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Author Topic: Freezing BitCoin addresses by regulating miners  (Read 14818 times)
Mike Hearn
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April 17, 2011, 08:59:59 AM
 #1

As BitCoin matures, mining will become more and more specialized until nearly all blocks are being mined by sophisticated organizations that build farms of custom ASICs near to where electricity is cheap. Perhaps even constructing their own power plants (eg solar or wind) to take advantage of the fact they can use supplies much more bursty than the grid can tolerate. Miners less efficient and dedicated will be rendered unprofitable.

This consolidation is already happening even in the very early years of BitCoins existence. DeepBit, slush and ArtForz alone probably make up >50% of the network and ArtForz is building miners using structured ASICs.

From time to time governments freeze the assets of people or organizations they believe to be criminal. Sometimes this is rather controversial and does not reflect the true consensus of society. Other times, as with dictators and war criminals, there is little or no controversy and the international community co-operates to get the job done. BitCoins apparent inability to do this will certainly make law enforcement uncomfortable with the concept.

But in reality, by the time BitCoin is large enough for this to be a real issue it will be quite possible to freeze bitcoins by requiring miners to exclude transactions from blacklisted addresses. As miners will likely be spread throughout the world, this would require the co-operation of many different governments and a total freeze is impossible (as anyone can mine), but if enough hash power can be made to co-operate the difference between "your tx might confirm in 20 years" vs "your coins are frozen" is pretty small. Because mining will be concentrated in the hands of a small number of legitimate, regulated companies, once an international framework is put in place the actual freeze orders would be enforceable very quickly or even instantly (eg by requiring miners to poll a signed list of addresses from some web site).

Freezing coins by synchronizing the bulk of hashing power works better than attempting to force co-operation from every economic actor (exchangers, merchants etc). The latter is almost impossible because coins can be split and merged in arbitrary ways making it hard to really blacklist a coin. But once an address is frozen by miners, its value can no longer be merged or split.

Whilst I think it's inevitable, this sort of legal framework would ultimately be self regulating and so should not be feared. BitCoin is a system for agreeing on a global consensus around the ordering of transactions. If that consensus is truly a consensus then there will no be real controversy over the freeze orders and few (or no) miners will ignore them. Consider temporarily freezing the assets of Gadaffi or Mubarak as examples.

However, mining can be done anonymously. If the freeze order system were to be abused a group of miners would emerge that were not motivated by profit but rather by ideals. Whilst they would likely not be able to mine as fast as the big ASIC using companies, even reaching 5% of the total network hash power would be enough to allow the coins to be spent, albiet quite slowly. Somebody whose assets were frozen in this way would certainly try and get them out of BitCoin as quickly as possible, though finding a counterparty who would anonymously accept these "slow coins" might be difficult. Most likely, that counterparty would demand a risk premium based on the chance of the political or legal issues being resolved and the coins being unfrozen (eg because the wallet file was seized and the coins can be sent to their rightful owners).
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theymos
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April 17, 2011, 09:07:13 AM
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Smart people will launder their coins before anyone has a chance to freeze them.

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April 17, 2011, 09:24:35 AM
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However, mining can be done anonymously. If the freeze order system were to be abused a group of miners would emerge that were not motivated by profit but rather by ideals. Whilst they would likely not be able to mine as fast as the big ASIC using companies, even reaching 5% of the total network hash power would be enough to allow the coins to be spent, albiet quite slowly. Somebody whose assets were frozen in this way would certainly try and get them out of BitCoin as quickly as possible, though finding a counterparty who would anonymously accept these "slow coins" might be difficult. Most likely, that counterparty would demand a risk premium based on the chance of the political or legal issues being resolved and the coins being unfrozen (eg because the wallet file was seized and the coins can be sent to their rightful owners).

So-called 'frozen coins' will attract a higher transaction free.  Those higher fees will create additional demand for blind miners...  Coins will never be frozen unless the majority of the hashing power forces decide to reject block that contain them.

We will see a chain split at that point. Probably moving to a different algorithm that is hard for asic's to compute.  This 'alt' chain will contain all the transactions indistinctly if they are from good coins or not.

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April 17, 2011, 12:11:51 PM
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Yeah, there is still the problem of figuring out which addresses to put on the list.

As was said fees will have to be higher for coins on the list, how much higher depends on the risk of defying the regulator. Which seems really really unrisky unless the regulator has complete access to all your stuff because you could just not mix payouts of blocks that contain blacklisted tx with your legit mining income and use that money for non-official expenses.

Hmm, I guess it would easy to auto-blacklist the address that the fees are paid too also, but that just means you pay more fees when using that money. Interesting, that means that the blacklist fee will have to be higher than otherwise since the fee coins will also be worth less. I don't think that leads to an explosion, but it seems like some kind of math problem.

Huh, and couldn't you screw the regulators up by sending token amounts from black addresses to random addresses containing lots of coins? If they don't auto blacklist the whole large amount then you can use that to launder black coins. If they do then you jam up corporate balances and such with dirty bit pennies.

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April 17, 2011, 01:26:45 PM
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If the (de facto) government miners not only refuse to include blacklisted addresses in their blocks but also refuse to mine from others' blocks containing blacklisted addresses then those transactions will not ever be included in the chain.
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April 17, 2011, 02:35:28 PM
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i don't see much luck for the existing power structure in regulation.

on the IP side, even the deepest packet inspection will only reveal that SHA-256 is being used... for something.  i suppose a huge push could be made to ban effective encryption world-wide - but that's been tried, and didn't work out so well.  open source is a powerful thing.

on the mining pool side, yes - it would be possible to tax the BTC pools using transaction fees:  for those pool operators who caved to those demands rather than ended their operations.  but you could only tax a BTC once.  after it got out into the wild it would become untaxable.

as far as putting enough hashing power into the network to take it over?  i dunno.  governments move slowly.  right now, BTC is a tiny thing that is only beginning to be noticed.  but already a third of all available BTC have been mined: by the time a government coalition - even moving at lightning speed (for them) - got their shit together, block rewards will be down to 25BTC at least.  the hashing power of the private network will be so huge that taking it over for a paltry billion dollars or so (assuming BTC goes up to 10/DollarUS by then) won't look so good to the folks who calculate the expenditure of political capital for the maintenance of government power.

if nothing happens by the time the block reward goes down to 25BTC, i think it's too late to regulate.
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April 17, 2011, 08:14:27 PM
 #7

Smart people will launder their coins before anyone has a chance to freeze them.

Mixer sites like CoinTumblr have limited capacity. If you're a small time crook then sure, but if you're a deposed dictator with a few billion in coins then good luck laundering all of that before the world catches up with you.

This is especially true because of coins did start being frozen, the amount of traffic through the mixers would go into freefall as legitimate users decided not to altruistically support them by mixing their own coins, in case they got back frozen coins that could not be easily spent.

Whilst frozen coins might well attract high TX fees, who is going to claim them? Remember that in this hypothetical future it might not even be worth mining with GPUs, just like CPU mining is kind of pointless today. If you can't pony up a terahash/sec then you aren't even in the game. But any miner that operates at scale has to do so as some kind of legitimate, white market operation. You just wouldn't be able to procure the large quantities of power, floor space and ASICs required through some kind of underground operation.

I think it's worth bearing in mind that in such a future, regulation of BitCoin would be inevitable but the type of regulation is not inevitable. If BitCoin reached the stage of being regulated (but not banned) that would mean there was lots of legitimate business activity taking place, so there would be large organizations capable of lobbying politicians and ensuring whatever results is a reasonable compromise.

Lawmakers would have a menu of options. One would be to prevent inclusion but not require the block acceptance rules to change (ie, blacklist in IsStandard). This would mean no chain splits and that entirely freezing coins is not really possible, just delaying them significantly. Another would be to require chain splits if a blacklisted address was included in a block. The first option has the appealing property of being somewhat self regulating in that miners which don't take part in the scheme for whatever reason (perhaps it's voluntary or perhaps they mine in a jurisdiction which doesn't require it) can still include those transactions, so there is natural back pressure.

It might seem unlikely that governments would choose to deliberately limit the power of the freeze orders that way, but there are many precedents. Governments have passed Freedom of Information acts, replaced direct minting of money with central banks (arguably ineffective but the intent was clear), and routinely pass legislation that limits their own power as well as extends it. It isn't unthinkable that such freeze orders would even be a voluntary system at least to start with.
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April 17, 2011, 08:33:33 PM
 #8

Personally I would see this type of regulation as a positive thing--if entities who are getting their coins frozen (presumably by court order of some kind) have to buy significant mining power to process their own transactions it is good for everyone.  To prevent forking they would be wise to process regular transactions too, and thus the overall difficulty etc. responds as expected across the board.  If some administration goes overboard and starts freezing so many coins that the regulated miners aren't making a profit anymore and are being out-competed by the underground miners, then the regulation will naturally be pushed out.  So there is a selective force for a regulated-but-not-too-regulated environment to develop.  Having some way to freeze (=make substantially slower, by court order only!) undesirable use of the BitCoin network would be a great way to keep the "non-infringing" uses of BitCoin at the forefront.  As someone looking to build legitimate businesses etc. on this that is a big boon.  If criminals want to use bitcoins, let them pay to amp up security for all the legitimate users!

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June 19, 2011, 05:37:16 PM
 #9

This all makes the bold assumption you can absolutely tie an address and specific Bitcoins with an individual or entity. Even then, I personally believe Bitcoin should serve exclusively as a tool of trade, not vigilant justice. God forbid 50% of the network buys into this scheme and allows itself to blacklist its people according to mere democratic whims and desires. Let's leave justice to the battlefield, not put others property at risk as collateral damage in this scheme. I can imagine innocent and victimless funds getting caught up in this powergrab.

In the end that's what it will become, a contest of power and identical to many ways of real life war.

If you see this as a good thing, you hate freedom.

Anyways, I can hardly imagine miners having incentive to buy into this without government force. Even then, government force can hardly touch Bitcoin. So, really, I am not worried.

You guys are assuming mining power will be centralized. Until there is government rationing over computer hardware, I highly doubt these large mining corporations will come about.
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April 01, 2013, 08:43:59 PM
 #10

this suddenly appears relevant after recent events.
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April 01, 2013, 10:06:17 PM
 #11

If "generic", grey-market or ASICs using stolen IP eventually come on to the market, I can imagine backyard operations running on wherever electricity could be had cheap or stolen.

For years the web hosting industry had a problem with cowboys operating out of their mom's basement. The difference here, however, is that such a private venture needs not concern itself with uptime SLAs, multi-tiered bandwidth, power conditioning and backups. Just keep those Alibaba-sourced ASICs running on the smell of an oily rag. UL and FCC approval would not even be in the vocabulary of such miners. VESDA fire suppression? Contract your rigs out to Bangkok.
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April 02, 2013, 04:10:19 AM
 #12

ASICs are being sold to many different individuals. 3 or more companies are beginning to ship working products, a few are delayed. Eventually, they will all be out, and all those ASICs will account for more than 50%, or maybe even 80% of all hashing power world wide. That they are sold to many different people, in different locations will help secure the bitcoin network from the possibility of governments attempting to freeze coins.

Then of course, later on, these ASIC designs will either go down in price, or be copied, or both. So more people can become miners.

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April 02, 2013, 04:25:17 AM
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ASICs are being sold to many different individuals. 3 or more companies are beginning to ship working products, a few are delayed. Eventually, they will all be out, and all those ASICs will account for more than 50%, or maybe even 80% of all hashing power world wide. That they are sold to many different people, in different locations will help secure the bitcoin network from the possibility of governments attempting to freeze coins.

Then of course, later on, these ASIC designs will either go down in price, or be copied, or both. So more people can become miners.

Even if one has a pocket full of ASICs, one is still going to have to have access to a full node (self operated or via a pool operator) and if we can get the transaction volume up enough to make that a technically challenging proposition the dream can be achieved.  With global network providers on-board and doing deep packet inspection and blocking it should be pretty possible to create barriers to non-aligned node operators which could keep them from operating competitively and reliably.


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April 02, 2013, 04:32:14 AM
 #14

When an ASIC miner is just a matter of Joe six pack buying a box at the store and plugging it in supplying his wifi and Bitcoin address the price will even out with the price and difficulty of the miner and the network will be impossible to hack/regulate.

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April 02, 2013, 05:38:08 AM
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I actually proposed that I will personally purchase a 1 GH/s mini ASIC miner. The manufacturer of this should make this particular version widely available, or in stock, and distributed to many retailers.

This is more than any single graphics card, but it's a lot less than giant full size farm rack rigs of 100 GH/s or faster.

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April 02, 2013, 05:59:37 AM
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I actually proposed that I will personally purchase a 1 GH/s mini ASIC miner. The manufacturer of this should make this particular version widely available, or in stock, and distributed to many retailers.

This is more than any single graphics card, but it's a lot less than giant full size farm rack rigs of 100 GH/s or faster.

800Mhash miners are already available in retail stores.. look at the top end GPU.

shortly 4Ghash, 65Ghash to 100Ghash will be standard where the Mhash-1Ghash units will be obsolete.

i know a few manufacturers in developments of this now. it wont be sold retail. it would be more whole sale so that entrepreneurs can the set up their own retail stores to then battle against corporation profits Cheesy

bitcoin is the new economic freedom so why give the profits to the fatcats in boardrooms. thus also avoiding governments from regulating corporations to have firmware that includes blacklists.

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April 02, 2013, 06:30:08 AM
 #17

But GPUs are expensive. In wattage. In price. In size. In heat. And you have to plug it into a motherboard or something. The ASICs can almost stand alone. Almost. I think you need a computer to interface, but then you can leave the ASIC miner running after that.

I'g get a 1 GH/s asic over a 1 GH/s video card for mining, or for bitcoin purposes. I'd get the video card only for 3D gaming, to enjoy the latest ... games or something.

But a 1 GH/s mini miner the size of a desktop mouse or something like that, that consumes maybe a few watts, that plugs into my router directly (after setting up through my computer of course), or something that only needs your bitcoin address and starts to mine immediately (connecting to p2pool or something like that.) ...

As in, buy the cute miner, plug it, it just works. At 1 GH/s I'd get maybe 0.07 BTC per day.

That, or if the products keep up with the times, make it a "xx GH/s to produce 1 BTC per day" unit (currently about 14 GH/s), updated every few months with a new model.

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December 27, 2013, 12:45:58 AM
 #18

Whilst I think it's inevitable, this sort of legal framework would ultimately be self regulating and so should not be feared. BitCoin is a system for agreeing on a global consensus around the ordering of transactions. If that consensus is truly a consensus then there will no be real controversy over the freeze orders and few (or no) miners will ignore them. Consider temporarily freezing the assets of Gadaffi or Mubarak as examples.

This would destroy Bitcoin. More control and surveillance. I don't think this is what Satoshi envisioned.

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December 27, 2013, 01:12:25 AM
 #19

The first thing target miners would do, if threatened, is disconnect. Their hash power is now unavailable to be abused by governments.

The top thing most miners would do to prevent such things from happening, is to hide. No large miner will disclose his farm's location, because that would be dangerous to the miner.

Finally, black lists will have to be updated all the time. It just won't work. Any attempt of trying to black list any single address will be met by multiple spends with higher than minimum transaction fees, and then spent again and again until it's so diluted and all over the place. Or at least that's what I would do if my address ever got on a list.

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December 27, 2013, 01:46:53 AM
 #20

So-called 'frozen coins' will attract a higher transaction free.  Those higher fees will create additional demand for blind miners...  Coins will never be frozen unless the majority of the hashing power forces decide to reject block that contain them.

This technically is possible if someone invent an efficient SHA256 preimage attack.

We will see a chain split at that point.

This statement is false. There will not be any split. Loose miners will still try to prolong longest chain made by dictator.
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