Bitcoin Forum

EDIT: My thinking in this OP is flawed by my lack of understanding of how the Bitcoin system works.

So I did some more thinking about my post here (http://bitcointalk.org/index.php?topic=62063.0) and specifically the lesson about if there's centralized power to be auctioned off, the auctioned will always follow and a really alarming thought crossed my mind:

I fear I may have discovered a fatal flaw in Bitcoin's design.

(I know what you're thinking: "oh no, not one of those again.." but please hear me out. I'd much rather you prove me wrong than me being right, I just fear that I'm not wrong.)


The fatal flaw is in how network gets secured through CPU power and more specifically the way the reward is tied to the hashing difficulty. Think about it, if you examine the current situation of who the miners are, not the mining pools which are irrelevant to this problem, but the specific individual miners.. who are they? I'll tell you! They are those individuals among us  that have the right equipment and can get electricity at the right price in order for mining to be a profitable venture for them.

Do you see the problem yet?

Miners, in other words those who safeguard the Bitcoin system against any attacks on the system as it is but also safeguarding against a new client with a change of the pre agreed upon rules, are getting whittled down to a small minority that has the capital to compete! Don't you see? It's a clear example of concentration of power! As the difficulty rises less and less miners are able to stay afloat and compete and smaller and smaller is the number of safeguarding individual miners!

It doesn't take a crystal ball to figure out where this is leading.. Eventually you are going to have a few powerful corporations running all the mining power and we're all going to be at their mercy when it comes to the rules of the system. And believe me, it's a given that such concentrated power will inevitably get auctioned off!

Btw this is how Satoshi envisioned the system staying secure in his Bitcoin paper:

Can we really count on a small minority of nodes to remain honest? The entire human history says: NO!


I'm a bit shaken just by thinking about this so please, someone, please put my mind at ease and show me how I am wrong, how the scenario I just laid out isn't going to come true?

All the users client apps still have to accept and allow the blocks of the miner. If the user clients start ignoring blocks from dishonest miners, they wont be included.

+ many people mine because they already have the pc + gpu for it. thats a lot of small miners who can compete because they dont have to pay for hardware and they usually dont account their time into the price either.

I believe this to be false with the rising difficulty without a rising price of Bitcoins.

Mining difficulty tends to be based on the price of Bitcoins (though it lags). This makes it profitable for most people to mine. Only in an event where the price/difficulty correlation dramatically breaks will people with unusually cheap electricity be the only remaining miners. Currently, this is not the situation -- my electricity is not unusually cheap, and I'm making a bit over 2x electricity costs using 5850s, which aren't noted for being particularly energy-efficient. It could be a problem, but I don't see it - right now - being a problem we should worry about.

Wouldn't you say that when the price falls at a certain difficulty it forces the weaker miners out first since the miners with better equipment who are more invested are willing to take and usually can afford some small losses before they'd have to quit?


What I'm asking for is please show me how the number of individual miners is net growing and why and how the number of individual miners isn't net shrinking as I outlined it is. Cause when I look at the Bitcoin history there was a time when there were a lot more individual miners than there are today, so I don't see how you could possibly be right.

Yes, over time, only those with a lot of capital will be able to mine efficiently. But it's not like only businesses in a narrow industry, or only the top three global corporations will be the ones involved.

Even if it costs $10M to do significant mining, since bitcoin will have become mainstream by that time, there will be plenty of big businesses that could get involved if they chose to, possibly thousands. It's been suggested that many might jump in just so they have a way to get their own transactions processed without any fees, since by then fees for quick processing will likely be non-negligible. And of course, there will continue to be new businesses springing up whose only function is mining, distributing profits to the shareholders.

tl;dr - It's not a real concern. Only the scale will shift, not the level of centralization.

Yes, probably, and folks with the more efficient miners & lower electricity rates would probably not even be taking losses while others are forced out due to lack of profitability.

- But, I'm not mining with particularly efficient equipment and I also don't have particularly low electricity rates, but I don't recall there ever being a time when I was losing money mining. So, for now, I don't think we need to worry about mining becoming worryingly consolidated. When FPGA advances a fair bit further than it is, though... it could become a serious problem because most FPGA miner owners won't have any other purpose for it than mining, and because they're so energy-efficient, it doesn't matter much how difficult mining is at a low BTC price, or that there's not much resale value in those circumstances.... They'll just keep mining, and GPU miners will be pushed out.

Depending on what rule changes you are talking about it doesn't matter if 95% of miners choose to switch to say 50BTC reward forever. The power is with the merchants to reject the false coins.

It is interesting (perhaps worrying) to consider how cheaply one could pick up a lot of mining power. If miners are somewhat narrow-mindedly interested in short-term gain they may sell their power for a small % over the coins they get. How many would mine empty blocks only if the pool gave a 10% bonus? If the pool got 50%+ it could decrease difficulty by ignoring others blocks and building only on it's own. I strongly believe enough miners would bail after all they want to actually send their coins right? But with soft totalitarian rules it could conceivably be a problem. For example, very high fees with fees returned to registered members somehow.

I don't think any of this is likely, just thinking aloud.

Please explain to me how they can do that?

They just keep running the code they've been running.   It will reject the 'bad' blockchain being produced by 95% of the miners, and accept the 'good' chain being produced by the other 5%.

I thought the merchants only sent and received transactions and had nothing to do with the blockchain unless they were miners themselves?

EDIT: Also my initial argument was that due to how the system is designed it will eventually lead to a really small minority control 100% of miners and when the switch happens it would be 100% of miners not 95%, what then?

The concern advanced by the OP is the same concern I believe that resulted in "Litecoin", a currency based on an algorithm that favors regular CPUs and that is more difficult to specialize on hardware that would favor those with capital (as compared to SHA256 which favors GPUs, and soon FPGA and ASIC).

I have never been concerned.  The way I see it, if the 99% decides that mining is too centralized with special hardware only available to the 1% and that the 1% is abusing their stewardship, they can pick a block number and a new algorithm and say, "we're switching, see ya", rendering the 1%'s pricey ASIC farms quickly obsolete.

Obviously your own non-mining client can tell what is and isn't an actual Bitcoin transaction, that's how you know you've been paid even before a tx gets in a block. The tx has to have a history that leads back to a valid generation, has to be signed correctly etc.

I've never really gotten how that addressed the concerns. Someone with resources could just buy several thousand high-powered CPUs and do the same thing as folks spending a lot of money on GPUs.

Really, if there's something that can be bought and that is good to own, there's no way to prevent the rich from owning more of it, whether it be gold, U.S. Senators, or hashing power.

Yes I understand. They check the blockchain.. But how can they tell which blocks in the chain are legitimate? If the small minority of miners changes to new rules unanimously, there wont be a fork and everyone will be forced to use the same longest blockchain now being generated under new rules. So how then does a client reject a transaction that is in the blockchain it uses I ask?

If there's new rules, it won't be validated by an old client.  The old client has old rules, and checks to make sure all of the transactions are using old rules as well.  If someone introduces new rules, even if they have 2000 times the hashing power of the current Bitcoin network, the current Bitcoin network still wouldn't accept that new blockchain, since it wouldn't validate to the rules that are built-in to the client.

EDIT:  Basically, it's not JUST the longest blockchain that is accepted, but the longest blockchain that uses the same rules that are hardcoded into the client.

They can tell its legitimate because its in the blockchain in the first place, that means a miner produced it according to the rules of the bitcoin network. If whatever percentage of miners decided to change the rules, they are NO LONGER recognized by the blockchain, they simply dont exist as far as the bitcoin network is concerned.
 

If I passed you a block in which I awarded myself a 100BTC reward for generation, you're client would just be like, "Lol, no. I don't care who else accepts that, I don't". Same thing if someone tries to give themselves 50BTC for block 210000.

1st: this means that all merchants and users need to be downloading the blockchain which I thought there was a consensus that eventually this isn't going to be possible anymore which again leads to centralization..

2nd: wouldn't this mean that when either BIP12, 16 or 17 get rolled out those clients that wont update will essentially ignore the new transactions so Gavin has to get the support from every single user, not just the majority of the miners in order to successfully implement that change?

There's a lot of ways to get around not downloading the full blockchain.  Technically, you could just hold the last 2 blocks, then use those to verify future transactions.  As long as you start with a valid block from a trusted source, the future blocks cannot be calculated wrongly.  The next block's hash is created in part from the hash of the prior block, which is why it is a chain.  So if the prior block is valid, and the next block follows all of the rules that are set in the client, that is all that is needed to verify that a block is legitimate.

As far as gathering current balances for Bitcoin addresses without downloading a full blockchain, well, that's a bit of a different challenge.

I can't speak for the potential BIP changes, only that I know Gavin said it would be compatible with existing clients.

It would be sufficient to get all headers and then fill in with only the full blocks that you actually need. The implementation might be a little bit complicated, but you won't have to trust your source still, you'll be able to check that the block has the required header, and so know that it fits. (I'm not 100% on this actually, someone please confirm.)

My understanding is that those BIPs can lead to miners accidentally making blocks that won't be accepted. Users don't need to get a new version.

Even once multisig transactions are getting put into blocks??? I'm confused because you are sorta telling me it goes both ways, users can reject blocks found under invalid rules but they also wont reject blocks with multisig transactions even if they aren't updated..

It's called backwards compatibility.

I'm totally getting out of my depth here, but I think it's all good because multi-sig has been built in all along. Your client might not be able to fully understand the requirements to spend those tx, but it doesn't matter, it can see that the inputs are greater than or equal to outputs.

edit: now I'm getting lost, won't users need to know if the right criteria has been met in order to tell if that tx can be a valid input in a later tx?

Bitcoin? How does it work?

I did a quick search for backwards compatibility and I didn't find an explanation, so I'd second FreeMoney.

Picked out some interesting things that Gavin and theymos have said regarding the matter...

https://bitcointalk.org/index.php?topic=61125.msg726268#msg726268
https://bitcointalk.org/index.php?topic=60950.msg711055#msg711055
https://bitcointalk.org/index.php?topic=60433.msg709359#msg709359

That's what I found looking real quick.

There is a lot of good information around here and all your points have been hashed(puns!) to death (or are just erroneous assumptions).

RE: lightweight versus heavyweight clients:

First: lightweight clients (like Multibit) that don't store the entire blockchain must rely on the rest of the network to confirm that transactions are valid.  They can't check for themselves (this is true today, and BIP 16 doesn't change that at all).

Full clients do check, but it is still not safe for them to accept 0- or 1-confirmation transactions; an attacker might be sending them an attempted double-spend (and the network might be still be trying to figure out which 'side' of the double-spend will win).  That is also true today.

"Backwards compatibility" means that all valid transactions created by the new software will be accepted as valid transactions by the old software.

But, after BIP 16 is supported by a majority of the network, there could exist transactions that the old software considers valid but the new software rejects as invalid.

So... does BIP 16 make things riskier for people running old software?  Yes, a tiny bit, in the very particular case of 1-confirmation transactions. And that particular attack requires that the attacker manage to mine a block that they know will be found invalid (which is expensive). Again, if you get bitcoins from somebody you do not trust then you should wait until they have 3 or more (6 if you want to be extremely safe) confirmations before considering the payment final.

If you want all the technical details of why BIP 16 does NOT increase the risk for 0-confirmation transactions but does for 1-confirmation transactions... ask me another day (it has to do with how the old software recognizes "Standard" transactions and won't even show you transactions it doesn't recognize).

Ok.

I can't for the life me then understand why you need the majority to support your BIP16 before your role it out? Couldn't you just role it out and let a small minority start using it and see where that takes us? (I know you answered this somewhere before, but I can't remember where exactly it was)


So the only reason for the vote is to gauge whether or not the proposal would eventually achieve majority? If I understood this correctly, maybe you should have stressed that point more.

If clients use bip16/17 before 51% of the miners support it, invalid P2SH transactions can end up in the chain, because old miners will think they are valid.
when 51% of the miners upgrade invalid p2sh transactions will be rejected by minersand will never end up in the block chain- so even if an old client thinks it's valid - it doesnt matter , because there wont be any invalid transactions in the blockchain

Uh-oh, our public, decentralized p2p ledger that bases official history off the total difficulty of computing the ledger has been infiltrated by Ceylons!

No worries, we'll just fight the Ceylons' superior computing power by refusing to upgrade to their new client, and just keep using the old client.

Which is an implementation of the Bitcoin protocol.

Which bases official history off the total difficulty of computing the ledger.

Which is desirable because it solves the problem of having to trust...

...hm, I can't remember.  Gavin-- remind me what problem the Bitcoin block chain solves, I seem to have forgotten.  (Who knows, maybe Ceylons infiltrated 95% of my brain, and since my ability to discern fantasy from reality is based on consensus of my total brain power... um... what I'm getting at is that the Ceylons mean us no harm, why don't you try out their client?  I'm 95% certain you'll like it...)

I'm starting to get the feeling the whole BIP12, 16 or 17 ordeal is a big PR mess brought about by not stressing enough the most important points of it all. I now have a much clearer picture about what's going on and I think my OP was flawed by my lack of understanding of how the Bitcoin system works.

Thanks everyone for clearing it up for me. I still have a concern about how we would deal with 100% of hostile miners which I believe is a possibility but I now believe even that is survivable.

Believe it all you want but a large mining farm w/ tens of thousands of dollars and $5000+ annual electric bill is under more pressure from falling (price/difficulty) ratio than a causal miner who's hardware is dual purpose and may have free electricity.

I don't think you will see the concentration you think you will simply because economies of scale don't really exist.  A 40 GH/s farm isn't much more efficient than a 10GH/s farm.  A 100 GH/s farm has no real economic advantage over a 40 GH/s farm.

Generally consolidation in an industry exist when 2x > x + x.

not necessarily true. a company could create an ASIC and keep it to itself
this will be very inefficient for making a 10ghash farm, but could be better than FPGAS for 10terrahash farms
currently the total value of bitcoin isnt large enough to attract "big players"

However they won't be able to keep it to themselves.  If Bitcoin is big enough to warrant ASIC investment then someone else will make it, release it to the public and there goes that "advantage".   That risk alone likely means whoever make an ASIC SHA-256 processor will release it to the public to recover their capital before being undercut.