Mining bitcoins is destroying the planet

My comment last month was hypothetical

For those not familiar with the process, a bitcoin is a secure virtual currency. In order to prevent a flood of that coin and a bubble market and bust, you have to create a bit coins by using a computer to do billions of calculations that consume time and electricity. As of this week, a newly minted bitcoin is worth $10,000

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21 Responses to Mining bitcoins is destroying the planet

  1. Fred Stiening says:

    Details about the CBOE and CME in Chicago starting to trade futures and options on bitcoins

    • briand75 says:

      I got burned during the era when the Hunt Brothers were trying to corner the market in Silver. I can testify on how fast the bottom can fall out of the commodity.

      I am afraid bitcoin is way to loosey-goosey for my taste.

  2. TheChairman says:

    Indeed Fred, knowing a bit about your background, what are your thoughts about CBOE & CME going forward with it? I really question if they understand Bitcoin’s flaws, severe scaling limitations, and criminal element. Seems reckless on the part of the CFTC… a potential combination of Madoff, Enron, and Credit Default Swaps all rolled into one. And they won’t allow people to ‘short’ it!? I smell some rotten eggs.

    One look at the public statement from NiceHash (i.e. their video posted on FB) after the $70 million hack last week should be enough to scare any regulator. Might be an inside job (CIO is a known criminal), but online key theft is becoming very common. NiceHash is still down, and likely out. These exchanges are completely unregulated. It may very well be criminals who have pushed the price up… akak pump-n-dump.

    Many, including true-believers/purists, don’t seem to have a grasp on the asymptotic behavior of Bitcoin’s ‘design’. I tried to tell a few people that all of the bitcoin blocks could never be minted. i.e. ‘limits’ in Calculus, where a finite solution is not -feasibly- attainable. (Leaving aside quantum computing, zero-point energy, tireless humans, and limitless electricity.)

    As for scaling, it can only handle ~3 transactions per second. Bitcoin transactions and mining are interdependent, so some people are waiting hours (days) for confirmations because a new coin must be mined in order to confirm a block of transactions… with some exchanges favoring larger transactions over smaller ones (i.e. bigger fees).

    Then there is CryptoKitties over on the Ethereum blockchain, clogging up the work.

    • Fred Stiening says:

      At the start of trading, the CBOE web server was flooded beyond capacity. I’m not sure what the plan is. I’ve been away long enough that I don’t know how things work any more. The Merc and CBOT merged, and I was a little surprised the CBOE is trading futures (as opposed to options).

      The bugaboo in Futures trading is counterparty risk. In theory (but not reality), the party to a futures contract is obligated to deliver (and buy) the commodity at contract expiration. If the counterparty cannot deliver the product or the buyer does not buy or the parties fail to meet the margin requirements, the exchange is on the hook. I see that the CME is now standing in as the counterparty guaranteeing every trade.

      Philosophically, the safety net is that there are a finite number of bitcoins and growth at a predefined rate. When futures get involved, you are essentially creating temporary new bitcoins that don’t (virtually) exist. This is similar to why the Fed gave up on controlling the money supply. When a person buys a gift card at Applebee’s, the consumer and merchants just created new dollars.

      There will be huge incentives for people to arbitrage the “cash” and futures markets, then create events to inject artificial instability. I raised the possibility earlier with Countess that the motivation could be to destroy bitcoin, to return the world to relying on slightly less fake stores of wealth like Dollars and Euros.

      • Fred Stiening says:

        After 4 hours, the future value of a bitcoin (for delivery on January 17, 2018) is up about 15% at around $18,000 each. Futures contracts do not require that you own the commodity in order to offer to sell it – short selling is a stock term. I could enter a futures contract to sell 10 bitcoins on January 17th for ~$180,000. I don’t have to have $180,000 in cash to do that. Margin requirements are very thin – basically I need the resources to cover the daily trading limit up or down if the future goes against me. If my future gains value, i can draw out the increased value to keep leveraging up. If I bottom out or decide to take my money off the table, my position is closed out by buying the opposite contract.

        It is important to understand that a futures contract is a legal obligation to buy or sell at contract expiration, unlike an option that gives you the right to buy/sell at any time prior to expiration – not the obligation. Typically futures positions are closed out prior to expiration.

        • Fred Stiening says:

          Not overly reliable sources said the CBOE was going to put cash to value requirement at 30%, extremely high for a futures contract, which are normally around 5-15%. At expiration, physical delivery is not an option. An official bitcoin price will be established based on the cash market, and all open contracts will be settled in cash at that price.

        • TheChairman says:

          Given the rashness with which CBOE and CME brought Bitcoin to their markets, I’m not sure there was a plan… just pressure from traders and a calculated gamble. I read the margin requirement will be 50%. This is what makes me nervous with crypto coins being hyped to the public with deceptive images of minted ‘gold’ Bitcoins. Saw an ad for people to convert their IRA into bitcoin.

          This may be an effort to debase it, but the cat was out of the bag a few years ago… it’s a bit late. I have a much darker notion of where this is all leading, worthy of a few late night radio shows: AI, world currency, etc.

          I notice Bitcoin is now planning another ‘hard fork’ of the blockchain, to be known as Super Bitcoin. So we’ll be getting yet another variety of these tulips… I won’t even get into ‘shadow’ blockstreams, corruption, etc.

          Oddly, the bitcoin exchange being used for index price (CBOE) is Gemini, which is owned by the Winklevoss twins… who just happen to hold a very large number of Bitcoins. I see that as a real conflict of interest. They tried to establish an ETF for Bitcoin, but were denied. They may be the hand behind the curtain for this move.

          • Fred Stiening says:

            Based on what I read last night, the margin requirements are adjusted from day to day based on the volatility of the trading range. It probably also varies based on how long until expiration. The effect of the dynamic margin requirement is you may get forced out with a margin call based on more than just the closing daily price.

          • Fred Stiening says:

            Future markets are dependent on a credible cash market. The cash exchange needs to be a neutral party, not one that carries open positions on its own account. NASDAQ does not own stocks it trades, although that was an issue as to who was going to be the market where NDAQ would be traded. What would happen if it was listed on the NYSE and the NYSE halted trading in NDAQ?

            Have a look at this picture from my phone

            • TheChairman says:

              But the CBOE is only getting a bitcoin price index from the Winklevoss’ own Gemini Trust (bitcoin exchange)… so what’s to stop them from using some of their own bitcoins to anonymously sell/buy directly on an exchange and indirectly manipulate their index? CME is going to pull from 4 bitcoin exchanges to arrive at an index value… so the twins can ‘play’ over on the CME, correct? I just see a lot of potential for abuse here.

              Their exchange is rated 2.7 by users…


            • Fred Stiening says:

              A key thing (I haven’t looked) is whether the contracts are clearable against each other (I doubt it)… if you could buy on the CBOT and sell on the CME and offset the trades, then that would put the two exchanges in lockstep and make easy money for arbitrage people.

            • TheChairman says:

              I think my example may be getting a bit muddled because the word ‘exchange’ is being used in two contexts: the Bitcoin exchanges, and the Futures exchanges. I meant Winklevoss’ can sell/buy actual bitcoins via their Gemini bitcoin exchange or others. (i.e. activity not visible to the CBOE futures exchange other than the index price once a day.) Then, to avoid any ‘appearance’ of a conflict, they can go to the CME and trade bitcoin futures, because their Gemini index is not being used by CME.

  3. CC1s121LrBGT says:

    How about Howells? 7,500 bitcoins. As I type this, google says each bitcoin is worth $15,495 so Mr Howells is looking for his $116,212,500.00 old hard drive in the landfill.

    • TheChairman says:

      Yep, he’s one of many. Truth be told, I considered mining Bitcoin when it first appeared in 2009-10, but I probably over-thought the odd futility of mining for SHA256 hashes with leading zero’s… and our place in northern Michigan didn’t have very fast Internet. After that, I never paid it any attention until this year…

      It is estimated that ‘Satoshi Yakamoto’ –the person or group that created it– may be holding 800,000 to 1,000,000 bitcoins; few if any have been spent.

      • CC1s121LrBGT says:

        An interesting side story would be, “who owns the hard drive?”. I know this story is based in the UK and subject to UK law, but had it been in the US, I believe the landfill owner would own the hard drive… or if someone spotted it sitting on the curb and took it, that person or whomever may have received it from him would be the legal owner.

        The Supreme Court has also ruled that once you put something on the curb for pickup, the police can haul it away and search it without a search warrant, without your permission, and without your knowledge. You are no longer considered the owner.

        Of course, the ownership of the Bitcoins is a different matter. If you put your housekey in the trash, someone else may own it and legally may melt it down as scrap metal, but that doesn’t mean he is the new owner of your house or even that he has the right to use the key to enter your house. Interesting legal stull. Where is Judge Napolitano…. or since this is radio, where is Bill Handel on the law?

        • TheChairman says:

          The crux of the situation would be the password to access the key. Mr. Howells has the password to open the wallet.

          • CC1s121LrBGT says:

            Correct. But if I spent some time and effort getting dirty in my landfill looking for it, and I find it, I would want some compensation. 😉

            • TheChairman says:

              I would think Mr Howells might accept a 50/50 split if they found his disk intact… would make an interesting movie/script.

          • Parrott says:

            Oh ‘Lovie’ dear, now, where did you and Gilligan hide that hard drive ? hmmmmm

            I need to call ‘Wrong -way’ Feldman, he will know where to fine the bitcoin.

            • CC1s121LrBGT says:

              LOL. Good one, Parrott… and there is a radio tie in too – remember the radio they had on the Gilligan’s Island? It would often pick up John Facenda, a host on Philadelphia’s WCAU 1210 and not WPHT, the station I had recommended for local conservative non-Cumulus, non-iHeart alternative. (It is CBS).

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