Are the bitcoin devs working on the 51% attack problem?
Why would anyone want to purchase bitcoins if there is such a huge security problem you just can not ignore. At the current state, bitcoin lost all its benefits. So my question is, are the bitcoin devs working on the 51% attack problem?
The 3 major pools when combined have more than 51%. What proof do we have that they are not secretly collaborating and exploiting the double spending problem? I don't want to sound paranoid. /r/Bitcoin
IDEA: Hash reputation for easing the 51% attack fear
Hello Guys, I just had an idea that might help in easing the 51% problem. Bitcoin is trustlest money, but there is a trust in the system as a whole which is undermined by someone getting 51% of the hash power. The recent dip in price can arguable be seen as stemming from GHash.IO getting >50% for a while. There are two scenarios of a hash power majority: a) The physical hardware that a big pool owns exceeds 50% of the network or b) The hash power directed to a single pool exceeds 50% Many people argue that we are still far from an a) scenario, but the b) scenario already happened for a short while. There was a feedback effect, but it didn't happen fast enough - only after it happened. Now, people argue that miners should direct their hashing power away from GHash.IO. Some publicly announce that they have done/will do so, but others are either oblivious or do not care. So what if there could be an extra incentive to participating in a smalle'good' pool, and what if those incentives are completely without changes to the Bitcoin protocol/system? I propose the following idea: A mining client can collect the list of shares that it sends to its pool and creates a list of ... entries. Every so often, this list will be signed (by a bitcoin or GPG key freely selected by the miner's owner) and the signed list subsequently timestamped (probably through bitcoin). This list can then be published anywhere, say on a miners wegpage. This list would prove that a particular miner directed a certain amount of hashing power to a certain pool in a given time period. A miner can therefore prove - by the selection of the pool - that s/he is or at least appears to be benevolent. Also, people can link their real world reputation into the bitcoin reputation, making the hashing more transparent and hopefully showing that a certain, hopefully large amount of hashing power is in good hands. This signed list could then also be used as reputation elsewhere, for example for bitcoin loans, as an advertisement in itself etc. And if a certain fraction of hashrate is provably in the hands of many different entities across the globe, it would strengthen the trust in the network itself. Also, such a list can be very helpful in determining which blocks originate from which pools - so that maybe the 'unknown fraction' on blockchain.io can be reduced. What do you guys think about this?
Putting $400M of Bitcoin on your company balance sheet
Also posted on my blog as usual. Read it there if you can, there are footnotes and inlined plots. A couple of months ago, MicroStrategy (MSTR) had a spare $400M of cash which it decided to shift to Bitcoin (BTC). Today we'll discuss in excrutiating detail why this is not a good idea. When a company has a pile of spare money it doesn't know what to do with, it'll normally do buybacks or start paying dividends. That gives the money back to the shareholders, and from an economic perspective the money can get better invested in other more promising companies. If you have a huge pile of of cash, you probably should be doing other things than leave it in a bank account to gather dust. However, this statement from MicroStrategy CEO Michael Saylor exists to make it clear he's buying into BTC for all the wrong reasons:
“This is not a speculation, nor is it a hedge. This was a deliberate corporate strategy to adopt a bitcoin standard.”
Let's unpack it and jump into the economics Bitcoin:
Is Bitcoin money?
No. Or rather BTC doesn't act as money and there's no serious future path for BTC to become a form of money. Let's go back to basics. There are 3 main economic problems money solves: 1. Medium of Exchange. Before money we had to barter, which led to the double coincidence of wants problem. When everyone accepts the same money you can buy something from someone even if they don't like the stuff you own. As a medium of exchange, BTC is not good. There are significant transaction fees and transaction waiting times built-in to BTC and these worsen the more popular BTC get. You can test BTC's usefulness as a medium of exchange for yourself right now: try to order a pizza or to buy a random item with BTC. How many additional hurdles do you have to go through? How many fewer options do you have than if you used a regular currency? How much overhead (time, fees) is there? 2. Unit of Account. A unit of account is what you compare the value of objects against. We denominate BTC in terms of how many USD they're worth, so BTC is a unit of account presently. We can say it's because of lack of adoption, but really it's also because the market value of BTC is so volatile. If I buy a $1000 table today or in 2017, it's roughly a $1000 table. We can't say that a 0.4BTC table was a 0.4BTC table in 2017. We'll expand on this in the next point: 3. Store of Value. When you create economic value, you don't want to be forced to use up the value you created right away. For instance, if I fix your washing machine and you pay me in avocados, I'd be annoyed. I'd have to consume my payment before it becomes brown, squishy and disgusting. Avocado fruit is not good money because avocadoes loses value very fast. On the other hand, well-run currencies like the USD, GBP, CAD, EUR, etc. all lose their value at a low and most importantly fairly predictible rate. Let's look at the chart of the USD against BTC While the dollar loses value at a predictible rate, BTC is all over the place, which is bad. One important use money is to write loan contracts. Loans are great. They let people spend now against their future potential earnings, so they can buy houses or start businesses without first saving up for a decade. Loans are good for the economy. If you want to sign something that says "I owe you this much for that much time" then you need to be able to roughly predict the value of the debt in at the point in time where it's due. Otherwise you'll have a hard time pricing the risk of the loan effectively. This means that you need to charge higher interests. The risk of making a loan in BTC needs to be priced into the interest of a BTC-denominated loan, which means much higher interest rates. High interests on loans are bad, because buying houses and starting businesses are good things.
BTC has a fixed supply, so these problems are built in
Some people think that going back to a standard where our money was denominated by a stock of gold (the Gold Standard) would solve economic problems. This is nonsense. Having control over supply of your currency is a good thing, as long as it's well run. See here Remember that what is desirable is low variance in the value, not the value itself. When there are wild fluctuations in value, it's hard for money to do its job well. Since the 1970s, the USD has been a fiat money with no intrinsic value. This means we control the supply of money. Let's look at a classic poorly drawn econ101 graph The market price for USD is where supply meets demand. The problem with a currency based on an item whose supply is fixed is that the price will necessarily fluctuate in response to changes in demand. Imagine, if you will, that a pandemic strikes and that the demand for currency takes a sharp drop. The US imports less, people don't buy anything anymore, etc. If you can't print money, you get deflation, which is worsens everything. On the other hand, if you can make the money printers go brrrr you can stabilize the price Having your currency be based on a fixed supply isn't just bad because in/deflation is hard to control. It's also a national security risk... The story of the guy who crashed gold prices in North Africa In the 1200s, Mansa Munsa, the emperor of the Mali, was rich and a devout Muslim and wanted everyone to know it. So he embarked on a pilgrimage to make it rain all the way to Mecca. He in fact made it rain so hard he increased the overall supply of gold and unintentionally crashed gold prices in Cairo by 20%, wreaking an economic havoc in North Africa that lasted a decade. This story is fun, the larger point that having your inflation be at the mercy of foreign nations is an undesirable attribute in any currency. The US likes to call some countries currency manipulators, but this problem would be serious under a gold standard.
Currencies are based on trust
Since the USD is based on nothing except the US government's word, how can we trust USD not to be mismanaged? The answer is that you can probably trust the fed until political stooges get put in place. Currently, the US's central bank managing the USD, the Federal Reserve (the Fed for friends & family), has administrative authority. The fed can say "no" to dumb requests from the president. People who have no idea what the fed does like to chant "audit the fed", but the fed is already one of the best audited US federal entities. The transcripts of all their meetings are out in the open. As is their balance sheet, what they plan to do and why. If the US should audit anything it's the Department of Defense which operates without any accounting at all. It's easy to see when a central bank will go rogue: it's when political yes-men are elected to the board. For example, before printing themselves into hyperinflation, the Venezuelan president appointed a sociologist who publicly stated “Inflation does not exist in real life” and instead is a made up capitalist lie. Note what happened mere months after his gaining control over the Venezuelan currency This is a key policy. One paper I really like, Sargent (1984) "The end of 4 big inflations" states:
The essential measures that ended hyperinflation in each of Germany,Austria, Hungary, and Poland were, first, the creation of an independentcentral bank that was legally committed to refuse the government'sdemand or additional unsecured credit and, second, a simultaneousalteration in the fiscal policy regime.
In english: *hyperinflation stops when the central bank can say "no" to the government." The US Fed, like other well good central banks, is run by a bunch of nerds. When it prints money, even as aggressively as it has it does so for good reasons. You can see why they started printing on March 15th as the COVID lockdowns started:
The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.
In english: We're going to keep printing and lowering rates until jobs are back and inflation is under control. If we print until the sun is blotted out, we'll print in the shade.
BTC is not gold
Gold is a good asset for doomsday-preppers. If society crashes, gold will still have value. How do we know that? Gold has held value throughout multiple historic catastrophes over thousands of years. It had value before and after the Bronze Age Collapse, the Fall of the Western Roman Empire and Gengis Khan being Gengis Khan. Even if you erased humanity and started over, the new humans would still find gold to be economically valuable. When Europeans d̶i̶s̶c̶o̶v̶e̶r̶e̶d̶ c̶o̶n̶q̶u̶e̶r̶e̶d̶ g̶e̶n̶o̶c̶i̶d̶e̶d̶ went to America, they found gold to be an important item over there too. This is about equivalent to finding humans on Alpha-Centauri and learning that they think gold is a good store of value as well. Some people are puzzled at this: we don't even use gold for much! But it has great properties: First, gold is hard to fake and impossible to manufacture. This makes it good to ascertain payment. Second, gold doesnt react to oxygen, so it doesn't rust or tarnish. So it keeps value over time unlike most other materials. Last, gold is pretty. This might sound frivolous, and you may not like it, but jewelry has actual value to humans. It's no coincidence if you look at a list of the wealthiest families, a large number of them trade in luxury goods. To paraphrase Veblen humans have a profound desire to signal social status, for the same reason peacocks have unwieldy tails. Gold is a great way to achieve that. On the other hand, BTC lacks all these attributes. Its value is largely based on common perception of value. There are a few fundamental drivers of demand:
Means of Exchange: if people seriously start using BTC to buy pizzas, then this creates a real demand for the currency to accomplish the short-term exchanges. As we saw previously, I'm not personally sold on this one and it's currently a negligible fraction of overall demand.
Criminal uses: Probably the largest inbuilt advantage of BTC is that it's anonymous, and so a great way to launder money. Hacker gangs use BTC to demand ransom on cryptolocker type attacks because it's a shared way for an honest company to pay and for the criminals to receive money without going to jail.
Apart from these, it's hard to argue that BTC will retain value throughout some sort of economic catastrophe.
BTC is really risky
One last statement from Michael Saylor I take offense to is this:
“We feel pretty confident that Bitcoin is less risky than holding cash, less risky than holding gold,” MicroStrategy CEO said in an interview
"BTC is less risky than holding cash or gold long term" is nonsense. We saw before that BTC is more volatile on face value, and that as long as the Fed isn't run by spider monkeys stacked in a trench coat, the inflation is likely to be within reasonable bounds. But on top of this, BTC has Abrupt downside risks that normal currencies don't. Let's imagine a few:
A critical software vulnerability is found in the BTC codebase, leading to a possible exploitation.
Xi Jinping decides he's had enough of rich people in China hiding their assets from him and bans BTC.
Some form of bank run takes hold for whatever reason. Because BTC wallets are uninsured, unlike regular banks, this compounds into a Black Tuesday style crash.
Blockchain solutions are fundamentally inefficient
Blockchain was a genius idea. I still marvel at the initial white paper which is a great mix of economics and computer science. That said, blockchain solutions make large tradeoffs in design because they assume almost no trust between parties. This leads to intentionally wasteful designs on a massive scale. The main problem is that all transactions have to be validated by expensive computational operations and double checked by multiple parties. This means waste:
BTC was estimated to use as much electricity as Belgium in 2019. It's hard to trace where the BTC mining comes from, but we can assume it has a huge carbon footprint.
A single transactions is necessarily expensive. A single transaction takes as much electricity as 800,000 VISA transactions, or watching 50,000 hours of youtube videos.
There is a large necessary tax on the transaction, since those checking the transaction extract a few BTC from it to be incentivized to do the work of checking it.
Many design problems can be mitigated by various improvements over BTC, but it remains that a simple database always works better than a blockchain if you can trust the parties to the transaction.
Isn't a "51%" attack a problem with Bitcoin's security, not with CEX.IO?
I see people shaming everyone for using GHASH/CEX.IO but doesn't that say more about Bitcoin's security than about individual users? How valuable is the libertarian dream currency if it can be crumbled by a monopoly?
12-18 02:42 - 'This sounds like a problem for which grenades are the solution. I can do you a baker's dozen for half a bitcoin, seeing as you are a man of the law.' by /u/Ivashkin removed from /r/unitedkingdom within 51-61min
In regards to the 51% problem: ELI5 What would a hard fork look like to an average (non-miner) bitcoiner?
Talks about Hard-Forking the bitcoin blockchain to include security features against a 51% percent attack seem very political and almost impossible based off of conversation. It requires 51% of the bitcoin mining network to start working on the new chain with updated rules, is this correct? Does that mean users on coinbase, or those with savings in their electrum wallets; would have to do anything? Or is this a change purely miners have to worry about? What would be involved with a hard-fork, and what are some worst-case scenarios?
One example is the 51% attack. Bitcoin measures the level of computing activity on the network in terms of the hash rate. Should one miner or pool of miners gain control of 51% of the hash rate, then they would theoretically be able to solve their own block of transactions. The 51% attack also results in a fork, which is where there are two conflicting blocks vying for addition to the ... In May of 2018, Bitcoin Gold, at the time the 26th-largest cryptocurrency, suffered a 51% attack. The malicious actor or actors controlled a vast amount of Bitcoin Gold's hash power, such that ... Steigt der Bitcoin Kurs jetzt heftig an oder wird er nun stark fallen? Finde es in unserer Analyse heraus!. In der letzten Bitcoin Kurs Prognose schrieben wir:. „Nun ist der Bitcoin Kurs auf dem ... Die Attake 51% Hauptartikel: 51-Prozent-Angriffe. In den frühen Phasen seiner Entwicklung ist Bitcoin und jede ähnliche Währung anfällig für die sogenannte "Attacke 51%». Während der Hacker mehr Macht hat als der Rest des Netzwerks, kann er die Blöcke anderer Leute nicht bestätigen und nur seine eigenen bestätigen. Er kann 100% aller ... Bisher gab es noch keine 51-%-Attacke im Bitcoin-Netzwerk. Auch wenn es sich um einen bekannten und möglichen Angriffsvektor handelt, ist die Attacke nicht sehr wahrscheinlich. Der Angriff würde sich nicht lohnen, um Profit zu schlagen und ist sehr riskant. Die Netzwerk-Hashrate in Bitcoin ist so hoch, dass das Netzwerk robust gegen Angriffe ist. Anders ist das bei vielen Altcoins. Die ...
Bitcoin 51% Attack - Clearly Explained In this video I explain what a 51% attack is in the world of blockchain & cryptocurrency. Did you enjoy this video? SUBSCRIBE for more: https://www.youtube ... ¡Bienvenidos al d/t Podcast! Un espacio de conversaciones alrededor de Blockchain, Activos Digitales, crecimiento personal y profesional y otras curiosidades... Bitcoin Magazine NL voorziet je van de laatste technische analyses en interviews met key players in de cryptowereld. Dit doen we met verschillende rubrieken:... "So as we look into the future the reward of new Bitcoins is reduced from the current 12.5 to about 6.25 new Bitcoins every ten minutes which will occur in around July 2020." I would never buy Bitcoin. It's not an investment, it's gambling. and it's too volatile to be a currency. Sign up to our free weekly market roundup here http...