The problem of mining centralization, anti-fragility with decentralization of computing power. How centralization occurred through advancements in mining hardware engineering and connections to silicon fabrication (100-10,000x performance increase). The factor of racism in worries about centralization. Impact of 16nm technology in computer processing and performance, Moore's Wall.
Transcript
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thank you Andreas for coming over and I really like your speech and and all your confidence that you do I really would like to ask about uh the power of mining centralization in let's say a couple of countries what do you think and although Bitcoin looks like antifragile uh how do you foresee that we are going to pass or go through that mining centralization power that's a very very good question so for those of you who are technically minded or have been following the Bitcoin space one of the characteristics of Bitcoin from the first white paper by Satoshi Nakamoto was the idea that Bitcoin decentralizes Power by giving one CPU one vote the idea being that by contributing processing power to the network you become part of the decision-making process something interesting happened though because the incentives once it started taking off were so powerful that people started investing in more complicated Computing and soon it wasn't CPUs but gpus graphical processing units that were used to mine Bitcoin and that represented a 100 times Improvement in the ability to mine think of it as one GPU 100 votes um and very soon from gpus we went to fpga's field programmable gate arrays which are systems of silicone where you can encode an algorithm and run it really fast and then we went to A6 application specific integrated circuits which are basically mining chips designed to do nothing but mining in each one of these steps we saw somewhere between 100 and 10,000 fold increase in performance over the previous generation and that is the primary reason why it caused enormous centralization in mining however that game is now over if you were a minor who migrated to as6 then migrating to A system that was printed um with a silicon fabrication system at 24 nanometers gave you an advantage of 10,000 times over the previous generation and you could buy those chips by making a very big order with a semiconductor Factory which means that only very few could put up the necessary capital and if you could then take that down to 22 nanom using a more specialized silicon fabrication system you could get another massive Improvement so we saw mining Hardware evolving every 3 to 6 months literally if you set up a warehouse full of mining equipment it had a shelf life of less than 6 months in six months it went from the most powerful most profitable system of mining to being unprofitable for the level of electricity it could consumed and so that created even more centralization because now the ability to put down more Capital every 3 to six months to get rapid delivery to be closely connected to Silicon fabrication centralized Mining and it centralize mining a lot in China primarily because that's where the Silicon fabrication is and there's also some great opportunities for cheap energy I don't think that was the vision of Satoshi now I will will caution you one thing a lot of the concern about Chinese mining in my opinion is blatantly racist if mining had centralized in Sweden we wouldn't be getting so upset right so just keep that in mind because Chinese mining represents excellence in engineering concentration of resource es and engineering and so far the ability to deliver massive amounts of security and Trust for the Bitcoin Network at very low cost because of the cost of electricity that is something we all benefit from but here's where it gets interesting as of 6 months ago we started seeing the fabrication of as6 at 16 nanometers 16 nanometer technology is The Cutting Edge of computer processing it's what you see in your latest Apple Hardware device and the exponential growth of performance now hits a wall because there is nothing better than 16 nanometer technology in computer terms we have this law called Moors law and Moors law uh posited by Gordon Moore the founder of Intel in the' 70s is the idea that every 2 years years approximately computer capacity doubles and we've been running ahead of Mo's law and in fact it's been doubling uh in less than 18 months that sounds really fast doesn't it unless of course you've spent the last five years doing a thousand times faster every six months and suddenly you're down to twice as fast in 2 years that's a wall of performance that means that once you put those 60 nanometer things on the Shelf they're going to sit there for 2 years and you don't have the ability to upgrade them and that now means that the advantage shifts from the economic power of those connected to Silicon fabrication to the ability to deliver these devices as consumer devices because with the centralization of mining comes one big disadvantage if you have a th000 tera hases in a warehouse what happens when the warehouse burns down what happens when you lose electricity to the warehouse what happens when you lose cooling to the warehouse what happens when you have a problem with your investors the centralization now makes you vulnerable to losing everything compare that to the possibility of having a mining chip that's part of a toaster or a water heater that's plugged into your kitchen wall well if you have instead of one system that produces a th000 Terra hases you have a million systems producing 1 millionth of that they're less vulnerable to disruption because if the power goes out in a whole city it only affects a small percentage of the devices out there and it may be unprofitable for now for us in the developing world but in some places in the world it's going to become profitable to mine on the latest chips using solar energy and hydroelectric power and renewable sources that are less expensive which means that in my opinion mining centralization reached its peak in 2015 we're going to see now it's probably going to continue the wave for another year or so and in July 22nd 2016 we have an important event the reward for Bitcoin blocks is divided by two half the amount of reward I think what that will do is it will ensure that anyone who is not mining on the very latest 16 nanometer chips becomes unprofitable and then we have a Level Playing Field so I'm not really worried about that um first of all because we still have great security and Mining centralization hasn't led to any of the nightmare scenarios that we have imagined in Bitcoin and secondly because I think it was an artifact of the race of technology to Mo's law and now we're done so again that was a long explation I apologize because it's a very technical topic thank you for the question