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View Diary: The Problem with Crypto-Currencies and Why SolarCoin is Different (124 comments)

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  •  Don't be too quick to dismiss the bitcoin economy. (1+ / 0-)
    Recommended by:
    nuketeacher
    The reason you have no fees is that no one is providing a service worth fees.
    First of all, there ARE fees associated with each bitcoin transaction. But the fees are very small compared to the fees charged by banks and US$ money transfer companies.

    Secondly, there are millions of people in the world who use bitcoin and therefore believe that it's a valuable service. Just because you don't, doesn't mean there is no value. It might be valueless to you, but the market determines something's objective value, not one person's personal opinion. Currently the market values bitcoin at $467, and its price has gone up every year since it was founded in 2009. And major businesses such as Overstock.com are now accepting payments in bitcoin.

    The most serious problem in American politics today is that people with wrong ideas are uncompromising, and people with good ideas are submissive and unwilling to fight. Change that, and we might have a real democracy again.

    by Eric Stetson on Mon Apr 14, 2014 at 09:46:31 AM PDT

    [ Parent ]

    •  The fee are very small is because currently, just (1+ / 0-)
      Recommended by:
      Eric Stetson

      successfully mine a block rewards the miner a certain amount of Bitcoin.
      However, Bitcoin, as designed, will reduce the block reward over time. So over time, the miner will start requiring more fees to cover their mining cost (hardware and electricity).  Otherwise, miner will simply refuse to include your transaction in the block-chain.
      From their wiki.
      https://en.bitcoin.it/...
      and here
      https://blockchain.info/...
      Currently, it there are 59,321,580.62 GH/s (about 60 million GigaHashes persecond) running on block mining. Which means that, given the average rate of 1 block per 10 minutes (difficulties of mining is adjusted to do that), each block takes 600 million Giga hashes. With around 400 transaction per block, that means each transaction needs about 1.5 million Giga hashes to secure.
      According to this: https://en.bitcoin.it/...
      A typical mining hardware can produce 600 megahashes/s (or 0.6 Giga hashes/s) at 380W. Using a residential power rate of $0.11/kWh. That mining machine will use about $0.038 worth of electricity per hour and generate 2160 Gigahashes. For 1.5 million Gigahashes, it takes about 694.5 hours, for a total electrical cost of $26.38.
      This means that, when there're no more mining reward per block, it takes about $26.38 of electricity to secure 1 transaction. As such the minimum cost of a transaction is $26.38 (remember that regardless of how much Bitcoin you're sending, you're transaction size in terms of byte is roughly the same).

      Obviously, it can be reduced by increasing the block-size to increase more transaction. But increasing the block-size will reduce the hash-rate (the rate is roughly linear, double the block-size, double the hash-time), so the cost of transaction is not likely to go down by much. In fact, the cost would become more expensive if more miner join the mining pool.

      A second point is that, based on pure economics, the mining pool will naturally decrease if there's insufficient rewards to mine, but then you're weakening its security since bitcoin mining requires that those mining it to secure it has more hashing power than those mining it to "corrupt" it (the 50%+1 attack).

      In comparison credit card fees (for merchants) are generally $0.2 + a percentage of purchase (I think its about 1~2%). Wire transfer for banks range from $40 ~ $60 (adding incoming and outgoing together for total cost).

      So, for small transaction, Bitcoin may be more expensive. For really large transaction, Bitcoin may be cheaper (by about half).

      •  Interesting. Thanks. But there may be new ways (0+ / 0-)

        to secure transactions which don't depend on mining. In fact, there are already some altcoins which have no mining at all (BlackCoin is one example) and which have been getting attention recently for moving beyond the mining paradigm and finding different ways to manage the blockchain and confirming transactions, etc.

        I'm not an expert in blockchain technology, but I like to try to understand it as much as I can. Thanks for your input.

        The most serious problem in American politics today is that people with wrong ideas are uncompromising, and people with good ideas are submissive and unwilling to fight. Change that, and we might have a real democracy again.

        by Eric Stetson on Tue Apr 15, 2014 at 03:38:23 PM PDT

        [ Parent ]

        •  Very, very true. (1+ / 0-)
          Recommended by:
          Eric Stetson

          Bitcoin implementation of cryptocurrencies is essentially the "worst case scenario" in terms of trust (namely, you cannot trust anyone). Hence, the expense of mining (you have to keep 50%+1 of resource on task to "secure" the blockchain).

          If you're willing to place trusts in someone (or certain group of someone, or a certain large groups). The bitcoin-chain can be more cheaply secured by just having said individual or group "sign" each block to authenticate it (and internally, ensure that they only sign a block number once).

          If you want to learn more about this. Here's a good video about Bitcoin:How Bitcoin works under the hood.
          Also read up on public-private key encryption and digital signature would help a lot in understanding crypto-currencies.

          A possible example of a crypto-currency that doesn't involve mining.

          Let's create a new protocol called CribbaCoin. In CribbaCoin, all blocks must be signed by Cribba in order to be valid. As long as you trust Cribba, and you know the public key of his signature, you can verify whether every block in a block-chain is signed by Cribba.

          Of course, if Cribba's private key is "compromised", then the recovery would have to be perform with something like this.
          1. Cribba declare that his public-key is no longer valid (since the private side of the key is no longer valid). This is similar as informing a Certificate Authority (CA) to revoke your authority (in any case, you also have to trust your communication from Cribba).
          2. Cribba will have to create a new key, and sign everything again.
          3. At the same time, Cribba will have to inform everyone what the new public-key is.
          Once all three steps are done, the block-chain is secured once more.

          Obviously, a better system could be setup such that instead of just a single person, it can be several groups of authorities who signs it (basically, a block is only valid if it obtained signatures from all authorities).

          •  Interesting ideas. Thanks! n/t (0+ / 0-)

            The most serious problem in American politics today is that people with wrong ideas are uncompromising, and people with good ideas are submissive and unwilling to fight. Change that, and we might have a real democracy again.

            by Eric Stetson on Wed Apr 16, 2014 at 11:03:50 AM PDT

            [ Parent ]

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