Eric Voskuil,

TL;DR: Electrical power is a general purpose consumer good vs PoW mining 
equipment is a single purpose consumer good. Hence the mining equipment rent is 
the barrier to entry, given if you invest in power generation capital you could 
use the power for a different purpose.

Each unit of electrical power (1 V* A = 1 Watt) is a finite unit of a highly 
non-durable consumable good.

It is true that electrical power is created by utilizing capital equipment, and 
the capital rent + labor of generating such power is the basis for the "Power 
Cost" component of the ideal miner competition profit equation.

But... electrical power is a general consumer good that can be used for many 
things, so investing in the capital to create it is not a very risky endeavor.

On the other hand, Bitcoin mining equipment capital is an EXTEREMELY specific 
kind of capital that only has exactly one use: efficiently/competitively mining 
a coin that has a particular PoW algorithm. Hence investing in bitcoin mining 
equipment is a more risky endeavor than power generation capital. Such a risk 
is a barrier to entry, and it is the barrier that is most considered when an 
entity considers mining Bitcoins.

Mature Arithmetic Logic Unit (ALU) bound PoW algorithms lacking new attacks 
(cryptographic definition) can only be out-dated by more efficient, more 
general purpose (less specific case proprietary) transistor fabrication 
technology.

Memory Latency bound PoW algorithms lacking new attacks (cryptographic 
definition) have the risk of being encumbered by all sorts of physical hardware 
patent inventions. This is because latency has significantly more room for such 
specific-to-PoW non-general purpose inventions... beyond additional patents 
relating to memory technology on top of ALU patents. Patents, I should point 
out, either cause the price of capital equipment to increase or enforce a 
monopoly on the capital... neither of which are desirable.

The capital maturity outlook of memory latency bound algorithms is also 
significantly worse than ALU bound... due to all of the expected future 
patent-able optimizations that could improve memory latency. Hence investing in 
memory latency bound mining equipment is even riskier because of the likeliness 
of a new patented optimization making your capital non-competitive, and given 
its specific nature, worthless.

This discussion brings me to a new insight. We have said that some places have 
"cheaper" power than others, due to the non-durable nature of electrical power. 
With the existence of Bitcoin, given other cost factors being less significant, 
Bitcoin causes all sources of power everywhere to be more equal in price at a 
particular time.

Now you might argue that memory latency bound PoW algorithms result in the 
mining capital component being the larger component than the electricity 
component being a good thing because: then mining would be less local to 
otherwise untapped (cheap) power sources. The problem with this is that as the 
mining capital matures (as all the optimizations are found, and the patents run 
out), we go strait back to the power cost being the largest component... and we 
had to suffer all the years of various entities unpredictably attaining a 
monopoly on mining in order to get there.

Please let me know if I made a mistake.

Thanks,
Praxeology Guy
_______________________________________________
bitcoin-dev mailing list
bitcoin-dev@lists.linuxfoundation.org
https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev

Reply via email to