Big Crypto Bubble? Does mining have a future and is there a risk of losing out on bitcoins? Bitcoin without mining
The recent rise in Bitcoin prices has been accompanied by a boom in “sensationalist” journalism about its high energy consumption. Peter Van Valkenburg, head of the research group at the non-profit organization Coin Center (Washington), debunks five myths about Bitcoin energy consumption that readers may have encountered on the Internet or in newspapers.
Myth 1: Miners waste a lot of electricity performing useless calculations
People who don't understand the fundamental computer technology, which underlies Bitcoin, suggests that the only activity of miners is to burn electricity in order to enrich themselves with new bitcoins. These critics are misguided, but understandably so, since the term “mining” itself is somewhat misleading. Open the Bitcoin white paper, released in 2008. In its pages you will not find the term "miners" in reference to the people we call miners these days. The only way mining is mentioned in the document is that there is a parallel with gold mining; in general, the author of the white paper calls participants in the Bitcoin network nodes. The term “miner” first surfaced in 2010 on the Internet forum BitcoinTalk, and for some time the word “minting” was used along with mining. When technologies do not have unified corporations or investors improving and promoting them, the terms that describe them arise organically from the depths of the user community. Mining is a misleading term because it hides the facts. Miners, that is, miners or gold miners, dig huge holes in the ground at considerable expense to find and extract marketable metals, minerals and precious/semi-precious stones. By extracting these values, they burn resources. Sure, Bitcoin miners do something similar, but they also use fundamentally innovative technology to validate the data in computer network, which implements the open consensus mechanism.
We can give a comprehensive explanation of the mining mechanism, but it’s better to talk a little about open consensus. It is undeniably useful and could not be implemented in the past. Bitcoin is not only an asset, but also a network of computers connected on the Internet that jointly keep records of all transactions. The user joins the network using a free software through a device with Internet access. The computer then allows him to send bitcoin payments to other computers and receive funds from other network participants. The computer also helps store and update an ever-growing list of all transactions, called the blockchain. People trust Bitcoin as a store of value and a means of payment largely because they can see this blockchain and all transactions throughout its history (including their own).
Now let's return to the above-mentioned open consensus mechanism. In this context, consensus simply means agreement; we're just trying to get a group of computers to agree. Mechanisms for creating consensus among multiple computers have existed since the 1980s. These legacy mechanisms allow, for example, six IBM-owned data centers to synchronously store and update company-critical backup data. The Bitcoin network also stores data (transactions) in a cluster of machines, and these devices must maintain consensus. The innovation of the fundamental blockchain technology is the open consensus mechanism. In our example of a group of IBM computers, only a set number of computers (that is, six data centers) can participate in the process at the same time, and only computers authorized by IBM can join the work (this is a kind of intranet). Bitcoin's consensus mechanism allows countless computers to participate, and anyone can join (much more like the Internet). This is what is meant by an open consensus mechanism. This is why people say that Bitcoin is "decentralized", and why it would be appropriate to call Bitcoin a digital p2p currency in comparison to the centralized digital money created by companies like PayPal or Venmo, which decide who has the right to add new payment data and add it themselves their. In older closed consensus mechanisms, participants take turns adding new data, and all of it can be identified (and known in advance). If the number of participants is infinite, then how can you make them alternate and how can you know that they are not cheating? This is where Bitcoin mining comes into the picture. What are the characteristics of mining?
- Miners are selected randomly, based on a lottery principle.
- A winner is selected every ten minutes by an algorithm.
- To be selected, it is necessary to carry out expensive and verifiable computational work (“lottery tickets” cost a lot of money).
- Miners attempting to enter invalid transactions into the blockchain cannot be selected.
This mechanism makes fraud ineffective because miners pay a high price to even qualify for the lottery and lose their status if they attempt to submit invalid transactions. The lottery always remains fair because the price of “tickets” increases as everyone buys them more people. In other words, miners are forced to compete. Thus, if many people want to spend computing power to join the consensus, the cost of participation increases along with the complexity of the required computational work. Larger volume computing involves a greater need for electricity. Accordingly, Bitcoin's energy consumption is growing.
Somewhere this system can be considered as a Rube Goldberg "machine" ( American cartoonist and sculptor, known for cartoons in which fictitious complex equipment performs primitive and unnecessary operations - approx. edit.). If you look at it this way, then you have begun to understand what Bitcoin is! This is a truly complex mechanism, but today it is the only one that allows a large number unidentified computers agree to shared data. Thus, this is the only way to electronic p2p money. Energy consumption in in this case Anything but useless, since the energy goes to protecting transaction data worth hundreds of billions of dollars. Unlike the energy used by the gold “miner,” here electricity is used to provide “gold” to the general public: a network infrastructure for p2p payments is created, accessible to any inhabitant of the planet with a smartphone and Internet access.
Myth 2: Energy consumption will increase as the number of transactions increases; if Bitcoin ever scales to global levels, the oceans will boil
This is fundamentally wrong. We have already found out that mining energy costs increase in proportion to the intensity of competition among miners, and not to the number of confirmed transactions. Confirmation via digital signature Requires a small amount of computing power. Not the best new laptop is able to verify a signature in milliseconds, and it is hardly possible to find this work reflected in the electricity bill.
Why is there such enormous competition and the associated costs? The reasons are purely economic. Now the price of Bitcoin is high, and every 10 minutes one miner receives 12 and a half new radiant coins. This is healthy competition because it assumes that the effort to maintain the network scales automatically as the value of the transaction data on the blockchain increases. Thus, the more value moves on the network (its increase is caused by individuals estimating the value higher than the price reflects), the more resources are invested in storing data.
It is noteworthy how different this scheme is from the data protection of, say, the American credit history bureau Equifax or any other company that works with a huge amount of data. There, the effort spent on storing information is scaled in accordance with management's assessment of risks and threats.
One last note about competition between miners. Over time it may weaken. Every four years, the reward in the form of new coins is halved, and this will continue until the supply of bitcoins runs out. Miners will continue to operate as they can also collect transaction fees, but the total payment volume received by the winning miner will likely be less than it is today, even if the price of Bitcoin continues to rise. Smaller rewards will mean that the amount of computing power invested in achieving success will be reduced and the level of energy expenditure will be reduced.
Myth 3: Credit card transactions are much cheaper and less energy intensive than Bitcoin transactions
It's a comparison of apples and oranges. A credit card transaction is not a full, complete transfer. This is just an authorization for payment, the beginning of an intricate “dance” in which at least five parties participate (the card owner, the card issuing bank, the card network, the acquiring bank and the payee). Eventually (after days or even weeks) the authorized payment will pass through this entire network of players. The process ends when the user pays for the credit card transaction, and it definitely does not happen instantly, with one click.
In contrast, a Bitcoin transaction can be considered completed the moment it enters the blockchain. And on its way it does not pass through cumbersome institutions similar to those mentioned above. It is true that a miner who places a transaction in a block spends a certain amount of electricity. But it is significantly less than the amount of electricity required for the full operation of at least three large financial companies, who have to work for several days to process your credit card transactions.
Myth 4: Bitcoin miners pollute the environment and will continue to do so.
There is nothing wrong with using energy in itself. Greenhouse gases are bad, but it is not a fact that Bitcoin will lead to an increase in their emissions in the foreseeable future. By the way, if mining suddenly becomes the main driving force of energy consumption on the planet, then environment it will be a blessing! Just like the revolution in consumer electronics powered by massive computing power (a phenomenon described by Moore's Law), the Bitcoin revolution could catalyze a similar boom in innovative clean energy technologies.
Aluminum production accounts for approximately 3% of global energy supply, but we don't see the media sounding the alarm about laptop cases the way they do about Bitcoin. Aluminum production is not often seen as a problem because heavy industry contributes to efficient work sector of the electricity sector. Why? Because heavy industry is a large consumer who is always looking for the most cheap source electricity. Heavy industry can, in theory, be based anywhere, and electricity charges typically form a significant percentage of its total costs. Electricity costs account for 40-45% of the chemical industry's (eg chlorine) costs and 30-50% of the steel and aluminum industry's costs. Accordingly, heavy industry (again in theory) will be based where electricity prices are lower.
Typically, demand drives supply and rewards those who develop lower-cost electricity generation options. IN Lately This is the so-called renewable (“green”) energy: solar and wind energy are the cheapest, with geothermal and hydropower not far behind.
However, for the typical heavy industrial owner, electricity prices will not always be a top concern. He may well turn to expensive, dirty energy when it comes to profit. In addition, enterprises prefer to be based in countries where their customers are located, where other costs are lower, and governments subsidize them in an effort to stimulate production growth.
Electricity prices are more important to miners than to typical heavy industry workers. Electricity bills can account for 30-70% of the costs of cryptocurrency miners. But miners do not have to think about the location of their clients and solve logistics problems. Digital by nature, bitcoins have only two production factors - electricity and hardware, and are much easier to “deliver” around the world than, for example, steel. One miner moved his farm across the United States to the northwest of the country because of cheap hydroelectric power available there. According to him, “it was worth it.” For the same reason, miners choose Iceland or other countries with excess electrical capacity. The land of volcanoes and waterfalls not only offers beautiful views, but also an abundance of geothermal and hydraulic energy. If mining does begin to consume large amounts of electricity on a global scale, it will trigger a green energy revolution. Moore's Law was primarily concerned with the incredible progress in materials science, but it also took into account the unprecedented demand for computing power that fueled this progress and made it possible to make the study and development of semiconductors a profitable endeavor. If we want to see a similar revolution in energy, we should be rooting for Bitcoin. The facts are that the Bitcoin network now provides a $200,000 reward every 10 minutes to the person who can find the cheapest energy on the planet, which may also be the most environmentally friendly. The time spent searching is worth it.
Myth 5. Mining efficiency will decrease over time
We already know that energy consumption will not increase in parallel with the increase in the number of Bitcoin transactions. Energy consumption may remain stable or even decrease despite the rapid increase in their number. The Bitcoin community is now trying to create second-layer networks or new open consensus mechanisms that will allow thousands and even millions of transactions per second.
Exist different approaches to solve the scaling problem. Lightning Network and similar payment channel infrastructures aim to make batch payments for multiple transactions by recording only two transactions on the blockchain itself, and provide automated controls that eliminate the need to rely on the integrity of the person making the batch payment. Other developers are experimenting with new open consensus mechanisms that have the potential to scale significantly while reducing energy costs. Don't forget that Bitcoin's consensus mechanism contains a built-in lottery in which miners compete for a prize. It is also worth remembering that the price of each “lottery ticket” is determined through verifiable calculations. These calculations are called proof-of-work, which is why Bitcoin's consensus mechanism is often called PoW. Ethereum developers, in turn, are now experimenting with a proof-of-stake consensus mechanism called Casper. In this scheme of work, miners (or validators) still compete for a prize in the lottery, but this time they prove that they own a certain amount of cryptocurrency (or its share) in the blockchain. It may be more appropriate to call them shareholders rather than miners, but who knows what name will stick and whether proof of stake will be as reliable and effective as proof of work.
The only thing to be sure of is that there is no shortage of innovative thinking in the digital currency space, which means the cryptocurrency revolution may turn out to be much greener than we think.
This question is asked by many, because for many, the main and most expensive cryptocurrency is . Bitcoin is gaining popularity, rising in price, and both investors and investors have high hopes for it. simple people, including miners.
But what happens when the “golden” supply of Bitcoin runs out? But sooner or later this will happen.
When will this happen?
I'm not an expert, but according to rumors, Bitcoin will reach its level (21 million) in 2141. Also, the developers claim that we will arrive at this date in any way, regardless of how many computers there are in the world..
OK. The fact that Bitcoin will exhaust itself in mining is understandable. But will it be relevant after this date?
I will say this.
May God grant us to live at least until 2100. Let us leave these reflections to our future generations.
I am more than sure that sooner or later there will be no fiat (paper) money.
Our world is becoming global computer system, and only a global, bloody, nuclear war can prevent this. But war is inevitable in any case.
Let's not talk about the bad.
What will replace Bitcoin?
This question is really interesting. If you already work with cryptocurrency: mine, buy/sell, collect, invest in pools, etc. This means you must understand all the convenience of this “independent monetary system”. And those who have already screwed up this system don’t want to see anything else.
What banks? What loans? What is the global financial system like? What is gold, after all? There is a computer, there is the Internet - there is money on the Internet. Much money!
There is no need to guess at the tea leaves on this matter, since in any case, each of you will sooner or later see an increase in the prices of some cryptocurrency. There is only one question, Which crypto will explode the market?
Many skeptics (and what would we do without them) argue that crypto is a temporary phenomenon, etc.
Don’t believe them - these are a bunch of idiots who live in the 19th century and are hostages of the dollar and the global financial system.
Cryptocurrency can turn any poor person into a rich, successful and independent figure.
By our post-Soviet standards - a slave should wallow in a pile of shit and enjoy life! That is why in Russia and many other countries of the former Soviet Union, simple people will never live the way the same ones live simple people in Europe or America.
The beginning of 2018 cannot be called successful for the cryptocurrency market in general and bitcoin in particular: after breaking through to $20 thousand in December, the value of the cryptocurrency collapsed by more than half. On February 6, 2018, near the $6 thousand mark, altcoins went down, and the total capitalization of the cryptocurrency market was worth hundreds of billions of dollars and at the time of writing was slightly less than $400 billion (according to Coinmarketcap).
The collapse of cryptocurrencies provoked panic in the market and the sale of virtual currencies. Some market participants are talking about the collapse " soap bubble", others see the situation as a moment to buy cryptocurrency.
“Bitcoin is a pioneer, leader and benchmark for the market, itsa significant decline puts pressure on all other cryptocurrencies. In addition, cross rates in altcoins are calculated mainly through it. Having reached the next maximum of $20 thousand, bitcoin had to roll back, since constant growth without correction is impossible. The expected correction turned into a not-so-expected two- and then three-fold drop. The effect of panic has begun to work here, large players are taking advantage of this, “adding fuel to the fire” - buying cryptocurrency is now very profitable,” says Alexander Lobanov,Managing Partner of USP Capital Ltd. and Vanhealthing CryptoFund of Biotech Innovations.
The current fall in the value of cryptocurrencies was a completely logical and natural process, says Anatoly Poedintsev, operating director of the ICO Rating agency. “The growth in November-December last year, when against a fairly emotional background the price rushed to $20 thousand, did not have any fundamental reasons. There was no longer a community of investors, no new liquidity appeared in the market - it was clear that this, if not elementary manipulation, was most likely just a warming up of the market and the arrival of small speculators-players. It was a matter of time before the price returned.At the end of last year, I assumed that somewhere in January-February prices would begin to return to adequate levels. In my opinion, from both a fundamental and a technical point of view, the normal rate of bitcoin is within the range of $3.5-5.5 thousand, ethereum - $300-400. I'm guessing in this rangewe will fluctuate in the next 3-6 months,” the expert argues.
Financial markets are in the red
“What is happening is a strong correction. Market participants joke that the figure has come true technical analysis“Burj Khalifa” - the graph of cryptocurrency dynamics is so similar to the outline of a skyscraper in Dubai. It is noteworthy that the collapse of cryptocurrencies coincided with sales in all global markets of risky assets: stock markets around the world, oil, and emerging markets currencies have been falling for a week. Flight from risk is observed everywhere,” notes Vasily Koposov, head of the financial market analysis department at KIT Finance Broker.
Panic in the financial markets led to billions in losses for the largest companies and investors, notes Alexander Lobanov: “ Investors began to sell government bonds of developing countries, American companies lost a trillion. As a result of the global downturn, Google, Wells Fargo, Berkshire Hathaway, Apple, Microsoft and ExxonMobil each lost at least $30 billion of their market capitalization. Following the American markets, Asian and European markets fell."
Why is bitcoin falling?
The bitcoin rate was declining against the backdrop of a rich information background: for example, recently large banks with the help credit cards(the ban does not apply to debit cards). "TO Reddit is one of the most popular ways to top up your balance in cryptocurrency, so the ban affects the rate. In addition, regulators are now becoming more active: news comes from China, Europe, and the SEC for monitoring the ICO market. This indirectly affects the general mood of the market,” says Anatoly Poedintsev.
The negative news background coincided with New Year holidays and with anticipation of the Chinese New Year, which comes on February 16th. According to some market participants, pre-holiday spending by Chinese residents may be partly due to the fall in the bitcoin rate. “Recently, the crypto community has not shown anything positive, there have been no technological and business breakthroughs,delayed opening new accounts. In mid-February, the deadline for the first on bitcoin also expires. There is a possibility that large institutional investors were betting on a decline and, accordingly, were interested in a fall in the exchange rate,” adds Alexander Lobanov.
Bitcoin: to buy or not?
Most likely, the correction in cryptocurrencies will be used for purchases, says Vasily Koposov. “The demand for cryptocurrencies is very high - many who were late to the first stage of growth were waiting for this correction in order to enter at more attractive prices. So a reversal and a rebound will happen, but from what levels is the question. It is no coincidence that it is almost impossible to determine the bottom on the chart of such a volatile asset, so if you open positions, then only step by step, gradually buying more assets over several days. Bitcoin is currently trading at strong support; perhaps this is a good level to open long positions. But it’s better not to limit yourself to bitcoin, but to diversify your portfolio with different crypto assets,” the expert argues.
According to Anatoly Poedintsev, one should not expect a sharp increase in the value of cryptocurrencies. “The fall, in my opinion, has not yet exhausted itself. T e, who wanted and could make money on crypto assets - they made money at the end of last year. But the lion's share lost money on this fall and now it will take some time for the market to rest.After about a week’s respite, the price may drop by about another 25% and stabilize within the range of $3.5-5.5 thousand. But there is no point in talking about the collapse of cryptocurrencies - now the rate is being adjusted after an unreasonable increase and is returning to the normal price channel,” concludes Anatoly Poedintsev.
Price fluctuations during a downturn can be used to advantage by many market participants. Although the cost of BTC today is $10,765, and has not yet been able to gain a foothold above the threshold of 11,000, analysts expect that this promising cryptocurrency will once again surprise everyone.
Current trend
Traders are concerned about the formation of a head and shoulders pattern - a number of parameters indicate that it will not end as optimists think. The cryptocurrency is unable to change the downward trend; there have been minor price fluctuations for several days in a row.
Trading volumes have fallen - most are cautious, expecting developments. Everything indicates that $11,000 has become a strong resistance level. Having reached $11,044, Bitcoin again lost ground.
Analyst Jaini Zidins notes:
Although it is now possible to buy a promising cryptocurrency and then resell it to make a quick profit, this is certainly not the best time to invest in Bitcoin for the long term. We are still facing serious downturns.
Without a serious downturn, there is no hope for a long-term reversal of the trend. Bulls are waiting for a good buying opportunity and hope for changes in the next few days.
Positive forecasts: the future lies with promising technology
Wall Street financier Tom Lee is confident that the situation will return to normal by the beginning of the third quarter. A month ago, he said that a huge rotation of cryptocurrencies was expected this year, and suggested paying attention to promising NEO and Stellar. This week, NEO overtook Cardano in terms of capitalization, taking 6th place in the ranking.
According to the investor, the rate will rise after news about promising projects of large companies. The first sign was the announcement of the launch of the Rakutencoin cryptocurrency by the Japanese trading corporation Rakuten:
This is another example of the positive development of crypto technologies in 2018, which demonstrates that the sell-off of Bitcoin and altcoins in January was unjustified.
Lee believes that the realistic price of BTC will be $20,000 by mid-summer, and by the end of the year it should reach $25,000. The investor pointed out another important pattern:
Minimum values are usually fixed in the first two months of the calendar year. Over the past 7 years this has happened 6 times.
Impact on other assets
Behind last day The sale of altcoins also continued. Cardano has lost 4.49% and is already worth $0.32. Charles Hoskinson was attacked by Twitter users who purchased the currency at $0.8, considering it promising. After a significant devaluation of investments, they accuse the creators of inaction.
The unsuccessful launch of LitePay slowed the growth of Litecoin; today the cryptocurrency costs $210, although many expected to sell it at a higher price. Expert Charles Hayter takes the fall calmly:
Nothing unexpected, normal volatility. I think everyone is waiting for clarification of the position of the regulators. The problem with Uranium and Venezuelan Petro must somehow be resolved.
The futures market also found itself in the red zone. The bulls are gradually losing ground and prefer to watch from the sidelines.
Tom Lee says the recent declines in Zcash and Ripple indicate that investors should be extremely careful before April:
We believe that in 2018, at least three influential corporations will issue their tokens. Three large companies have already announced their plans; at this rate, businessmen will understand cryptocurrencies sooner than Wall Street.
In addition to Line and Starbucks, which do not hide their interest in this promising direction, Facebook must also decide on a strategy. Every positive news will have a positive impact on prices.
Do you believe in the rapid growth of Bitcoin? Write about it in the comments.