How much to protect the network?

[Daily Anarchist]

I'm having a hard time wrapping my head around how much money it will cost to protect the network long-term.

Let me first give you an example.

Let's say I have $10 in my pocket. How much would I be willing to spend to protect that $10? The answer has to be $9.99 or lower. It wouldn't make any sense to spend $10 or more to protect the $10.

In the case of Bitcoin, the current(at the time of this writing) market cap of Bitcoin is about $134 million.

Math: $13.798 * 9.714M = $134 million

Now if I mosey on over to Butterfly Labs

http://www.butterflylabs.com/products/

and assume for simplicity's sake that everyone is using the most efficient mining equipment we see that there is a total of $10.1 million worth of mining equipment protecting that $134 market cap.

Math: [16,642 Giga Hash/s / 25.2 Giga Hash/s] * $15,295 = $10.1 million

So, really, if an attacker were willing to spend more than $10.1 million right now, they could pull off the 51% attack, which would, at the very least cause serious upheaval in the Bitcoin network.

The question then becomes, is a 10:1 ratio enough? Do we need a near 1:1 ratio for Bitcoin to be protected against wealthy and powerful enemies? Could the bitcoin economy be sustainable if so much of its resources were wasted on protecting the network?

This is a brutal scenario, because unlike gold or silver, if a successful attack happens, all Bitcoins and all users within the network suffer. Whereas if a bank with gold gets robbed, the gold in my home safe or silver buried in my back yard is still secure and my value has not been lost.

Can somebody please explain to me how this is not a fatal flaw in Bitcoin?

[jwzguy]

Go read about what a so called "51% attack" actually entails. It's been beaten to death.

Also, your scenario depends on assumptions about BFL order time and availability that are false.

[Daily Anarchist]

Go read about what a so called "51% attack" actually entails. It's been beaten to death.

Also, your scenario depends on assumptions about BFL order time and availability that are false.

I'm pretty sure I know what the 51% attack entails. It would cause more distrust in Bitcoin than every other bad incident combined.

Okay, fine. Let's assumed the attacker uses slightly less efficient equipment or builds their own fucking mini rigs. And let's say it costs them $30 million to pull off the attack. It's still easily doable. Hell, Oprah Winfrey could destroy Bitcoin right now and not notice a dent in her bank account.

[jwzguy]

Well, I tried.

[chmod755]

Math: [16,642 Giga Hash/s / 25.2 Giga Hash/s] * $15,295 = $10.1 million

Pre-order those 1TH/s mini rigs @ $30k :p

[BkkCoins]

You completely negate your own idea in your first post. If you were to buy $10-30 mil of hardware and actually pull off a 51% attack - where would you get your money back from? I mean who's going to buy the coins you were able to double spend? Having attacked the chain and won do you suppose you'd be able to sell your coins and pay for your hardware? Yikes.

[bb113]

You completely negate your own idea in your first post. If you were to buy $10-30 mil of hardware and actually pull off a 51% attack - where would you get your money back from? I mean who's going to buy the coins you were able to double spend? Having attacked the chain and won do you suppose you'd be able to sell your coins and pay for your hardware? Yikes.

You are assuming the attacker is motivated by desire to trade with bitcoins.

[BkkCoins]

You completely negate your own idea in your first post. If you were to buy $10-30 mil of hardware and actually pull off a 51% attack - where would you get your money back from? I mean who's going to buy the coins you were able to double spend? Having attacked the chain and won do you suppose you'd be able to sell your coins and pay for your hardware? Yikes.

You are assuming the attacker is motivated by desire to trade with bitcoins.

No. I'm basing that on the OP implying an attack would only be worthwhile if profitable. He says if he had $10 in his pocket he would spend up to $9.99 to protect it. By the same reasoning no one would spend $10 mil to attack if they weren't going to make more in return. People don't usually spend 99.9% of some value to protect itself.

[bb113]

You completely negate your own idea in your first post. If you were to buy $10-30 mil of hardware and actually pull off a 51% attack - where would you get your money back from? I mean who's going to buy the coins you were able to double spend? Having attacked the chain and won do you suppose you'd be able to sell your coins and pay for your hardware? Yikes.

You are assuming the attacker is motivated by desire to trade with bitcoins.

No. I basing that on the OP implying an attack would only be worthwhile if profitable. He says if he had $10 in his pocket he would spend up to $9.99 to protect it. By the same reasoning no one would spend $10 mil to attack if they weren't going to make more in return. People don't usually spend 99.9% of some value to protect itself.

I dont understand. I agree that spending 100 btc to protect 100 btc is dumb. Do you acknowledge that "bitcoin adversaries" may have other motives than to gather and use bitcoins? In other words there are ways to gain advantages from 51ing bitcoin other than counterfeiting them. The question is what percent of the bitcoin market cap should be devoted towards this. For example, according to official figures the US Defense Department was funded with $700 billion in 2011 (wikipedia). US GDP is reported to be about $15.5 trillion, so that sets a lower bound of 4.5% set on protecting that currency. I don't want to argue whether those numbers are valid or whatever, but you do need to protect your wealth and this cost will scale according to how valuable it really is.

[Gabi]

You completely negate your own idea in your first post. If you were to buy $10-30 mil of hardware and actually pull off a 51% attack - where would you get your money back from? I mean who's going to buy the coins you were able to double spend? Having attacked the chain and won do you suppose you'd be able to sell your coins and pay for your hardware? Yikes.

You are assuming the attacker is motivated by desire to trade with bitcoins.

No. I'm basing that on the OP implying an attack would only be worthwhile if profitable. He says if he had $10 in his pocket he would spend up to $9.99 to protect it. By the same reasoning no one would spend $10 mil to attack if they weren't going to make more in return. People don't usually spend 99.9% of some value to protect itself.

Wrong, he never said that.

By the same reasoning no one would spend $10 mil to attack if they weren't going to make more in return

No? Not even governments? Banks? Any entity with BILLIONS of $ wich see bitcoin as a danger? If bitcoin succeed that would mean billion of losses for them. Spending 10 million now is much cheaper!

[caveden]

Let's say I have $10 in my pocket. How much would I be willing to spend to protect that $10? The answer has to be $9.99 or lower. It wouldn't make any sense to spend $10 or more to protect the $10.

You're ignoring a very important variable: time. It wouldn't surprise me if some people spend more than X to protect a X-valued patrimony during their entire lifetime, for example.
Damn, I guess in a couple years I'll have spent more in car insurance than the price of my crappy old car... although in that case it's the potential 3rd party damages that counts so maybe it's not a good comparison.

[benjamindees]

The question then becomes, is a 10:1 ratio enough?

It's a gamble.  There are some very good gamblers in this community.  Obviously it is sufficient for the moment.  But don't assume that the 10% of market cap invested in hashing is the only resource protecting Bitcoin.

Do we need a near 1:1 ratio for Bitcoin to be protected against wealthy and powerful enemies?

Even that would not be sufficient against a worst-case attacker.

[Mike Hearn]

I think in future double spends will be somewhat common actually. Right now difficulty is artificially too hard due to the inflation. In future when it's more driven by fees you would expect network security to fall until we start to see double spends actually occur with some degree of regularity, and at that point people most affected by them would club together (eg, via an insurance company or automatically negotiated assurance contract) to raise the network speed again until the losses were tolerable.

I disagree that a double spend would seriously cripple or destroy Bitcoin. Chargebacks are the credit card equivalent and occur all the time with traditional e-payments. As long as the risk is both calculable and controllable it doesn't need to be seen as problematic.

[BkkCoins]

I think in future double spends will be somewhat common actually. Right now difficulty is artificially too hard due to the inflation. In future when it's more driven by fees you would expect network security to fall until we start to see double spends actually occur with some degree of regularity, and at that point people most affected by them would club together (eg, via an insurance company or automatically negotiated assurance contract) to raise the network speed again until the losses were tolerable.

I disagree that a double spend would seriously cripple or destroy Bitcoin. Chargebacks are the credit card equivalent and occur all the time with traditional e-payments. As long as the risk is both calculable and controllable it doesn't need to be seen as problematic.

This goes against my understanding of the block chain. Are you suggesting the chain would split and both forks would continue being used by different clients and that there would end up being multiple accountings of the transactions that occurred? I can't see how that would be workable in any sense. A double spend can only occur until it is detected and the clients throw away that fork of the chain. To my understanding that has only ever been a few blocks. Hence, double spends are impossible since auto-corrected quickly. I just can't see any future of Bitcoin where double spends are acceptable. It would be like living in two parallel universes - one where I have coins and one where they got stolen.

[Mike Hearn]

A (classical) double spend is done by sending coins to a merchant who then delivers something valuable to you. You fork the chain with a version in which you send those same coins to yourself, thus rolling back the payment. If your fork is harder than the main chain you get to keep both the money and the goods. If the merchant can find you and get you prosecuted, maybe you would be found guilty of some kind of payment fraud. But it might be too hard to do that, as we see with credit cards today.

Merchants can defend themselves against that attack by either artificially providing high-fee transactions with their own money to incentivise mining (and there are various ways to do that such that merchants don't freeload off each other), or in the traditional way by doing risk analysis of customers, or both.

[caveden]

I think in future double spends will be somewhat common actually. Right now difficulty is artificially too hard due to the inflation. In future when it's more driven by fees you would expect network security to fall until we start to see double spends actually occur with some degree of regularity, and at that point people most affected by them would club together (eg, via an insurance company or automatically negotiated assurance contract) to raise the network speed again until the losses were tolerable.

I disagree that a double spend would seriously cripple or destroy Bitcoin. Chargebacks are the credit card equivalent and occur all the time with traditional e-payments. As long as the risk is both calculable and controllable it doesn't need to be seen as problematic.

Profit seeking double-spends are the least of my worries. You're right to say that their damage is not that significant, they can be defended against fairly well, and there are also other means to punish this in meatspace (it would be theft, after all).

The most worrying kind of >50% attack is the freezing one. An attack against the network itself, not against some users.
Once there was an interesting discussion about implementing a blocktree that could decrease some of the risks, but it was quite complex and AFAIK nobody took the challenge to try to build such altcoin.
Besides that, as of now, only lots of processing power can protect us of such attack...

[Daily Anarchist]

You completely negate your own idea in your first post. If you were to buy $10-30 mil of hardware and actually pull off a 51% attack - where would you get your money back from? I mean who's going to buy the coins you were able to double spend? Having attacked the chain and won do you suppose you'd be able to sell your coins and pay for your hardware? Yikes.

You are assuming the attacker is motivated by desire to trade with bitcoins.

+1

The global banking cartel that we're challenging has trillions, nay, it's beyond money, it's about global control that they stand to lose with Bitcoin. Their motivation is not stealing bitcoins. Their motivation is destroying the network.

[DannyHamilton]

. . .In the case of Bitcoin, the current(at the time of this writing) market cap of Bitcoin is about $134 million. . .there is a total of $10.1 million worth of mining equipment protecting that $134 market cap. . .
The question then becomes, is a 10:1 ratio enough? Do we need a near 1:1 ratio for Bitcoin to be protected against wealthy and powerful enemies? . . .Can somebody please explain to me how this is not a fatal flaw in Bitcoin?

You are working on the assumption that the market cap will not change significantly in the future.  The system is still young and to a certain extent in an experimental stage.  Had you done the same analysis back when the famous pizza delivery occured, you likely would have found that the ratio was closer to 1:10.  If/when bitcoin starts to reach mainstream usage, it is entirely possible that the exchange rate could be closer to 1300USD:1BTC than 13USD:1BTC.  This puts your market cap over 13 Billion, and your ratio at current difficulty and equipment cost around 1000:1.

Another thing to consider is the actual value of what is being protected.  Perhaps it is not just the exchange value of the currency.  Does the ability to carry out transactions not have some intrinsic value as well?

. . .unlike gold or silver, if a successful attack happens, all Bitcoins and all users within the network suffer. Whereas if a bank with gold gets robbed, the gold in my home safe or silver buried in my back yard is still secure. . .

This is a poor comparison. You are not talking about a "bank robbery" when you are talking about an attack on the trustworthiness of the bitcoin network.  Large scale robberies have already occurred, and people still accept your bitcoin.  A better comparison would be a discovery of a method to artificially produce gold that is indistinguishable from the current gold supply.  How much should be spent to protect the current gold supply from this "artificial" gold.  Would the market absorb this protection cost into the value of the traditional gold, driving up the value of traditional gold for as long as it could be distinguished? Or would the value of traditional gold drop as increased amounts of money were spent implementing systems to certify and track "real" gold?

[Gabi]

You completely negate your own idea in your first post. If you were to buy $10-30 mil of hardware and actually pull off a 51% attack - where would you get your money back from? I mean who's going to buy the coins you were able to double spend? Having attacked the chain and won do you suppose you'd be able to sell your coins and pay for your hardware? Yikes.

You are assuming the attacker is motivated by desire to trade with bitcoins.

+1

The global banking cartel that we're challenging has trillions, nay, it's beyond money, it's about global control that they stand to lose with Bitcoin. Their motivation is not stealing bitcoins. Their motivation is destroying the network.

+1

[DannyHamilton]

. . .the US Defense Department was funded with $700 billion in 2011 (wikipedia). US GDP is reported to be about $15.5 trillion, so that sets a lower bound of 4.5% set on protecting that currency. . .

So much more than this is spent on "protecting" the value of the USD.  Consider the expeditures of the U.S. Secret Service for buildings, equipment, salaries, etc, then add in the same for all the payment processing networks, add in the money spent by banks on security, insurance, and safe storage, then throw in the expenditures on cash control and theft deterence of every business in the country.  All this money is spent on protecting faith people have in their ability to either safely spend or safely store their USD.