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).