Bitcoin's kryptonite: The 51% attack.

[andes]

Hi, as a newbie I want to move a question I put recently in the middle of another thread, because I think it deserves its own discussion. Sorry if this thing has been answered before, I have been reading the forum for several hours so far but did not find the answer yet. If it was answered elsewhere, please post the link.

Is decentralized mining power important for the security and long term independence of bitcoin?

I have read a lot about transactions being decentralized as a built-in feature of bitcoin, but what about decentralized block creation? The bitcoin architecture does not guarantee decentralized mining at all. In fact, the network could in theory work "as well" with nothing more than one powerful miner, or pool of miners. Am I right?

If concentration of mining-power increases (because of bitcoin difficulty increasing faster than moore's law, leading to bigger hardware investments needed to be in the game, profitability decreasing, and economies of scale kicking in) ^(Note1), can a few miners produce all the blocks in the network without compromising the security and independece of the project? Is it possible to avoid excesive concentration of mining power? I dont see how in the current configuration of the system.

I read somewhere that Bitcoin assumes never a 50%+ of the mining power will be concentrated in one hand or in one cartel. That's the principle behind the honesty validation of the longest chain by "proof of work". Correct me if my newbie understanding is wrong on this. To assume that this concentration of computing power will never happen is ludicrous to my current level of understanding of bitcoin and human behavior.

This raises some further questions. As difficulty changes every 2 weeks, what happens if a Google-like company with bad intentions gets into the game suddenlly with 10x the total combined power of current miners? Could this sudden change of rules endanger bitcoin? Destroy it? I mean lets consider this wild posibilities. For big corporations this move would be peanuts. Powerful states overthrow smaller goverments all the time, big corporations eat small corporations all the time.

Hope to hear some thoughts from the experts out there.


(Note1): Thinking about the issue of increasing bitcoin difficulty, let's remember that  by design difficuly increases when mining power increases, in order to keep the creation rate at 10 minutes per block. So, any powerful organization that wanted to gain control of Bitcoin, could do it easily by injecting enormous amounts of mining power to the network, and by doing so, effectively reducing the rest of the miners relative power, and at the same time putting them out of business, because the difficulty would be so high, that mining would be generated below cost (subsidy). Knowing the enormous level of concentration of economic resources in the current world, this hypothesis seems in fact the most likely outcome. Predatory competition is a reality in todays market. I predict honest miners will be subjected to predatory competition if powerful economic powers decide to take control of Bitcoin.

Following this line of thought, I see Bitcoin could never become what it promises: a descentralized and free currency, if it is left alone in the wild "free market". I hope someone can find flaws in my arguments, or present ideas to correct this flaw. By the way, I have a decent amount of money put in this project, so I feel sad to become aware of this potential vulnerability. If people agree this is a serious vulnerability, lets get into "troubleshooting mode".

EDIT:

For those interested, I have been searching previous threads where this issue was specifically covered. I will post them here for convenience:

Stopping an attacker who has >50% of the hashing power
http://forum.bitcoin.org/index.php?topic=7166.msg105218#msg105218

Bitcoin resitance to network failures
http://forum.bitcoin.org/index.php?topic=4575.0

What's the plan about the Sybil attack?
http://forum.bitcoin.org/index.php?topic=8051.0

Is it possible to detect double spending in the > 50% network takeover scenario?
http://forum.bitcoin.org/index.php?topic=1481.0

50%+ Attack Nodes
http://forum.bitcoin.org/index.php?topic=435.0

Manipulating the mining system via strategic scheduled withholding of CPU power
http://forum.bitcoin.org/index.php?topic=11133.0

If an attacker gets more than 50 % of mining power
http://forum.bitcoin.org/index.php?topic=24996.0;all

POLL: What are the most likely things that may cause bitcoin to fail ? (merged thread)
http://forum.bitcoin.org/index.php?topic=25026.0

My Response to Ben Laurie’s ‘Last Word’ on Bitcoin
http://forum.bitcoin.org/index.php?topic=25760.0

This thread (and the link inside) covers some problems by too powerful pools. Remember this dosent fix the more fundamental problem of hashing power attack, because as already discussed in this thread, you dont need to own a pool to attack the network. But is goes in the right direction of reducing the vulnerabilities.

The 50% total hashing power - pooling flaw?
http://forum.bitcoin.org/index.php?topic=11424.0

This thread discusses a different problem that could have implications to this discussion, what happens if the internet partially fails, or different parts of the world become isolated because of some temporal connection failure. Gavin gives an interesting answer.

Bitcoin resitance to network failures
http://forum.bitcoin.org/index.php?topic=4575.0

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[Dude65535]

Mining on existing hardware or adding hardware to an existing computer is cheaper than building a purpose built mining rig. Therefore I think the small bitcoin miner will always be competitive with the big ones. Medium size bitcoin miners may face problems.

Also small miners can more easily deal with or during the winter benefit from the waste heat of mining.

If one person or group controls too much of the mining power they can block or with enough mining power reverse transactions.

[andes]

Mining on existing hardware or adding hardware to an existing computer is cheaper than building a purpose built mining rig. Therefore I think the small bitcoin miner will always be competitive with the big ones. Medium size bitcoin miners may face problems.

Also small miners can more easily deal with or during the winter benefit from the waste heat of mining.

If one person or group controls too much of the mining power they can block or with enough mining power reverse transactions.

So if this is correct, would it be imperative to create incentives for "democratic" mining across the population to prevent excessive concentration? For example creating and promoting the use of electric "Bitcoin stoves" in cold regions, that prevent you and your wallet of suddenly "getting a cold"? I am not kidding

[AntiVigilante]

So if this is correct, would it be imperative to create incentives for "democratic" mining across the population to prevent excessive concentration? For example creating and promoting the use of electric "Bitcoin stoves" in cold regions, that prevent you and your wallet of suddenly "getting a cold"? I am not kidding

Proposal: http://forum.bitcoin.org/index.php?topic=11541.msg162881#msg162881
Inception: https://github.com/bitcoin/bitcoin/issues/296
Goal: Decentralization and formation of revitalization communities.
Means: Code, donations, and brutal criticism. I've got a thick skin.

[andes]

AntiVigilante, do you think that the current mining centralization potential in Bitcoin as it is currently implemented could be a serious problem if nothing is done to change this?

[NetTecture]

Mining on existing hardware or adding hardware to an existing computer is cheaper than building a purpose built mining rig. Therefore I think the small bitcoin miner will always be competitive with the big ones. Medium size bitcoin miners may face problems.

Also small miners can more easily deal with or during the winter benefit from the waste heat of mining.

If one person or group controls too much of the mining power they can block or with enough mining power reverse transactions.

You ignore electiricty. In most countries there is sles tax fr private people, not businesses. TIn the EU that is a 20% differeence, Plus large sclae mining  can ask for industrial power contracts, which again are a LOT cheaper. Where i live the difference makes out over 50% in power costs.

[istar]

I have been thinking the same.

What happens once the mining does not pay for itself? Then people will stop mining and the network get insecure?

Unless some big companies have invested in the money and gives it power only to keep it safe?

[afterburner229]

I have been thinking the same.

What happens once the mining does not pay for itself? Then people will stop mining and the network get insecure?

Unless some big companies have invested in the money and gives it power only to keep it safe?

Due to bitcoin's software architecture does deperess miners by exponential manner, by design, total number of miners are reaching the saturation point these days. At this point, only electricity pilferers & large corporations will survive.

Even now, miners should group in mining pools, because individual miner with typical hardware should wait for block generation & 50 BTC reward some months, due to probability manner of mining.

Relationship & communication protocol between pools and individual miners are not formalized and guarantied, that miner will receive his profit. Pool admins, being FEW anonymous persons, have TOTAL control on mining, even today.

Mining pools are the same large goverment corporations, bitcoin system 'fights' against, esxcepting they are completely illegal & unguarantied.

[andes]

Found another thread discussing a similar attack against Bitcoin.

Here https://forum.bitcoin.org/index.php?topic=2436.100

Look for "Men-in-black attack" in page 5.

I am crosslinking the threads.

Found funny how so few people seem concerned about a fatal flaw of bitcoin. Am I wrong?

[BubbleBoy]

andes, i think your points about economy of scale are correct. The total mining revenue at current valuations is in the millions of dollars per month. If sustainable, that budget is enough to motivate a player to invest in optimized ASICs, and once that happens it's game-over for the GPU crowd. The ASIC miner has a 10:1 better capital and energy efficiency and would quickly overpower and bankrupt the competition, gaining a constant revenue stream for himself while denying it for the competition. Without sizeable upfront investments it's almost impossible to catch-up.

You should however consider the failure mode of the network: double spend is made possible at the discretion of the kingpin. It cannot print money, nor it can use other people's money. Moreover, the double spend would be self-evident and a clear proof the kingpin is corrupted (accepts double spend), leading people to flee from the currency. Why would the kingpin destroy his investment and revenue stream ?

[andes]

You should however consider the failure mode of the network: double spend is made possible at the discretion of the kingpin. It cannot print money, nor it can use other people's money. Moreover, the double spend would be self-evident and a clear proof the kingpin is corrupted (accepts double spend), leading people to flee from the currency. Why would the kingpin destroy his investment and revenue stream ?

BubbleBoy, thanks for your insights.

Answering your question, my thesis allows for a deliberate attack from current economic powers to debilitate the competing currency. Many people think that bitcoin weakens or threatens fiat currencies. The expenditure in destroying cryptocurrencies would be more than offset by the returns issuing and manipultaing fiat currencies without competition. In the end this is a game on controlling the allocation of the earth resources via control of money, a huge bussiness. If anti-banker advocates are right, now the bankers seem to be winning 1-0. Bitcoin could score a 1-1, which would not make bankers happy.

If some group controls mining, can this group change bitcoin rules, and by so doing, destroy its intrinsic virtues? I need expert opinion on this, as I am not a programmer, nor experienced bitcoin member.

[AntiVigilante]

If some group controls mining, can this group change bitcoin rules, and by so doing, destroy its intrinsic virtues? I need expert opinion on this, as I am not a programmer, nor experienced bitcoin member.

Bitcoin reward decreases. Mining profits go poof. Mining stops. CPU miners wait a week and then dive in.

[andes]

So, from the above comments, the conclusion is that any powerful company or government could shut down Bitcoin at will by committing enough computer resources to mining. If they have 51% of the mining power, and want to shut down Bitcoin, its game over for Bitcoin.

On the other hand, I think there is a good chance Bitcoin will succeed because many governments and companies will be more than happy have an anonymous currency. It gives anyone so much more flexibility. What will happen with the Fiat monopoly, it remains to be seen. Anyways, I think everybody wants to let this experiment unfold to see its ramifications. The head of Bitcoin development (Gavin) has a meeting with CIA this week I think. So everybody seems to be interested. http://forum.bitcoin.org/?topic=6652.0

So my current bet is that Bitcoin will succeed, but not for the reasons most people think. Bitcoin will never be really independent from the establishment, in fact it will exist under its approval, unless something changes in the way Bitcoin is designed. This does not change very much the reality for end users, only the moral and social implications at large.

Any thoughts?

[AntiVigilante]

Found funny how so few people seem concerned about a fatal flaw of bitcoin. Am I wrong?

Making such statements turns people off. Ultimately in reacting this way you are saying someone is not taking into account a threat but the threat is projected from your analysis. People tend to see that as emotional parasitism.

Creating the 100th thread on the same subject that has been talked about, dealt with, and has some solutions, oh brother.

[andes]

Found funny how so few people seem concerned about a fatal flaw of bitcoin. Am I wrong?

Making such statements turns people off. Ultimately in reacting this way you are saying someone is not taking into account a threat but the threat is projected from your analysis. People tend to see that as emotional parasitism.

Creating the 100th thread on the same subject that has been talked about, dealt with, and has some solutions, oh brother.

AntiVigilante, I dont see any problem by the posibility of some people being turned off. Truth is more important than ignoring facts to keep everybody happy, dont you think? And I dont see any excess of pessimism in the bitcoin comunity right now, considering the largest profits ever seen in the history of the universe! ...    

Regarding your last comment, could you point out the solutions you mention for what you say has been discused in 100 threads? You offered a solution scenario in this thread and it was proven wrong by other poster. I would be extremely interested in the solutions. I am invested in this too, as yourself. But I have found no solutions to this Bitcoin vulnerability. I now trust the establishment will allow bitcoin to operate, or even better, bitcoin will be upgraded to overcome this weakness.

[tehcodez]

My noob self has to agree...the central "what happens if a pool/operator gets 51% and double spends" hasn't been touched in many of these replies.

Seems like a good test to see if you actually understand btc.

[AntiVigilante]

Regarding your last comment, could you point out the solutions you mention for what you say has been discused in 100 threads? You offered a solution scenario in this thread and it was proven wrong by other poster. I would be extremely interested in the solutions. I am invested in this too, as yourself. But I have found no solutions to this Bitcoin vulnerability. I now trust the establishment will allow bitcoin to operate, or even better, bitcoin will be upgraded to overcome this weakness.

My noob self has to agree...the central "what happens if a pool/operator gets 51% and double spends" hasn't been touched in many of these replies.

Seems like a good test to see if you actually understand btc.

Simple. Stop calling it fatal. The double spend window is 10 minutes. After which you wasted all that processing power to cheat when you would have made more by mining or trading.

Second, cuddlefish's modification destroys the 51% problem.

Third, my work is for something entirely different.

And lastly, prove, fatal, guaranteed, death by 1000 puns. You confuse a dispute with proving wrong and you use the word fatal for a 10 minute breach. Right. Sorry. And most people require several confirmations so that 10 minute window buys you nothing.

Truth is people know about the problem and when it gets there people quickly leave that pool. There's a community here not just a bunch fat bearded men.

[andes]

AntiVigilante, again, your "10 minute breach" theory was proven wrong in this thread. There is no limit to how long an attacker could stop the network from working. It solely depends on the attacker wishes. If he wants to stop Bitcoin for 1 month, and he has the resources, he can.

Second, cuddlefish's modification destroys the 51% problem.
...
Truth is people know about the problem and when it gets there people quickly leave that pool.

I dont think so. What you write has to do with the inner workings of pools. An attacker does not need to control pools of honest miners, only owning computing power in the form of mining nodes. Readers, please correct me if I am wrong.

[andes]

Moving on. Having isolated the problem and starting to explore lines of solution.

Currently Bitcoin mining depends on the probability of a block being solved. This means the whole paradigm of Bitcoin security is subjected to who has more computing power to solve a certain problem. Statistically, as long as the honest users are in control of more than 50% of the network computing power, Bitcoins remains working as intended. The minute honest users loose the 50%+ advantage the system starts crumbling.

I see two forks of solutions here:

1. We keep using the Mayority-of-Computing-Power-Wins paradigm for security
2. We discard this paradigm and go for something more sophisticated that does not need the control of the mayority of computing power to be secure.

As long as Bitcoin security depends on honest miners owning the mayority of computing power, I see no power balance innovation here. This is history repeating itself for thousands of years. Those who control the mayority of economic resources control the whole system. There is no guarantee for true decentralization of power under the current Bitcoin implementation.

If we could come up with some new paradigm that is based exclusively in trust between parties, without having to rely on third parties. Of course if most users would become miners, and the total mining power would be greater than any external threat, this could be solved, but I see a much more difficult adoption curve in this case. The other option would be local mining trust comunities, but that would be also subjected to control sooner or later from larger entities. If thats not the case, we will allways end up with dangerous concentration of power in mining.

Lets keep thinking...

[AntiVigilante]

AntiVigilante, again, your "10 minute breach" theory was proven wrong in this thread. There is no limit to how long an attacker could stop the network from working. It solely depends on the attacker wishes. If he wants to stop Bitcoin for 1 month, and he has the resources, he can.

Um no actually he can't. He has to keep up as the probability of success implodes with each confirmation.

Second, cuddlefish's modification destroys the 51% problem.
...
Truth is people know about the problem and when it gets there people quickly leave that pool.

I dont think so. What you write has to do with the inner workings of pools. An attacker does not need pools, only mining nodes. Readers, please correct me if I am wrong.
[/quote]

No person in the world will ever have 51% of network power. Jesus. That's impossible. Only a rogue pool can do that. And that would require convincing half the GPU miners to raid the whole network. And then convince them to split up the winnings.