CATO Evaluation of Bitcoin Eventual Collapse of protocol

[Addition]

Here's a rationale provided by Kevin Dowd, University of Durham

Similar concerns have been expressed by our BTC community in recent times. What I'm looking for is logical input from you guys, whether he is right or wrong?

I will approach Kevin with arguments/rebuttals and post his response here, thanks.


http://www.youtube.com/watch?v=Qlydjg1tiso

[Elwar]

Cato is not a libertarian think tank anymore as they would have you believe.

They endorsed Fred Thompson during the Republican primaries and they include Bill Gates among their former board members.



The full premise to his theory is the same as the many arguments that have been going on here. That PoW will lead to one mining company having a monopoly and destroying Bitcoin.

He ignores the fact that a mining company getting paid in bitcoins has ZERO incentive to destroy the value of the currency it is paid in. As has been seen before with GHASH.io. As they approached 50%, many of its members jumped ship and joined other pools.

What will be discovered is the power of people voluntarily pooling their resources. This is the overlooked game changer of this generation.

[harrymmmm]

https://en.bitcoin.it/wiki/FAQ#Could_miners_collude_to_give_themselves_money_or_to_fundamentally_change_the_nature_of_Bitcoin.3F

[Melbustus]

...
He ignores the fact that a mining company getting paid in bitcoins has ZERO incentive to destroy the value of the currency it is paid in. As has been seen before with GHASH.io. As they approached 50%, many of its members jumped ship and joined other pools.
...

Yup. Additionally, large miners are likely to, eventually, vertically integrate other services. There are some potential negatives (as well as positives) to that, but it also probably means that there are a number of workable business models for a number of large fairly-efficient miners, as opposed to an endgame where strictly the least-cost producer gobbles all hashpower.

Regardless of all that, the same arguments that are thrown around about mining could be thrown around about data-centers in general (OMG! there will only be a single least-cost/massive-scale producer that will run everything!), or pretty much *any* industry for that matter; this is really just a (mostly) extrapolated-short-sight criticism of capitalism in general, not specifically bitcoin mining. Few industries actually coalesce to pure monopoly in practice.

Anyway, the natural incentives of bitcoin mining make it less likely than other domains.

[LiteCoinGuy]

mainstream discovers the 51% problem...they are learning more and more. they even know the blockchain in these days. 

[Melbustus]

mainstream discovers the 51% problem...they are learning more and more. they even know the blockchain in these days. 

Heh...yeah. This year has been like watching the discussions that took place here 3-4yrs ago occur again in mainstream media, except much slower, with less precision, and more trolling.

[Addition]

...
He ignores the fact that a mining company getting paid in bitcoins has ZERO incentive to destroy the value of the currency it is paid in. As has been seen before with GHASH.io. As they approached 50%, many of its members jumped ship and joined other pools.
...

Yup. Additionally, large miners are likely to, eventually, vertically integrate other services. There are some potential negatives (as well as positives) to that, but it also probably means that there are a number of workable business models for a number of large fairly-efficient miners, as opposed to an endgame where strictly the least-cost producer gobbles all hashpower.

Regardless of all that, the same arguments that are thrown around about mining could be thrown around about data-centers in general (OMG! there will only be a single least-cost/massive-scale producer that will run everything!), or pretty much *any* industry for that matter; this is really just a (mostly) extrapolated-short-sight criticism of capitalism in general, not specifically bitcoin mining. Few industries actually coalesce to pure monopoly in practice.

Anyway, the natural incentives of bitcoin mining make it less likely than other domains.

Thanks Elwar and Melbustus!

I agree and think Kevin underestimates the Mining communities ability to Point.

I think he is eluding to the potential for a privatized entity (non-pooled), to monopolize (>60%).
I would need to further quantify, however I think he believe's it wouldn't cost that much to implement?

For this, I don't know how much it would cost, let's just pose hypercritically: Only $4-7 Billion? This is not a lot of money.

[Elwar]

For this, I don't know how much it would cost, let's just pose hypercritically: Only $4-7 Billion? This is not a lot of money.

That is $4-7 Billion to destroy a currency that would then be replaced the next day.

You could spend $3 billion to take over Western Union and dismantle it completely (only to be replaced a year or so later by another company).

But why? Just for kicks? So banks can can protect their advantage?

This is why PoW is the best...it becomes increasingly costly to stop Bitcoin.

[Melbustus]

...


Thanks Elwar and Melbustus!

I agree and think David underestimates the Mining communities ability to Point.

I think he is eluding to the potential for a privatized entity (non-pooled), to monopolize (>60%).
I would need to further quantify, however I think he believe's it wouldn't cost that much to implement?

For this, I don't know how much it would cost, let's just pose hypercritically: Only $4-7 Billion? This is not a lot of money.

Two things:

1) A rational economically-motivated actor would not hold at >50% because confidence in the decentralization of the system would severely drop, and along with that, price. A very aggressive and risk-phillic actor *might* "see what happens" to empirically prove that to themselves, but they'd discover the motivation to stay less than 50%.

2) Non economically-motivated actors are a different story. It's probably way less than $4-$7B in hashpower necessary to 51% bitcoin right now. Note, though, that while a successful 51% attack would be a severe blow, it wouldn't be fatal. Some thoughts from Gavin: http://gavintech.blogspot.com/2012/05/neutralizing-51-attack.html (May 2012)

And more commentary from Gavin on this in general: https://bitcoinfoundation.org/2014/06/centralized-mining/ (June 2014)

[Addition]

Well deserved "Legendary" status, thanks again guys!  Will include in email to Kevin

[cr1776]

This.  Also, in the not too distant future we'll hit the same process as CPUs, memory etc for miners.  E.g. 14 nm, 7 nm, 5nm.  Once mining rigs hit the same process that CPUs and other semiconductors are using for that generation hash rate increases will level off and growth will be due to the number of chips sold and much slower increases in hash rates due to process improvements.  E.g. the Avalon was a 110nm process for their chips, the AntMiner S3 is 28nm process and other chips are using smaller processes (all iirc although I think they are accurate or very close).  The performance increases between GPU and 110nm was huge.  The performance increases between 110n and 28nm (for example) are large too.  

However, going from 28nm to 14nm (what Intel is using in many of their chips now) is good, but not the same order of magnitude as 110nm to 28nm.  Once you see new mining rigs all running on the current process at a high clock rate, then I believe that you will end up with more opportunities for "hobby miners" since they will be able to project an ROI much easier and it will be much more likely that they will be able to have a ROI.  People will be much more inclined to purchase a miner if they know it won't be replaced by something 100 times better in 3 months.

This will be a somewhat more stable situation in terms of hash rate increases and miners coming to market.  It will be closer to how CPU mining was in 2010 and GPU mining was in, 2011-2012 (even the first third of 2013) where you could buy a few video cards and have a pretty good idea that they would return X BTC/week (decreasing slightly each week due to added GPUs on the network) for a year or two until a new video card came out and that might cause a slight increase in the difficulty increases.  And even then you might mine some fewer BTC/week but not 1/1000th of the number in that period like the difference between January 2013 and November 2014.

It is difficult to model and so it is not surprising that they may not be catching all the nuances there.  I certainly wouldn't be confident in being able to predict it all going forward.  Particularly with so many variables - regulations, halving in ~18 months, improvements (e.g. sidechains etc), new uses.

...
Yup. Additionally, large miners are likely to, eventually, vertically integrate other services. There are some potential negatives (as well as positives) to that, but it also probably means that there are a number of workable business models for a number of large fairly-efficient miners, as opposed to an endgame where strictly the least-cost producer gobbles all hashpower.

Regardless of all that, the same arguments that are thrown around about mining could be thrown around about data-centers in general (OMG! there will only be a single least-cost/massive-scale producer that will run everything!), or pretty much *any* industry for that matter; this is really just a (mostly) extrapolated-short-sight criticism of capitalism in general, not specifically bitcoin mining. Few industries actually coalesce to pure monopoly in practice.

Anyway, the natural incentives of bitcoin mining make it less likely than other domains.

[franky1]

bitcoins difficulty can sky rocket or slowdown
bitcoins fiscal value can go to the moon, or down to hell

but bitcoin WILL continue.

infact if bitcoin continues to skyrocket to the moon..(both forward movements) then the rarity and desire increases
and
infact if bitcoin slows down to hell..(both backward movements) then the rarity and 'cheapness' will also make desire increase as there are now more people that know about it that would happily just put $10 into bitcoin to hold something rare.

as for saying ghash is a 'dominant player'
the video shows that GHASH has 300k users.. thats 300k individual people. not one entity (but nice try with a ghost buster analogy)

paypal IS a single entity.. like a ghost buster character that can control and throw about what it wants

ill cook you a humble pie right now, hope it tastes nice.

the only thing i would suggest is the standard investment risks involving the value "no guarantee of profits, and you can lose as much as you win. do not invest more then youare prepared to lose"

that being said.i do like how financial advisers want others to sell (to make it cheaper for them to buy) but shhhhhhh dont tell anyone that little trick

[aerobatic]

as for saying ghash is a 'dominant player'
the video shows that GHASH has 300k users.. thats 300k individual people. not one entity (but nice try with a ghost buster analogy)

i think you cant win this particular argument as ghash may have 300k users, but most of their hash power is provided by a very small number of users, most of whom are under the control or influence of ghash or bitfury.

you can see from the well analysed stats that ghash has several large entities mining with significant hashpower on its pool.  ie: unlike the other 'so called public' mining pools, ghash has a small number of large entities (source: organofcorti)

AsicMiner claims to have about 5 Petahash on ghash (source: amhash)

Ghash itself seems to operate its own very large mining farm, and BitFury also has been known to have a large amounts of its own hash power on ghash (as well as its own separate mine).   sources:  reading between the lines of statements and conversations with ghash and bitfury.

bottom line is that ghash's hash power is quite centralised.  its not worth trying to claim ghash is a prime example of decentralisation cos it isnt.

[Addition]

This.  Also, in the not too distant future we'll hit the same process as CPUs, memory etc for miners.  E.g. 14 nm, 7 nm, 5nm.  Once mining rigs hit the same process that CPUs and other semiconductors are using for that generation hash rate increases will level off and growth will be due to the number of chips sold and much slower increases in hash rates due to process improvements.  E.g. the Avalon was a 110nm process for their chips, the AntMiner S3 is 28nm process and other chips are using smaller processes (all iirc although I think they are accurate or very close).  The performance increases between GPU and 110nm was huge.  The performance increases between 110n and 28nm (for example) are large too.  

However, going from 28nm to 14nm (what Intel is using in many of their chips now) is good, but not the same order of magnitude as 110nm to 28nm.  Once you see new mining rigs all running on the current process at a high clock rate, then I believe that you will end up with more opportunities for "hobby miners" since they will be able to project an ROI much easier and it will be much more likely that they will be able to have a ROI.  People will be much more inclined to purchase a miner if they know it won't be replaced by something 100 times better in 3 months.

This will be a somewhat more stable situation in terms of hash rate increases and miners coming to market.  It will be closer to how CPU mining was in 2010 and GPU mining was in, 2011-2012 (even the first third of 2013) where you could buy a few video cards and have a pretty good idea that they would return X BTC/week (decreasing slightly each week due to added GPUs on the network) for a year or two until a new video card came out and that might cause a slight increase in the difficulty increases.  And even then you might mine some fewer BTC/week but not 1/1000th of the number in that period like the difference between January 2013 and November 2014.

It is difficult to model and so it is not surprising that they may not be catching all the nuances there.  I certainly wouldn't be confident in being able to predict it all going forward.  Particularly with so many variables - regulations, halving in ~18 months, improvements (e.g. sidechains etc), new uses.

...
Yup. Additionally, large miners are likely to, eventually, vertically integrate other services. There are some potential negatives (as well as positives) to that, but it also probably means that there are a number of workable business models for a number of large fairly-efficient miners, as opposed to an endgame where strictly the least-cost producer gobbles all hashpower.

Regardless of all that, the same arguments that are thrown around about mining could be thrown around about data-centers in general (OMG! there will only be a single least-cost/massive-scale producer that will run everything!), or pretty much *any* industry for that matter; this is really just a (mostly) extrapolated-short-sight criticism of capitalism in general, not specifically bitcoin mining. Few industries actually coalesce to pure monopoly in practice.

Anyway, the natural incentives of bitcoin mining make it less likely than other domains.

Thanks for that mate! Yeah it's interesting how Moore's Law will apply to BTC Hashing.

Sort of like Ivy Bridge; Haswell; Broadwell; ....

It's interesting that the engineers/architects @ Intel haven't looked into. They seem well placed to investigate ASIC 3.0 architecture?

[Addition]

bitcoins difficulty can sky rocket or slowdown
bitcoins fiscal value can go to the moon, or down to hell

but bitcoin WILL continue.

infact if bitcoin continues to skyrocket to the moon..(both forward movements) then the rarity and desire increases
and
infact if bitcoin slows down to hell..(both backward movements) then the rarity and 'cheapness' will also make desire increase as there are now more people that know about it that would happily just put $10 into bitcoin to hold something rare.

as for saying ghash is a 'dominant player'
the video shows that GHASH has 300k users.. thats 300k individual people. not one entity (but nice try with a ghost buster analogy)

paypal IS a single entity.. like a ghost buster character that can control and throw about what it wants

ill cook you a humble pie right now, hope it tastes nice.

the only thing i would suggest is the standard investment risks involving the value "no guarantee of profits, and you can lose as much as you win. do not invest more then youare prepared to lose"

that being said.i do like how financial advisers want others to sell (to make it cheaper for them to buy) but shhhhhhh dont tell anyone that little trick

That's actually a very good point.

BTC's success shouldn't be determined by fiat rate/BTC, more so the wider use of Blockchain integration into applications thus far not conceived/implemented.

Guessing the reality is, that it will be judged on it's price. Furthermore, BTC would be the likely candidate for these future applications owing to it's superior liquidity and proliferation (albeit, currently small).


Good pick-up btw regarding some financial advisers, influencing clients that BTC is a "Sell".  ; )

[nicked]

"Miners" are not individuals that will jump ship from a big mining pool for the "good of the network". "Miners" are pieces of hardware that can be owned by as few as one entity, if they're wealthy enough.

[Erdogan]

Since there is no law against mining, with the corresponding privilege to some, there can be no monopoly.

[TinaK]

He will eventually fail who want to control the world, we all know.

Just like bitcoin which won't collapse for any one reason.

[justusranvier]

Regardless of all that, the same arguments that are thrown around about mining could be thrown around about data-centers in general (OMG! there will only be a single least-cost/massive-scale producer that will run everything!), or pretty much *any* industry for that matter; this is really just a (mostly) extrapolated-short-sight criticism of capitalism in general, not specifically bitcoin mining. Few industries actually coalesce to pure monopoly in practice.

More specifically, this is an example of the natural monolopy fallacy.

[johnyj]

P2Pool is the way to forward, I think antpool is on the right track