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Grant comments on Why bitcoin? - Less Wrong
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Bitcoiner here, so bear that in mind
A 51% attack is hard. It's come close to happening once with a mining pool called GHash.io. The community quickly responded, and as of right now, the largest pool has about 17% of the network hashing power, and GHash.io has about 4%. The current state of network power distribution can be viewed at https://blockchain.info/pools , as well as other blockchain watching services. It is in any particular miners interest to be in the largest pool possible, but counter to any miners purpose to be in any pool with the possibility of making a 51% attack, since a successful 51% attack would be the end of bitcoin's market value, which makes their investment in mining equipment worthless. This has, so far, been successful.
Each wallet does not need to contain the entire blockchain. It is generally recommended that, if you are not running a full node contributing to the network, you use a thin wallet that queries the blockchain, or a trusted blockchain monitoring service, in order to asses balances and get data needed to make new transactions in a much less data-intesive manner.
Governments are not keen to give up their monopoly on the money supply, but there are limits to how much they can do to maintain it. There have been several instances historically where government control of the money supply is undermined by the economic reality of people just using other things to conduct business, regardless of the legal status of such business.
Mining is not "wasted" computing power, but rather power being put to the specific purpose of verifying and securing the integrity of the bitcoin blockchain database. It is no more a waste of resources, than the concrete, steel, and construction time of a bank vault. It's just not doing anything else, like creating an emergency shelter, or storing non-bitcoin valuables.
If you have a non-currency based idea to get people to properly secure a publicly editable, decentralized, ledger such that malicious actors cannot alter it to suit their needs, I'm more than willing to hear it. Until I see such a proposal, I don't see the addition of currency to a blockchain as a complication, but rather as a necessary function. There has to be something which incentivises people to engage in the process of securing the ledger, and that is the receipt of valuable entries on the ledger, those entries being useable as currency.
Thanks, I did not know about https://blockchain.info/pools.
On the 51% attacks, I was specifically thinking of state actors. However, mightn't any eventuality which leads to a lot of Bitcoiners who aren't enthusiasts or have ulterior motives (Bond villains?) be an issue? The current state of the BC community is probably mostly BC enthusiasts, i.e. people who aren't just in it for the money.
You're right that "wasted" was a poor term; "inefficient" would be better.
State actors would need to aquire mining hardware in order to make a 51% attack. Several million dollars worth of it. Trying to do so would have obvious effects on the small bitcoin mining equipment market, and unless the government turned all their machines on at once, they would spend the time they ramp up to a 51% attack actually strengthening the network, and causing other miners to also buy more equipment to keep up with the new difficulty.
This is certainly a possibility, if someone in the government recognizes the potential threat bitcoin offers to the government money monopoly. However, anyone smart enough to recognize the threat is also incentiveized to not tell the government about the threat, or even downplay the threat, while investing in bitcoin themselves, as if the threat materialized they will become significantly wealthier than they would through a government job.
As for the inefficient argument, the operating costs of bitcoin (mining) should be compared to the operating costs of more traditional money transfer services of similar size. Think armored cars, vaults, double book accounting, and other such things that a 3-4 billion dollar firm engaged in money transfer would need, and compare those costs to the costs of blockchain mining.
No, that's backwards.
Only if the miners are all behaving rationally. Sunk Cost fallacy is a thing in far more people that it is not.
Plus the investment in the mining equipment market will make for more efficient mining equipment, which would be needed for the new difficulty. We'd have a second mining equipment bubble.