The biggest topic in Bitcoin over the last month has been what to do with the size of blocks within the block chain. Mike Hearn and Gavin Andresen have been vocal and influential proponents of a size from 1 MB o 20 MB blocks to ease the growth of Bitcoin as a global currency. At this current 1 MB rate, they say the network will enter a logjam situation within the next year, and this is the preventative maintenance needed that would help the situation both in the short-term and the long-term. I spoke to Marco Streng, CEO of Genesis Mining and asked what their company’s view is of the block size debate. Management took the issue to their miners to get a feel for how the average miner thought of the solution to any such future issue within the block chain.
Want to Work With Bigger Blocks?
Over 100 miners responded to the question, and there are pros and cons on both size for maintaining the status quo or getting ahead of the curve. Here is what each side of the argument generally looks like, and a pie chart with the results of the poll below.
Against an increase of the block size: Bigger blocks will destroy the market for transaction fees: If block space is not scarce, a market for transaction fees will not be established. Thus, the block reward might dwindle in the long run. Requirements for full nodes increase: Bigger blocks require more bandwidth that might make it harder to run a full node.
For an increase of the block size: Capacity too low to support a global payment network. Transactions would become more expensive, and the block chain will only be used for settlements between large players. Also, greater block size will increase the total transaction fees: It is up to the miners to take a small fee for each transaction. Allowing many transactions in one block will increase the total transaction fee, which will be a benefit for miners in the long run.
The views of miners seem pretty clear-cut, even with a fairly small sample. The massive mining community in China and Asia have expressed a different take on the issue. My view is you have to think about what is best for Bitcoin in the long-term. It is better to deal with smaller issues now than wait until the last minute and run into a massive issue next year. An ounce of prevention is better than a pound of cure.
While I was learning this information from Genesis Mining, I spoke with Marco about the mining industry in general, and how things have been going over the past year or so. The mining industry has had a lot to deal with, particularly with the drop in value versus fiat currencies, and this has created a war of attrition within their ranks. Here is what Marco had to say about the state of the miner these days:
How much does it cost to mine one bitcoin at today’s optimal rates?
Under optimal conditions (e.g. constant difficulty) you can mine 1 Bitcoin with about 270 GH/s hashrate in one year. The mining equipment for 270 GH/s would cost about 120$ (without taking into account extra cost, as shipping, electricity, etc.).
What does it cost to maintain the network?
The network currently is at about 325 PH/s. When building a massive mining farm and using economies of scale this would roughly cost USD 100 mn for the hardware. The hardware would consume about 200 MW of electrical power. That means electrical cost of about USD 0.3-0.5 mn per day (depending on cost per kW/h and efficiency of the hardware.)
How big is the bitcoin “super computer” really?
Approximately 325,000,000,000,000,000 sha256 hashes are calculated each second! This is an amazingly huge processing power, and the Top 500 supercomputers will not even come close to that hashrate. However, the comparison is a bit simplified, as the Top 500 supercomputers were designed for more general problems. In contrast: the Bitcoin super computer can only do one thing (calculating sha hashes), but it does this very well.
Who really controls the network? (How many big providers)?
Mining pools are the driving force behind the network. Let’s have a look at some statistics:
The first table shows that we have some players that are competing. All pools are clearly below the 50% mark. Although, the diversification could be a bit higher, there is also at the moment no risk of too much centralization. Also historically, the hashrate distribution is quite constant; e.g. see the nice chart “Historical centralisation of bitcoin network block creation.
What the future of the industry looks like from a miners perspective?
A) I believe we’ll see an increasing trend from home mining to mining in the cloud, as the latter is more cost efficient.
B) Consolidation of hardware manufacturers: about 4-5 companies will have the knowledge and financial resources to build efficient ASIC chips.
C) Advances in chip design are becoming smaller: The hashrate will be more driven by the Bitcoin price.
D) Concentration of mining close to electrical power sweet spots on the planet.
What is you view on a need to grow Bitcoin’s block size? Is 20 MB too much, too soon? Share above and comment below.