Everybody knows about bitcoin, but fewer know what goes on under the hood. Bitcoin provides the world a trustable ledger for transactions without trusting any given party such as a bank or government. Everybody can agree with what's in the ledger and what order it was put there, and that makes it possible to write transfers of title to property -- in particular the virtual property called bitcoins -- into the ledger and thus have a money system.

Satoshi's great invention was a way to build this trust in a decentralized way. Because there are rewards, many people would like to be the next person to write a block of transactions to the ledger. The Bitcoin system assures that the next person to do it is chosen at random. Because the winner is chosen at random from a large pool, it becomes very difficult to corrupt the ledger. You would need 6 people, chosen at random from a large group, to all be part of your conspiracy. That's next to impossible unless your conspiracy is so large that half the participants are in it.

How do you win this lottery to be the next randomly chosen ledger author? You need to burn computer time working on a math problem. The more computer time you burn, the more likely it is you will hit the answer. The first person to hit the answer is the next winner. This is known as "proof of work." Technically, it isn't proof of work, because you can, in theory, hit the answer on your first attempt, and be the winner with no work at all, but in practice, and in aggregate, this won't happen. In effect, it's "proof of luck," but the more computing you throw at the problem, the more chances of winning you have. Luck is, after all, an imaginary construct.

Because those who win are rewarded with freshly minted "mined" bitcoins and transaction fees, people are ready to burn expensive computer time to make it happen. And in turn, they assure the randomness and thus keep the system going and make it trustable.

Very smart, but also very wasteful. All this computer time is burned to no other purpose. It does no useful work -- and there is debate about whether it inherently can't do useful work -- and so a lot of money is spent on these lottery tickets. At first, existing computers were used, and the main cost was electricity. Over time, special purpose computers (dedicated processors or ASICs) became the only effective tools for the mining problem, and now the cost of these special processors is the main cost, and electricity the secondary one.

Money doesn't grow on trees or in ASIC farms. The cost of mining is carried by the system. Miners get coins and will eventually sell them, wanting fiat dollars or goods and affecting the price. Markets, being what they are, over time bring closer and closer the cost of being a bitcoin miner and the reward. If the reward gets too much above the cost, people will invest in mining equipment until it normalizes. The miners get real, but not extravagant profits. (Early miners got extravagant profits not because of mining but because of the appreciation of their coins.)

What this means is that the cost of operating Bitcoin is mostly going to the companies selling ASICs, and to a lesser extent the power companies. Bitcoin has made a funnel of money -- about $2M a day -- that mostly goes to people making chips that do absolutely nothing and fuel is burned to calculate nothing. Yes, the miners are providing the backbone of Bitcoin, which I am not calling nothing, but they could do this with any fair, non-centralized lottery whether it burned CPU or not. If we can think of one.

(I will note that some point out that the existing fiat money system also comes with a high cost, in printing and minting and management. However, this is not a makework cost, and even if Bitcoin is already more efficient doesn't mean there should not be effort to make it even better.)

CPU/GPU mining

Naturally, many people have been bothered by this for various reasons. A large fraction of the "alt" coins differ from Bitcoin primarily in the mining system. The first round of coins, such as Litecoin and Dogecoin, use a proof-of-work system which was much more difficult to solve with an ASIC. The theory was that this would make mining more democratic -- people could do it with their own computers, buying off-the-shelf equipment. This has run into several major problems:

• Even if you did it with your own computer, you tended to need to dedicate that computer to mining in the end if you wanted to compete
• Because people already owned hardware, electricity became a much bigger cost component, and that waste of energy is even more troublesome than ASIC buying
• Over time, mining for these coins moved to high-end GPU cards. This, in turn caused mining to be the main driver of demand for these GPUs, drying up the supply and jacking up the prices. In effect, the high end GPU cards became like the ASICs -- specialized hardware being bought just for mining.
• In 2014, vendors began advertising ASICs for these "ASIC proof" algorithms.
• When mining can be done on ordinary computers, it creates a strong incentive for thieves to steal computer time from insecure computers (ie. all computers) in order to mine. Several instances of this have already become famous.

The last point is challenging. It's almost impossible to fix. If mining can be done on ordinary computers, then they will get botted. In this case a thief will even mine at a rate that can't pay for the electricity, because the thief is stealing your electricity too.

Some recent press and talks:

Earlier in June I sat down with "Big Think" for an interview they have titled "Robocars 101" explaining some of the issues around the cars.

On my recent wanderings in Europe, I became quite enamoured by Google's latest revision of transit directions. Google has had transit directions for some time, but they have recently improved them, and linked them in more cities to live data about where transit vehicles actually are.

25 years ago, on June 8, 1989, I announced to the world my new company ClariNet, which offered for sale an electronic newspaper delivered over the internet. This has the distinction, as far as I know, of being the first business created to use the internet as a platform, what we usually call a "dot-com" company.