In the past year only, the bitcoin mining difficulty has increased fivefold. If in the coming years the difficulty increases so much that mining is no longer profitable (i.e. consumes more power than money is earned), can the bitcoin network exist without miners? Can bitcoin supporters or governments have data centers that handle transactions only and do not spend computational resources on mining new bitcoins?
if in the coming years the difficulty increases so much that mining is no longer profitable
That's not really possible. The mining power is set so that the miners need 10 minutes in average to mine a block. If 50% of the miners would disappear because it's not profitable any more, the difficulty would decrease so that it's profitable again.
Can the bitcoin network exist without miners?
Yes and no. There is still the decentralized blockchain, so you can still check who has how many bitcoins, and you can view the whole history of transactions (they do still exist), but you could not spend them if nobody would mine the transactions.
Can bitcoin supporters, or governments have data centers that handle transactions only and do not spend computational resources on mining new bitcoins?
Transactions can't be confirmed if nobody spends the necessary processing power to mine blocks. Confirming transactions requires mining.
This is an excellent question. I think when the last bitcoin is mined a century from now, it is conceivable that mining could be replaced by higher transaction fees. So the blockchains can keep growing and cryptocurrencies could live on forever.
Some interesting articles on the topic:
Complete loss of mining would shut down transaction confirmation on Bitcoin. Transactions are confirmed by being included in a block of the blockchain. As the mining reward is released to the successful miner by the Coinbase transaction in the block they authored, it is not possible to confirm transactions without the expending the work of mining for the block subsidy.
Luckily, the difficulty should never grossly exceed the available hashrate, as the difficulty is a self-regulating system that adjusts every 2016 blocks. At worst, a portion of the hashrate would leave the network, making block intervals longer for some period until the difficulty adjustment normalizes the block intervals.
Herenby, the readjustment scales the difficulty up or down to a limit of factor 4, such that the next 2016 blocks would take 14 days if the hashrate were to stay the same as in the past difficulty period.
As there were great advances in hashing hardware since Bitcoin emerged, so far the difficulty has been mostly adjusting upwards, and the average block interval is in average closer to nine minutes than ten.
can the bitcoin network exist without miners?
Not really, the network may still exist reporting historical transactions and collecting unconfirmed transactions but without miners finding blocks transactions will never confirm.
Can bitcoin supporters or governments have data centers that handle transactions only and do not spend computational resources on mining new bitcoins?
In the past year only, the bitcoin mining difficulty has increased fivefold. If in the coming years the difficulty increases so much that mining is no longer profitable (i.e. consumes more power than money is earned)
Understand that difficulty is reactive to the amount of mining power aiming to keep the block rate roughly constant. Increased difficulty is driven by increased mining, similarly decreased mining would result in decreased difficulty. So as long as changes to mining capacity are gradual the number of miners should have little impact on transactions.
Mining in turn is driven by economics, if mining is profitable more mining equipment will be brought online. If mining loses money then mining equipment will be taken offline. An equilibrium should be reached where the cost of mining is comparable to the income (mining rewards and transaction fees) from mining.
However there is a catch, the difficulty only adjusts every 2016 blocks and it can only adjust by a factor of 4 each time. If there is a sudden crash in the value of bitcoin (or in the post-reward era a sudden crash in transaction fees) a large proportion of mining infrastructure may suddenly become unprofitable. If the unprofitable infrastructure is shut down too quickly it could cause major problems for bitcoin.
As long as someone has a copy of the blockchain, I guess Bitcoin "exists". However, if nobody mines blocks, there will be no new confirmed transactions, so generally nobody could spend their Bitcoin anymore.
However, the beauty of difficulty is that it also falls. If miners stop mining (e.g. because it is unprofitable), then the difficulty falls, and it becomes easier to mine. In an extreme case it could fall low enough that people could mine with a simple CPU again*. As long is someone is willing to pay the fee (which could be extraordinarily low if miners are able to use simple, efficient, low-cost hardware) it would almost certainly be profitable as long as people are willing to pay even a tiny transaction fee.
- Back in the day many people mined Bitcoin with simple desktop CPUs. Today given that the two billion or so smartphones have high performance GPUs built into the chip, they could probably out perform desktop CPUs and be more efficient. However, on a hash-per-watt basis, ASICs are dramatically more power-efficient than CPUs or GPUs. So after the zombies come, if difficulty falls low enough we'll probably just get an old ASIC out.
This is a fascinating question. Of course, the first answer is rather boring: "the difficulty of mining is constantly changing, so the law of supply and demand will ensure there are always miners." However, it we set this part of the answer aside, we get to dig deep into what a bitcoin really is, and that's what makes this question so much fun.
When you offer something of value, such as a good or service, in exchange for a bitcoin, you are making the assumption that everyone makes when they use a currency: that the buyer can give you something of value in return for your good or service. In the case of cash, it may be nothing more than a piece of paper which you trust other people will find value in. Bitcoin is the same way, but a bit more nuanced.
If you are receiving a bitcoin in exchange for your good or service, you start by creating a "private key" for a bitcoin account, which is basically a random number. Now when you get "paid" in bitcoins, what actually happens is that the buyer publicly announces some information which makes your private key worth something. This something is the body of the transaction, which includes the information that proves the buyer is in a position to transfer a bitcoin.
What makes this information valuable is that you have confidence that, with that public information in hand, your "private key" is now empowered to make you a buyer of someone else's goods and services. It's a bit exotic sounding, if you ask me. The buyer effectively blesses a random number that only you know to have some value by uttering a phrase, but if you really look at what happens when a buyer announces a transaction to be added to the block chain, that's what they're really doing!
Of course, the value of that information is only worth what the next seller of goods and services will accept its value as. One of the fundamental assumptions which sellers use to determine if your private key for a bitcoin account is valuable is whether the previous transaction could ever be "double spent," meaning the person who bought your goods and services uses that bitcoin to "bless" two separate transactions when they were only supposed to use it once. In cash terms, this would be the equivalent of photocopying a dollar bill and spending it twice. And that's where mining and the block chain becomes important.
With bitcoin, there is a master ledger known as the "block chain." If someone uses a coin to bless someone else's account (i.e. they spend the bitcoin), and that action appears on the master ledger, others are expected to recognize that that coin cannot be reused to bless a second account (i.e. double spent). This ledger is consistent, containing no double-spent coins.
The miners maintain this master ledger. They are paid to do so (by both the "freebie" coins that are minted for the miner with every block and by transaction fees paid on each transaction), and their services are to make it computationally infeasible for anyone to "cheat the system" by breaking down this one master ledger guarantee.
Without miners, there would be nobody to maintain this master ledger. A coin would only be worth how much people trusted it would not be double spent.
There are solutions to this:
- Your solution is that a government entity comes in and becomes the de-facto maintainer of the master ledger in the absence of miners. This turns the currency into something more like a traditional currency backed on the faith of the nation issuing it.
- You could have each individual player try to pitch in and help authenticate the web of transactions in the absence of a formal block chain. This is the approach Iota is using.
- You may find that your bitcoins are utterly worthless, as nobody values your ability to utter a key and unleash the bitcoins you earned.
Of course, none of these will come to pass. In reality, the difficulty of mining a new block scales, as many of the other answers have put forth. Eventually the difficulty will drop low enough that it will become profitable for miners to mine (just as it was profitable in the early days of BTC). The tradeoff, of course, is that the easier it is to mine a new block, the easier it is for a hostile entity to apply enough hashing power to corrupt the block chain, forking it so they can double spend coins. Bitcoin is resilient against such computational attacks because the difficulty of mining is high enough.
Complete loss of mining is not possible I believe. Even if it is possible theoretically, it won't happen in practice unless bitcoin prices goes to zero.
Let's assume total mining power (hashrate) decreases in the network and people choose to not mine. Then difficulty will also decrease, which means total power needed to consume to mine a block will decrease as well. So, at some point mining will again become profitable, and people will choose to mine. It is the basic game theory behind the Bitcoin.
However, there is a way more severe consequence of decrease in total hashrate: Security vulnerability. If total hashrate decreases, it will require less resources to perform a %51 attack and will increase the probability of success of the attack. When people start to think that Bitcoin is no more secure, everybody start to move away, not only miners. Losing users leads bitcoin prices go down to zero. Just like a small snowball which becomes an avalanche.
To sum up, yes losing miners would possibly end up with slowly disappearing of whole Bitcoin ecosystem.
There is currently no way to handle transaction without mining process. If your suggestion of government acting a role in transaction verification happens, then bitcoin becomes non-decentralized and it loses whole point of being open, censorship-free, neutral and borderless.
IMHO it is important for the businesses accepting bitcoin and the people using bitcoin (everyone :)) in the future to each maintain a certain level of hashpower thereby keeping it decentralized and secure.