogged on this here: https://steemit.com/steemit/@ura-soul/why-digital-crypto-currencies-e-g-bitcoin-keeps-us-in-the-same-self-created-traps-as-private-paper-currencies
1 BIG problem;
China have cheapest solar panel,so we need china anyway.So only option support each other and
move to solar as solar prizes are lowering
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