[Cryptography] What has Bitcoin achieved?

[John Levine]

>Bitcoin payments are hugely expensive, it's just that the payer doesn't
>pay that price.  Instead, it's spread across the buyer's fee and an
>inflation tax.  If the system were static, the fees would amount to
>maybe $30-60, about the same as banks internationally.  Part of the
>problem is that the mining rewards are incentivised upwards, a race to
>the most expensive.  When the mining rewards stop there will be
>interesting times/effects, because all that hardware has to be paid for
>somehow.

We have no idea how much a payment would cost at the steady state.
Remember that bitcoin mining is at some level a zero-sum game, since
the algorithm adjusts the difficulty of the problem so that there's a
new block every ten minutes regardless of how many computrons people
throw at the problem.

At this point it is my impression that we're still in a bubble and
most mining pools are operating at a loss, but eventually the stupid
money will go chase something else.  It'll be worth turning on the
mining equipment if the expected value of the new coins plus the
mining fees exceeds the incremental cost of turning it on, which is
basically the power.  The hardware that already exists doesn't have to
be paid for, it's a sunk cost, and I assume you pay for hosting by the
month, regardless of whether the equipment is running.  So while it's
true that in the current environment, the buyer's fee would have to be
$50 to pay for its share of the cost of mining a block, it's not
unlikely that miners will get discouraged, the problem will get
easier, and the cost will go down.  

Also, there are currently about 300 transactions/block or one every
two seconds.  There's room in a block for at least ten times that
many, so if the transaction rate goes up, the cost goes down.

Having said all that, I can see how the cost would get down to a
dollar, or a quarter, but not how it would get down to a fraction of a
cent unless the value of bitcoins totally collapses.  At a quarter,
it's competitive with Paypal and Dwolla.  Whoopee.

R's,
John