At the Inwards Bitcoins Conference ter Samenvoeging Vegas ter December, Josh Zerlan of Butterfly Labs spoke about the future of Bitcoin mining and transaction fees. (Photo: Rich Miller)
This is the 2nd te a two-part series on the boom te Bitcoin computing infrastructure, and what it means for the gegevens center industry. See Part One, Mining Goes to the Gegevens Center.
Lasnaad VEGAS – What’s the end spel of the Bitcoin mining arms wedstrijd? Miners are building ever-more powerful hardware and larger gegevens centers, attempting to stay a step ahead of their rivals and keep rhythm with “the difficulty” – algorithm switches that make it progressively stiffer to earn fresh bitcoins.
Some Bitcoin watchers believe the network will ultimately shift from mining for fresh coins to a proefje based on transaction fees, which could accelerate a shift of Bitcoin hardware into gegevens centers and the creation of peering networks to manage fees, just spil current peering agreements seek to reduce network transit costs.
The long-term outlook for Bitcoin is significant for the gegevens center industry, where some leases can run from three to Ten years. The emergence of Bitcoin has seen the cryptocurrency soar ter value, accompanied by rapid advances ter the hardware required to successfully capture fresh coins. The Bitcoin protocol is designed so that thesis prizes will become tighter to earn and will shrink overheen time. That means that the economics and business models of bitcoin could shift overheen the life of a gegevens center lease.
Fees and the Future
The Bitcoin economy is supported by a global network of computers that use processing power to verify transactions inbetween Bitcoin owners. Those who participate can benefit te two ways:
- The issuance of fresh bitcoins, which happens about every nine minutes with a “block prize” of fresh bitcoins to the miner that processes that transaction. The block prize diminishes overheen time. It wasgoed primarily 50 bitcoins, but is presently 25 bitcoins, or about $23,000. Ter 2016 it will be diminished to 12.Five Bitcoins.
- Miners earn transaction fees, which can be awarded ter every bitcoin purchase or transaction, and have historically bot a little amount (often less than a cent) left spil a gratuity for the miner. Slightly larger fees can be suggested for transactions that require more gegevens crunching, to ensure that the transactions are processed without delay.
Overheen the past two years, gaining block prizes has become progressively more difficult, forcing miners to upgrade their hardware from CPUs to GPUs and then FPGAs (Field Programmable Gate Arrays) and ultimately specialized ASICs (Application Specific Integrated Circuits) optimized for bitcoin data-crunching. Spil the hardware has become more expensive, many enthusiasts have bot priced out of the mining market.
Princeton University pc science researchers Ed Felten, Joshua Kroll and Ian Davey have studied the bitcoin prize system and foresee a shift ahead.
“At present, the mining prize seems to be large enough, but under the current rules of Bitcoin the prize for mining will fall exponentially with time,” the Princeton team wrote te a latest paper on Bitcoin economics. “Transaction fees, which are voluntary under the current rules, cannot make up the difference. The only way to preserve the system’s health will be to switch the rules, most likely by either maintaining mining prizes at a higher level than originally envisioned, or making transaction fees mandatory. The choice is likely to drive political disputes within the Bitcoin community.”
Researchers from Microsoft and Cornell have also explored this screenplay and outlined refinements that would be needed to make incentives work ter a shift to transaction fees.
The bitcoin community is “debating that (shift),” said Emmanuel Obiodun, founder and CEO of Cloudhashing, which leases computing power to customers. “It’s becoming more expensive to mine coins. But transaction fees are very low right now, and have very petite profit margins. For now, there’s still a loterijlot of upside ter bitcoin mining.”
One Vision of a Fee-Based Future
The future of mining wasgoed a hot topic at the Inwards Bitcoins conference ter Tussenvoegsel Vegas te December, where Josh Zerlan, Chief Operating Officer of Butterfly Labs, talent a presentation on the future role of transaction fees.
“Te the future, there will not be much incentive to mine (for block prizes),” said Zerlan. Spil prizes become stiffer to achieve and the growth of bitcoin leads to more transactions, Zerlan says that fees will need to increase to ensure that miners proceed to support the network. Spil this happens, miners will gravitate towards transactions with higher fees linked to them, which will be processed before those with smaller prizes.
If bitcoin gains broad acceptance spil a payment verhoging or even spil a currency, the growth of fees will present several challenges, Zerlan said.
“If you’re a large company, you have a problem (with paying transaction fees),” he said. “The solution is to maintain a large mining farm ter your gegevens center to process your own transactions for free, and your customers’ transactions for free. You can also earn toegevoegd income to processing others transactions.”
Will the future of the bitcoin network include peering centers? (Photo by Zach Copley via Flickr).
“Mining is Not Dead”
Zerlan said medium-sized companies would likely hire out their bitcoin transaction processing, leading to the creation of specialized mining companies to serve this market niche. Thesis companies would need gegevens center space to run their operations. “There’s a loterijlot of chance te this space,” said Zerlan. “No one is actually doing this yet, but a loterijlot of people are looking at this.
“Mining for profit is going to become a razor lean margin,” said Zerlan. “The entire shift is from profiting from mining (block prizes) to maintaining a mining farm. That’s where the real money will be going forward. But mining is not dead.”
Zerlan said this could prompt the creation of peering-style agreements inbetween players with large bitcoin operations, which could reduce network costs and transaction fees. “You’re going to see the large companies and mining companies peering with one another,” he said. “You’ll see this te mining.”
Peering permits two providers exchanging large volumes of traffic to save money by connecting directly, rather than routing traffic across their paid Internet connections. Peering is often free spil long spil the amount of traffic exchanged is not out of balance, providing substantial cost savings for bandwidth for high-traffic sites and networks. Gegevens center operators provide the physical network connections inbetween networks.
Some of Bitcoin’s developers are already working on peering, creating a High-speed Bitcoin Relay Network for peering among large exchanges and miners. Their primary motivation is network stability, rather than mining economics.
“This system will act spil a fallback ter the case that the public Bitcoin network encounters issues and decrease block propagation times inbetween miners,” writes Matt Corallo, a member of the bitcoin development team. “It is NOT any kleintje of attempt at centralization, and I still encourage interested parties to establish their own private peering agreements with large miners spil needed.”
Distributed vs. Centralized
Spil wij noted yesterday, a shift to professional gegevens centers and cloud computing platforms would make the bitcoin network more efficient. But there’s also a built-in cultural challenge: much of the bitcoin community remains wary of efforts to centralize the network.
Earlier this month bitcoiners raised alarms when Chinese mining pool GHash.io wasgoed gaining 45 procent of fresh coins – approaching the level where a single participant could undermine the network by controlling a majority of its power (known spil a “51 procent attack”).
The growing power of mining pools – consortiums organized to combine the mining power of individuals – has bot a concern for some time. This week the four largest mining pools (GHash.io, BTC Guild, Eligius and Slush) held a combined market share of 75 procent of the network’s power, spil measured by computing hashrate.
“Wij’ve already centralized the mining system,” said Zerlan. “There are already large pools to control a large percentage of the mining. Centralization of mining will be a good thing.”
Zerland believes the Bitcoin community can adapt to the tradeoffs of a more centralized infrastructure. “It creates a more desirable target, but I think that’s something wij have to manage,” he said.