Quote from: Wouter Drucker on April 25, 2013, 04:38:02 PM

Wouldn't it make more sense if some of that growing computer power where to go to make the network scale (make it faster and allowing it to handle more traffic)?

First of all you have to understand that the currently 25BTC reward that miners get per block, the inflation subsidy, is set in stone and just isn't going to change from the schedule Satoshi set. So miners are going to get, via inflation, a significant percentage of the total value of the Bitcoin market cap every year. Right now that percentage is 12%, and it drops to approximately 4% in 2017. That's a lot of money getting spent on mining.

Secondly hashing power is what ultimately keeps Bitcoin secure. A 51% attacker has to somehow get more hashing power than the rest of the Bitcoin network combined. Hopefully that is just too hard to do, but if we make it easy enough that someone can, Bitcoin has a very, very high chance of completely failing. So we can't take that risk lightly.

The thing is mining income doesn't only go to purchasing and operating mining equipment, it also goes to the overhead required to operate a full Bitcoin node that stores and processes transactions. Bitcoin has a limit of 1MB of data per block, or roughly 7 transactions per second. With that limit the cost to operate a Bitcoin node is pretty small, and the network connection required to do so doesn't need much bandwidth. Importantly, you can contribute to Bitcoin's security via mining behind anonymous internet connections easily, such as Tor.

If we put more transactions on the Bitcoin blockchain, well, miners are just going to have to spend more money on network connections, disk space, and servers, money that could have gone to the hashing power that keeps us secure. For Bitcoin to grow to the level of, say, Visa, you'd need to be buying a new harddrive every week or two just to store the transactions that haven't been spent yet, not to mention you'd need a very expensive data-center-level internet connection.

Finally, it's not like the computing power that goes to mining is general purpose. It's a very, very specific math problem that is most efficiently done by highly specialized processors with chips (ASICS) built to mine Bitcoins and nothing else. You just can't use that computing power for anything else, and if you could, Bitcoin wouldn't be secure because you need that math problem to have very specific properties, properties that mean it has to be useless for any other purpose.