The work is for the past.

The moment the transaction fees and block rewards go down, the very expensive Prof of Work mechanism will weaken and future transactions are unprotected.

Proof of Stake can offer the same protection mechanism without needing to finance a huge value destruction operation.

And to those saying that the electricity is not wasted because it protects the block chain: If a mechanism exists that works without throwing away electricity, then that's definitely wasted.

It's like saying my monster truck doesn't waste gas because it carries a child to school.

> The moment the transaction fees and block rewards go down, the very expensive Prof of Work mechanism will weaken and future transactions are unprotected.

Exactly.

One critical, related vulnerability that I haven't seen people discuss:

Right now, every new block gives miners about (12.5 new BTC + 3.5 BTC in fees) * $15,000 = $240,000

So miners are making a quarter million every ten minutes.

That incentivizes massive capital expenditure on mining hardware and massive electricity burn.

If the price drops significantly -- or Lightning Network etc solve the scale challenges, and transaction fees come down -- or in June 2020, when the block reward halves -- any combination of those may lead to a future where it's uneconomical to mine again, except in places where electricity is unnaturally cheap.

When that happens, tons of mining equipment will fall idle. The network difficulty will adjust down, and in the immediate term Bitcoin will continue as normal.

But now there's a big pool of latent hardware left over from the bubble, which can be activated at any time.

This may break assumptions about the cost of attack. If, say, a Chinese mining group owns tons of hardware that is no longer economical to operate continuously, there's nothing stopping them from shorting BTC and then doing a "spawn camp" repeated 51% attack.

(If you already own enough hardware, then such attacks are pretty cheap--you only have to burn tons of electricity a few times, for a few minutes each time.)

If this was pulled off successfully, the value of bitcoin tanks, thus harming the attacker. It's still game theory. I don't worry about miners trying to attack bitcoin, it's governments.

In the scenario I'm describing, the attacker profits when the value of bitcoin tanks.

Two new developments:

- Vast investment in mining hardware due to the bubble.

- Liquid BTC markets, including futures and shorting.

Say that the world's miners accumulate so much hardware that it costs $1m / hour in electricity to run it all. At current prices, they'd still be making a profit! But if that changes, datacenters in China will go dark, BTC difficulty will go down, lots of hardware will sit unused.

So if one group ever finds itself sitting on a ton of no-longer-profitable mining hardware, they could take a large short position and then attack the network.

> It's like saying my monster truck doesn't waste gas because it carries a child to school.

Betcha that kid totally would think it's worth it, tho... Arriving to school in a monster truck would be a dream come true. :)

(Not that I disagree with your point...)

I’m not necessarily disagreeing but what if the monster truck is carrying a child to the hospital? And the other option is to take the homemade electric hot rod your neighbor just completed yesterday?

That seems circular. Bitcoin's massive PoW comes from its massive value (or more precisely, the massive value of block rewards). If Bitcoin's value dropped to one cent tomorrow, the PoW would disappear. Conversely, if some altcoin's value suddenly jumped such that its mining rewards were at Bitcoin's level, it would almost instantly gain Bitcoin-level PoW.

Being circular doesn't make it wrong, but it does seem like a fragile basis for value.

It’s true that mining is mostly done for ROI; if you can’t make a profit by running your ASIC miner, or your GPU miner, or whatever else, then you won’t run it.

That doesn’t mean, though, that Bitcoin would lose its network robustness; before BTC had any value at all, people were mining it “altruistically”, purely for the sake of adding auditing strength to the network so that they could use BTC to make transactions. The Bitcoin mainnet has far more of those plain-old CPU miner nodes than any other network, and they’d still be there even if the profit-mining operations cashed out.

On the other hand, if the ASIC and GPU mining pools “went dark”, it’d always be a worry that someone would pay to start them up again just for long enough to execute a Sybil attack. But Bitcoin has been “steered” away from such attacks before with community forks, and I doubt such a future would be any different.

If all of the ASIC mining dropped off Bitcoin would end up with a "frisbee on the roof" problem with its difficulty scaling, ie with the current difficulty there wouldn't be enough mining power left to mine enough blocks (2016) to reach the next difficulty reset in any reasonable amount of time, effectively killing Bitcoin as its transaction throughput would grind to a halt. This is an unlikely death, but still a possible one.

Why would all the ASIC mining drop off? What mechanism could cause such a thing?

More generally, a severe hashpower reduction could be problematic. An emergency hard fork to a better difficulty readjustment algorithm (like what other coins use) would solve that. Ideally that change would be made before it ended up being needed.

A huge drop in price could result in a death spiral. If the price drops such that the mining rewards no longer cover their electricity, they might shut down until the price goes back up. If enough of them do this, it could further collapse the price as the transaction rate drops.

It wouldn't need to be all of the ASIC mining, of course, just a large enough portion of it to result in massively increased block times.

Don't forget that transaction fees help to entice mining too, not just the block reward. The death spiral never happened during the frequent difficulty swaps with BCH because fees simply went up until it was profitable to mine a block -- to as much as 40% of the block reward. There's no reason in principle it couldn't go much higher if necessary.

There's a limit to how high they can go (can't offer more in transaction fees than you actually have) and even before you hit that point you may encounter the back side of Bitcoin's Laffer Curve where the expense results in lower total transaction fees per block even as individual fees rise.

It's possible that point would be far beyond any conceivable price crash, though, I don't know how to put it into anything resembling concrete numbers.

I used to agree with that, but at the current price levels I would say that if this is the source of value, then it is absolutely and incredibly overvalued. In addition, the PoW is centralized (for the most part) within a few massive mining operations. A 51% attack isn't an impossible notion.

I know many would disagree with this, but while Bitcoin was the first of its kind, and it absolutely cleared the way for all the subsequent coins, its quickly becoming unusable. And that's not even considering the massive volatility of it. Such volatility implies that proper volumes aren't there to support its value. With that in mind, and also the notion of an aging technology, I think investing in it is not a good idea.

> A 51% attack isn't an impossible notion.

I read somewhere that several bitcoin mining facilities in China, when counted together own over 50% of the hashing power currently online in the Bitcoin network. If true, collusion scenarios could easily be imagined.

Certainly not impossible, but one thing is a disincentive to commit a 51% attack is that if you had that much computing power a more profitable use of it would be to just mine rather than create fake transactions which, if detected, could crash the value of the currency.

> a disincentive to commit a 51% attack...

Consider that if a state goal was to wipe out the wealth of the other 49% as a plausibly deniable economic attack, then having a majority of the mining power within your borders makes a lot of sense.

> if detected

How people think of that hypothetical if-then scenario depends a lot on numerous factors. I think, in places where corruption is more common, it is easier to believe it's less likely you'll get caught, or minimize the consequences when thinking about it. There's also a lower threshold for your imagination to go wandering off in that direction and begin architecting plans.

"If detected, could crash the whole thing" is a way of thinking more common in cultures where the rule of law is far more established in the common mindset.

I'm not making any sort of prediction (and I own bitcoin myself, though not a large amount). I'm just saying - this is how our minds work.

Last I checked it was around 60%. Also, Bitmain is the sole supplier of ASICs to most of the Chinese miners, and thus has some power over what those miners do or don't do (particularly in the Core vs Cash debate).

Bitcoin has about half the volatility of its cryptocurrency peers.

You would hope, with its much higher market cap, that the volatility would be much lower than only half as much.

Seems normal that the little networks are more volatile.

It's not as simple.

Some networks use other hashing methods, so just comparing hash to hash is pointless - if anything, you could compare instructions per second, not hashes per second.

Then, for certain hash methods, GPUs/FPGAs/ASICS give no speedup, so even if there are far fever instructions per second, they would be just as expensive to attack.

Also, there are POS/DPOS, and other proof of sth networks, where it's not really about hashes, but about other resources - again, cost of attack would be a better metric here, not hashes.

But most importantly - after a certain point, a network attack is so unlikely that additional security matters much less than other system properties, like speed, ability to execute smart contracts efficiently, or the ecosystem of startups around it.

Exactly. Since the point of PoW is to make 51% attacks expensive, the best measure is how expensive it would be. Ethereum is approximately equal to Bitcoin on this measure.

http://www.flippening.watch/

But is there additional value in more (proof of) work or are the returns diminishing?

In economic terms the best network hashrate would be the one that is sufficiently secure to protect against bad actors but uses as little electricity as possible. Anything more than that is waste, not added value.

Edit: typo

Surely then a cryptocurrency that doesn't require competitive hashing for security is even better?

The idea that the value comes from the energy already burned is rather silly.