Should governments mine Bitcoin?

Great Debates
21

Why does NASA have expensive supercomputers just sitting there doing nothing productive? A supercomputer is used intensively, it doesn’t just sit there in the back storeroom because nobody can think of something for it to do. If it does, why did you buy the damn thing in the first place? So the supercomputer is either fully utilized by all the various research teams that wanted it, or they just decided to light a bunch of taxpayer money on fire and dance around the pile.

The days when you could mine bitcoins with your desktop PC overnight are long over. Nowadays it takes warehouses full of special-purpose GPUs consuming vast amounts of electricity. And the break-even point depends highly on the cost of the hardware, the price of electricity at the hosting site, and the spot price of Bitcoin. Which means that only places where the price of electricity is much lower than average is Bitcoin mining profitable, and that’s only as long as the price stays in it’s current bubble.

If you want to economize you’re much better off telling your government employees to turn off their computers overnight rather than leaving them in idle mode. That would save much more money than trying to mine Bitcoins overnight with the unused capacity of all those government computers. And note that the employee here wasn’t mining Bitcoins using the unused capacity of his office computers, he was fraudulently ordering GPUs to do it.

The real money in Bitcoin nowadays isn’t mining, it’s manufacturing and selling GPUs to gullible miners.

There are all sorts of ways the Government could raise money. Why aren’t they hiring out cops as Uber drivers? Why aren’t they renting out floor space in office buildings for AirBnB? Why aren’t they hawking Herbalife?

The belief here is that there is a vast amount of unused government capital and labor that could be mobilized for productive use. Except if that really were the case, the smart thing wouldn’t be to try to get the government in on the Gig Economy, it would be to sell off the superfluous capital goods and fire the superfluous workers, not try to figure out a side hustle.

22

I don’t think there’s any mainstream economic or political theory that says that government should try to make some extra money on side-hustles.

Most of the time, government is simply going to be inefficient at this. In this specific case, random office computers are not going to efficiently generate bitcoins, so we’d end up wasting a bunch of electricity doing so. But, realistically, some employee of the office of whatever isn’t going to be a good entrepreneur. In addition, if you have government employees casting about for ways to generate a little extra revenue, they’re not doing whatever job those employees are supposed to be doing.

There’s also the risk that the government will try to out-compete private enterprise, potentially by using its considerable power to do so unfairly.

If, like, the Department of the Treasury decides to set up a cryptocurrency unit and come up with a real plan and program, possibly even using idle local government computing resources, then the above issues might not be a problem.

Still probably a dumb idea, though.

23

What is the global Bitcoin production rate, anyway? How many are mined every day around the world?

24

Just under 2000 per day at the moment, or about $16 million worth. Roughly.

25

The government trying to mine Bitcoin on a large scale would likely generate a self-reinforcing crash. One of the major cornerstones of Bitcoin is that it is free from government control. However, if a single entity controls more than 50% of the network (through mining), they can effectively control the entire system and do things like double-spending or arbitrarily blocking transactions. In the past, mining groups have voluntarily limited their capacity to avoid the 50% mark. Many people would interpret a huge government mining effort as the government attempting to hijack Bitcoin.

26

Why does it take so much computing power to mine bitcoins? Is it really that much more more stressful on CPU’s/GPU’s than running a high end PC game on maximum graphics settings?

27

Interesting–so how much would it cost to crash the system? I’m guessing it’d be tremendously expensive.

28

“Mining” a block means solving an arbitrary math problem intended to take about 10 minutes, in order to for blockchain propagation to happen and allow everyone to verify the transaction as unique. As computer hardware has progressed, the bitcoin devs have had to increase the difficulty of the problems in order to keep the solve time around 10 minutes. When ASICs came on the scene, the problems had to get so hard that they left CPUs/GPUs in the dust.

29

Thanks. I should probably have looked all this up, but…why is mining even an option? Is this some “game” that the Bitcoin overlords have set into place to force people to “earn” them? Why have mining at all? Is it stealing from other Bitcoin owners? Why not just have it be an online, free of government control currency that people just buy with other currencies and use in online trading and purchases? I guess I’m just not seeing the point in the value of Bitcoins, or how they even become valuable.

30

There actually is a fixed supply, though it hasn’t been reached quite yet. The developer(s) of the original Bitcoin standard have some dogmatic issues with fiat currency and central banks, which explains most of the rest.

Mining is intended to keep bitcoin viable. Without a large pool of miners, an individual or an oligarchy can essentially make arbitrary changes to the blockchain and the whole thing falls apart. For example, they could add blocks that basically take ownership of all the bitcoins at will. But with a sufficiently large pool of miners, this becomes harder, if not virtually impossible. I suppose they could do the legwork themselves, but that puts them in the position of a government or central bank, which is anathema to their principles

Short(er) version: the creators don’t like central banks or authority, so they need a decentralized network of computing units, which we call miners. The whole thing falls apart without a sufficiently distributed network.

So, that leads to the incentives to mine, since bitcoin itself relies on the existence of them. Until we get to the bitcoin cap, a miner who successfully adds a block to the chain is rewarded with bitcoins, so there’s a direct gain there, too. After the cap is reached, miners will have to mine for the transaction fees alone. We have to hope that’s sufficient motivation, because the whole thing falls apart if enough miners decide it’s not worth the hassle.

That’s basically what it’s used for, though there’s some debate whether it’s a proper currency or not. The mining is necessary for the reasons mentioned above.

You still need some kind of database for the currency, though, to maintain a record of ownership/transactions. And the blockchain and miners are one way to securely develop and maintain that database.

I don’t know why baseball cards are valuable, but they are to some people.

You’re not entirely alone in not seeing the point of Bitcoins. Much of their purpose can be served with existing currencies and encryption. Though if you believe fiat currencies are evil, they’re great. And if you don’t like central banks, the blockchain is a clever way to handle that.

The development of blockchain technology itself is pretty neato keen. A distributed database without the need for a central authority is still useful outside the content of currency, and we’re finding uses across different fields.

31

Cryptocurrecies are designed to work without a central authority. But without an authority to tell you which transactions are legit or not, how do you prevent individuals from creating fraudulent transactions? Bitcoin and others use a kind of democratic system where transactions are verified based on how much work was put into it. As long as >50% of the computing horsepower agrees on which transactions are valid, the system works. It doesn’t matter that the mining work is completely artificial and useless; the point is just that it’s unreasonable for one malicious party to gather up enough computing power to subvert things.

Mining is not stealing, but it can be thought of as a kind of tax. The mined bitcoins are created out of nowhere. That means that the currency is inflated somewhat, since there are now more bitcoins chasing the same store of value. But it’s such a small amount that it’s not really noticeable (and is completely dominated by speculation and other forces).

32

That’s a weird statement. Bitcoin is the ultimate fiat currency. The only property the coins have is that they can’t be easily duplicated–they have no utility otherwise, not even the ability to pay tax.

Anti-fiat types are usually goldbugs in my observation, and have bizarre views on the nature of currencies, seeming to think that there needs to be something “real” backing the currency for it to be legitimate. Bitcoin obviously doesn’t solve that problem.

The centralization argument is the stronger one. Bitcoin may create coins out of nowhere, just like the US government does with dollars, but it’s only with the permission of the rest of the system.

33

I now realize in hindsight that my reply may still be opaque.

The basic problem: we need to establish who owns a bitcoin. If I buy something with a bitcoin, I and other party need to be assured I control the coin and that there is a secure method to transfer ownership.

We do this with a database. This database records (in an encrypted fashion) all transactions involving bitcoins.

That leads to a problem: who control the database?

If I control the database, there’s nothing stopping me from hatching nefarious plots to screw with the currency. There’s also little to stop governments and central banks, but they are usually old, large and have developed a measure of faith and credit from people over the years.

Not so true for me. Nor would I trust Joe Random Internetguy who keeps the books on some fabulous new internet currency.

So, we use a distributed database, instead. Anybody and everybody can have a copy of the database. This database is composed of “blocks”. When a sufficient number of transactions occur, we add a block to the end of the chain. A miner is simply somebody who encodes the transactions to be added to the chain.

Why do we need multiple miners if all we need to do is add a block from known transactions? To avoid shenanigans. There’s nothing stopping a single miner from adding a block that basically ‘steals’ bitcoins.

How does the distributed nature of the blockchain and multiple miners stop this problem? Through paranoia. When a block is submitted to be added to the chain, anybody can check the work and make sure the last batch of transactions was appropriately encoded. If a block is found to be faulty, nobody else has to accept it.

So, miners are necessary for bitcoins in particular (though not necessarily for online currencies in general) because that’s how the bookkeeping is done for this particular ‘currency’.

Not really. These true believers are ok with it because the supply can’t be arbitrarily changed. There’s a fixed amount and no more will ever be made or removed.

Anti-fiat types are usually goldbugs but they occasionally exhibit odd moments of clarity, like the idea that even something that isn’t ‘real’ can have utility, even as a form of currency. And many of them like the encryption aspect. As true believers, they think it’s only a matter of time because bitcoin (or something similar) can effectively be universally employed, perhaps through currency brokers who are willing to exchange digital currencies as required.

34

Should the government also invest in lottery tickets?

I’d prefer the government not gamble with taxpayer dollars.

35

If you really want the government to make a guaranteed profit, tell your representative that you want the IRS to greatly expand the number of tax auditors and inspectors, as they return multiples of their salaries in increased tax revenues.

36

Not true. If you can convince 51% of (computing-weighted) people to go along with it, you can create a billion bitcoins out of nothing and grant them to whomever. The commonly-cited 21 million number is just based on the current mining payout schedule. It’s not fundamental to the algorithm.

Of course, this is unlikely because there’s no reason for anyone to go along with that scheme. A government-controlled currency doesn’t have the same constraint. But that’s an anti-centralization argument, not an anti-fiat one. Bitcoin is still a fiat currency; it’s almost the Platonic ideal of one.

I have never observed these moments of clarity in goldbugs. Which isn’t to say there’s no overlap between goldbuggery and Bitcoin enthusiasm; it’s just that they didn’t get there via logical reasoning.

37

Thank you for informing me. I did not know that.

There are other cryptocurrencies out there; is the same true for all of them? Salon magazine offers content in exchange for users making their computers available for mining something called Monero. Presumably they wouldn’t do so if it weren’t feasible to make a meaningful amount of money off an ordinary user’s PC.

38

Yes.

39

So far, yes. Pretty much all the current cryptocurrencies are variants of Bitcoin, though some have some interesting technical twists or amusement value.

You would want a combination of one whose blockchain that hasn’t gotten too big yet but is somehow worth a lot of money, which doesn’t exist.

Or, as in the case of bitcoin, the ability to look into the future and determine which cryptocurrencies, if any, will one day be worth enough to recoup your investment in equipment and electricity, i.e. a speculative boom you can take advantage of at the cost of some willing sucker. Of course, this is essentially no different from many other speculative investments. Very high risk, potentially high reward and not a particularly good investment strategy for anything more than a small proportion of your portfolio.

Salon offers content because the marginal value of the content given away is less than the value of the computational power and electricity they receive. It’s a way Salon can make a small but real profit and for a lot of people to have a vanishingly small chance at striking it rich plus some paywalled web content. That’s not necessarily true for government PCs and unused capacity. All that number crunching costs extra electricity and wear/tear on the machines. It’s one thing to have other people pay that cost and another to pay for it yourself.

40

The Salon model is that your computer and your electricity are used to mine their cryptocurrency. They make a meaningful amount of money off of it because other people give it to them.

The government equivalent would be, I don’t know, a city making you run their mining malware in order to access city council minutes. Good luck.