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If I understand correctly, every transaction needs new blocks to be created (mined), which is becoming increasingly hard, slow and expensive. Not mentioning the massive energy consumption, already raising environmental issues.

On the other hand, any new better currency would offer exactly the same service, except faster and cheaper.

Then how can Bitcoin compete against it, in long term?

Ghanima
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Dmitri Zaitsev
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    I have voted to close this question, cause it is merely opinion based. What is "better" in your view, might not be better in others view. What does it mean, when you say "massive" energy consumption? Compared to what? Who sets the baseline here? Also: there are already more than 1000 Altcoins, which can do things faster and cheaper. And one can see already, how bitcoin competes "against it". – pebwindkraft Dec 27 '17 at 08:25
  • @pebwindkraft "Better" is meant to refer to "faster and cheaper" in the same sentence. That its energy consumption is "massive", is discussed all over the internet, plenty of baselines as large as consumptions of small countries, just google for details. It is a serious concern and I am asking for objective facts how Bitcoin is addressing it, if there are any. Also I respectfully disagree with "one can see it already", one can only see the price based on hype and popularity and speculation, that can always change very fast. You are welcome to edit the question, if you see a better way ;) – Dmitri Zaitsev Dec 27 '17 at 11:53
  • In this sense: there is no better currency. Bitcoin is offering a path to Segwit and lightning, which makes it faster and cheaper. The bullshit on massive energy consumption is a repeating pattern, mostly by people who haven't the faintest idea, what the consumption really is. Current consumption based on Antminer S9 and Terahash: roughly 1000MWatts. Compare this to other currencies, and then look at global scope. So Bitcoin will stay for the longterm, cause other currencies are too weak, and don't provide the benefits you are asking for. – pebwindkraft Dec 27 '17 at 13:11
  • @pebwindkraft Many people had justified their claims about energy consumption and I had never seen counterarguments. The same goes for transactions getting slow and expensive, people are complaining waiting for weeks. I am asking about real solution and simply dismissing the problems is not one. – Dmitri Zaitsev Dec 27 '17 at 14:30
  • I think I do not dismiss the problem, I think the opposite is true: people dismiss, that there is segwit, but still complain. And people also complain about energy, without doing the math (on both sides). And lightning is on the way to go. For those who don't get it, there is lots of Altcoins (BCash, IOTA, ... and more). But I do understand: complaining is easier than acting :-) – pebwindkraft Dec 27 '17 at 15:42
  • @pebwindkraft How is segwit solving the energy or slowness problems? – Dmitri Zaitsev Dec 28 '17 at 04:07
  • to avoid extensive comments, you may want to create a new question, or even two, stating exactly your assumption or opinion, what you would expect to be a reference, and how "the problem" affects reality... – pebwindkraft Dec 28 '17 at 08:16

2 Answers2

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When transactions are created they are essentially a payment promise. They are submitted as a message to the network, where every node checks that the promised money exists and then forwards the transaction. Some of these nodes collect transactions in order to create a new block. These miners are essentially participating in a giant lottery where the winner gets to author a new block.

To that end, miners chose which transactions they are trying to confirm and add their own Coinbase transaction. The Coinbase transactions is the first in a block and gets to collect the transaction fees, creates the block subsidy, and contains the segwit commitment (in a segwit block). All the other transactions can be chosen at the leisure of the miner, although they pick the transactions with the highest fee rate, i.e. the transactions that generate the most revenue to them, by default.

The mining process is self-adjusting, in that the difficulty of blocks gets reset every 2016 blocks. Hereby, the difficulty can increase or decreaseee by up to a factor 4. Hence, the difficulty does not always have to get larger, in fact we've seen it decrease a few times this year. There is an argument to be made for it becoming slower, in that lately the demand for transaction confirmation has been much larger than the available blocksize which caused a lot of transactions to remain unconfirmed for weeks at times.

On the other hand, any new better currency would offer exactly the same service, except faster and cheaper.

The thing is: A new network actually cannot offer the same service. There is a huge demand for Bitcoin transactions. However, a new network can only transmit its own tokens. If you want USD, would you settle for Venezuelan Bolivars instead? Although there have been numerous clones, copies and forks, in the past eight years, just cheaper transactions don't seem to be a sufficient incentive for adoption.

Murch
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  • By the same service, I mean paying for goods. If I run the company servicing international payments, I can use any crypto currency accepted by the other end. If Bolivars can do it faster and cheaper, I'd have no problem using them. It doesn't mean I would invest and hold it, which is completely different matter. – Dmitri Zaitsev Dec 27 '17 at 07:06
  • "the difficulty does not always have to get larger" - does it not get harder to mine every new block? – Dmitri Zaitsev Dec 27 '17 at 07:07
  • @DmitriZaitsev: No, difficulty only changes every 2016 blocks, and it only gets higher if the last 2016 took less time than 14 days. – Murch Dec 27 '17 at 07:45
  • But it does get harder to mine every new Bitcoin, doesn't it? Now I am confused. – Dmitri Zaitsev Dec 27 '17 at 07:59
  • Mining for new bitcoins has nothing to do with the transaction speed. At some point you will be unable to mine new coins, but that has no relation to the transaction speed. – Nelson Dec 27 '17 at 09:42
  • @DmitriZaitsev nope, it does not get harder to mine with every bitcoin, or every block. As Murch mentioned, the difficulty target is re-calibrated every 2016 blocks. I think you misunderstood somewhere. The difficulty target is set with the aim to have a new block found every ten minutes, on average. So the rate of blocks being generated (transactions being confirmed) remains stable over time (again, on average). – chytrik Dec 27 '17 at 11:59
  • @chytrik Thanks, maybe I did misunderstand, because both transaction confirmations and coin creations are called "mining". So generating a block to confirm a transaction is unrelated to mining the new coins? – Dmitri Zaitsev Dec 27 '17 at 12:05
  • @DmitriZaitsev It works like this: a miner performs proof-of-work hashing to find a new block. When the miner finds a valid block hash, they can submit that block to the network. The block they submit may be full of transactions that they chose to include (thus confirming transactions). The first transaction in every block is a 'coin base transaction', which rewards the miner with newly minted bitcoins. – chytrik Dec 27 '17 at 12:29
  • @chytrik Then isn't it becoming harder and harder to mine new blocks? – Dmitri Zaitsev Dec 27 '17 at 14:32
  • @DmitriZaitsev: Both transaction confirmation and coin creation are product of the same mining process. The difficulty is retargeted every 2016 blocks (14 days at ten minutes). If more hashrate is entering Bitcoin mining, the blocks are too fast, and the difficulty increases. If hashrate leaves mining, the blocks are slow and the difficulty decreases. May I suggest the following topics for some added background information: https://bitcoin.stackexchange.com/q/148/5406, https://bitcoin.stackexchange.com/q/855/5406, https://bitcoin.stackexchange.com/q/12427/5406 – Murch Dec 27 '17 at 15:34
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Miners are rewarded for creating new blocks, so the more valuable the users consider the network to be (ie higher coin value), the more electricity miners will dedicate towards securing it (to gain the block reward /tx fees). This is the nature of POW: less energy-intensive networks will be less secure, and as a user the security of the network that stores your value is very important.

Being 'fast and cheap' is nice, but many altcoins already exist that are faster and cheaper, and still bitcoin remains the most valuable. Consider that there are reasons for this, beyond 'fastness and cheapness' of transactions.

chytrik
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    I suppose Bitcoin's biggest market cap currently is only due to it being older. But how is this a competitive advantage? If I can get the same service with X-coin, cheaper and faster, why would I use Bitcoin? – Dmitri Zaitsev Dec 27 '17 at 06:50
  • Security is nice, but: Too many other ways to compromise security, as the most recent history shows. Why would I trust the guys running Bitcoin more than some new X-coin? – Dmitri Zaitsev Dec 27 '17 at 06:56
  • Well, why would you trust any chain to hold your value? I think most people would look at the history of the project, so part of the picture is indeed the fact that the bitcoin network has an outstanding record of immutability and uptime. At the protocol level, security is very important (this is different from the "don't have your private keys stolen" level). The security of the code has not been compromised recently, I'm not exactly sure what you mean by this. – chytrik Dec 27 '17 at 12:02
  • I mean the security of the exchanges and their own software, not necessarily the coin software. Every exchange I check shows huge number of bad reviews, it feels frustratingly risky to trust any of them, even if the coin software is flawless. And if it is so risky to deal with any unknown, untrusted service, how can we even speak of any serious security? Like the one provided by banks with government guarantee. – Dmitri Zaitsev Dec 27 '17 at 12:12
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    There are reputable exchanges in operation, at least a few have some govt oversight of their operations in the US (those that have a 'bit-license' to operate in NY state, for example). There are certainly some sketchy exchanges and outright scams that need to be avoided too. It is prudent to not hold coins on an exchange longer than necessary, to minimize the risk that you lose coins if they are hacked. This industry is not super easy for non-tech-savvy people to navigate, but it becoming better all the time. Years ago it was even more difficult than it is now. Progress is being made. – chytrik Dec 27 '17 at 12:24
  • Sound like still long way to go ;( – Dmitri Zaitsev Dec 27 '17 at 14:33
  • It is a fundamental problem: People need to feel safe buying these coins. Calling it "not super easy for non-tech-savvy" is not helping it. "Not to hold coins for long" is not solving the problem, because it creates additional whoops and yet there is still real risk to lose a lot of money. If there is no exchange to guarantee the safety of their customers' funds, how can one even talk about safety? – Dmitri Zaitsev Dec 28 '17 at 03:46
  • I think you misunderstood me: I mean that a user should not store coins on an exchange for longer than necessary. Rather, a user should transfer their coins to a wallet they control, and hold them there (for longer term storage, or for day-to-day usage). That said, I believe Coinbase offers insurance against some forms of theft from their platform. – chytrik Dec 29 '17 at 12:10
  • Re: calling it "not super easy for non-tech-savvy" is not helping it. -> I'm not here to pretend that bitcoin is ready for every single non-technical person to engage it fully. The reality is that key management requires more serious considerations than perhaps any other form of cyber-security, and it is important that this is made clear to users, in order to help them learn how and why it is important to protect themselves. It is not incredibly hard to store btc securely, but pretending it is easy would be a disservice to new users. – chytrik Dec 29 '17 at 12:22