Thank you for posting this.
I agree with most of what you are saying and surprised other higher level members (such as yourself and higher),
have not created threads in reference to this crucial topic.

Also, could you do a TL:DR at the beginning or end of your post?
Certain users will gloss over your explanation and I believe will be helpful to gather discussion.

Interesting theorie. Now: What would be the solution against this?

Yes. I'm not a programmer nor good enough at math to do the heavy lifting. Thank you for your work.

Sounds like they are taking the community ransom.

Giving into their (articulated or not) demands is usually a very bad idea. Rather all probably needs to be done to minimize dependence on these big farms.

I had suspicions that something like this was happening. Thank you OP for providing some insight in a topic on a laundry list that needs to be addressed.

So if I'm understand this correctly, a miner's profit using the outlined attack is as follows. Note that currently no transaction fees are "burned" - miners keep all of them.

L=Share of legitimate transactions
H=Share of hashing amount that the attacker controls
B=Share of the fees that must be burned

Profit=(L*H*(1-B))-(1-L)*(1-H)

Suppose there was a change to the Bitcoin protocol as follows: Every newly mined block must send half the transaction fees to a "burn" address. So we'll increase B from 0 (current protocol) to 1/2:

Under the original example L=2/3, H=1/2, B=0 and so Profit=1/6

Under the proposed change L=2/3, H=1/2, B=1/2 and so Profit=0

However, as L approaches 1 it doesn't matter how high you set B to, there is still profit to be extracted from this attack.

Setting B=0.5 protects the network from attacks where L<2/3, whereas before the network was only safe where L<1/2, so it's an improvement, but not the final solution.

Thoughts?

This doesn't pass the prisoner's dilemma test.

Creating a backlog to increase fees can be profitable. But while on paper this is the best outcome, it is not the optimal outcome as your investment in the mining capacity and your longer-term ROI will be diminished because you would end up impacting the confidence in the system that you want to profit from.

The most profitable monopolistic and selfish outcome is therefore not the most optimal outcome.

Yes, the math would be very nice to see.  It's an interesting theory, but it needs evidence (or in math you'd call it a proof I guess) to support it and make it more than a well thought out post.

If "someone" is doing this on purpose than there's less than a handful of someones that could be.  That certainly narrows down the suspect list...

One thing that comes to mind, though, is that some of the pools capable of this also mine empty blocks and I'm not sure that helps an attack as described.

On the facts the above desciption doesn't describe behavior in the network at the moment-- e.g. backlog isn't there, and substantial amounts of the funds that went into the DOS attack paid for outputs, not fees.

The scheme you describe is scale-free; I see you clarified in later messages that you think the "solution" is dyanmic controls rather than a removal of limit but the bold increase blocksize response in your initial is quite confusing-- more than half your text is spent spinning hyperbole, it would have been much more useful to spend that text on describing what you're actually talking about.

Perhaps most importantly, it does not make a case that the attacker produces increased income relative to his hashpower.  Consider:

Lets imagine your mine with half hashpower. Lets imagine that a block can contain 6000 transactions.  Attacker has 1/2 hashpower.  Offered load is 4000 tx/block.

Attacker crafts 2000/tx block at 1coin/tx fee level. Making the rest match him (plus episilon, which we'll disregard).

His average cost for spam is 1000 coin/block (2000 * 1-rate).
His average income is 2000 coin/block (4000 * rate).  (He doesn't get income from his spam, he saves its cost however; see prior line)
His net income is 1000 coins/block, on average.

Now consider the consolidation of other miners:
Their average cost for spam is 0.
Their average income is 3000 coin/block (6000 * (1-rate)).
Their net income is 3000 coin/block.

Both groups have 50% hashrate, so the non-attacking miner has a fee income of three times greater the attacking miner per unit hashrate!

Normalized for hashrate thats 2000 vs 6000.

----
Lets instead imagine that there is also a backlog of fees episilon beflow the attackers floor, and he mines those instead of his own and that doing this doesn't somehow eliminate the floor effect:

Attacker average cost for spam is 1000 coin/block (2000*1-rate)
Attacker income is 3000 coin/block (6000 * rate)
Attacker net income is slightly under 2000 coins/block, on average.

Honest miners cost for spam 0.
Honest miners income is 3000 coins/block (6000*(1-rate))
Their net income is 3000 coins/block.

Again doesn't work.

----
We can work this for any other size, say  and attacker with 40%:

Attacker cost for spam is 1200 coin/block (2000*(1-rate))
Attacker income is 1600 coin/block (4000*rate)
Attacker net income is 400 coin/block

Honest miners cost for spam is 0 coin/block
Honest miner income is 3600 coin/block (6000*(1-rate))
Honest miner net income is 3600 coin/block.

Normalized for rate, thats 1000 vs 6000.

---

Finally, we already know that the system is not incentive compatible when a single party (or collaborating conspiracy) has more than 1/3rd of the hashrate: http://arxiv.org/abs/1311.0243   (The results below 1/3rd require information asymetry advantages which are handwavy, but at 1/3rd or beyond no such asymetry is required)-- though such attacks are highly conspicious.


Exactly, like anyone they can generate transactions to drive up fees; large miner hashpower gets a discount on fees; but they still lose funds; and everyone else shares the income.

Stupid as stupid does.


Cant believe forum members fall for this so called "math"

lol....