I'm a software dev who is considering becoming a bitcoiner, mostly to explore its possibilities. I think a currency free from the baggage of the modern financial systems will allow great things to be done. I see lots of other people are thinking the same way (there are numerous BC prediction markets, for example).

However, I don't want to invest time and money in a seriously flawed or doomed system.

BC appears to have at least one potentially-fatal flaw: the 51% attack. I'm unsure why it was assumed this would not be a problem? Profits from mining would seem to increase when on reaches over 50% of the world's mining power. This would seem to encourage powerful mining pools. While current norms and other incentives may discourage black-hat miners, I don't think it is reasonable to rely on these incentives.

Edit: In other words, is there an economy of scale in being the dominate miner?

Edit 2: While it looks like there was a successful BC double-spend, it was the result of a white-hat exploiting a bug, not a 51% attack. However, a few altcoins (e.g. reddcoin) have been the target of 51% attacks, so my research on their repercussions will start there.

In addition, BC would appear to have a number of other flaws:

  • The necessity for each wallet to contain the entire block chain. Edit: Apparently I was reading some dated information. This is wrong.
  • Governments have never seemed keen to give up their monopoly on the money supply.
  • The computing power wasted by mining.
  • It complects the generation of a public ledger with a specific currency.

Side note: After reading about BC and 51% attacks, I am beginning to think "the network effect is the mind killer" might be a more general expression of "politics is the mind killer". There is a lot of noise out there.

Help and insight is appreciated.

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The necessity for each wallet to contain the entire block chain.

This isn't actually an issue. Lite wallets exist.

Governments have never seemed keen to give up their monopoly on the money supply.

Indeed, they would prefer not to give up this monopoly. Earlier attempts at creating things similar to Bitcoin such as e-gold failed because they lacked the decentralization component, and could be attacked by governments. However, it is extremely difficult for Governments to kill bitcoin. They can make it dangerous to use in their localities, but thats about it. At the present time it seems that most governments are not even attempting to take this action. Bitcoin has been legitimized sufficiently in the US, and has hundreds of millions of dollars of VC funding poured into its infrastructure now, so it would be difficult for the government to now do a 180 and try to ban its use.

The computing power wasted by mining.

Or as you noted, 'used inefficiently'. I agree this is a problem. The question is: is there actually a better answer out there which does not require this. If a solution existed which was equal in ability to secure the network but required less computaiton power (energy), then it would clearly be superior. There are a number of other methods being experimented with in altcoins. I don't think there is a clear answer right now. (But there are definitely lots of people who believe strongly that proof of work is the only way, and some people who believe strongly that it is nothing but a waste of energy).

After reading about BC and 51% attacks, I am beginning to think "the network effect is the mind killer" might be a more general expression of "politics is the mind killer".

If you mean that lots of people tend to become devoted to one blockchain, and start treating it like a religion where it is the only true blockchain and all others must die, then yes there are people who do that. (Both for bitcoin and for others). It can be mind killing for many. Tribalism is the mind killer!

That said the size of the network of adopters of a blockchain ledge is probably the most critical measure of its success. Bitcoin has grown significantly over the years in this regard which is why it is valuable. So when people quote network effect as being a big deal, they are correct.

[-][anonymous]8y 3

Tribalism is the mind killer!

I like that.

[-][anonymous]8y 6

Bitcoin developer here.

  1. Wallets do not need to store the entire block chain. The vast majority of wallets do not. They use Simple Payment Verification mode where they simply request transactions involving them from peers and receive proofs of inclusion. It is a reduction in trust, but does retain some economic security guarantees.

  2. Governments have tolerated other currencies in the past and the present. Look at community / local currencies, for example.

  3. Look at the economic waste that goes into the existing financial system. In terms of raw dollars, the money spent on mining is trivial compared to the money spent securing the fiat world.

  4. In the near future we will see viable schemes for generating other assets on block chains that play well with the p2p currency bitcoin.

Bitcoiner here, so bear that in mind

A 51% attack is hard. It's come close to happening once with a mining pool called GHash.io. The community quickly responded, and as of right now, the largest pool has about 17% of the network hashing power, and GHash.io has about 4%. The current state of network power distribution can be viewed at https://blockchain.info/pools , as well as other blockchain watching services. It is in any particular miners interest to be in the largest pool possible, but counter to any miners purpose to be in any pool with the possibility of making a 51% attack, since a successful 51% attack would be the end of bitcoin's market value, which makes their investment in mining equipment worthless. This has, so far, been successful.

Each wallet does not need to contain the entire blockchain. It is generally recommended that, if you are not running a full node contributing to the network, you use a thin wallet that queries the blockchain, or a trusted blockchain monitoring service, in order to asses balances and get data needed to make new transactions in a much less data-intesive manner.

Governments are not keen to give up their monopoly on the money supply, but there are limits to how much they can do to maintain it. There have been several instances historically where government control of the money supply is undermined by the economic reality of people just using other things to conduct business, regardless of the legal status of such business.

Mining is not "wasted" computing power, but rather power being put to the specific purpose of verifying and securing the integrity of the bitcoin blockchain database. It is no more a waste of resources, than the concrete, steel, and construction time of a bank vault. It's just not doing anything else, like creating an emergency shelter, or storing non-bitcoin valuables.

If you have a non-currency based idea to get people to properly secure a publicly editable, decentralized, ledger such that malicious actors cannot alter it to suit their needs, I'm more than willing to hear it. Until I see such a proposal, I don't see the addition of currency to a blockchain as a complication, but rather as a necessary function. There has to be something which incentivises people to engage in the process of securing the ledger, and that is the receipt of valuable entries on the ledger, those entries being useable as currency.

It looks like other blockchain technologies (altcoins) have been the victim of 51% attacks, so I'm going to read up on their repercussions. I wonder if they were carried out by bitcoiners who don't like competition?

It occurs to me that little can probably be done to stop attacks on distributed systems by large actors with non-monetary goals. If people are willing to throw a lot of resources into destroying a fledgling technology, they will probably succeed.

I do have an idea for a distributed public ledger in which attacks are possible but always negative-sum. I have little experience with cryptography so its probably rubbish. If it looks to not be terrible I will probably post it here for comment.

I do have an idea for a distributed public ledger in which attacks are possible but always negative-sum. I have little experience with cryptography so its probably rubbish. If it looks to not be terrible I will probably post it here for comment.

Feel free to post your idea. No one expects you to revolutionize an industry in one post. Its fun to throw ideas around.

A 51% attack is hard. It's come close to happening once with a mining pool called GHash.io. The community quickly responded, and as of right now, the largest pool has about 17% of the network hashing power, and GHash.io has about 4%. The current state of network power distribution can be viewed at https://blockchain.info/pools , as well as other blockchain watching services.

According to the site you linked, the four largest pools control over 50% of hashing power. Would it be unrealistic for them to collude? How do you know that it has not already happened?
Also there is 19% of hashing power which is listed as "unknown". Presumably this should be from miners who are not part of any pool, but how can you exclude collusion?

It is in any particular miners interest to be in the largest pool possible, but counter to any miners purpose to be in any pool with the possibility of making a 51% attack, since a successful 51% attack would be the end of bitcoin's market value, which makes their investment in mining equipment worthless. This has, so far, been successful.

That sounds like a tragedy of commons scenario, which isn't promising.

Also, publicly distinct pools could collude in secret. I presume that whoever pulls it might make perhaps hundred million dollars by double-spending before the attack is discovered and Bitcoin value plummets to zero. And if you are a bitcoiner who is convinced that somebody is going to do that sooner or later, then you have an incentive to be the first to do it.

More generally, one of the common criticism of Bitcoin is that the infrastructure is currently supported by "stupid money", since mining has a lower RoI than other forms of investment. In fact, there is some speculation that the RoI may be actually negative when considering hardware costs, and current miners are just trying to partially recoup the costs of the hardware they wrongly purchased when Bitcoin was at ~$ 1,000.
This doesn't bode well for the long-term sustainability of the infrastructure.

If a single entity controlled 51%, it could double-spend, though that would be obvious. There are more subtle attacks that are not so obvious and even require less than 51%. But I'm pretty sure that they haven't happened because mining pools are not single entities.

These attacks require tight collusion. They require everyone in the pool to use the same software. The many people in the pool are many opportunities for the secret to leak. Moreover, I believe that most pools are open entry: people can join them and learn what software they are using.

Thanks, I did not know about https://blockchain.info/pools.

On the 51% attacks, I was specifically thinking of state actors. However, mightn't any eventuality which leads to a lot of Bitcoiners who aren't enthusiasts or have ulterior motives (Bond villains?) be an issue? The current state of the BC community is probably mostly BC enthusiasts, i.e. people who aren't just in it for the money.

You're right that "wasted" was a poor term; "inefficient" would be better.

State actors would need to aquire mining hardware in order to make a 51% attack. Several million dollars worth of it. Trying to do so would have obvious effects on the small bitcoin mining equipment market, and unless the government turned all their machines on at once, they would spend the time they ramp up to a 51% attack actually strengthening the network, and causing other miners to also buy more equipment to keep up with the new difficulty.

This is certainly a possibility, if someone in the government recognizes the potential threat bitcoin offers to the government money monopoly. However, anyone smart enough to recognize the threat is also incentiveized to not tell the government about the threat, or even downplay the threat, while investing in bitcoin themselves, as if the threat materialized they will become significantly wealthier than they would through a government job.

As for the inefficient argument, the operating costs of bitcoin (mining) should be compared to the operating costs of more traditional money transfer services of similar size. Think armored cars, vaults, double book accounting, and other such things that a 3-4 billion dollar firm engaged in money transfer would need, and compare those costs to the costs of blockchain mining.

causing other miners to also buy more equipment to keep up with the new difficulty.

No, that's backwards.

Only if the miners are all behaving rationally. Sunk Cost fallacy is a thing in far more people that it is not.

Plus the investment in the mining equipment market will make for more efficient mining equipment, which would be needed for the new difficulty. We'd have a second mining equipment bubble.

I'd love to talk more with you about Bitcoin and overcoming the negatives. I recently jumped in head first when I discobeed that btc had some established tech that I could use for hypercapital.info. Send me a message if you'd like to talk more.

Regarding 51% attacks, proof of work algorithm and alternatives: https://download.wpsoftware.net/bitcoin/new-pos.pdf

This is a good technical article that describes the mining/consensus algorithm of bitcoin, (but maybe not very readable to non-technical people). It also discusses the main current alternative, proof of stake, and shows that an issue with proof of stake which is not present in proof of work is that anyone who is new to the network or goes offline and then is reconnected is required to trust some entity / community / etc, that the blockchain they are using is the 'correct' one, and not one which was reforged over a period of time using old private keys purchased from former holders, etc.

"This is not a distributed consensus! It is a different sort of consensus, which may be formed amongst always-online peers in a decentralized way, but depends on trust for new users and temporarily offline ones. It is correspondingly vulnurable to legal pressure, attacks on “trusted” entities, and network".

On the other hand, Bitcoin's proof of work algorithm is expensive and energy consuming, while Proof of stake is low cost.

Depending upon the purpose you are using the blockchain for, this is a tradeoff that might be acceptable. If the goal of the blockchain is to be the ultimate store of ALL value, then I think Bitcoin's Proof of Work algorithm is probably required. If the goal is to utilize blockchain technology for various other applications, where you might not need to pay for absolute security and merely being 'very difficult' to attack might be sufficient, the lower cost alternative might be superior, imo. There is more of an element of human consensus and trust in PoS than in PoW, for example, you might have to trust a developer team, the reputation of a company, or the collective community of users.

However, large mining pools also are a threat to decentralization, as you noted. If a few or even a couple mining pools control enough hash power to launch an attack, then you have to trust the mining pool operators in PoW just like you have to trust a developer / community / company / whatever who you are downloading a blockchain snapshot from in PoS.

I don't think there are yet any definitive answers on these issues yet, which is why I favor diversifying among different experiments. Of course, many others believe they have the answer, so they either only want Bitcoin, or only want . If the Bitcoin maximalists are correct, they save themselves the ~10% cost of diversifying among the different experiments right now. I'll pay the uncertainty tax and diversify in order to not be wrong.

[-][anonymous]8y -2

I think mining is not a low-hanging fruit anymore, the return on investment dropping as some people made some really big rigs? Not sure, just rumours.

My general opinion is that taxation, the mandatory accounting for taxation, and business regulations are really a problem for small scale-transactions with real money, compare how easy it is to invite non-paying guests over for a dinner in your a garden vs. every day with actually paying guests i.e. opening basically a tavern that has one meal and two drinks, suddenly you would have to comply to many regulations and taxes.

The common solution for that is barter, perhaps barter is theoretically taxable too but in practice the pausible deniability is very high, you can claim you just helped John paint his apartment because you are friends and he is just teaching you guitar because you are friends.

BitCoin can theoretically make this barter easier, in theory, very literally speaking it is tax cheating, but I prefer to call it easier barter or favor exchange.

However I am not 100% sure it is so in practice. Take the idea of giving guitar lessons. You don't want to register a business, you don't want to keep accounts, and don't want to pay taxes, maybe an income tax yes but generally not want to do all the stuff a one person business would have to do, write invoices with VAT and all that (I am thinking in an Euro framework). Is advertising guitar lessons for cash under the table is so much more dangerous than advertising it for BitCoins? Does this even make sense?