In the current economic system new national currency is created through 3 ways. 1. By banks when they extend a loan (likewise it gets destroyed upon repayment) 2. By the government when it deficit spends into the economy (destroyed through taxation) 3. By converting foreign currency through running an export surplus (ejected by import surplus)

It is worth noting that appart from printing actual dollar bills (typically <5% of total money) the production cost (“seigniorage”) is effectively infinitesimal.

So yes, both gold and bitcoin are stupendously wasteful when your goal is to create currency for transactions. But at least in the case of gold the material is useful and you can use it to diversify your asset stock.

Correct me if I am wrong, but my understanding is, that it is not the mining itself which creates the bitcoin, but an arbitrary challenge set up to earn the bitcoins. So by definition, any energy used is completely wasted.

That's right, the difficulty adjusts to match the level of competition so that a bitcoin block is mined on average once every ten minutes. If fewer people were competing or if they competed with less powerful hardware, the network would adjust and the same amount of bitcoins would be mined. Increasing your hash power increases your odds of getting that block though.

But when bitcoin prices are high, there is an increased risk that someone could launch a 51% attack and start double-spending bitcoins. Keeping the level of competition high does protect the network to some extent. But really it only has to be expensive enough to be unprofitable to launch an attack. Pushing difficulty right up to the point of any mining being unprofitable is a waste.

(to concur with your point:)

People tend to think of the rewards as set in stone, but they're completely arbitrary (they just have to be agreed-upon by participants). For example, there's no need for them to taper off over time, we could keep them constant.

It's just a question of what you can get consensus for. The geometrically-decreasing rewards of Bitcoin are probably not optimal, but without centralized control there has to be some kind of pre-determined issue rate.

We could just as easily agree to halve them right now (which would probably reduce electricity utilization as well as network security, as miners go offline). And that's essentially what Ethereum is planning to do - a major decrease in block rewards in the near future, so that they can create deflation (dumb as hell, but that's what happens when you let a 17-year-old run an economy, he has big holdings of Eth and just wants to see the number go up).

Yeah, I think a decreasing block reward was a good idea, but I think it's on the wrong schedule. Following something like Metcalfe's Law, the value increases geometrically but the reward isn't decaying fast enough yet. That means at some point in the "middle", the value of the block reward will be increasing much faster than the amount of the reward is decreasing.

https://www.wolframalpha.com/input/?i=n%5E2+%2F+(2%5En)+from...

That's where we are now, and it means the reward will be large enough to drive bad behavior at least until the next halving (probably two years from now http://www.bitcoinblockhalf.com/ ).

The whole idea of discrete halvings of the block rewards at specific block heights also grinds me in general... why is this not a continuous function? Oh yeah, because that's how some guy set it up in 2012 before he disappeared.

Just because the challenge is arbitrary doesn't mean the effort is wasted.

By that logic all of human sports and entertainment is completely wasted effort/power.

It is. But the difference is that people's jogging runs and workout sessions don't typically create CO emissions on the scale of entire countries.

> it is not the mining itself which creates the bitcoin

It is the hashing power of the mining which secures the bitcoin. It's nigh impossible to steal / double spend, and this is pretty revolutionary IMO.

That said, proof-of-stake and other options exist that might also provide adequate security while posing a smaller cost to the network.

That "might" is doing a lot of work. None of those options are really options yet (if ever).

Gold mining is wasteful also but it's not fundamentally necessary for gold to exist.

I think the problem with bitcoin waste is that it's proportional to how valuable it is.

Gold only has to be mined once, bitcoin has to be mined every time it changes hands.

I don't think that's strictly true. When the last bitcoin is issued, "mining" per se will cease. But "miners" will still be rewarded by transaction fees.

A distinction without a difference.

You can send an arbitrary about of Bitcoin in an on-chain transaction. Payment channels also allow you to send Bitcoin off-chain.

The computer you used to post this comment uses gold.

Sure, but electronics and other industrial uses for gold are a small percentage of its demand. The demand for those two are 9.1 and 6.2 percent in 2017, respectively, according to Statista. The same stats attribute more than 50% to jewelry.

By volume even 15% is still a shit ton of gold.

My guess is that the increase of employment per increase of gold mined is higher than the increase of employment per increase of bitcoin mined.

I think you're not wrong, but I can't help being reminded of the broken window parable https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window

I can roughly see the relationship but not smart enough to see immediately what it means without more thought. FWIW AFAIU the broken window parable is itself not without controversy.

Doesn't that make it more wasteful? Those people could be doing something more useful

Well you've flipped now to discussing the definition of useful, no?

First, gold is plenty useful outside value store: only ~30% of new gold per year is used for investment (this is per GS in 2015, I believe, and this is unlikely to have changed significantly one way or the other, pls feel free to correct me). The majority of remaining is used in mainly in jewelry & electronics (again per same source).

Second, on its way to providing for the point above, it employs hundreds of thousands of people full time that take that money to spend, save, invest aka. it works in the economy.

I'm not saying that bitcoin can't function like this or some similar way in the future, but it's a fact that it doesn't right now, and per this criteria I would say it's both more wasteful & less useful than gold. Bitcoin is simply plugged into your outlet right now and quite literally wasting energy unless you're using it to heat your home. That people have assigned value to the record of energy being spent is a separate phenomenon IMO.

I've always found it hilarious that block rewards are the literal definition of Keynesian stimulus - "burying money in bottles in the desert and paying people to dig it up". Early-stage cryptocurrencies are effectively economies where near-100% of employment rests on government employment.

People just think it's totally different, because this time they are the government. And because cryptocurrency is so steeped in libertarian ideology, they are unable to acknowledge any of the lessons of traditional economics, and are thus doomed to repeat its mistakes (eg: deflationary/hyperdeflationary currencies).

As a form of Keynesian stimulus, it's totally possible for block rewards to represent a net positive gain of economic activity as they "prime the pump". Gold mining is probably quite mechanized nowadays, so I wouldn't really care to guess which is more efficient at translating stimulus into economic activity, though.

You can make things with gold.

You can buy gold with bitcoins. We should be aware of any unstable direct effect caused by bitcoins/gold no matter how useful the end product is.

But gold has a use other than for trade.

If a bitcoin replacement were built on, say, folding proteins, then the information gathered has a benefit that outlasts the value of the currency.

Bitcoin only accomplishes two things: burn dinosaurs and slowly erode the usefulness of SHA2.

Maybe it improves the situation for ASIC manufacturers? I dunno. But gold improves the situation of wheelbarrow and shovel manufacturers just as much.

Most of it sits in vaults.

Does it need to be? Can only one be wasteful?

This sounds very close to whataboutism.