Hello together,

I want to discuss an attack scenario for PoW currencies using a short position. I tried to get a helpful answer on bitcoin.stackexchange.com, but there is small interest and the answers don't convince me.
I've presented the issue in

https://bitcoin.stackexchange.com/questions/63993/a-theoretical-low-cost-attack-scenario-in-pow-currencies
https://bitcoin.stackexchange.com/questions/63914/egoistic-miners-combined-with-large-transactions-destroy-pow

The main idea is lend many coins, do a large transaction and after the transaction is accepted, you do a majority attack. You profits are from double spending and your costs are the lending fee and mining costs during majority attack. I supposed that such an attack is possible if profits are higher than costs. If this is so, we can only trust transactions comparable with mining costs or we must have high lending fees. But both options show that our coin isn't an efficient currency.

Where is the fault in this consideration?

My attack scenario is kind of theoretical type. You can also realise bribing the miners by lending their mining power. I don't know any hardware things, aren't there other coins the miners could mine if PoW currencies go down? I've done this as an assumption in my post on stackexchange.

How can I reach the "forum gurus" to get an answer? Is there a better place on the internet to do discussions like this? Is there any interest in a more detailed explanation of my attack scenario?

If there is any interest I could do discussion in a formal way. To be honest, my background is pure maths and not programming or hardware and so I would prefer this way, too, but I thought there would be more interest when we start in a simple way. By the way, I think the problem isn't deeply connected with game theory and encryption, it's more fundamental. I don't see the "many conditions around", we can do the attack quite open.

For those who want to do some maths just start with doing some calcuations and estimations for costs and benefits in worst case scenario :

Costs: Fees for the short position, energy during attack, worthless hardware after attack (this point is only relevant, if there aren't any alt-coins to mine with this hardware)

Profits: Double spending benefit, benefit from the short position.

How big can costs be?
Fees for the short position.
There are already short positions on the market, so you can look there. Also you can ask yourself, how many fees do I want if somebody wants to lend bitcoins from me for one day? I think 10 % of the short is realistic.

Energy during attack, and worthless hardware
In worst case scenario we have worthless hardware and this is the main point, so forget one day energy costs. To calculate costs of hardware you must ask, how long can I use the hardware for mining till I must buy better hardware? I think optimistic is one year. So costs of worthless hardware are less then one year mining profit, which is about 10 billion $ if we trust  https://digiconomist.net/bitcoin-energy-consumption

How big are profits?
The only question is, how big can the short option be? This depends on how much does owners trust in the coins. If they think the coin will have nearly the same value one hour later they will give you a short option with the 10% fees. I think there are many owners with this trust, then if you haven't this trust, why do you own any coin? So I think short position with 10% of market cap is possible, that's about 19 billion $ today.

So lets do the calculation:
Profits - Costs = 19 billion $ - 1,9 billion $ -10 billion $ = 7,1 billion $

How do we prevent this type of attack?
We can do mining profits higher, but then the coin gets even more inefficient than it is today. We can sell short positions only with a fee as big as the position? Then the short is unattractiv and currencies which don't allow to lend money are inefficient.

So what should be done?

If an attacker can complete a majority attack and rewrite historical blocks, then they have full control over which transactions make it into the blockchain and which don't.  The fact that they have a short position doesn't matter.  There are MANY ways they can profit with a majority attack.

Is POW vulnerable to a majority attack?  Yes.  It always has been. This is not new information.  Fortunately, the incentive structures are set up in such a way that there are very few scenarios where it is more profitable to engage in a majority attack than it is to simply mine cooperatively.  In the 9 years that bitcoin has existed, there has been no recorded instance of a successful majority attack.

I'll have to take a closer look at your example, because at first glance it doesn't seem to overcome the financial incentives to work cooperatively.


Fortunately, the incentive structures are set up in such a way that there are very few scenarios where it is more profitable to engage in a majority attack than it is to simply mine cooperatively

It just isn't typically profitable.  It is too difficult and expensive to gain control over enough hash power for a long enough amount of time to make the attack profitable.  If you do have control over enough hash power to complete the attack, then in the majority of scenarios it is more profitable to engage cooperatively than maliciously.  In those scenarios where there might be a risk that malicious mining could be profitable, the user can typically overcome that by waiting for a few extra confirmations.

Yeah, attacking Bitcoin with this strategy is insane.
Attacking some other coin with rapid hash-power injection to artificially fork coin after funds was accepted (on some altcoin exchange) could be possible.

There is still much interest in reading this threat, but not in answering.

Yes, there are some answers, but not to the main point, which asks about (leveraged) shorts used in PoW-currency attacks.

Is it quite clear and discussed many times before, then please just give a small hint or a link and everything is done.

I know only one threat where short are already discussed as a possible danger and this was years ago in
https://bitcoin.stackexchange.com/questions/32432/profit-possibility-for-colluding-with-51-attacker?noredirect=1&lq=1
and also there is no answer which keeps me calm.

@rexter: You have quoted parts of the question I asked on stack exchange. But why? Is this just spaming the thread?