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Thanks, I find it very ironic that I'm advocating decentralized self defense after 2 years of trolling the open carry crowd on the forums.
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NOTE: This is about the implications of game theory, not adjustments to how the network operates.
Hypothetical (bad) Strategy for dealing with selfish mining:
1) Say that a new pool can form at the drop of a hat. The new pool offers big rewards. All the miners are greedy and they jump to this pool. The pool does selfish mining to be able to afford the big rewards.
2) Gavin asks everyone to switch to a good pool and everyone listens.
3) The new pool closes down.
Why is this bad? Because as soon as (3) occurs we can go back to (1). As long as people are tempted by higher rewards the selfish pools can keep appearing and shutting down. The people who mined at the bad pool will get rewarded and be encouraged to repeat their behavior.
Hypothetical (good) Strategy for dealing with selfish mining:
1) Say that a new pool can form at the drop of a hat. The new pool offers big rewards. All the miners are greedy and they jump to this pool. The pool does selfish mining to be able to afford the big rewards.
2) Gavin picks a pool at random and asks everyone to switch to this pool. Gavin tells this pool to do selfish mining for 1 week. All other pools will be forced to close. The selfish pool can take a higher than normal % because it is a monopoly. (miners don't like this but they don't have a choice; the other selfish pool would have exploited them anyway)
3) All the miners are sad because Gavin had a pool exploit them for one week. (But we still like him because he is a strong leader)
Why is this actually better? Because it imposes a significant penalty on miners' bad behavior. 25% of miners were bad selfish guys. It is infeasible to identify them one by one. However, they can be punished through a collective penalty on all miners.
Now miners realize that if 25% of people are bad, everyone gets punished. Everyone is made worse off, including the bad guys. The bad miners have a strong incentive to never use untrustworthy pools again. They will only mine with reputable players. If not they will risk collective punishment.
The latter strategy is called tit-for-tat. If Gavin to credibly announce a plan like this, then miners would never willingly participate in selfish mining. So even though the outcome seems awful, we would never see it come to pass. This is how nuclear arsenals maintain peace between superpowers. It can work for the more humble purpose of selfish mining as well. (we also see it used in households; your boys are fighting and you don't know who's to blame -> send them both to their rooms)
(You will say that the bad miner will not consider his effect on the outcome because his marginal effect is too small, but this is wrong. The key insight is that under this arrangement, the bad miner wants the attacking pool to fail. He would like to contribute his small marginal effect to making this happen. If the attacking pool is successful, then the bad miner is strictly worse off. There is no private gain from attacking. If the bad miners see a mounting attack, they will try and prevent it just like good miners will. If the attacking pool fails, then the bad miners will end up with more income. That is all that matters. The bad miners, just like the good miners, have an incentive to make sure the attack never happens. Their pocketbook depends on it.)
The existence of strategies like tit-for-tat is why that stupid selfish mining paper is wrong. The authors did not consider the possibility that miners could condition their behavior choices based on past events. (I'm not sure how they can call what they are doing game theory without considering this, but LOL that is what they did.)
Anyways, if we commit to using violence to defend ourselves, then we can keep the peace.
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Thanks. I greatly appreciate the positive feedback.
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Don't count on peer review to save the day. Even in the best case, it is often faulty. Peer review on this kind of paper is especially sketchy. The paper will be reviewed by computer scientists, but is fundamentally addressing an economics question. They will scrutinize the algorithm intensively, but will ignore economic modelling mistakes made by the author. I expect it would slip through.
Once there was a famous economics paper published in a top journal that claimed that the higher ratio of boys to girls in India and China was due to Hepatitis B.
Peer review failed completely on that one. But once it was published, Taiwanese epidemiologists obliterated it post-haste. This is a general problem with cross-disciplinary research. Peer review fails if you don't use the appropriate peers.
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http://www.reddit.com/r/Bitcoin/comments/1qarhr/how_i_learned_to_stop_worrying_and_love_the/Posted this on reddit. I tried to give a simple explanation of why the research gets it all wrong. Any help with editing is appreciated. Here is the reddit post: Recently, a dire prediction came out from a couple of computer science researchers about bitcoin's security. Game theory says 'We're all Doomed' or so they claim. This is eerily similar to what happened when game theory was first applied to the study of nuclear war. Early researchers modeled nuclear war as a winner take all game. In this story, once a nuke drops, one of players is erased from the map. Game over for them. If you face certain and immediate obliteration, the only workable strategy turns out to be a pre-emptive strike. The CIA found this quite alarming! Later, as the study of games became more advanced, the model was tweaked to add a bit of realism. Instead of obliterating the enemy, the nuke just harms them and they have an opportunity to strike back in the next round. With this simple twist, the game becomes like "Groundhog Day"; there is never any end to it. When we play a game over and over again new kinds of strategies emerge. The most familiar one is tit for tat retaliation. "If I got nuked last year, I'll nuke back this year. If I didn't get nuked, then I won't nuke back this year." This strategy is both familiar in everyday life and famous in theory. That's because it works. Under tit for tat, you can avoid getting nuked by maintaining an arsenal, but never using it. Okay, so what about bitcoin. The authors of "Majority is not enough..." analyze bitcoin as a static one-off game just like early researchers considering nuclear war. Unsurprisingly, they issue dire predictions. In their one-off world, there is never any way of retaliating against bad actors. Players just pick between "attack" and "honest." It should be no surprise that the unconditional pacifist strategy is never successful. Indeed, always attack is the only possible equilibrium in a one-off setting. Most people can see this intuitively, even if they have never studied game theory. Let's add in some realism. In particular, let's think about mining every day instead of just as a one-off event. This allows for retaliation. Suppose instead we play, "if some anonymous guy fucked us by playing selfish yesterday, then we will also play selfish because it makes no sense to keep getting fucked." and "if no one played selfish yesterday, then we will play honest." This strategy (where we condition actions on previous play) is an incentive compatible subgame perfect nash equilibrium. Yes, you heard it, the authors' claimed key contribution is erroneous and stems from a fundamental and elementary misunderstanding of game theory. Cooperation is sustainable as long as we retaliate against the bad guys. Now, wait you say, we don't know who the bad guys are. How can we retaliate? This is the magic point. We don't need to know who the bad guys are to hurt them. If 25% of hashing power is doing selfish mining, we may not know who the bad guys are, but we do know that they own an ASIC (unless you think 25% of ASICs can be simultaneously liquidated within a single day at fair market value). The ASIC they own is valuable. When we play selfish, we turn into a paperweight. And that is how retaliation works. Players respond to selfish play by turning selfish and this causes all ASIC owners to take capital losses. The market value of their equipment depreciates with bitcoin prices. Ownership of ASICs means that miners cannot help but have a permanent stake in the system. Now, wait you say, this will also hurt innocent players who were not involved in the attack. Even though retaliation harms innocent people, it is still the best option for people who have been attacked. War hurts innocent people. But fighting back is the only possible equilibrium response after an attack occurs (one can set a threshold for a response, but there's always a tipping point where rational people have had enough and choose to fight back.) Okay, so let's review and make things more concrete. Let's see. Say there is some consensus threshold for a 'successful attack.' You can ask Gavin exactly what the threshold is. Maybe we'd allow him to determine this. I would guess it is around the level that makes a short-term attack earn positive profit. Consider a miner's options: If I join an attack and the attack succeeds, tomorrow and the day after that and possibly for all days following we will have selfish mining. Should I care? Yes, today, my ASIC is expensive. Not worth a day of profits, if tomorrow all I have left are a day's worth of selfish mining income in USD and a brand new paperweight. If I join an attack and the attack fails, then tomorrow we will still have happy days, but I will not have gained any short-term profit from participation. In fact I will have lost revenue. So clearly this is also a no go. That leaves us with the last option: honest mining. Assume that everyone else approached the problem like me. You can see by reading most comments that they do (even if they don't formally understand why). If I do not join an attack, then I will earn a fair profit and, as long as everyone else has approached the problem rationally, then tomorrow we will have more happy days of honest mining. And the next day too and the day after... So what's my dominant strategy? Be honest until someone attacks me and then retaliate as necessary. There are many different sustainable ways of organizing retaliation besides tit for tat. Norms on how to retaliate vary across societies. I trust that the community, and Gavin in particular, could make reasonable judgements on this front. And that is all we need to succeed. tl;dr bitcoin only has to worry about terrorists; rational miners will never attack, ever*. *(as long as there is modest mining reward) If you'd like to see some math on this topic, then check out: http://www.scribd.com/doc/182399858/Cunicula-s-game-theory-primer-pdfPS. I could use help on the authors' site, hackingdistributed.com The author is aware of my critique, but is refusing to respond. In fact, he deleted the link to my pdf the first time I posted it. As a community, I'd appreciate help in demanding a response from him. Go to the blog and ask questions about how repeated play and retaliation affect his results. When you see these questions, upvote them. If the community will not help, then I will have to go the long route of posting a formal academic comment on arxiv. This is time consuming. Because I am an economist, arxiv has no positive benefits for my reputation or career. I'm asking for some help so that we can get this addressed in the media and blogosphere without a prolonged academic back and forth.
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Freicoin addresses the slow dwindling of BTC block rewards and dependence on transaction fees by use of a Demurrage system that supports perpetual block rewards while maintaining a fixed monetary base. Demurrage means all currency holders pay for the network security rather then just transactors. If not for the crazy gold-bug nature of the anarcho-libertarian world view this solution would have been blindingly obvious at the design phase of BTC. We think people will eventually come around to realizing Demurrage is the only sustainable basis for a PoW currency and it also has positive price stabilizing and interest rate reducing effects too.
Yeah, I agree that perpetual demurrage has you covered, so would perpetual money supply growth. We talked about this before remember? You asked me what money supply growth rate I would pick for a cryptocurrency and I said a fixed single digit percentage that is invariant over time. That's equivalent to fixed rate demurrage for most purposes. |
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I'd like to think that people will agree to proof of stake before surrendering bitcoin to government or corporate management, but you may be right. People are extremely stubborn and consensus is a damned hard thing to obtain.
Proof of stake has thus far proven unworkable. The main problem with Proof of Stake appears to be that is that there is nothing at stake: In PoW systems you burn energy to mine, and that mining is only worth while if the chain your mining on survives long term, so you are generally incentive mine the chain most likely to survive. In PoS the rational strategy is to mine all possible forks constantly, because doing so costs you nothing. Oh, this again. Don't you have any integrity at all? [As in you know the above to be false, yet that does not prevent you from repeating it time and time again.] I suggest you add some color to my ignore button because I fail to see value in discussion with you. This is not because you are stupid, but because interactions with clever and dishonest people are rarely rewarding. You lie when it suits you, see below. You also don't understand incentives, see below. If you were right here, then my analysis in the pdf would be wrong... That page is pretty embarrassing. There is absolutely no mention of the fundamental flaw in PoS consensus which none of your proposals have addressed: As of yet none of the proof of stake proposals are workable because there is nothing at stake! If someone is PoS mining it is in their best interest to attempt to concurrently build an honest chain as well as all possible attack forks just in case one of them happens to win. Under most schemes this is the profit maximizing move, in all I've seen so far its at least neutral. Mining an attack under PoW actually involves _spending_ something and taking the risk other miners will extend it. PoW works because your work is at stake so even a very small amount of honest miners make mercenary rational miners behave honestly too. Moreover, I don't see why you argue here that it better aligns incentives. Parties can't mine PoW without having a validating node (or face the extreme risk other miners will toss them off on forks). All it does is redistribute control, which might be useful— if not for the fact that it makes attacking more attractive for selfish participants. I was hopeful of these techniques but as of yet I don't see how any can be workable. |
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I'd like to think that people will agree to proof of stake before surrendering bitcoin to government or corporate management, but you may be right. People are extremely stubborn and consensus is a damned hard thing to obtain.
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Yeah, I've been toying with ideas like that. I think it's too early but that's definitely a valid direction to explore!
I suggest starting a dedicated thread to discuss that.
Well there is the hopUSD thread where I tabled the idea in mid-September. I will post some new information there soon. Perhaps you should open a new thread to talk about these ideas as they apply to Mastercoin in a quasi-neutral setting. I think that if I was involved in politics, I would have unintentionally instigated World War III a long time ago. |
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Can you elaborate on why you think Bitcoin is broken?
Right now the block reward is really massive so there is no strong incentive to jack up fees (even if you could). There should be some point where the block reward gets so low that conspiring to raise fees looks attractive. and the fees MUST remain competitive to alternative payment networks. If it's not cheaper than eg. Paypal then Bitcoin is useless, less adoption, even more problems for Bitcoin valuation. Seems like all the problems will hit at once. Yes, it's not so useful for society in the long-run, but it could still survive. Consider this scenario 1) bitcoin offers low fees for a long time 2) the user base grows tremdenously due to these low fees 3) competing systems like paypal are driven out of business 4) coinbase finances a 51% attack raising fees for on the chain txns to monopoly levels 5) coinbase raises user fees for off the chain txns, but they remain competitive with paypal like operations Coinbase could be very profitable. Since coinbase is doing price discrimimation, this is actually a more efficient strategy for extracting monopoly rents than the system used by paypal. What you would end up with is a beefed up monopoly. It doesn't necessarily mean the death of bitcoin. |
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I think that fiat cryptocurrency could easily become the major internet currency. But not colored coins. Colored coins depend on trust in the issuer and are not decentralized.
For USD cryptocurrency to work it has to maintain all the decentralization properties of bitcoin. This is doable, but the gross ignorance of computer scientists with respect to economics and finance remains a big obstacle.
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Here's another feature which may be in the 1.2 version of the spec if people like it: Proof of Stake voting https://bitcointalk.org/index.php?topic=309729.msg3524354#msg3524354Quoted here for convenience: Ron asked me to spec out what this might look like. If this is acceptable, it could go into the 1.2 version of the spec: - Mastercoin websites will have a "voting" section for each currency and smart property.
- Owning a currency or property allows you to vote on issues related to how that currency or property should be run.
- The voting section will list issues which are available to vote on, as well as feature requests, in descending order of popularity, and the current vote tally for each
- Mastercoin messages needed for voting are:
- Create new issue (title and what the options are, such as YES/NO or A/B/C/D)
- Vote on issue (address X votes NO on currency Y issue Z)
- Weight of vote is proportional to the amount of currency or property owned by that address (proof of stake)
- Create a new feature request (title and description)
- Vote on feature (address X supports feature Z on currency Y) - also weighted by ownership
- A single address may only support one feature, and may only vote in one direction, however . . .
- A user may split their vote by using multiple addresses
- When some or all property is transferred out of an address which has voted, the votes of the transferred property are invalidated (this allows the owner of the new address to vote again)
- Votes are advisory votes only, and are enforced by social contract, rather than by the protocol itself
As an example, the Mastercoin foundation will be issuing memberships at some point as a smart property. Owners of those memberships can vote on issues related to the governance of the Mastercoin foundation. Similarly, Mastercoins themselves will have a voting section. Proof of stake voting is a wonderful feature. This can provide a secure fully decentralized source of data streams for asset prices. The price would be an emergent property of a long series of binary votes adjusting it up and down by a small amount. There are strong incentives for honest reporting because: a) The mastercoin owners have a strong incentive to maintain accurate data streams. Such accurate datastreams could allow mastercoinUSD (though the plan needs tweaking) and successful implementation of mastercoinUSD would lead the coin to take on tremendous value. b) individual capacity to influence outcomes is too limited to profit meaningfully from manipulation |
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Stop fighting a straw man. I never claimed that ASIC prices would be unaffected, just that this is immaterial to the decision of an atomistic miner.
Okay then. Now we are getting somewhere. Define what you mean by atomistic in this context. Does ownership of one USB miner count? Or do I need to own an infinitesimal fraction of a USB miner to be atomistic? If your answer is that only the latter counts as atomistic, could you explain why this case is relevant to understanding real world behavior. Doesn't the first case seem to have more real world relevance? If we find that I am right in the first case (I invite you to check the math), why would we care whether the results apply in the second case? Aside: It's also really important that mining has become more capital intensive with the arrival of ASICs. If we have mining where capital costs are negligible and electricity is the only important expense, then we would be in trouble. |
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The hashing power of any one decision maker is simply too small to make a difference. Therefore, individual decision makers ignore the effect of their decisions on attack success probability. This makes it irrelevant whether they have investments in bitcoin or not.
a) you do not need to retain your investment in bitcoin to mount an attack. You can sell it first. b) if some people have no investment, then they will always attack. If this is the case, the people with an investment will also attack. c) If GPUs market price is not related to the bitcoin price then (a) and (b) will hold d) If ASICs market price is closely related to the bitcoin price then (a) and (b) will not hold. You cannot attack without carrying an ownership stake into the next period. Due to this constraint, the game can support a cooperative equilibrium. (d) is the whole theoretical underpinning of proof-of-stake. Do you really think I would be unaware of this? Curious. Are you suggesting that I am just using doublespeak on purpose? If not, how do you explain the perceived arbitrary reversal in my line of argument? |
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Economists employ models that are simplifications of the real world. The simplifications are not intended to capture reality perfectly, but instead highlight the most important aspects. Yes, this allows us to engage in some strategic doublespeak when we see fit. However, in this case, I think the context has become quite different.
In a world of ASIC mining, effects of the value of capital assets on miner incentives become important. It is completely unreasonable to assume that ASIC prices do not fluctuate wildly with the price of bitcoin. If so, miners will no longer be short-sighted.
In a world of CPU mining, (as I noted in the paper), they are not important. Botnets, home PCs, and such have competing alternative uses. It is extremely unlikely that bitcoin price movements would affect the price of CPUs. If so, miners will be short-sighted. (i.e. they won't suffer a drop in future hardware value if the bitcoin price falls)
In a world of GPU mining (which we lived in circa Nov 2012 when you are quoting me), things are much closer to the CPU case then the ASIC case. So I made this simplification. It's really important to the problem whether miner fixed costs come from illiquid capital assets or liquid ones. It was not unreasonable to treat GPU prices as independent of bitcoin prices, though I confess that this was an approximation. (i.e. miners won't suffer a meaningful drop in hardware value if the bitcoin price falls)
I was certainly well aware of how ASICs would change this at that time. I have long believed that ASICs would strengthen Bitcoin's security model in terms of miner incentives. On the downside though, I expect most of the hardware producers to get driven out of business and one or two productive firms to capture the market.
This is called a 'shakeout' and usually occurs after a boom in an industry starts to die down. The downside is that the surviving firms will gain a lot of control.
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Here in lie three key differences distinguishing master CFDs from BitPonzi: 1) With CFDs, you are forced to settle the position at an expiration period. This prevents unsustainable accumulation of debt which is central to BitPonzi. 2) With CFDs, there is no magical shower of interest payment. This removes the incentive for unsustainable accumulation of debt which is central to BitPonzi. 3) With CFDs, (I believe) there is an external data stream reporting prices. This means that prices aren't selected by magic. (again failure to employ magical thinking in your algorithm is a distinguishing feature from BitPonzi.) [You do face a challenge in dealing with potential data feed manipulation, however. ] Again, I'm glad to see this new development. Capacity for change is essential to long-term success. This is why I have never let loose the rabid rabbit on Mastercoin and hope I never feel the need to. |
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Since this is for a short-term contract I agree that the proposed CFD scheme is feasible. With CFD, you are forced to settle the position at an expiration period.
This is very different from a pegged MastercoinUSD. With USD I can keep them in my wallet as long as I feel like.
I would also argue that this makes CFD much less useful to the average person.
But it's still a great idea. Nice to see this making progress instead of languishing because of misguided commitment to a flawed implementation.
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Glad you like it. I'm really quite a tame rabbit if you treat me kindly.
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I'm sorry but your whole argument is flawed. You need to treat miners as atomistic and you don't. That invalidates everything that follows, so I don't need to read any further. Rewrite your paper while sober. Remove all consideration of the possible effect a successful attack could have on the value of the miner's assets. Get the payoff matrix for the prisoner's dilemma right, and then try again.
What payoff matrix do you want? One where selfish mining causes harm that doesn't operate purely through price effects? Sure I can introduce this, it would strengthen my argument. You want me to get rid of price effects? How can we call selfish mining 'harmful' if we assume that it has no effect on future bitcoin prices? Okay, I can introduce that assumption, but doubt that assuming the user base is indifferent to centralization is reasonable. If it were reasonable, then selfish mining would not be a problem, so I would still be correct. What I mean to say is how do we reduce the value of bitcoin without reducing the value of ASIC mining equipment? How would that work exactly? How do we have miner's that do not own any mining equipment? As for writing this while sober... it is too difficult to face the stupidity of people like you while sober. I prefer to save sobriety for serious projects. |
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