There is a lot of discussion about the 50+% attack, and as earlier threads have stated, that's pretty easily fixed by just ignoring the fork in the chain. However, the weekend's sell-off and the crash in the BTC/USD rate made me think of the major downfall of bitcoin - the algorithm used to determine the retarget.
), the difficulty is recalculated every 2016 blocks, which should take 10 minutes per block, i.e. in 2 weeks. As for now, everything's gone fine, since the difficulty has always gone up, and thus the next retarget has always been less than two weeks. However, let's assume the following scenario takes place: There is a major crash in the BTC/fiat exchange rate. This leads miners into quitting mining, since their rigs won't be profitable anymore -- let's for the fun of it assume that the exchange rate BTC/USD crashes to .1 USD per BTC, and let's furthermore assume that that leads into the network hashing power dropping by 90%. Let's also assume that the difficulty has just increased, so there's around 2000 blocks until the next difficulty.
The current bitcoin protocol waits for 2000 blocks, which would in the new scenario take 100 minutes per block, resulting in a retarget in 138 days. Currently, usage of BTC for transactions over the Internet is justifiable, since waiting 6 confirmations should take 60 minutes on average (and in the last 2 months even significantly less), however, in the scenario just laid down, a single transaction would take 600 minutes (assuming that it gets into the first possible block) on average. Waiting for 10 hours for something that BTC is good for - microtransactions - is atleast IMO not acceptable. So, this scenario leads into lowered usage of BTC due to the fact that the transactions take too long to process, resulting in even less people interested in BTC and even less miners, resulting in even longer until retarget.
How this could be fixed: change the protocol in a way that it retargets using one of the two criterion: a) 2016 blocks have been found, retarget in the same way as is done currently and b) three weeks have passed from the last retarget, in which case the protocol would take the amount of blocks and make an estimate of how long with the current rate the retarget would have taken, and adjust the difficulty accordingly.
I'm sorry if this has been extensively discussed before, I tried searching for a thread but couldn't find one.
Just my .02 BTC,