Wednesday, February 5, 2014

Mining to Bits

The Game of Losers

As a hobby bitcoin miner, I find myself wondering if this was how it was supposed to be.  When I began mining I had only a pair of GPU and some simple grasp of the mining game.  I started early 2013 so it was good but not great.  By mid 2013 I had about 0.5 BTC and I was eagerly waiting for my new ASIC hardware to arrive.  My daily mining returns very low, sometimes I didn't even bother to check the miners.  Then I got my ASIC, my hash rates went from 80MH to 6,600 MH, and my returns peaked just a little above my early GPU returns *sigh*, at least I was back in the game.  Time went on, and difficulty went up, I noticed a slump in ASIC prices and I pounced on a Block Erupter Blade and scored myself another 10.7GH.  Now a few months after that, I'm seeing returns less BTC than my electricity use.  Luckily it's only a few bucks and we waste more electricity on our old fridge than on BTC mining.

Was it supposed to be like this?

So I wonder what the mysterious father of bitcoins had in mind.  Did mining pools help or destroy the mining process?  Was the it unthinkable that we would develop single purpose ASICs to feed the mining beast? Right now, if you don't want to drop several thousand dollars on hardware, you're lucky to find $40-50/GH to get about 10GH.  Unless the BTC/$ rate goes way up, this won't pay for electricity for very long.  If you've got more money than sense and can drop $12K or more on hardware, there are some rigs that will get you to $4-5/GH, I've seen as low as $3.   Perhaps I'm just "cheap" but that's more than I want to spend on something that will decrease in value faster than my car.  Plus, I can't re-purpose it for something like gene-folding or alien hunting.  Before anyone considered ASIC bitcoin miners, I think proof-of-work seemed like a great way to link bitcoin with progress in computer power.  ASICs are great tools for specialized work.  Perhaps bitcoins are great for the ASIC industry in general.  On the other hand it sidesteps the "natural" link between the bitcoin network and computer power.  Perhaps that's just romantic thinking.

How would you fix it?

I'm glad you asked.  Frankly, I don't know exactly.  It would be interesting to see a crypto-coin with an adaptable proof-of-work algorithm.  If I'm not over simplifying it, bitcoin uses the sha256(sha256("string")) and Litecoin uses something called "Scrypt" but already there are whispers of Scrypt ASICs as soon as the price of LTC makes it profitable.  If "NewBitcoin" used sha256**X would that break the ASIC market?  If NewBitcoin could flex the hash-algorithm if it senses any drastic change in network hash-rate it might be resistant to specialized, disruptive technologies.
What would changing block rewards instead of difficulty do?  For instance if bitcoin locked difficulty, but divided up rewards, if the average minutes per block went from 10m/block to 1m/block then adjust the block rewards to 10% of the normal block reward.

What is the goal?

I guess before I get too far down the rabbit hole, I need to state what my goal is.  If bitcoin mining gets centralized to a "mafia" of major miners, it defeats the whole democratization of bitcoin.  I don't think there is any reason to distrust big miners, they are likely the most enthusiastic players, but if the whole point is to include everyone, it's not really working.  What is a logical prediction for "commercial" mining?  When the block rewards half again will the commercial miners survive?  Will the ASIC manufactures be able to sell hardware that is half as rewarding?  That calculation depends on the unpredictable variable, what will 1BTC buy next year?  If one BTC twice as much, then the commercial model survives, if not? who knows.
So regardless of the survival of Bitcoin, I'd like a system that rewards many users but discourages major users.  This appears to be a mutually exclusive goal, any system with diminishing returns would be defeated by splitting power over many puppet accounts.  So I'm back to believing the goal of NewBitcoin is to defeat future innovations in mining technology that isn't run on Turing complete hardware.  The network must be flexible/dynamic enough to discourage over-specialization.

Why do you hate ASIC?

I own a pair of Block Erupters I got when they were cheap.  I've got a Jalapeno from BFL before they bumped the price, I got a Block Eruptor Blade when the price was at the bottom (I'm a lucky guy huh?).  Trouble is, all these toys will only ever be used to mine bitcoins (or a sister-coin).  All that power will never hunt for aliens or fold genes.  It won't even help me crack a password, utterly useless hardware.  The kicker is, bitcoin doesn't need ASIC, it doesn't need GPU's or FPGA.  If it was cool to only mine on old laptops, that would still get the job done, no matter how popular bitcoin gets.  It's just an arms race, I recommend investing in the companies that build the miners.

I've also heard that hash power has gotten more efficient, less power is wasted as heat, and we get more hash for the same power.  One block erupter had 4x the hash-power as my GPU and used only 2.5W, so it's obviously better to use the BE than to waste electricity on the GPU.  However, the math doesn't quite work that way, if I've got a power budget of 100W based on GPU mining, I can get ~40 BE's and still make my budget.

That extra hash power doesn't help Bitcoin, it just increases the difficulty next month.