Making money with Bitcoin?

One should keep in mind that by not pooling you aren't actually losing output, you just have a bigger variance in outcome. If you intend to keep mining for at least a year or so, having a week or two with no return won't be a big deal. If you do not intend to keep mining for that long, it's hardly going to be worth the effort of setting up a pool.

Thank you for clarifying that. I initially assumed that humans formed pools because that increased the rate of return per unit of computation invested, but did not see how that could be. Your explanation of the decrease in variance resolves my confusion.

On a separate note, a macroeconomic scenario where people accumulate wealth on a large scale by running powerful computers performing useless hash checks (while they could be helping with Folding@home or something) is a little disturbing. At least precious metals and gems are nice to look at, and have several industrial uses.

Every person who joins Bitcoin increases the network size, which in turn increases the probability that it will cross the threshold beyond which it will be popular enough to replace other currencies in common transactions. That is an additional, external benefit of spending computation on Bitcoin, and it helps beings like me, who have significant difficulty in interfacing with the financial system but not with electronics.

It would also help those who desire more anonymity in exchanging money.

Good point, pooling isn't currently worth that much in the long term, except in the sense that the instant feedback can be motivating. But it is also worth keeping in mind that smaller amounts may come to be worth more over time if it ever takes over a significant segment of the economy. The higher the value of bitcoin the less tolerable this kind of variance is.

My thought regarding the macroeconomic scenario described is that it would actually result in more processing time available for sale at cheaper rates. This is because the more processors that are already allocated towards bitcoin the more additional processors are needed to make any kind of profit. At some point it becomes more profitable to sell processing time elsewhere due to the cost of electricity and equipment. By this time a highly efficient system for generating processor power has already been developed. One thing that could help the bitcoin economy as well as Folding@home would be a charitable drive that pays miners to allocate processor time to folding instead of bitcoin.

I'm not sure if structured ASICs and other highly customized hardware is as useful for folding as it is for mining bitcoin. However, there are probably a lot of GPU miners who will need something to do with their equipment when they can no longer profitably mine bitcoin.

The botnet would need to have a lot of very fancy GPUs at its disposal.

The advantage of GPUs is they provide huge parallelization, and advantage botnets achieve by have lots of computers.

Not impossible, but increasingly less plausible the more miners are added to the network.

This doesn't account for computing power per person, but I would guess that there are a lot more people who don't secure their computers than people interested in bitcoin.

f you were trying to set up such a network, you would probably have to target high-end gaming devices.

There is no need to target only high end machines, the botnet would grab whatever unsecured computing resources it sees.

If you could do that, you would probably be more interested in mining bitcoin to sell it.

A bitcoin mining botnet could be repurposed to a bitcoin transaction forging botnet when the creation of bitcoins is slowed and stopped.

If you value 1 BTC at $25, you should just buy BTC with cash directly.

I should, but I'm not confident enough of my analysis to spend anything but some electricity & time, and I'm very low on money anyway.

If I had a stable income and some savings, I hope I would have the intellectual honesty to invest a few hundred/thousand dollars* into bitcoins (and probably gold while I'm thinking about high-payoff speculation).

Apparently, either most people have not considered that a bitcoin may eventually be worth more than $10,000, or they think the probability of this happening is closer to 0.01%.

Could be both, plus a general refusal by educated/techie types to act on reasoning that smacks too much of lotteries and Pascal's Wagers.

* Past that I think you get into interesting issues about how much and whether to start discounting bitcoins because $50 million of bitcoins in the jackpot scenario isn't twice as valuable to you as $25 million of bitcoins in said jackpot scenario. The expected utility isn't static but should also shrink as one accumulate bitcoins.

Can you change the rules of Bitcoin to help us?

Is there any reason why Bitcoin cannot co-exist with other similar e-money schemes? If e-money in general is a winner, then the fact that there can only be 21 million Bitcoins in particular is no longer relevant.

I haven't actually applied any serious economic analysis to the problem, but I'm very suspicious of the fact that Moldbug's argument not only uses but actually relies upon a feature of Bitcoin that would serve as an obstacle to its use as a major currency, viz. the relative rarity of bitcoins. Unless there's a highly robust way to trade in fractional bitcoins that I've never heard of, that puts an effective -- if soft -- upper bound on the currency's total value.

ETA: Okay, apparently fractional bitcoins can be traded. This is less of a problem than I originally thought.

Right, and then the number of possible coins goes up. That's the point. They likely won't actually run into this limit.