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Author Topic: Another respected cryptographer predicts collapse in bitcoin mining  (Read 6214 times)
matonis
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February 23, 2012, 09:45:32 AM
 #1

Bitcoin & Gresham's Law - the economic inevitability of Collapse
by Philipp Güring & Ian Grigg, Dec 2011

http://iang.org/papers/BitcoinBreachesGreshamsLaw.pdf

Ian's Blog: https://financialcryptography.com/

Quote
Abstract:
The Bitcoin economy exhibits remarkable and predictable stability on the supply side based on the power
costs of mining. However, that stability is challenged if cost-curve assumption is not solely expressed by the fair cost
of power. As there is at least one major player, the botnets, that can operate at a power-cost-curve of zero, the result
is a breach of Gresham's Law: stolen electricity will drive out honest mining. This has unfortunate effects for the
stability of the Bitcoin economy, and the result is inevitable collapse.

Conclusion:
The security of Bitcoin relies on a single party or cartel of parties not being able to dominate the capacity for mining.
Therefore Bitcoin relies on a large and diversified network of miners. Yet, the proof-of-work mechanism, the
existence of free entry and no limits to honesty ensure that botnets will cause a breach of Gresham's Law: stolen
electricity will drive out honest miners. Once botnets take over, criminality increases, honest users decamp and
collapse follows.

Hence, the requirement of diversification is broken by Bitcoin's very mechanism to make diversification work fairly:
proof-of-work. Attempts to repair the design generally result in the replacement of Bitcoin with some other
architectural base.

The Bitcoin economy is highly vulnerable to attack. If an agent were to decide to attack Bitcoin, he has several
strategies available. One could operate a mining botnet and slowly lower the Bitcoin market price by regularly selling
small amounts of bitcoins with a declining price. As the honest miners are squeezed out, further manipulations of the
Bitcoin system are possible. A second strategy is to pump & dump to generate volatility. Both strategies result in the
honest mass market decamping for other fields. Once the market takes on the taint of criminality, the Feds are
encouraged to shut it down by targeting the exchange makers; fear of criminality and the appearance of the Feds
work together to cause the collapse.

Executive Director, Bitcoin Foundation
I also cover the bitcoin economy for Forbes, American Banker, PaymentsSource, and CoinDesk.
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February 23, 2012, 09:48:19 AM
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the stuff he "predicts" is already being done and still not killing us.
stay positive.

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February 23, 2012, 09:49:01 AM
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FUD.

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February 23, 2012, 09:52:34 AM
 #4

These predictions become more likely to occur as the block reward decreases.

Proof-of-work is fatally flawed and in the future alternative cryptocurrency will be based on a more sensible architecture... proof-of-stake.
 
Coding robots come out with a release for me.

That said, the writers of this article don't know shit about economics and abuse terminology. They would be better off sticking to cryptography.

In a Society in which there is no law, and in theory no compulsion, the only arbiter of behaviour is public opinion. But public opinion, because of the tremendous urge to conformity in gregarious animals, is less tolerant than any system of law. When human beings are governed by "thou shalt not", the individual can practise a certain amount of eccentricity: when they are supposedly governed by "love" or "reason", he is under continuous pressure to make him behave and think in exactly the same way as everyone else. - George Orwell
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February 23, 2012, 10:06:35 AM
 #5

Quoting myself:

People are already starting to use FPGAs, and maybe one day we'll even see ASICs.
Botnets won't have such specialized hardware. Ok, they have free electricity, but they are limited in size.

And by the way, in what concerns the bitcoin network, botnets are not a problem. It only becomes a problem if one single botnet is too large and manages to get >50%.

PS: I confess I did not read the paper so sorry if I'm saying something which is already addressed by it.

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February 23, 2012, 10:07:33 AM
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If bitcoin achieves critical mass, having criminal botnets bigger than the rest of the network seems extremely unlikely. There's the problem of having proof of work that's extremely more efficiently done by very specific hardware than with common hardware, so a very big party can still create a network of very specific hardware and outmine the rest of the network into submission (making most of them give up mining and achieving 50% then). This also becomes more unlikely as specific hardware is commercialised and acquired by a number of independent miners and for researchers it's much easier and safer to sell it openly than to a cartel.

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February 23, 2012, 10:07:54 AM
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FUD

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matonis
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February 23, 2012, 10:10:20 AM
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That said, the writers of this article don't know shit about economics and abuse terminology. They would be better off sticking to cryptography.

The arguments they put forward are very similar to the Ben Laurie blatherings on bitcoin. Zooko Wilcox-O'Hearn had a Google+ post reviewing these 'blacklist' and 'whitelist' architecture issues for bitcoin nodes:

"What Would You Do With >50% of the World's Bitcoin Mining Power?"
https://plus.google.com/u/0/108313527900507320366/posts/6NCqDrZUYiF

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I also cover the bitcoin economy for Forbes, American Banker, PaymentsSource, and CoinDesk.
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February 23, 2012, 10:29:41 AM
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My point is that these are fundamentally economics issues, not cryptography issues. The people having these discussions have no idea what they are talking about.

In a Society in which there is no law, and in theory no compulsion, the only arbiter of behaviour is public opinion. But public opinion, because of the tremendous urge to conformity in gregarious animals, is less tolerant than any system of law. When human beings are governed by "thou shalt not", the individual can practise a certain amount of eccentricity: when they are supposedly governed by "love" or "reason", he is under continuous pressure to make him behave and think in exactly the same way as everyone else. - George Orwell
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February 23, 2012, 10:39:12 AM
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Setting up and maintaining  a botnet takes time and effort. It's not "free."
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February 23, 2012, 10:40:17 AM
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Not to mention people would notice the sound of their gpus mining at full speed so those are pretty much out of the question.
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February 23, 2012, 10:42:22 AM
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My point is that these are fundamentally economics issues, not cryptography issues. The people having these discussions have no idea what they are talking about.


Network effects are also cryptography issues, or more generally computer security issues.

But actually I'm not going to side with them just because I'm CompSci/EE, the points they bring up are highly speculative and unscientific. In this regard they are talking in terms that belong in economics and sociology, which are not actual sciences. However, that doesn't mean only economists and sociologists can speculate about human behaviour.

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February 23, 2012, 10:50:57 AM
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Botnets will never work for minigng..they are to valuabel and owners can make more (illegaly) using them in other areas..using them for minign would go the opposite..they would easier be to spot and to spot..no botnet owner right in his head would  ever use it for mining..at 100$ per btc they maybe try lol Also specialised hardwar..etc..cpu minign jsut doesnt woirk out..why can`t these people read a bit ebfore beginnign to FUD

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February 23, 2012, 11:05:29 AM
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My point is that these are fundamentally economics issues, not cryptography issues. The people having these discussions have no idea what they are talking about.


Network effects are also cryptography issues, or more generally computer security issues.

But actually I'm not going to side with them just because I'm CompSci/EE, the points they bring up are highly speculative and unscientific. In this regard they are talking in terms that belong in economics and sociology, which are not actual sciences. However, that doesn't mean only economists and sociologists can speculate about human behaviour.

I won't defend economics as an actual science. It isn't. Economics lays out assumptions about human behavior and then derives how agents following those assumptions will behave. The authors are not doing this.

In a Society in which there is no law, and in theory no compulsion, the only arbiter of behaviour is public opinion. But public opinion, because of the tremendous urge to conformity in gregarious animals, is less tolerant than any system of law. When human beings are governed by "thou shalt not", the individual can practise a certain amount of eccentricity: when they are supposedly governed by "love" or "reason", he is under continuous pressure to make him behave and think in exactly the same way as everyone else. - George Orwell
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February 23, 2012, 11:12:14 AM
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I won't defend economics as an actual science. It isn't.

There are two ways of doing economics. Empirically, like physics, or aprioristically, like math. I agree that it is not scientific to do economics empirically, because you simply cannot isolate all the buzillions variables involved, nor repeat your experiments enough times to get good samples. They actually can't even experiment.
But economics can be done like math, using logically sound constructions on top of axioms. This works much better and it is scientific.

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February 23, 2012, 11:31:40 AM
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This is another "Bitcoin will fail because it's successful" type argument (it's usually about hoarding -- bitcoin will fail because it's so successful that people keep them).

The author's argument is wrong because Bitcoin the network doesn't care in the slightest how many miners there are nor how much they are paying for their electricity.  It is absolutely excellent for Bitcoin if a load of botnets start mining -- the blockchain is more secure.  It's not great for the people who are having their resources abused to do so; but that is their problem.

Quote
One could operate a mining botnet and slowly lower the Bitcoin market price by regularly selling small amounts of bitcoins with a declining price.

He should give it a go.  See how quickly his ever cheaper coins get snapped up.  The price is set by the market, not by the miners.  That becomes more and more true every day while we are in our strong inflationary period.

The only potential risk is that a large botnet gets switched off suddenly and the rest of the network can't adjust to it fast enough.  Block production would suddenly slow massively.  However, I think I saw Gavin writing about having potential work arounds for that, so let's not worry too much.

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February 23, 2012, 11:39:11 AM
 #17

Quoting myself:

People are already starting to use FPGAs, and maybe one day we'll even see ASICs.
Botnets won't have such specialized hardware. Ok, they have free electricity, but they are limited in size.

And by the way, in what concerns the bitcoin network, botnets are not a problem. It only becomes a problem if one single botnet is too large and manages to get >50%.

PS: I confess I did not read the paper so sorry if I'm saying something which is already addressed by it.

+1, I had the exact same thought. I read through almost to the end of the article, and FPGAs/ASICs are not mentioned - a gaping hole in such an article.

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February 23, 2012, 11:39:14 AM
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BS

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February 23, 2012, 11:39:47 AM
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Gosh i so hate these self proclaimed experts who are totally clueless....

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February 23, 2012, 11:46:02 AM
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I won't defend economics as an actual science. It isn't.

There are two ways of doing economics. Empirically, like physics, or aprioristically, like math. I agree that it is not scientific to do economics empirically, because you simply cannot isolate all the buzillions variables involved, nor repeat your experiments enough times to get good samples. They actually can't even experiment.
But economics can be done like math, using logically sound constructions on top of axioms. This works much better and it is scientific.

Sure, economics is done like math. This is how it is done in academia, and doing this would be a great improvement over what the authors did in this article.

However, deriving a result from a set of assumptions should not be confused with science. Science requires the formulation of testable hypotheses. In economics, particularly macroeconomics, it is typically impossible to credibly test theoretical assumptions. That is why I say it is not an actual science.

In a Society in which there is no law, and in theory no compulsion, the only arbiter of behaviour is public opinion. But public opinion, because of the tremendous urge to conformity in gregarious animals, is less tolerant than any system of law. When human beings are governed by "thou shalt not", the individual can practise a certain amount of eccentricity: when they are supposedly governed by "love" or "reason", he is under continuous pressure to make him behave and think in exactly the same way as everyone else. - George Orwell
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