Man buys $27 of bitcoin, forgets about them, finds they're now worth $886k

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Announcing World Trade Francs: The Official Ethereum Stablecoin 01st April, Ethereum scalability research and development subsidy programs 02nd January, The primary expense that must be paid by a blockchain is that of security. The blockchain must pay miners or validators to economically participate in its consensus protocol, whether proof of work or proof of stake, and this inevitably incurs some cost.

There are two ways to pay for this cost: Currently, Bitcoin and Ethereum, the two leading proof-of-work blockchains, both use high levels of inflation to pay for security; the Bitcoin community presently intends to decrease the inflation over time and eventually switch to a transaction-fee-only model.

NXT, one of the larger proof-of-stake blockchains, pays for security entirely with transaction fees, and in fact has negative net inflation because some on-chain features require destroying NXT; the current supply is 0.

To provide some empirical data for the next section, let us consider bitcoin as an example. Over the past few years, bitcoin transaction revenues have been in the range of BTC per day, or about 0. It is not difficult to see why this may be the case: In 25 years, bitcoin mining rewards are going to almost disappear; hence, the 0. We can estimate the cost of buying up enough mining power to take over the network given these conditions in several ways.

First, we can look at the network hashpower and the cost of consumer miners. However, professional mining farms are likely able to obtain miners at substantially cheaper than consumer profitable bitcoin mining 2016 tax tables. If the bitcoin ecosystem increases in size, then this value will of course increase, but then the size of transactions conducted over the network will also increase and so the incentive to attack will also increase.

Is this level of security enough in order to secure the blockchain against attacks? In a proof of stake context, security is likely to be substantially higher. Let us suppose that relying purely on current transaction fees is profitable bitcoin mining 2016 tax tables to secure the network. There are two ways to raise more revenue. One is to increase transaction fees by constraining supply to below profitable bitcoin mining 2016 tax tables levels, and the other is to add inflation.

How do we choose which one, or what proportions of both, to use? Fortunately, there is an established rule in economics for solving the problem in a way that minimizes economic deadweight loss, known as Ramsey pricing. Suppose that there is a regulated monopoly that has the requirement to achieve a particular profit target possibly to break even after paying fixed costsand competitive pricing ie. The Ramsey rule says that markup should be inversely proportional to demand elasticity, ie.

The reason why this kind of balanced approach is taken, rather than just putting the entire markup on the most inelastic part of the demand, is that the harm from charging prices above marginal cost goes up with the square of the markup. Because of this superlinear growth, taking a little from everyone is less bad than taking a lot from one small group.

Now, suppose that 0. Other estimates of these measures would give other results, but in any case the optimal level of both the fee increase and the inflation would be nonzero. I use Bitcoin as an example because it is the one case where we can actually try to observe the effects of growing usage restrained by a fixed cap, but identical arguments apply to Ethereum as well.

There is also another argument to bolster the case for inflation. This is that relying on transaction profitable bitcoin mining 2016 tax tables too much opens up the playing field for a very large and difficult-to-analyze category of game-theoretic attacks.

The fundamental cause is simple: Hence there is an incentive for a validator to not just help themselves, but also to hurt others.

This is even more direct than selfish-mining attacks, as in the case of selfish mining you hurt a specific validator to the benefit of all other validators, whereas here there are often opportunities for the attacker to benefit exclusively. In proof of work, one simple attack would be that if you see a block with a high fee, you attempt to mine a sister block containing the same transactions, and then offer a bounty of 1 BTC to the next miner to mine on top of your block, so that profitable bitcoin mining 2016 tax tables validators have the incentive to include your block and not the original.

In proof of stake, similar attacks are possible. Even given a particular distribution of revenues from inflation and revenues from transaction fees, there is an additional choice of how the transaction fees are collected. Though most protocols so far have taken one single route, there is actually quite a bit of latitude here. The three primary choices are:. Arguably, the more salient difference is between the first and the second; the difference between the second and the third can be described as a targeting policy choice, and so we will deal with this issue separately in a later section.

The difference between the first two options is this: However, we can get what we want by using another trick: This removes tax evasion incentives, while still placing a large portion of transaction fee revenue under the control of profitable bitcoin mining 2016 tax tables protocol, allowing us to keep fee-based issuance without introducing the game-theoretic malicentives of a traditional pure-fee model.

The protocol cannot take all of the transaction fee profitable bitcoin mining 2016 tax tables because the level of fees is very uneven and because it cannot price-discriminate, but it can take a portion large enough that in-protocol mechanisms have enough revenue allocating power to work with to counteract game-theoretic concerns with traditional fee-only security. We can extend this model further to provide other interesting properties. One possibility is that of a flexible gas limit: All transactions up to G1 would have to pay 20 shannon per gas.

Above that point, however, fees would increase: Let us suppose that we agree with the points above. Then, a question still remains: Do we target a fixed level of participation in proof of stake eg.

Do we target a fixed level of total inflation? Or do we just set a fixed interest rate, and allow participation and inflation to adjust? Or do we take some middle road where greater interest in participating leads to a combination of increased inflation, increased participation and a lower interest rate? In general, tradeoffs between targeting rules are profitable bitcoin mining 2016 tax tables tradeoffs about what kinds of uncertainty we are more willing to accept, and what variables we want to reduce volatility on.

The main reason to target a fixed level of participation is to have certainty about the level of security. The main reason to target a fixed interest rate is to minimize selfish-validating risks, as there would be no way for a validator to benefit themselves simply by hurting the interests of profitable bitcoin mining 2016 tax tables validators.

Now, we can also get to discussing the difference between redistributing and burning transaction fees. It is clear that, in expectationthe two are equivalent: The tradeoff, once again, comes in the variance.

If fees are redistributed, then we have more certainty about the supply, but less certainty about the level of security, as we have certainty about the size of the validation incentive. Profitable bitcoin mining 2016 tax tables fees are burned, we lose certainty about the supply, but gain certainty about the size of the validation incentive and hence the level of security.

Burning fees also has the benefit that it minimizes cartel risks, as validators cannot gain as much by artificially pushing transaction fees up eg. Once again, a hybrid route is possible and may well be optimal, though at present it seems like an approach targeted more toward burning fees, and thereby accepting an uncertain cryptocurrency supply that may well see low decreases on net during high-usage times and low increases on net during low-usage times, is best.

If usage is high enough, this may even lead to low deflation on average. Since ethereum is not meant for financial transaction only, a transaction fee is not ideal. I would rather see ethereum get rid of transaction fee. Steem does it by rate limiting tx per address based on their balance. What do you think? I created an EIP on that here: Basically tx fees has 2 roles in the current system: I think these 2 concerns should be separated.

It is assumed that with adoption the price of bitcoin will appreciate. However the cost of mining will do so concurrently. That is the trend we have seen from its inception.

Thank you for explaining the ramsey thing, and making these estimates. Now I have a hope of tuning my blockchain. Instead of inflation we should charge rent based on how many bytes of consensus space each user is using, and pay validators from this.

Storing an account with twice as much money in it costs the same amount of resources. We should not subsidize people who profitable bitcoin mining 2016 tax tables to split their money into lots of tiny accounts. Anybody thinking of doing any sort of financial activity with Ethereum should probably have some great fear because of any association with Coinbase.

It makes the whole currency seem kinda scammy now to be honest. Profitable bitcoin mining 2016 tax tables agree with your proposal of scalability. Reference is made American Ice Company which collapse in 19th. Another way have not been explored, called the diversification.

Leading those social behaviour in the proper way would have a positive impact on profitable bitcoin mining 2016 tax tables problem you are trying to profitable bitcoin mining 2016 tax tables. What about the third option…increase the of transactions…increase the size of the pie from which transactions fund security. Even if one was to believe that transfer fees remain at 0. I would like to help you, and like to share the following article form HBR.

Your above analitic is fair and must provide the conditions to scale Ethereum to the Majority. The more you get these rules clear, the more you will commit people to embrace this technology in their day to day life. A contrario, if you let thing unclear such as it is now, people will get confused and it will be the gate opened for all the populist extremist. From the anarchy there is always an issue, the decision is your.

I guess i got an ipad… but after i jailbroke it they stuck me in jail so i broke it and then sold the broken pos. I am playing with private chain on geth console recently and it says that we have to wait for 5 confirmations to ensure a block profitable bitcoin mining 2016 tax tables not reversible. Is there any disadvantage of setting such rule to reduce the time waiting for confirmations?

On a side note, do you see possibilities for ethereum to be used in healthcare in a similar way that blockchain is being explored? Hi, So you mean to say convince the four largest Chinese mining pools to rent you their hardware.

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Bitcoin miner life cycle

For anyone considering mining, either because they are interested in the concept or to make some extra income bitcoin mining profitability in is a valid concern.

Bitcoin mining has grown significantly from a couple of enthusiasts and cheaper mining hardware mainly USB mining devices to specialized ASIC hardware and industrialized farming units around the world.

New blocks take on average 10 minutes to mine. Proof of Work hashing: The work which miners perform to define a new block. Hashing keeps the blockchain going and the problems miners complete using computational power are called hashes. Miners are rewarded with bitcoins for correctly hashing the current block.

The number of newly-created bitcoins, awarded to miners. When bitcoin was first starting, the number was set to 50, it was halved to 25 in late, and decreased to The next reduction is expected around mid and the halving process will continue every four years at , blocks, until all 21 million bitcoins are created.

As hashrates increase one might think that blocks are found quicker. However, Bitcoin difficulty is what prevents this, by adjusting the hashrate to ensure that blocks are steadily found every 10 minutes as mentioned above. When the total hashrate increases, the difficulty of Proof of Work hashing rises. On the other hand when the rate lowers, the Proof of Work also decreases and difficulty auto-adjusts every two weeks or 2, blocks.

The current fiat price of Bitcoin; critical for calculating profitability. This represents watts per hashrate per second. Electricity is the main cost associated with Bitcoin mining. Therefore the price paid per watt will significantly influence profitability. Unless you invest heavily in hardware and therefore command a huge hashrate, the odds of solving a block by yourself i.

The solution to this problem is mining as a member of a pool. Whenever a pool solves blocks, miners are awarded individually according to their contributed hashrate minus commissions and other fees.

Since the cost of electricity is a determining factor for your profitability when mining, you should always be aware of the rates for your area. So, this is what it all boils down to. How much will you be left with once all your costs have been taken into account? The answer to this is that profits are hard to predict currently as it depends on the ever increasing difficulty rate.

However, by running the numbers through a reliable mining calculator like the many found online there is still some profit to be made. By assuming that you are purchasing the Antminer S9, that your electricity cost is at 0. Your total returns though also depend on your exchange strategy and the value of Bitcoin when you choose to sell it and if you choose to sell it. Occasionally, bitcoin hashrates spikes as a big new mining pool comes online, for example, this happened in early The impact of new mining pools decreases as the total number of miners increases.

It is no secret that in this ecosystem the home miner will find it increasingly more difficult to turn a large profit unless access to low-cost or free electricity is an option. Another factor to take into consideration is that Bitcoin mining hardware is also being regularly updated.

What is new now may be obsolete by the end of and its efficiency significantly reduced compared to newer devices. Always take into consideration shipping, customs, or other delays that can increase the cost of your initial investment.

Bitcoin mining is still profitable but it does involve a large initial investment and certain risks that could bring about changes to your plans. Make your decision by taking into account all the aforementioned factors and by doing your research on the hardware you will select. Skip to content Tokens Basic bitcoin mining terms Block: How can Bitcoin mining be profitable? Determining your profit margins So, this is what it all boils down to. Conclusion Bitcoin mining is still profitable but it does involve a large initial investment and certain risks that could bring about changes to your plans.

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