Dynamic Defensive Hashing for the Bitcoin Network

[da2ce7]

Hello.  I just want to clear up some half-truths about this topic.

First:  Difficulty != Security. -  However generally there lots of correlation between the two.

Security is defined by: Cost of carrying out a successful attack against the bitcoin network v.s. direct gain to the attacker.


Bitcoin has never provided security against attacks that have 3rd party financial gain.
Even with the block reward at 50, bitcoin is not secure against a large attacker whom take their gain from maintain the status co.  For example: a Bank, or a Government.  (This is why it is important that the community designs non-proof-of-work based crypto-currencies as alternatives)
So point 1:  Bitcoin isn’t secure from a power determined attracter, even with the ideal settings that it has now.

Continually-high difficulty will tend to be less secure than ‘very high only when needed’ difficulty.
If the entire network is expending large amounts of resources on maintaining a constant very high difficulty; this will lower the total resources available to the bitcoin economy to defend against a (relatively) short-term attack.
For example, maintaining a difficulty of 1M necessitates that the entire bitcoin community spend the resources to maintain that value.  However an attacker only needs to spend the resources to gain a hashing value of 2M equiv. for two weeks, to do significant disruption to the entire bitcoin economy.
There is a constant loss of 1M equiv. on the bitcoin economy.  However the attacker only needs to budget for a loss of 2M equiv. for a much shorter time… This gives the potential attacker a large financial advantage over the long term.
Point 2:  Continuous high difficulty make the bitcoin economy less well positioned to defend against a real attack.

Attacks against the bitcoin network are statistically easily detectable and can be quickly defended against.
There are two main types of attacks that an opponent with a majority hashing power would carry out; the they are both very obvious.
1.   Double Spending, this attack “re-writes” the order of the transactions, making retrospectively (to the POV of the receiver of the coins), removing the previously agreed to transaction.
2.   Supply blocking.  This attack either the attacker requires a registration of every transaction before accepting them into the block chain… or will just reject every transaction.  This is likely to me a much more damaging attack to the long-term future of the bitcoin economy.
When either of these attacks happen, the bitcoin economy is going to be very away of them happening.  There will be time to mount a significant defence before serious damage has been done to the economy.
Point 3:  Attacks are easily detected, and there is enough time to mount a defence against them.


Vested interest in the Bitcoin economy’s health
Everyone who owns bitcoins, or indirectly is dependent on the bitcoin economy, has a financial (or philosophical) interest to defend the bitcoin network from attack.
This means that there is a very large potential amount of value that can be put behind the bitcoin network in the case that the bitcoin network is indeed actively being attacked.  (50% value is better than 0% value on investment).
This value is NOT dependant on the rewards that the bitcoin network provides to the continuous active miners.  This value is dependent on the bitcoin economy size at-large.
Point 4:  The value behind protecting the bitcoin network is much larger than the value provided by the block rearwards or transaction fees.


With these points in mind, I would like to make this suggestion for the most secure way that the bitcoin network may wish to work:
1.    The block rewards (eg, new bitcoins, + transaction fees), only need to cover trivial internal annoyances that happen when the continuous hash rate is too-low.  I suggest that 0.1% of the bitcoin market cap per year will be about what is required to stop these trivial attacks.
2.   The bitcoin network may have a continuous hashing value as low as 100K or less.  Yet remain generally secure.


Conclusions

Bitcoin Transaction Insurance companies will hold much of the 1st line dynamic hashing power.  The will be companies that sell a service to businesses that will cover any losses due to reversed transaction double spending.
When an double spending attempt is (automatically) detected, against one of the insurances companies clients, they will dynamically decide if it is cheaper to fire up their miners and orphan the offending block, or pay-out the value of the transaction.
For the functional security of their customers they don’t require a very high constant hashing rate.  Rather a known potential very high hash rate.  (Something that it isn’t profitable to attack against).
The free market will bring down the price of the insurance to the minimum cost that it requires to defend against the attackers.

The 2nd line of dynamic hashing power will be bitcoin banks and other bitcoin trading businesses.
These companies will keep very large hashing power offline, unless there a systematic attack against the network is detected.  In that case, they will turn on their miners and out-power the attacker for as long as the attacker has resources for.  Once the attack has been given up the miners turn off, and are ready to turn on again at the drop of a hat.

The 3rd line of dynamic hashing power will be individuals whom have a large stake in the success of bitcoin.  They will work much the same as the 2nd line, however will only turn their miners on when everything else looks about to fail.

TL;DR:
Once the network changes from a static hashing defence, to a dynamic hashing defence; and potential attacker must not only overcome continuous hashing rate, (that may be quite low).  But also overcome a massive hashing power that is only activated in the case of an attack.
The bitcoin economy only needs to expend additional resources _when_ an attack is occurring. (and expending resources in maintaining the offline miners, and purchasing them in the first case; but this is generally a one-off investment, not a continuous cost).
While the attacker must provide a continuously high hash rate, above all the defensive dynamic hash rate available.


Edit: Formating/Spelling

[da2ce7]

So why is this post important?...

Lots of people have been scared of the natural low difficulty bitcoin will have once the reward per block is lowered dramatically, and the block size is increased.

What the above post sugests is th having a constant high difficulty will in the long run be less secure.

Instead it will be much more secure for the network to have lots of hashing power "in the wings" waiting to defend against an attack.

Then I proposes a "bitcoin transaction insurance company" so that the defensive hashing power will not be subject to the "tragedy of the commons" problems that plauge other defensive solutions.

[cunicula]

If the motivation is to establish an enduring mining monopoly (which seems like the most plausible 51% scenario to me), then dynamic variation in hashing power will not help at all.

[kronosvl]

problem is that anyone with enough hashpower can create a rogue chain in secret and publish it all at once. It's impossible to detect this attack until is too late and instead of using all the power to make it harder and costly to him you are helping him because you want to reduce costs

[da2ce7]

If the motivation is to establish an enduring mining monopoly (which seems like the most plausible 51% scenario to me), then dynamic variation in hashing power will not help at all.

Yes it dose.

1.  The attacker knows how much hashing power is needed to attack the network now.  With dynamic hashing the ammount of power needed is unknown untill untill that attack is atempted.

2.  The network is expending unnecessary resources maintaining a high hashrate when there is no attack.  It is much more efficient to save the resources now, in preperation for an attack.

3.  The network may be able to defend at a much higher hashrate for a short amount of time.  While the attacker dose not know how long or what % of the total defencive power is used.

Edit: Grammar.

[Mushoz]

problem is that anyone with enough hashpower can create a rogue chain in secret and publish it all at once. It's impossible to detect this attack until is too late and instead of using all the power to make it harder and costly to him you are helping him because you want to reduce costs

This! If the attacker doesn't broadcast any blocks until he has a significant lead, and then broadcasts them all at once, effectively rewriting a large part of the chain, there's no way to mount a defense on time.

[da2ce7]

problem is that anyone with enough hashpower can create a rogue chain in secret and publish it all at once. It's impossible to detect this attack until is too late and instead of using all the power to make it harder and costly to him you are helping him because you want to reduce costs

When an attacker publishes a 'seceret' chain that reverses some transactions, the network will detect this and quickly mine enough blocks to orphan that seceret chain.

The network must maintain enough "base load" to make such hidden attacks unprofitable in the general case.

Say the network has 100x dynamic hashing power to use against such double spending attacks.  A 100 block hidden fork will take only 1 block (of time) to reset back to the non attacker chain.

Also clients can be desigened to detect such a reorganizatio, and wait a fewmore bocks for confidence.  

[cunicula]

If the motivation is to establish an enduring mining monopoly (which seems like the most plausible 51% scenario to me), then dynamic variation in hashing power will not help at all.

Yes it dose.

1.  The attacker knows how much hashing power is needed to attack the network now.  With dynamic hashing the ammount of power needed is unknown untill untill that attack is atempted.

2.  The network is expending unnecessary resources maintaining a high hashrate when there is no attack.  It is much more efficient to save the resources now, in preperation for when an attack.

3.  The network may be able to defend at a much higher hashrate for a short amount of time.  While the attacker dose not know how long or what % of the total defencive power is used.

Okay, I'll admit that adding extra uncertainty to the attacker's problem is helpful. It is still pretty marginal help, however.

[da2ce7]

Also, the more long the hidden chain has been kept, the more obvious it is when it is released.
A WOT based chain locking after 1000 blocks would stop the most long-term attacks.

However it is easy to display a warning when there is a large reorganization... And even if there is a large lead... With much more hashing power 'in waiting' any reorganization is likely to be very short lived; and never successful. (in the long run).

[cypherdoc]

It won't work

The economic incentive to cheat would be too great. I might want to turn on my miners for "just a few days" to recover my sunk costs.  A few days becomes a few Weeks becomes a few months.

Although the analogy isn't perfect, the middle east oil cartel came to mind.

[da2ce7]

It won't work

The economic incentive to cheat would be too great. I might want to turn on my miners for "just a few days" to recover my sunk costs.  A few days becomes a few Weeks becomes a few months.

Although the analogy isn't perfect, the middle east oil cartel came to mind.

I'm sorry.  Where is the economic incentive to cheat?

If an insurance company is protecting your transaction, they may choose to let the reorganization happen (cheaper just to pay the lost transactions they cover).  However if it is cheaper to orphan the hidden chain.  Then that choice will be taken.)

However if a few different insurance companies are going to loose money on the reorganization, then they will decide as a team to orphan the offending chain.  This has a feedback where if one of the companies didn't play fair, they will loose reputation.

[da2ce7]

Block rewards are going to be very low, so are transaction fees.  The the only reason to turn your miner on is to defend against an attack.

Insurance companies have a vested interest in making attacks against their customers unprofitable.  (by orphaning a double spending chain that hurts their customers).  So any attack is likely to be killed by the free market.

[Meni Rosenfeld]

I think you are greatly overestimating the marginal cost of turning on mining hardware. Hardware depreciation is a much more significant cost than electricity.

Also, you're mistakenly assuming that attacker blocks have an "evil bit" set. When a node is facing a massive reorg, in general he doesn't know if the new branch is one built in secret by an attacker, or if so far he has been isolated by an attacker and finally he gets a glimpse of the real chain.

And, if the node does have some way to determine that a branch belongs to an attacker, there's no need at all to fire up the hardware to work to orphan this branch - the network can just agree to reject this obviously malicious branch.

The practice of rejecting a new branch if it conflicts with a known branch X blocks deeps is what I call "cementing". This has its uses but it carries the risk that a node will be stuck on the wrong branch. Which is why proof of stake is needed to have the final say - the cemented branch will be given up once proof-of-stake favors a different branch.

[evoorhees]

Really cool points da2ce7

Perhaps your most important statement is the Difficulty != Security, which is true. Security derives from the cost of mounting an attack. If all miners today used FPGA boards and were much more efficient per Gh/s, then difficulty would be much higher... but if these FPGA boards are just as cheap as the GPU's which preceded them, then the cost of the attack hasn't increased and thus the higher difficulty is irrelevant.

So, I haven't had my coffee yet, but I think this means Security = Cost per Block. The more expensive it is to mine blocks, the better. The Difficulty figure doesn't capture the cost, thus making it a good but inadequate statistic for measuring the security of the network.

[Meni Rosenfeld]

Perhaps your most important statement is the Difficulty != Security, which is true. Security derives from the cost of mounting an attack. If all miners today used FPGA boards and were much more efficient per Gh/s, then difficulty would be much higher... but if these FPGA boards are just as cheap as the GPU's which preceded them, then the cost of the attack hasn't increased and thus the higher difficulty is irrelevant.

This is completely banal. It's all about invariants. If the type and technology level of the hardware used is invariant, then the "difficulty" number very strongly correlates with security. If not, then of course the difficulty correlates more than anything with the hardware technology.

For discussing the issues in the OP, it is perfectly acceptable to assume the hardware technology (as well as the value of the Bitcoin system) is invariant, so "hashrate" is interchangeable with security. The OP's main point (which I don't really agree with) is that it is not the continuous hashrate that matters, but the reserve hashrate.

[evoorhees]

Perhaps your most important statement is the Difficulty != Security, which is true. Security derives from the cost of mounting an attack. If all miners today used FPGA boards and were much more efficient per Gh/s, then difficulty would be much higher... but if these FPGA boards are just as cheap as the GPU's which preceded them, then the cost of the attack hasn't increased and thus the higher difficulty is irrelevant.

This is completely banal. It's all about invariants. If the type and technology level of the hardware used is invariant, then the "difficulty" number very strongly correlates with security. If not, then of course the difficulty correlates more than anything with the hardware technology.

I don't think it's banal. Many people probably assume that a difficulty twice as high equals a network twice as difficult to attack, and this is not true. Hardware is always variant, so it's important for people to realize this dynamic.

[cypherdoc]

theres way too much hidden information in what you're proposing to allow it too work.

you yourself said that an insurance company would look out for its own customers to reverse any tx's that had been manipulated.  well if i'm not that insurance company but a competitor i'll just stand back and let you take care of it at your expense and not expend my resources in defending your client.  can you imagine the havoc and confusion that would take if multiple tx's from diff insurances companies get changed?

you said a one time investment.  hah, hardware is changing all the time and this is valuable resources sitting on the sideline doing nothing.  in the current system at least you can amortize its costs over a given amount of time and hopefully make some money off it.  

your proposal is like starving yourself now to prevent from getting fat but in the meantime you'll never get strong.

[da2ce7]

Yes.  Cementing has a risk.

However the risk is inversely proportional to the number of blocks you go back.

There are two 'in particular' attacks here.

1. Segmenting a particular client from the rest of the bitcoin network.
2. Trusting 'someone' to declare blocks 'evil'.

The first attack is mitigated by having a basic connection web-of-trust.  Where a client displays a warning when it hasn't got any messages from known good nodes.  This only defends against only being connected to an attacker.  It didn't centralize the core part of bitcoin.  It just makes a network re-org much harder to make without being completely seceret.

You don't need to have an "evil bit".  You can detect a reorganization chain as being malicious uner the following conditions:

Is more than 100 blocks long.
Contains double spending transactions, when compared with the previously accepted chain.
Unspends transactions that were in the previous chain for more than 6 blocks.

[da2ce7]

you said a one time investment.  hah, hardware is changing all the time and this is valuable resources sitting on the sideline doing nothing.  in the current system at least you can amortize its costs over a given amount of time and hopefully make some money off it.

Electricity is the major cost of a long-term mining operation.
Yes, the hardware is changing rapidly now... However bitcoin is new.  Doing many many Sha256 sums isn't a problem that has been important to do, like it is now.

In 20 or 40 years when the block reward is much much lower... I would expect there would be a huge number of miners who would have already paid off there equipment, but don't mine, as it isn't profitable.

An insurance company could make an application that automaticaly buys hashing power at the cheapest market rate, when it needs it.  When there is an attack,the insurance company could be willing to buy much more hashing than when there is no attack.

[da2ce7]

you yourself said that an insurance company would look out for its own customers to reverse any tx's that had been manipulated.  well if i'm not that insurance company but a competitor i'll just stand back and let you take care of it at your expense and not expend my resources in defending your client.  can you imagine the havoc and confusion that would take if multiple tx's from diff insurances companies get changed?

If only one insurance companies transactions get reversed... Then id expect only that company to pay for orphaning the attacking chain.

If more than one companies transactions are getting reversed, then they all have a vested intrest to work together in orphaning the offending chain.  If one company didn't join in to help; that company would in the future receive less corporation. As well as loosing public reputation.