As mining becomes harder transations sent without transaction fees will be unlikely included in one of the next blocks. I think it is best to think of transaction fees as a bid offer towards the miners to include your transaction. It is up to you to pay a fee and up to them to confirm your transaction in a block. There in no fixed transaction fee and since finding a block is a random process (i.e. a mining pool will find blocks in a frequency based their share of the total computation power of the network) sometimes you might be included earlier .. sometimes later (depending on the policy of the mining pool that found the block). The higher your bid for inclusion in a block the more likely it is going to happen with the next block.

Size is measured in bytes, not BTC. You can use http://blockexplorer.com/ to inspect completed blocks. If you combine many BTC amouts that you received independently in a transaction the size of the tansaction will be larger than when you use only a single source address.

(please correct me if I am wrong..)

I guess https://en.bitcoin.it/wiki/Transaction_Fee needs an update to reflect the lastest client changes https://github.com/bitcoin/bitcoin/commit/6de1326ba4a35ab781107a8b56f74affaed87cba.

@digimac: Which bitcoin client version are you using? You are probably not using the latest (0.3.23) version, are you?

There seems to be the misconception that faster hardware could generate more coins. But this is only true in so far as you might be able to get a bigger share of the fixed daily production of 50 * 6 * 24 coins that are generated on average. Lets say I would have a super-computer which could generate 20% of the current bitcoin network procossing power in Hashes per second.. but the cost for operating it would be much higher than what the expected amount of solved blocks/bitcoins would cost at an exchange. Then I would not power up my super node but start buying BTCs from a cheaper producer.

Currently the electricity costs for mining a BTC are lower than the price payed at exchanges like Mt. Gox. But already today the profit margin is different for systems with different efficiency rates and also depending on the price for electricify which a 'legal' miner has to pay. We will very likely see in the next couple of month if not faster, that the profit margin for current GPU hardware will go towards zero. And the important point here is that it is not possible to buy a faster GPU that is less energy-efficient to increase the profit margin - if you cannot improve the efficiency of your system or find a 'provider' electric power who is cheaper .. you would loose money continuing to mine with your inefficient (sub-threshold) system.

Therefore: Speed alone (hashrate) does not help you. A 'legal' miner can only make profit (and e.g. generate the money for his/her rig) when he is using hardware that has a kW/h per GHash efficiency above a certain threshold.

Viewed differently: Imagine the daily 'production' of ~7200 coins would be worth 100.000 USD at Mt. Gox and that price would stay constant. At the same time the number of miners would increase until a saturation plateau is reached. If all miners would daily convert their coins (not acting as traders/speculator) an ever increasing fraction of the 100.000 USD would go to the suppliers of electric energy...

As far as I know the price for mining a single troy ounce currently is >500 USD. If it would be possible for everybody to dig a hole in their garden to mine an ounce with half an hour work it would be worth near nothing. It is pretty sure that you as an individual cannot effectively mine gold for less money then it is sold.

Could you please provide a reference for the 400 USD per Kg statement?

I read about the LargeCoin ASICs rumors yesterday for the first time. Before that I only heard about experiments with FGPA chips. Indeed if it worked - ASICS would become the primary (most cost efficient and thereby most effective) way of mining - mostly because they are more energy efficient compared to GPUs in Watts per GigaHash. Therefore I would not agree that 'energy prices are irrelevant'. Rule of thumb should be: More efficient machines will crowd out less efficient ones. As soon as a miner figures out that running costs are higher than the market price for him he has to stop mining immediately - even when he believes that the price for bitcoins might rise dramatically - buying at an exchange from somebody who is able to mine at lower costs would be more effective. If holding/investing in BTCs is not an option for such a sub-threshold-miner he has to invest in more efficient hardware or simply will go away...

Very efficient specialized hardware (compared off the shefs products available to the masses) in the hands of a single entity could have a significant impact on the bitcoin ecosystem. If nobody can catch up this entity could reinvest all generated coins into hardware until it would possess >50% of the network's computational power. This would then allow to dictate transaction fees by not accepting blochs of other miners because eventually the longest blockchain would be generated by machines of that entity itself.

If there will still be competition between a high enough number (>oligopoly) energyefficiency will be their primary area of optimization.

Regarding my original post I agree that it might not be possible to run a ASICs super-computer with significant power consumptions hidden in the corner of a youth center. Parasitic mining would make senes only with the latest generation of minig hardware (a factor of up to 1/10 might be ok - but if others have 100 times more effective machines it will not be worth making a profit of 1% of the energy costs paid by your boss).

I would like to create awareness of an economic effect that will make BTC mining in general an illigal activity. In short: Mining will become too expensive for full-cost paying 'legal' miners (who pay for their power consumption). But this is not going to stop parasite-miners who will crowd them out...

While thinking about rational behavior of BTC users and miners I thought about the fair price of a BTC and how it is tied to the cost of mining a BTC. I realized that the current situation in which it is possible for all enthusiasts to run (seemingly) profitable mining rigs is a short term market abnormality which is inevitably doomed to disappear soon - completely independent of the BTC price level at the exchanges. I predict the price for mining per BTC (i.e. the costs for electricity (kW/h) that has to be afforded) will in the long-term be higher than the exchange market price that can be earned for selling it - thus for 'normal' people mining will become a money-losing endeuvor. Mining will inevitably become a parasitic (mostly illegal) activity.

The reason for this is quite simple: Whenever the market price for one BTC is higher than the mining cost it will motivate people to participate in mining thereby making the mining task more difficult for all miners. At first I thought this would allow profitable mining only up to the point where the running costs for mining stay below the market price. But then I realized that today there are two completely different groups involved in mining: the full-cost paying 'legal' miners and on the other hand the 'illegal' parasitic miners who use secretly computers in public organizations (universities, youth centers etc.) or privat companies. The big difference between those two groups is that the latter does not have to pay for their power consumption what makes mining attractive for them even when the actual costs for the host organisation owning the machines would be prohibitive.

In the BTC mining business the costs for electric power will dominate everything. At first rational miners in regions with the highest energy prices will be squeezed out by miners in regions with lower costs. But finally as the parasite group keeps growing it will eventually make legal mining too expensive .. even for the lowest non-zero energy cost payers.

In the end all mining activity could be performed by illegal/parasitic miners. While the price for one BTC will be higher the price for mining a new one. It is a simple crowding-out effect that places in if the number of parasitic computing power keeps increasing - the parasites are the only ones who keep making profits even when their hosting organization has much higher than break-even expenses.

I wonder whether this has been discussed before and if it could become one of the major points of critique in the public debate (beside the money laundering thing of course). One of the good things about the parasitic BTC mining is that it may act as a support for the BTC value - because everybody then knows that a substantial amount of money had been stolen/sucked out of some business entity for mining the BTCs.

(Due to the high number of posts I am not 100% sure whether this topic has been addressed before - if it has, please let me know the thread uri.)

/blueling

Very interesting. If a single group dominated the mining computations (>50%) I would immediately stop using BTC. As far as I understand the proof of work concept they could this way simply ignore all blocks solved by others and only keep extending their 'own' blockchain version, wich would always eventually be the longest. They had total control over all transactions .. they could for exmple decide only to include transactions with a fee of X BTC. Or wouldn't it be that easy to ignore blocks found by the minor fraction of the processing power?

From a user's perspective this is quite easy:
I would consider using your exchange if it would be trusted by the Bitcoin community - so that I can be pretty sure that account withdrawal actions succeed without delay or trouble and depositing money at your site would be as safe/secure as at my bank. And also very important is stability and speed of the trading site itself. Your site will definitely become a frequent target of DDoS and other attacks. In general of course there is enormous potential in creating a better site than e.a. Mt Gox.

The idea of a cross exchange protocol is quite interesting. But I guess exchanges will not help you to become a dominating central market gateway. Maybe this could be realized with an open source standard protocol - preferrably distributed.

But a more general business question: Are there not a couple of tricky regulative issues when you want to open an exchange? Do you plan to found an offshore company or something like that? Effectively you want to create something like a bank... I do not know the legal situation where you live .. but were I live this would definitely not be easy.

  Hi everybody! 

Has anybody here already withdrawn money from his/her Mt. Gox account? I wondered whether there might be hidden costs through unfavorable conversion rates. I am especially interested in SEPA bank tranfers in EUR. I heard when you tranfer money in EUR to them you get a really fair conversion rate from EUR to USD - is this the same in the opposite direction when you want to withdraw money from your account? Of course they officially state that they deduct a 2% commission ...

wow - I just realized that it is more challenging than I thought to convince yourself to write 5 completely useless newbie msgs. Maybe it is an effective filter to keep out people who are not used to writing nonesense posts and attract only the trolls... 

I would like to create awareness of an economic effect of BTC mining that will make mining most likely become an near 100% illigal activity in the near future (without governmental intervention). My main point is that mining will become unreasonably expensive for all full-cost paying legal miners (who have to pay for their power consumption).

Here is my bit of theory about BTC mining:

While thinking about rational behavior of BTC users and miners I thought about the fair price of a BTC and how it is tied to the cost of mining a BTC. I realized that the current situation in which it is possible for nearly all enthusiasts to run profitable mining rigs is (probably) a short term market abnormality which is inevitably doomed to disappear soon - completely independent of the BTC price level at the exchanges. I predict the price for mining per BTC (i.e. the costs for electricity (kW/h) that has to be afforded) will in the long-term be higher than the exchange market price that can be earned for selling it - thus for 'normal' people mining will become a money-losing endeuvor. Mining will inevitably become a parasitic (mostly illegal) activity.

The reason for this is quite simple: Whenever the market price for one BTC is higher than the mining cost it will motivate people to participate in mining thereby making the mining task more difficult for all miners. At first I thought this would allow profitable mining only up to the point where the running costs for mining stay below the market price. But then I realized that there are two completely different groups involved in mining: the full-cost paying 'legal' miners and on the other hand the 'illegal' parasitic miners who use secretly computers in public organizations (universities, youth centers etc.) or privat companies. The big difference between those two groups is that the latter does not have to pay for their power consumption what makes mining attractive for them even when the actual total costs for the organisation owning the machines would be prohibitive.

In the BTC mining business the costs for electric power will dominate everything. At first rational miners in regions with the highest energy prices will be squeezed out by miners in regions with lower costs. But finally as the parasite group keeps growing it will eventually make legal mining too expensive .. even for the lowest non-zero energy cost payers.

In the end all mining activity will be performed by illegal/parasitic miners. While the price for one BTC will be higher the price for mining a new one. It is a simple crowding-out effect that places in if the number of parasitic computing power keeps increasing - the parasites are the only ones who keep making profits even when their hosting organization has much higher than break-even expenses.

I wonder whether this has been discussed before and if it could become one of the major points of critique in the public debate (beside the money laundering thing of course). I currently do not see a way to get around this 'problem'. One of the good things about the parasitic BTC mining is that it probobly acts as a strong support for the BTC value - because everybody then knows that a for generating the BTC a substantial amount of money has been stolen/sucked out of some business entity.

I would like to discuss this with the readers of the 'Economics' forum board. Due to the high number of posts I am not 100% sure whether this topic has been addressed before - if it has, please let me know the thread uri.

Comments are welcome!
/blueling

PS: It would be nice if an admin could release me from the newbie-box.