9 ms·

Wouldn't sites like Coinbase which "hold" a huge amount of stake, basically have a huge control over these currencies?

stouset 9y ago
Yes, but the simplistic version of the argument is that any entity with such a large stake would be inherently incentivized to preserve the value of the currency and act in good faith. My intuition is that this is a risky proposition. If an entity can benefit themselves $x by making a bad-faith transaction, but it only costs them $y such that $y < $x, it’s rational to do it even if the costs to others are orders of magnitude greater. As a concrete example, if Coinbase double-spent a transaction for $10m and had enough stake to make the network accept this, would it necessarily devalue the currency through loss of trust by enough to make this unprofitable? Is this true for all possible actions by a 51% stakeholder?
- konschubert 9y ago
  If somebody holds 51% of the capital in bitcoin (In form of 51% of the mining hardware), he can mount a 51% attack as well.
  - papermule 9y ago
    Wouldn’t it be much less than 51% in practice since a lot of Bitcoin is in hardware or non-custodial wallets?
    - amadeuspzs 9y ago
      No, 51% refers to the active mining pool (who package and validate transactions) vs 51% of the currency itself.
  - dukeflukem 9y ago
    He certainly could, but that'd be stupid right?
    - SturgeonsLaw 9y ago
      Depends on their intent. It would be silly for an actor who wishes to maintain the value of their holdings, but if their goal was to destabilise the currency, it provides an attack vector.
      - exclusiv 9y ago
        Exactly. Like anyone with a ton more at stake if it succeeds like the banking system.
- Sir_Substance 9y ago
  >Yes, but the simplistic version of the argument is that any entity with such a large stake would be inherently incentivized to preserve the value of the currency and act in good faith. This logic is, as you say, simplistic. Anyone with such a large stake can cash out, and then use their former large stake to fabricate an alternative chain in which they did not cash out, forking the blockchain at the block just before they cashed out. Commonly proposed defenses against this (checkpointing) are limited because when new nodes enter the network, they are in a naive state where they do not know who to trust. In a proof of work system, the entire blockchain can be validated by a naive node. Fraudulent blockchains could be constructed and fed to naive nodes, but they would be obvious forgeries because they would have to be constructed at lower network difficulties in order to generate blocks faster than the real network and become the longest chain. In a proof of stake system, people who formerly had stake in the system can simulate fraudulent alternative histories forked at the point before they cashed out, and feed those histories to naive nodes. If enough naive nodes accept the alternative history, it becomes the accepted chain. The possibility exists that these former stakeholders might use some of their cashed out money to start up many nodes in the cloud and feed their alternative chains to those nodes. The only real way to defend against this is to have trusted nodes coded into the protocol provide bootstrapping data to naive nodes. Once you do that, your network is no longer trustless. Read more here: http://www.cs.cornell.edu/~iddo/CoAslides.pdf http://www.cs.cornell.edu/~iddo/CoAslides.pdf
  - rrggrr 9y ago
    > Anyone with such a large stake can cash out, and then use their former large stake to fabricate an alternative chain in which they did not cash out, forking the blockchain at the block just before they cashed out. A trade this large is likely to crater the currency before it can be filled in the absence of trade volume so large its practically impossible for one stakeholder to act in the manner you describe.
    - inimino 9y ago
      But if the theory allows the attack, even if it seems impractical, there is likely to be a practical attack that is slightly different.
ajhurliman 9y ago
They can't stake that ETH because their users may want to pull it out. Staking it means that you make it unavailable for use, and if you try to break the rules while staking you lose it. They could probably stake some of it though, as long as there's no bank run situation.
- JoshTriplett 9y ago
  > They could probably stake some of it though, as long as there's no bank run situation. If there was even a hint that Coinbase was pulling any "fractional reserve" stunts, they'd lose the massive amount of credibility they have over less reputable exchanges. Reputation is the primary advantage Coinbase has.
  - polyomino 9y ago
    Coinbase does not have a good reputation. Have you been to /r/coinbase?
    - ithinkinstereo 9y ago
      It's relative; CB's reputation is sterling compared to the other exchanges.
    - JoshTriplett 9y ago
      The standard answer for where to refer people to so they can buy or sell some coins without even a hint of shadiness or fly-by-night is Coinbase. That doesn't mean that they're perfect, or that nothing ever goes wrong; it means that they're the highest-reputation exchange available, and that their primary selling point is that reputation. Also, people happy with something post about being happy far less often than people angry with something post about being angry, because the latter have a problem/grievance to solve.
    - jpatokal 9y ago
      We're using different definitions of "reputation" here. Coinbase has a good reputation in that, unlike Mt Gox, it appears to be run by adults and is highly unlikely to get massively pwned or do a runner with your money overnight. But it also has a bad reputation in that their support is abysmal and/or overloaded, and if you run into any sort of trouble with transactions, ID verification etc, it tends to take a very long time to sort out.
jzoch 9y ago
Not only do you need to "stake" your eth for ~a year or so (as is currently proposed), but if you do not act in good faith you burn your entire stake. This incentivizes you to act in good faith. With PoW, you act in good faith since the cost to 51% the network is very high when measured in compute power and electricity, but can be done multiple times and the cost may be worth the end result. The cost here would definitely not be worth it and would not be repeatable.
- GordonS 9y ago
  Who decides whether you've acted in 'good faith'? Could this mechanism be abused to burn perfectly valid stakes?
  - runeks 9y ago
    The idea is that, if a staker refuses to include a proof (digital signature) that it has staked on multiple chains, or double spent coins, the network will fork the chain to a new one which includes this proof. How the network will reach consensus on then following this new chain is not clear to me.
ojr 9y ago
Coinbase was operating at a loss last time I check, it's not like they can stake their user's ether funds. Also, the Ethereum addresses they create are intended not to be used for smart contracts

Yes, but the simplistic version of the argument is that any entity with such a large stake would be inherently incentivized to preserve the value of the currency and act in good faith. My intuition is that this is a risky proposition. If an entity can benefit themselves $x by making a bad-faith transaction, but it only costs them $y such that $y < $x, it’s rational to do it even if the costs to others are orders of magnitude greater. As a concrete example, if Coinbase double-spent a transaction for $10m and had enough stake to make the network accept this, would it necessarily devalue the currency through loss of trust by enough to make this unprofitable? Is this true for all possible actions by a 51% stakeholder?

konschubert 9y ago
If somebody holds 51% of the capital in bitcoin (In form of 51% of the mining hardware), he can mount a 51% attack as well.
- papermule 9y ago
  Wouldn’t it be much less than 51% in practice since a lot of Bitcoin is in hardware or non-custodial wallets?
  - amadeuspzs 9y ago
    No, 51% refers to the active mining pool (who package and validate transactions) vs 51% of the currency itself.
- dukeflukem 9y ago
  He certainly could, but that'd be stupid right?
  - SturgeonsLaw 9y ago
    Depends on their intent. It would be silly for an actor who wishes to maintain the value of their holdings, but if their goal was to destabilise the currency, it provides an attack vector.
    - exclusiv 9y ago
      Exactly. Like anyone with a ton more at stake if it succeeds like the banking system.
Sir_Substance 9y ago
>Yes, but the simplistic version of the argument is that any entity with such a large stake would be inherently incentivized to preserve the value of the currency and act in good faith. This logic is, as you say, simplistic. Anyone with such a large stake can cash out, and then use their former large stake to fabricate an alternative chain in which they did not cash out, forking the blockchain at the block just before they cashed out. Commonly proposed defenses against this (checkpointing) are limited because when new nodes enter the network, they are in a naive state where they do not know who to trust. In a proof of work system, the entire blockchain can be validated by a naive node. Fraudulent blockchains could be constructed and fed to naive nodes, but they would be obvious forgeries because they would have to be constructed at lower network difficulties in order to generate blocks faster than the real network and become the longest chain. In a proof of stake system, people who formerly had stake in the system can simulate fraudulent alternative histories forked at the point before they cashed out, and feed those histories to naive nodes. If enough naive nodes accept the alternative history, it becomes the accepted chain. The possibility exists that these former stakeholders might use some of their cashed out money to start up many nodes in the cloud and feed their alternative chains to those nodes. The only real way to defend against this is to have trusted nodes coded into the protocol provide bootstrapping data to naive nodes. Once you do that, your network is no longer trustless. Read more here: http://www.cs.cornell.edu/~iddo/CoAslides.pdf http://www.cs.cornell.edu/~iddo/CoAslides.pdf
- rrggrr 9y ago
  > Anyone with such a large stake can cash out, and then use their former large stake to fabricate an alternative chain in which they did not cash out, forking the blockchain at the block just before they cashed out. A trade this large is likely to crater the currency before it can be filled in the absence of trade volume so large its practically impossible for one stakeholder to act in the manner you describe.
  - inimino 9y ago
    But if the theory allows the attack, even if it seems impractical, there is likely to be a practical attack that is slightly different.

ajhurliman 9y ago

They can't stake that ETH because their users may want to pull it out. Staking it means that you make it unavailable for use, and if you try to break the rules while staking you lose it. They could probably stake some of it though, as long as there's no bank run situation.

JoshTriplett 9y ago
> They could probably stake some of it though, as long as there's no bank run situation. If there was even a hint that Coinbase was pulling any "fractional reserve" stunts, they'd lose the massive amount of credibility they have over less reputable exchanges. Reputation is the primary advantage Coinbase has.
- polyomino 9y ago
  Coinbase does not have a good reputation. Have you been to /r/coinbase?
  - ithinkinstereo 9y ago
    It's relative; CB's reputation is sterling compared to the other exchanges.
  - JoshTriplett 9y ago
    The standard answer for where to refer people to so they can buy or sell some coins without even a hint of shadiness or fly-by-night is Coinbase. That doesn't mean that they're perfect, or that nothing ever goes wrong; it means that they're the highest-reputation exchange available, and that their primary selling point is that reputation. Also, people happy with something post about being happy far less often than people angry with something post about being angry, because the latter have a problem/grievance to solve.
  - jpatokal 9y ago
    We're using different definitions of "reputation" here. Coinbase has a good reputation in that, unlike Mt Gox, it appears to be run by adults and is highly unlikely to get massively pwned or do a runner with your money overnight. But it also has a bad reputation in that their support is abysmal and/or overloaded, and if you run into any sort of trouble with transactions, ID verification etc, it tends to take a very long time to sort out.

jzoch 9y ago

Not only do you need to "stake" your eth for ~a year or so (as is currently proposed), but if you do not act in good faith you burn your entire stake. This incentivizes you to act in good faith. With PoW, you act in good faith since the cost to 51% the network is very high when measured in compute power and electricity, but can be done multiple times and the cost may be worth the end result. The cost here would definitely not be worth it and would not be repeatable.

GordonS 9y ago
Who decides whether you've acted in 'good faith'? Could this mechanism be abused to burn perfectly valid stakes?
- runeks 9y ago
  The idea is that, if a staker refuses to include a proof (digital signature) that it has staked on multiple chains, or double spent coins, the network will fork the chain to a new one which includes this proof. How the network will reach consensus on then following this new chain is not clear to me.

ojr 9y ago

Coinbase was operating at a loss last time I check, it's not like they can stake their user's ether funds. Also, the Ethereum addresses they create are intended not to be used for smart contracts