nothing to see here, move along.

[JaredR26]

(Updated:  I said 1/phi, I should have said 1 - 1/phi.  The attack works for any miners who controls more than 38% of hashing)

The so-called "stress test" was successful.  The attack it was testing is underway.  

Any miner who cotrols more than one minus 1/phi of the mining power, makes a profit while paying the fees it takes to maintain a permanent backlog of transactions, for as long as the blocks are more than half full of other transactions.

The mining-expenses market is unstable when there are enough legitimate transactions to fill more than half a block, because such a miner will reap more per yuan invested in mining power than any other miner.  This leads to a monopoly.

Well, crap.  I have done the math now.  

I know exactly what's happening.  It's a Golden Ratio Attack.  This is serious.  It ends with a mining monopoly.

What we have now is no longer a test.  The test was apparently successful.  What we have here is the new business model that was being tested.  

This backlog will probably be sustained FOREVER, because the people doing it make a profit by doing so.

The following assumes expenses roughly equal for miners relative to the amount of hashing power they control.  This is not exactly true, because a miner someplace where electricity is subsidized (like China) has substantially lower expenses.  In such a place the fraction of mining power required to make it profitable would be even less.

The *initial* "stress test" was a test to see whether the miner controlled sufficient hashing power to make a profit by doing this.  We can assume that test was successful, because now this miner is doing it.  Probably permanently.

The miner decides how much they want per transaction (anything that the traffic will bear, as long as it keeps blocks more than half full of real transactions), then keeps the backlog sufficiently full with bogus transactions to prevent any tx that pay less than that from going through.

Maintaining the backlog subsidizes other people's mining as well as their own, but means they don't need to compete with miners willing to process transactions for less money in fees because those miners aren't willing to process transactions for less fees when any transactions with more fees are available.

Let's work the math.  If 2/3 of the transactions actually processed are "real", then whoever is maintaining the backlog is paying the tx fees for 1/3 of every block. If this is someone with half the mining power then they get half of their third back, so their average cost per block is the fees for 1/6 of the block.  If we are talking about someone with half the mining power, their average return per block is 1/2 the fees for a block.  Because 1/2 is greater than 1/3, they are making a profit.  

The breakeven point for the biggest miner was when his fraction of the mining power plus the fraction of each block devoted to legitimate transactions was equal to one.  We can conclude that whoever is doing this, if he started the instant it was profitable, controlled 1 - 2/(1 + sqrt(5)) of the mining power at that time.  This happens to be one minus the inverse of the Golden Ratio.

It will continue to be in the financial best interests of any miner controlling more than 1 - 2/(1 + sqrt(5)) of the mining power for as long as blocks are more than half full with legitimate transactions.  

This does not affect, and is not influenced by revenue from block subsidies AT ALL.

All miners will see increased fee revenues in the competitive market.  They will respond to more revenue by  investing more in equipment.  Those miners are still competing fairly with each other, though they will make less on their investment than whoever's maintaining the backlog.  It is not in their best interests to add bogus transactions to the queue because with a smaller fraction than 38% of the mining power they would lose money on the fees they invest.

But any miner for whom this IS profitable, will make additional revenue that the fair market among miners does not.  What percentage more, depends on what fraction of the hashing power he controls. Any such miner is competing at an advantage and will eventually drive all other miners out of the market.

Miners for whom this is profitable must control at least 38% of the mining power.  Therefore there can be no more than two miners doing it at a profit.  And it's got positive feedback, so those two cannot compete fairly. Assuming there are two, the instant one of them has more hashing power than the other, he has a competitive advantage over the other (gets back as revenue a greater fraction of all fees spent) than the other miner) and will eventually drive him out of the market.

> But any miner for whom this IS profitable, will make additional revenue that the fair market among miners does not.  

Um.  How on earth do you conclude that?

The miner jacking up fees will have his mining-fee-profits increased by some small amount.  Every miner not wasting money on the attack would have their mining-fee-profits increased by several orders of magnitude more since you are talking about small margins.  The attacker is making it much much easier for his competition to beat him in mining share.

[Simcom]

I posted this on reddit, but figured I would cross-post here.

I think I understand the concept here, basically a large pool can flood the network with transactions to boost the average txn fee paid by legit users. They can potentially make more than they spend because they get back the fees on the spam transactions they create.

What I don't get is why the large spamming pool has an advantage over a small non-spamming pool in this scenario? The non-spamming pool pays nothing and gets to collect profit on both the spam transactions from the big pool and the normal txn fees from legit users, while the big pool only gets to record a profit on the legit txns, plus they have to pay out the spam txn fees to other miners for any blocks they don't solve. Anyone care to clarify where I am going wrong here?

[d4n13]

So a block size limit increase would fix the problem because for this to be profitable, the attacker needs to have at least half of the block be legitimate transactions and that there still be a backlog of transactions, yes? And since there isn't that much real transaction volume, raising the limit to the suggested compromise of 8 Mb would solve this issue for now since it suddenly becomes unprofitable to continue to attack until transaction volume increases.

Good post, totally get the math... all in on the theory...

Looking at the actuals, I'm not convinced that this is actively happening, though I see how you theorize it could.

Checking block shares, and the biggest fish only holds 20%

source: https://chain.so/btc

Though I will concead that it may be possible that the smaller pools are actually the larger holders running "shadow miners" that appear to be anon, but are really wholly owned subsidiaries of the bigger players.

Another problem I see is that blocks are not full by any stretch.  Miners (for reasons that are their own) are leaving many blocks 2/3 empty.

source: https://tradeblock.com/blockchain/

So any miner that had less than 38% the share could simply start filling blocks to the brim.  Perhaps I'm on a tangent here, but I've never understood why miners running rooms full of ASICs don't devote a few high power CPUs (useless for mining) to doing block stuffing.  It seems like getblocktemplate and hashing would be non-intersecting.  So pooring $$ into CPU could be independent to pooring money into hashing.

I still have questions tho, like how high can they push transaction fees and dose this mean the end of micro transactions in the long term?

If I followed, the condition they are driving is not the fee price, but rather the spam ratio.  As long as they can continue to mine some percentage X of their own spam then they make a profit even if fees go to 1 satoshi.  The "canaibalism" ration X would float depending on two factors... what their current share of hash rate is, and how much normal traffic there is.

[Kprawn]

It's a pity that the protocol was not designed to give extra reward to the miners doing the grunt work. {Mining the transactions with little or no miners fee's} You could acctually introduce a second tier, where only miners with a low hash rate, can compete to mine these transactions. {This will bring a lot of solo miners back into Bitcoin mining}

If the above statement were true, this would not have happened. The "little guy" could do the cleanup and prevent spam build up and backlogs.

Everyone wants solo mining in Bitcoin to come back... This in theory, would create a opportunity for this.  

The advantage for the community = Lower transaction fee's

[jl2012]

Let's work the math.  If 2/3 of the transactions actually processed are "real", then whoever is maintaining the backlog is paying the tx fees for 1/3 of every block. If this is someone with half the mining power then they get half of their third back, so their average cost per block is the fees for 1/6 of the block.  If we are talking about someone with half the mining power, their average return per block is 1/2 the fees for a block.  Because 1/2 is greater than 1/3, they are making a profit.  

I think you made a mistake here by double counting something.

Assume all miners will only mine tx with fee of 0.01BTC, and a full block could hold 900 txs.

Scenario 1 (No one is artificially maintaining a backlog):

If we have 600 real tx per block, the fee will be 6BTC/block

For a miner with 50% of mining power, the expected income from fee is 3BTC/block


Scenario 2 (A miner with 50% of mining power maintains a backlog):

Since we have 600 real tx/block, the 50% miner has to create bogus tx at a rate of 300 tx/block, that costs 3BTC/block

Now the blocks are full and the fee is 9BTC/block, expected income of the 50% miner is 4.5BTC/block.

The net income of the 50% miner is 4.5-3 = 1.5BTC/block. He loses 3 - 1.5 = 1.5BTC/block

[jeffthebaker]

I understand the sentiments expressed in this post, but is this really a big issue? If this were the case, there is no way that the profits could scale very much. If it gets to a point where the transaction fees are .001 per, it would simply force a blocksize increase, and decrease total number of transactions. Either way, paying .0005 as opposed to .0001 per transaction isn't really stressful on the users.

[arallmuus]

but is this really a big issue?

For now this may be a number but this could be a big issue in the future

Either way, paying .0005 as opposed to .0001 per transaction isn't really stressful on the users.

You dont really understand this do you? This isnt about increasing the miners fee anymore as this is another whole level. This is making the spams to be a business and This would possibly create a miners fee cartel in the future if there is a pool that own 38 % atleast of the hashing power because they will get what they spend back and also profit if they keep doing what they are doing right now.
For now this may sounds like a conspricary theories however the simple math is there and if you take a look you would know that this is possible to be done

[jonald_fyookball]

sorry if I'm a bit slow but I don't get it.

if a 38% miner spends fees that he gets back, how does that help him?
and how does it hurt other miners ? if anything it would seem that the other
miners would pick up extra fees, making them more competitive, not less.

someone please explain this.

[Amph]

is this spamming attack so profitable that they will keep it indefinitely?

how much they are actually doing in comparison to their normal mining activity

it can't be that big, they(we are assuming that chinese are doing this, because of high % of the network in their hand) are already controlling the majority of the minign activity, do they really need more tiny profit?

[arallmuus]

sorry if I'm a bit slow but I don't get it.

if a 38% miner spends fees that he gets back, how does that help him?
and how does it hurt other miners ? if anything it would seem that the other
miners would pick up extra fees, making them more competitive, not less.

someone please explain this.

You have answered your own confusion with the bolded part. The one that would pick up "more" miners fee will be the one that owns more hashing power. The miners fee will be increasing because people will want their transaction to get confirmed faster if there is someone spamming the network thus this means that if the spammer is a person behind who owns atleast 38 % of the hashing power then this person will get profit with the increasing fee ( this would be somewhat a miners fee cartel )

Let's work the math.  If 2/3 of the transactions actually processed are "real", then whoever is maintaining the backlog is paying the tx fees for 1/3 of every block. If this is someone with half the mining power then they get half of their third back, so their average cost per block is the fees for 1/6 of the block.  If we are talking about someone with half the mining power, their average return per block is 1/2 the fees for a block.  Because 1/2 is greater than 1/3, they are making a profit.  

-snip-

 It is not in their best interests to add bogus transactions to the queue because with a smaller fraction than 38% of the mining power they would lose money on the fees they invest.

-snip-

Miners for whom this is profitable must control at least 38% of the mining power.  Therefore there can be no more than two miners doing it at a profit.  

[d4n13]

Good post, totally get the math... all in on the theory...

Thinking it over a bit (beer++)

Let's work the math.  If 2/3 of the transactions actually processed are "real", then whoever is maintaining the backlog is paying the tx fees for 1/3 of every block. If this is someone with half the mining power then they get half of their third back, so their average cost per block is the fees for 1/6 of the block.  If we are talking about someone with half the mining power, their average return per block is 1/2 the fees for a block.  Because 1/2 is greater than 1/3, they are making a profit.  

I think I found your bug....

You fail to account for the revenue of the other pools.  You state the profit per block won but not the loss per block lost.

Proof:


In the end the spammer (Bob) ends up making more money for the honest miner (Alice).

It's a zero sum game.  Bob is the only one dumping extra money into a system that both Bob and Alice draw from.

 

[jonald_fyookball]

sorry if I'm a bit slow but I don't get it.

if a 38% miner spends fees that he gets back, how does that help him?
and how does it hurt other miners ? if anything it would seem that the other
miners would pick up extra fees, making them more competitive, not less.

someone please explain this.

You have answered your own confusion with the bolded part. The one that would pick up "more" miners fee will be the one that owns more hashing power. The miners fee will be increasing because people will want their transaction to get confirmed faster if there is someone spamming the network thus this means that if the spammer is a person behind who owns atleast 38 % of the hashing power then this person will get profit with the increasing fee ( this would be somewhat a miners fee cartel )

Let's work the math.  If 2/3 of the transactions actually processed are "real", then whoever is maintaining the backlog is paying the tx fees for 1/3 of every block. If this is someone with half the mining power then they get half of their third back, so their average cost per block is the fees for 1/6 of the block.  If we are talking about someone with half the mining power, their average return per block is 1/2 the fees for a block.  Because 1/2 is greater than 1/3, they are making a profit.  

-snip-

 It is not in their best interests to add bogus transactions to the queue because with a smaller fraction than 38% of the mining power they would lose money on the fees they invest.

-snip-

Miners for whom this is profitable must control at least 38% of the mining power.  Therefore there can be no more than two miners doing it at a profit.  

That makes NO sense.
 
If a block of fees is, say $100...

You could argue that they make
a "profit" of $50-$33 = $17 but
the other half of the network
makes $50-0 =$50.

The rest of the network is earning
MORE per hashrate.  I think others
d4n13, gmaxwell have more precisely
detailed it mathematically.

[Lauda]

This is quite a interesting story. I wonder how this is going to work for them once we have bigger blocks, or sidechains or lightning network, etc.?
Everything is prone to abuse in some way until someone does something about it. It is actually quite possible that someone is being very malicious about this. However, more proof is required as you're just making an assumption that someone is doing it because it is most likely profitable for them.

[-ck]

Even if the math does work out (which I'm having trouble believing), in all honesty I think you're grossly overestimating the capabilities of the two pools that could possibly be doing this...  and their own block size handling is working against such an "attack" with regular (transaction) empty block solves

[SebastianJu]

I think its not needed to look at if any player has the needed amount of hashpower, we know that miningcorporations in china hold the majority of the hashingpower (i believe i read something >60%) and there is no one stopping them from building a monopoly in secret. Means they will still mine alone but they put money together to spam the network. The costs would be low enough for them to force the fees up and still earn. And since chinese miners most probably have the advantage of cheapest power cost and cheapest way to create miners, the profit the rest of the miners has from this rise in fees would not be so high anymore.

This of course only works when the blocks are nearly filled already, so with 8MB blocks it would not work first but at one point it would work again i guess.

What i fear is this kind of ruling over bitcoin. I mean Satoshi wanted to be free from banks and their rules and now its possible to enforce fees, like a bank would do. Dont like that.

The price of bitcoin didnt drop because of the spam attack, in fact it went up considerably. So i think the spam attack had no real effect on the bitcoin price.

I sometimes read we would simply need to raise the fees so that miners get paid "fairly". This is not possible. Block halving will happen and there is no way fees will back that. If miners could enforce this then bitcoin would be dead by fees.

So there is no way that miners can proceed the way they do. They will earn less. This is nothing new, mining hardware was old all the time and replaced. So a fair payment only will come from adoption. Spamming the network effectively hinders adoption. One can see this easily in numerous posts on the net. And newbies coming to bitcoin, seeing that bitcoin doesnt work, is bad for sure.

[SebastianJu]

I would like to add that at this point i would prefer that transactions have to pay fees depending on the amount of outputs, similar like litecoin prevents spam attacks. I think there is no reason not to handle it that way. A transaction with more than 2 outputs are simply more than one transactions. If you send 100 letters by mail then you dont pay a fee once only because you bring all the letters to the post office in a big box. You still have to pay for all letters. You might be able to save some percent but its very different.

So why should transaction be handled so differently? We could solve the whole thing quick i guess.

[Blawpaw]

Is this really going on right now!? and if it can happen it means that the protocol is broken.
Now that you find out this anomaly what are your options to solve it?

[TTBit]

A pool with 30% of mining power may have an incentive to do this. But increasing fees means the pool with a 10% share increases its revenue without doing any work. So, in an ironic twist, this should prevent a monopoly forming? Its better to be the 2nd biggest mining operation, and let #1 push up the fees.

[TinEye]

A pool with 30% of mining power may have an incentive to do this. But increasing fees means the pool with a 10% share increases its revenue without doing any work. So, in an ironic twist, this should prevent a monopoly forming? Its better to be the 2nd biggest mining operation, and let #1 push up the fees.

but there are no pool with more than 17-18% for now, so how can they do this attack? are the pool working together to do this and then split the profit?

if this is the case, this is really a miners's monopoly, chinese miners working together to screw bitcoin is an understimated issue, they can also perform a 51% if there will be a real reason to do it

[TTBit]

A pool with 30% of mining power may have an incentive to do this. But increasing fees means the pool with a 10% share increases its revenue without doing any work. So, in an ironic twist, this should prevent a monopoly forming? Its better to be the 2nd biggest mining operation, and let #1 push up the fees.

but there are no pool with more than 17-18% for now, so how can they do this attack? are the pool working together to do this and then split the profit?

if this is the case, this is really a miners's monopoly, chinese miners working together to screw bitcoin is an understimated issue, they can also perform a 51% if there will be a real reason to do it

higher fees means more miners. These new miners do not want to be part of the "monopoly", but do want monopoly prices.