The Deathblow to Proof of Stake

[Propulsion]

A single point of failure
Mintpal was compromised. The attacker gained 30% of the total supply of Vericoin in the attack. Which in turn, led the Vericoin development team to do something unprecedented in cryptocurrency history. They created a mandatory rollback.

What is a rollback?
A rollback goes back in time from blockheight 100 to blockheight 75. When a rollback is performed, all transactions after a certain point in the blockchain are effectively destroyed. If Bob bought a casacius coin from Sally for 1000 vericoin, Bob would now get the 1000 vericoin back while Sally has nothing. All transactions after blockheight 75 would no longer exist.

The necessity of the rollback
In every single instance of any exchange or service getting hacked, there has never been a rollback implementation. For Vericoin, this was actually very necessary. Vericoin creates it's new blocks by using proof of stake. When the attacker gained 30% of the coins in one go, they effectively gained 30% of the hashing power. You can see how dangerous this is. All it would take is an additional 21% to effectively completely own the network. If Vericoin used a proof of work system, the only danger would be the market price plummeting from the sell off, but the network itself would never be in danger.

The unprecedented solution
A rollback is terrible. Every single cryptocurrency relies on the public blockchain ledger. It is the holy grail of the entire currency. Once something is written to it and not orphaned, it's set in stone. When the team decided to initiate the rollback, they decided to use the nuclear option. They broke the entire foundation of crypto and set a new norm where it will be ok to undo transactions if the are large enough. Instead of the developers only being developers, they've now taken the option to also be the federal reserve and the police.

Proof of Stake's flaws
Vericoin only had the nuclear option available because of proof of stake. When an attacker gains coins in a proof of stake currency, they not only gain money, they gain network control. Vericoin was between a rock and a hard place. They either let the attacker have 30% of the total staking power, or set the precedent of rolling back. The reason they took the rollback option was because they could. (for now)

Impossible to rollback when big
Vericoin is so new that there is not a lot of merchant support. If it was as widely used as Bitcoin with 1000's of transactions a day and tons of merchant support, a rollback would kill the currency. Merchants would of shipped products with no payments and people wouldn't of been payed. Hypothetically, if any proof of stake currency did become as big as Bitcoin and was compromised just like now with 30% of the total coin supply taken, the currency would effectively not be able to rollback and allow a malicious entity to control the network. A large hack would become a death blow creating uncertainty in the integrity of the network.

TLDR

• None of yesterdays events were Vericoins fault.
• Proof of Stake is not feasible: in a large attack, the attacker gains crypto and network control.
• When a single entity fails (an exchange) no currency should ever undo their mistakes by wiping it from the chain.
• If a proof of stake currency ever becomes huge, it would not be able to rollback and would have to allow a malicious entity to have network control.

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[mrvegad]

Another thread about the dangers of POS, what is this?  about the 5th or 6th thread? All i see so far is talk, if POS is so bad then why doesn't someone attack NXT?  Time to nut up or shut up.

[Wulfcastle]

Another thread about the dangers of POS, what is this?  about the 5th or 6th thread? All i see so far is talk, if POS is so bad then why doesn't someone attack NXT?  Time to nut up or shut up.

PoS is not the problem here, ignorance and incompetence is. This is all a result of MintPal leaving 30% of all VRC in existence in one of their hot wallets when they are supposedly making use of cold storage methods. It's also ignorance by the part of the VRC community for leaving that number of coins in one exchange, but it's not their fault this happened.

The key point is that PoS is not at fault here. The direct equivalent of this happening in PoW would be 30% of the network hash rate leaving their pools and mining at GHash.io, thus pushing the hash-rate over 51%. Let's not forget that GHash.io was on the brink of having 50% of the network hash-rate around 2 weeks ago so no one can say PoW is full-proof from attacks either.

[Propulsion]

Another thread about the dangers of POS, what is this?  about the 5th or 6th thread? All i see so far is talk, if POS is so bad then why doesn't someone attack NXT?  Time to nut up or shut up.

PoS is not the problem here, ignorance and incompetence is. This is all a result of MintPal leaving 30% of all VRC in existence in one of their hot wallets when they are supposedly making use of cold storage methods. It's also ignorance by the part of the VRC community for leaving that number of coins in one exchange, but it's not their fault this happened.

The key point is that PoS is not at fault here. The direct equivalent of this happening in PoW would be 30% of the network hash rate leaving their pools and mining at GHash.io, thus pushing the hash-rate over 51%. Let's not forget that GHash.io was on the brink of having 50% of the network hash-rate around 2 weeks ago so no one can say PoW is full-proof from attacks either.

A rollback wouldn't of been necessary if the attacker never gained hashing power which they did with the attack. In a proof of work system, a rollback wouldn't of been needed.

[AlexGR]

Another thread about the dangers of POS, what is this?  about the 5th or 6th thread? All i see so far is talk, if POS is so bad then why doesn't someone attack NXT?  Time to nut up or shut up.

PoS is not the problem here, ignorance and incompetence is. This is all a result of MintPal leaving 30% of all VRC in existence in one of their hot wallets when they are supposedly making use of cold storage methods.

If the design is not fault-tolerant of other's ignorance, incompetence or stupidity, then its dependencies for being useful are too large.

[ebliever]

The unprecedented solution
A rollback is terrible. Every single cryptocurrency relies on the public blockchain ledger. It is the holy grail of the entire currency. Once something is written to it and not orphaned, it's set in stone. When the team decided to initiate the rollback, they decided to use the nuclear option. They broke the entire foundation of crypto and set a new norm where it will be ok to undo transactions if the are large enough. Instead of the developers only being developers, they've now taken the option to also be the federal reserve and the police.

I'd like to understand this better, because it has been bothering me for a while. Can devs really just unilaterally decide to roll back a blockchain in PoS? Aren't there other players involved who have to go along with the idea? Lately I've seen many examples of coin devs announcing forks and changes to their coin attributes, and I've had a hard time figuring out just how much power a dev has by themself, and how much has to be a concensus decision with other parts involved - and whom are they? Miners, exchanges, holders of wallets, etc?

I can't believe devs have some secret key by which they can just single-handedly alter a coin contrary to everyone else's wishes. That would destroy all faith in such coins IMHO. So please help me understand this.

[Propulsion]

The unprecedented solution
A rollback is terrible. Every single cryptocurrency relies on the public blockchain ledger. It is the holy grail of the entire currency. Once something is written to it and not orphaned, it's set in stone. When the team decided to initiate the rollback, they decided to use the nuclear option. They broke the entire foundation of crypto and set a new norm where it will be ok to undo transactions if the are large enough. Instead of the developers only being developers, they've now taken the option to also be the federal reserve and the police.

I'd like to understand this better, because it has been bothering me for a while. Can devs really just unilaterally decide to roll back a blockchain in PoS? Aren't there other players involved who have to go along with the idea? Lately I've seen many examples of coin devs announcing forks and changes to their coin attributes, and I've had a hard time figuring out just how much power a dev has by themself, and how much has to be a concensus decision with other parts involved - and whom are they? Miners, exchanges, holders of wallets, etc?

I can't believe devs have some secret key by which they can just single-handedly alter a coin contrary to everyone else's wishes. That would destroy all faith in such coins IMHO. So please help me understand this.

This is the first time a rollback has ever been performed due to outside circumstances like an exchange failing to implement proper security. In essence, it's a bailout for the exchange. A rollback is the nuclear option, (never been done before) it might cause fallout for every single cryptocurrency in existence.

[profitofthegods]

That is worrying. The only thing I'd disagree with the OP on though is that if Vericoin had been a lot bigger it wouldn't have been a bigger problem, it wouldn't have been a problem at all because there is no way you could ever have 30% of a widely distributed coin held on a single exchange. That only happened because VRC is new, not owned by a lot of people, and not traded at a lot of different places.

I don't think its realistic to fear this happening to a large PoS coin like NXT as someone else mentioned above.

[KryptoFoo]

30% of VRC's float in a single hot wallet? I know mintpal said they were not staking it but I find that hard to believe. It's either extreme incompetence in foregoing cold storage or deception and greed in staking their customer's coin.

[Propulsion]

That is worrying. The only thing I'd disagree with the OP on though is that if Vericoin had been a lot bigger it wouldn't have been a bigger problem, it wouldn't have been a problem at all because there is no way you could ever have 30% of a widely distributed coin held on a single exchange. That only happened because VRC is new, not owned by a lot of people, and not traded at a lot of different places.

I don't think its realistic to fear this happening to a large PoS coin like NXT as someone else mentioned above.

It would not of been possible at all to create a rollback if the currency had a wider adoption.

There would be too many merchants and private individuals affected. Every single transaction after a single point in time would effectively vanish.

[darkota]

A single point of failure
Mintpal was compromised. The attacker gained 30% of the total supply of Vericoin in the attack. Which in turn, led the Vericoin development team to do something unprecedented in cryptocurrency history. They created a mandatory rollback.

What is a rollback?
A rollback goes back in time from blockheight 100 to blockheight 75. When a rollback is performed, all transactions after a certain point in the blockchain are effectively destroyed. If Bob bought a casacius coin from Sally for 1000 vericoin, Bob would now get the 1000 vericoin back while Sally has nothing. All transactions after blockheight 75 would no longer exist.

The necessity of the rollback
In every single instance of any exchange or service getting hacked, there has never been a rollback implementation. For Vericoin, this was actually very necessary. Vericoin creates it's new blocks by using proof of stake. When the attacker gained 30% of the coins in one go, they effectively gained 30% of the hashing power. You can see how dangerous this is. All it would take is an additional 21% to effectively completely own the network. If Vericoin used a proof of work system, the only danger would be the market price plummeting from the sell off, but the network itself would never be in danger.

The unprecedented solution
A rollback is terrible. Every single cryptocurrency relies on the public blockchain ledger. It is the holy grail of the entire currency. Once something is written to it and not orphaned, it's set in stone. When the team decided to initiate the rollback, they decided to use the nuclear option. They broke the entire foundation of crypto and set a new norm where it will be ok to undo transactions if the are large enough. Instead of the developers only being developers, they've now taken the option to also be the federal reserve and the police.

Proof of Stake's flaws
Vericoin only had the nuclear option available because of proof of stake. When an attacker gains coins in a proof of stake currency, they not only gain money, they gain network control. Vericoin was between a rock and a hard place. They either let the attacker have 30% of the total staking power, or set the precedent of rolling back. The reason they took the rollback option was because they could. (for now)

Impossible to rollback when big
Vericoin is so new that there is not a lot of merchant support. If it was as widely used as Bitcoin with 1000's of transactions a day and tons of merchant support, a rollback would kill the currency. Merchants would of shipped products with no payments and people wouldn't of been payed. Hypothetically, if any proof of stake currency did become as big as Bitcoin and was compromised just like now with 30% of the total coin supply taken, the currency would effectively not be able to rollback and allow a malicious entity to control the network. A large hack would become a death blow creating uncertainty in the integrity of the network.

TLDR

• None of yesterdays events were Vericoins fault.
• Proof of Stake is not feasible: in a large attack, the attacker gains crypto and network control.
• When a single entity fails (an exchange) no currency should ever undo their mistakes by wiping it from the chain.
• If a proof of stake currency ever becomes huge, it would not be able to rollback and would have to allow a malicious entity to have network control.

I actually agree with these points. I'm sure Satoshi himself thought of PoS, but didn't implement it becuse it would eventually cease to be decentralized, and carries a large degree of risks that PoW doesn't, like Nothing at Stake attack, etc etc.

[Nullu]

This isn't about the failure of POS. It's about the failure of Mintpal.

[Propulsion]

This isn't about the failure of POS. It's about the failure of Mintpal.

POS was the reason the rollback was necessary. The attacker gained network control along with the stolen coins.

If it was POW, it wouldn't of been needed to rollback because the attacker wouldn't control the network.

[Nullu]

This isn't about the failure of POS. It's about the failure of Mintpal.

POS was the reason the rollback was necessary. The attacker gained network control along with the stolen coins.

If it was POW, it wouldn't of been needed to rollback because the attacker wouldn't control the network.

No. the reason the rollback is apparently necessary is because Mintpal had a security flaw in their exchange and way too many coins that should have been in cold storage.

If this had been any other coin, would we be blaming the coin? The coin wasn't hacked. The exchange was. Yes, POS has differing consequences when coins are stolen, but this is an unintended consequence of POS. It's not a fault of the coin's design.

[AlexGR]

If this had been any other coin, would we be blaming the coin? The coin wasn't hacked. The exchange was. Yes, POS has differing consequences when coins are stolen, but this is an unintended consequence of POS. It's not a fault of the coin's design.

The "unintended consequence of POS" is its flaw, as was evidenced in this case. It's not about coins per se. It's about the proof-of-(insterherewhatever) model is used.

[Nullu]

If this had been any other coin, would we be blaming the coin? The coin wasn't hacked. The exchange was. Yes, POS has differing consequences when coins are stolen, but this is an unintended consequence of POS. It's not a fault of the coin's design.

The "unintended consequence of POS" is its flaw, as was evidenced in this case. It's not about coins per se. It's about the proof-of-(insterherewhatever) model is used.

So by that logic, because someone can steal bitcoins, and because the currency is anonymous in that the new owner can't be traced, this is a flaw too. This doesn't mean PoW or PoS are broken concepts, in much the same way Fiat isn't perfect either.

I agree that this has caused severe problems, but the blame does not lie directly with the coin itself.

[ebliever]

This isn't about the failure of POS. It's about the failure of Mintpal.

POS was the reason the rollback was necessary. The attacker gained network control along with the stolen coins.

If it was POW, it wouldn't of been needed to rollback because the attacker wouldn't control the network.

No. the reason the rollback is apparently necessary is because Mintpal had a security flaw in their exchange and way too many coins that should have been in cold storage.

If this had been any other coin, would we be blaming the coin? The coin wasn't hacked. The exchange was. Yes, POS has differing consequences when coins are stolen, but this is an unintended consequence of POS. It's not a fault of the coin's design.

I think we need to distinguish between the FLAW and the VULNERABILITY.

The coin was not flawed. The flaw was with Mintpal security. That's disappointing and alarming in itself (are my other coins there safe?). But that's not a fault of vericoin. It's very curious why VRC was targeted and not BTC or another major coin. Hopefully we'll learn more as the investigation progresses.

The vulnerability is common to all POS coins, as the OP indicates. Vericoin is not at fault for this either, apart from the general decision to go with POS. This is troubling, because if POS has an intractable vulnerability then it implies we are going to be shifting back to PoW, with all the energy usage that entails. Hopefully the vulnerability will turn out to have a robust solution without going back to PoW.

Either way, Vericoin itself is not really at fault in this whole mess. Mintpal, and of course the thieves/hackers themselves, bear the most scrutiny. The Vericoin team is just making the best of a bad situation and deserve plaudits for helping fix (or 99% fix at least) a problem not of their making.

[Propulsion]

If this had been any other coin, would we be blaming the coin? The coin wasn't hacked. The exchange was. Yes, POS has differing consequences when coins are stolen, but this is an unintended consequence of POS. It's not a fault of the coin's design.

The "unintended consequence of POS" is its flaw, as was evidenced in this case. It's not about coins per se. It's about the proof-of-(insterherewhatever) model is used.

So by that logic, because someone can steal bitcoins, and because the currency is anonymous in that the new owner can't be traced, this is a flaw too. This doesn't mean PoW or PoS are broken concepts, in much the same way Fiat isn't perfect either.

I agree that this has caused severe problems, but the blame does not lie directly with the coin itself.

The issue is how the coins are created. With POS or proof of stake, when you have a large number of coins, you can effectively control the network. The attacker gained control with the attack.

It's a flaw in POS that will create larger issues in the future if any POS coin becomes mainstream in the event of a large hack like yesterday.

Proof of work is not susceptible of losing control of the network if coins are stolen. Preventing the nuclear option of rolling back to save the network.

[atoni]

That is worrying. The only thing I'd disagree with the OP on though is that if Vericoin had been a lot bigger it wouldn't have been a bigger problem, it wouldn't have been a problem at all because there is no way you could ever have 30% of a widely distributed coin held on a single exchange. That only happened because VRC is new, not owned by a lot of people, and not traded at a lot of different places.

I don't think its realistic to fear this happening to a large PoS coin like NXT as someone else mentioned above.

Nxt is actually the most vulnerable, because BCNEXT and his alts control over 50% of network, if he held passwords in same place like Klee its very likely that we see 51% on nexters very soon.

[atoni]

That is worrying. The only thing I'd disagree with the OP on though is that if Vericoin had been a lot bigger it wouldn't have been a bigger problem, it wouldn't have been a problem at all because there is no way you could ever have 30% of a widely distributed coin held on a single exchange. That only happened because VRC is new, not owned by a lot of people, and not traded at a lot of different places.

I don't think its realistic to fear this happening to a large PoS coin like NXT as someone else mentioned above.

Nxt is actually the most vulnerable, because BCNEXT and his alts control over 50% of network, if he held passwords in same place like Klee its very likely that we see 51% on nexters very soon.

You can read on Salsazs blog how many nexters have been released to people to trade and how many is held by founder, a pocket change. Name of blog is pretty good too, it tells you how creator got rich lol

http://nxtcoin.blogspot.com/2014/06/how-nxt-changed-our-lives-james.html