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Bitcoin in it current form will (most likely) never replace traditional currencies because it is either to easy to attack or prohibitively expensive. Right now

by danbruc 12y ago

Bitcoin in it current form will (most likely) never replace traditional currencies because it is either to easy to attack or prohibitively expensive. Right now the Bitcoin network consists of mining hardware worth 100 million Dollars and consumes electricity worth 219 million Dollars per year [1]. While 100 million Dollars is not nothing it would still be affordable by most states and even large companies or rich individuals to effectively shut down the Bitcoin network by gaining a large share or even the majority of the network hash rate. If Bitcoin would gain widespread adoption and see transaction worth billions of Dollars every day, it could easily become a worthwhile attack target even at the mentioned attack costs. The only protection would be to use a lot more mining hardware worth billions of Dollars to make an attack to expensive but this in turn would also raise the energy consumption proportionally and in the end the costs per transaction. I think that in this regard Bitcoin is fundamentally flawed because - up to some limit - you want the transaction volume protected by a proportional amount of mining hardware causing proportional energy and transaction costs which then imposes a lower bound on the costs per transaction. [1] https://news.ycombinator.com/item?id=8782877 https://news.ycombinator.com/item?id=8782877

0xA21F 12y ago
The cost of securing the network doesn't really mirror the transaction volume. The effort is the same irrespective of the number of transactions in a block. It's actually a lot cheaper to attack the network than you are stating, almost all mining uses Stratum which has been successfully redirected using BGP route hijacking in the past. It has no methods of authentication and does no way of integrity checking what it is mining against. A simple "mistake" in routing could have all of a countries hash power redirected to a malicious actor. You don't need power, datacenter or miners, a $5 wrench applied to the right head would do the trick just fine.
- danbruc 12y ago
  The cost of securing the network doesn't really mirror the transaction volume. The effort is the same irrespective of the number of transactions in a block. They don't have to be proportional but you want them to be. You neither want to transfer billions of Dollars only protected by mining hardware and energy worth a couple thousand Dollars, nor do you want to protect transfers worth a million Dollars with mining hardware and energy worth billions of Dollars.
  - 0xA21F 12y ago
    It's hard to quantify what is secure and what is not. Actually working out what the incentives are for the system is surprisingly tricky, miners have all sorts of different motivations that conflict even when they would appear to be highly illogical on paper. Miners today include transactions with zero fees, where in a naive model of the network they probably wouldn't. The justification is often that it's financially sensible for them to do this because it inspires confidence in the system, making the price higher, which in turn makes their income higher. The lack of possibility for a pricing feedback loop makes this all a little tricky too, as the system can't make any changes based on external influences.
FatalLogic 12y ago
but this in turn would also raise the energy consumption proportionally I'm curious about this point. Is this true? Does the energy cost increase in proportion to the hardware cost? It seems like bitcoin mining hardware becomes much more energy efficient with each new generation. Could you link to a source? There's some background data in here: https://medium.com/@interdome/how-much-electricity-does-bitcoin-use-c350bd84c64e https://medium.com/@interdome/how-much-electricity-does-bitc...
- gnopgnip 12y ago
  If bitcoin mining hardware gets more energy efficient, it is more efficient for the attackers too. The symmetrical costs are the problem here.
  - FatalLogic 12y ago
    Thanks, but I wasn't commenting on that really, just the point I asked about.
- danbruc 12y ago
  The mining efficiency - hashes per Joule - is unimportant. The important quantity is power consumption over hardware price and I admittedly just eyeballed that from the linked mining hardware list [1]. [1] https://en.bitcoin.it/wiki/Mining_hardware_comparison https://en.bitcoin.it/wiki/Mining_hardware_comparison
  - deleted 12y ago
    [deleted]
    - danbruc 12y ago
      EDIT: Deleted parent comment suggested hard forks to prevent 51 % attacks. See my response to your first comment - you can not simply prevent any 51 % attack by changing the protocol. By the way, I am not downvoting your comments, I am (usually) not voting on any responses to me but let the other users judge.
deleted 12y ago
[deleted]
- danbruc 12y ago
  EDIT: Deleted parent comment pointed to [1]. The article lines out how to neutralize an attacker mindlessly building a chain of useless transaction but this obviously does not solve the problem. What if the attacker forks and rebuilds the chain of the last week but randomly leaves out every tenth transaction while slowly poisoning the genuine chain with useless transactions until the algorithm decides to switch? You just undid thousands of transaction originally confirmed a week ago. If you could just make up a couple of rules to prevent all 51 % attacks they would not be an issue in the first place. But this again would imply that it does not matter how the computing power is distribute between the good guys and the bad guys which obviously completely contradicts the fundamental design of Bitcoin. [1] http://gavintech.blogspot.de/2012/05/neutralizing-51-attack.html http://gavintech.blogspot.de/2012/05/neutralizing-51-attack....
  - deleted 12y ago
    [deleted]
    - danbruc 12y ago
      EDIT: Deleted parent comment quoted the attackers-can't-list from [1]. You are quoting the wrong part. This only holds if the attacker does not try to build a side-chain. It's much more difficult to change historical blocks, and it becomes exponentially more difficult the further back you go. As above, changing historical blocks only allows you to exclude and change the ordering of transactions. It's impossible to change blocks created before the last checkpoint. [1] https://en.bitcoin.it/wiki/Attacks#Attacker_has_a_lot_of_computing_power https://en.bitcoin.it/wiki/Attacks#Attacker_has_a_lot_of_com...
yc1010 12y ago
Why should bitcoin "replace traditional currencies" ? Why cant bitcoin exist alongside them?
- danbruc 12y ago
  I just wanted to state why I don't share the more or less common believe that Bitcoin can replace traditional currencies, I did not want to imply anything else about what Bitcoin can, can not or should do. But if you bring it up, I don't think Bitcoin is competitive with alternatives like credit cards or PayPal because of the high transaction costs.
  - yc1010 12y ago
    What high costs? the miner fee is like 4 cents whether you send 1$ or 1$ million, and you don't have to pay it if you are cheapskate at expense of waiting longer for confirms.
marcell 12y ago
Can you spell out the specific attack that you think could take place? In practice, I don't think a large scale double spend would work. Someone with 51% of the network (as you say, costing $100M+ of mining equipment currently) could execute an arbitrary double spend attack. If they are financially motivated, they might try an attack like this: 1) Buy a large asset (say a publicly traded company, a huge tract of real estate, a closet full of gold) with bitcoin. 2) Wait for the transaction to clear. For a large asset purchase such as the above, this could take weeks. 3) Once the asset is in hand, use your mining power to reverse the transaction. There is a critical flaw in this plan: you are obviously stealing, and the justice system will treat your actions as theft. If you try this for a reversible asset transfer, like real estate, they will reverse the transfer in addition to punitive measures. For gold, you might be able to hide the gold somewhere, but again at that point it is just common theft. Attacks that are not financially motivated are a different story; a nation state or other party could try to 51% the network simply to destroy bitcoin. Of note here is the fact that nation states have more straightforward ways of hurting bitcoin, starting with outright bans.
- danbruc 12y ago
  I am not thinking about attacks for financial gains - if you already have 100 million Dollars there are probably better ways to get some more money than trying to double-spend Bitcoins. The really bad scenarios are probably adversary states or terroristic organization shutting down the circulation of money in case a state or a couple of states decide to use Bitcoin as the primary currency.

by danbruc 12y ago

0xA21F 12y ago

The cost of securing the network doesn't really mirror the transaction volume. The effort is the same irrespective of the number of transactions in a block. It's actually a lot cheaper to attack the network than you are stating, almost all mining uses Stratum which has been successfully redirected using BGP route hijacking in the past. It has no methods of authentication and does no way of integrity checking what it is mining against. A simple "mistake" in routing could have all of a countries hash power redirected to a malicious actor. You don't need power, datacenter or miners, a $5 wrench applied to the right head would do the trick just fine.

danbruc 12y ago
The cost of securing the network doesn't really mirror the transaction volume. The effort is the same irrespective of the number of transactions in a block. They don't have to be proportional but you want them to be. You neither want to transfer billions of Dollars only protected by mining hardware and energy worth a couple thousand Dollars, nor do you want to protect transfers worth a million Dollars with mining hardware and energy worth billions of Dollars.
- 0xA21F 12y ago
  It's hard to quantify what is secure and what is not. Actually working out what the incentives are for the system is surprisingly tricky, miners have all sorts of different motivations that conflict even when they would appear to be highly illogical on paper. Miners today include transactions with zero fees, where in a naive model of the network they probably wouldn't. The justification is often that it's financially sensible for them to do this because it inspires confidence in the system, making the price higher, which in turn makes their income higher. The lack of possibility for a pricing feedback loop makes this all a little tricky too, as the system can't make any changes based on external influences.

FatalLogic 12y ago

but this in turn would also raise the energy consumption proportionally I'm curious about this point. Is this true? Does the energy cost increase in proportion to the hardware cost? It seems like bitcoin mining hardware becomes much more energy efficient with each new generation. Could you link to a source? There's some background data in here: https://medium.com/@interdome/how-much-electricity-does-bitcoin-use-c350bd84c64e https://medium.com/@interdome/how-much-electricity-does-bitc...

gnopgnip 12y ago
If bitcoin mining hardware gets more energy efficient, it is more efficient for the attackers too. The symmetrical costs are the problem here.
- FatalLogic 12y ago
  Thanks, but I wasn't commenting on that really, just the point I asked about.
danbruc 12y ago
The mining efficiency - hashes per Joule - is unimportant. The important quantity is power consumption over hardware price and I admittedly just eyeballed that from the linked mining hardware list [1]. [1] https://en.bitcoin.it/wiki/Mining_hardware_comparison https://en.bitcoin.it/wiki/Mining_hardware_comparison
- deleted 12y ago
  [deleted]
  - danbruc 12y ago
    EDIT: Deleted parent comment suggested hard forks to prevent 51 % attacks. See my response to your first comment - you can not simply prevent any 51 % attack by changing the protocol. By the way, I am not downvoting your comments, I am (usually) not voting on any responses to me but let the other users judge.

deleted 12y ago

[deleted]

danbruc 12y ago
EDIT: Deleted parent comment pointed to [1]. The article lines out how to neutralize an attacker mindlessly building a chain of useless transaction but this obviously does not solve the problem. What if the attacker forks and rebuilds the chain of the last week but randomly leaves out every tenth transaction while slowly poisoning the genuine chain with useless transactions until the algorithm decides to switch? You just undid thousands of transaction originally confirmed a week ago. If you could just make up a couple of rules to prevent all 51 % attacks they would not be an issue in the first place. But this again would imply that it does not matter how the computing power is distribute between the good guys and the bad guys which obviously completely contradicts the fundamental design of Bitcoin. [1] http://gavintech.blogspot.de/2012/05/neutralizing-51-attack.html http://gavintech.blogspot.de/2012/05/neutralizing-51-attack....
- deleted 12y ago
  [deleted]
  - danbruc 12y ago
    EDIT: Deleted parent comment quoted the attackers-can't-list from [1]. You are quoting the wrong part. This only holds if the attacker does not try to build a side-chain. It's much more difficult to change historical blocks, and it becomes exponentially more difficult the further back you go. As above, changing historical blocks only allows you to exclude and change the ordering of transactions. It's impossible to change blocks created before the last checkpoint. [1] https://en.bitcoin.it/wiki/Attacks#Attacker_has_a_lot_of_computing_power https://en.bitcoin.it/wiki/Attacks#Attacker_has_a_lot_of_com...

yc1010 12y ago

Why should bitcoin "replace traditional currencies" ? Why cant bitcoin exist alongside them?

danbruc 12y ago
I just wanted to state why I don't share the more or less common believe that Bitcoin can replace traditional currencies, I did not want to imply anything else about what Bitcoin can, can not or should do. But if you bring it up, I don't think Bitcoin is competitive with alternatives like credit cards or PayPal because of the high transaction costs.
- yc1010 12y ago
  What high costs? the miner fee is like 4 cents whether you send 1$ or 1$ million, and you don't have to pay it if you are cheapskate at expense of waiting longer for confirms.

marcell 12y ago

Can you spell out the specific attack that you think could take place? In practice, I don't think a large scale double spend would work. Someone with 51% of the network (as you say, costing $100M+ of mining equipment currently) could execute an arbitrary double spend attack. If they are financially motivated, they might try an attack like this: 1) Buy a large asset (say a publicly traded company, a huge tract of real estate, a closet full of gold) with bitcoin. 2) Wait for the transaction to clear. For a large asset purchase such as the above, this could take weeks. 3) Once the asset is in hand, use your mining power to reverse the transaction. There is a critical flaw in this plan: you are obviously stealing, and the justice system will treat your actions as theft. If you try this for a reversible asset transfer, like real estate, they will reverse the transfer in addition to punitive measures. For gold, you might be able to hide the gold somewhere, but again at that point it is just common theft. Attacks that are not financially motivated are a different story; a nation state or other party could try to 51% the network simply to destroy bitcoin. Of note here is the fact that nation states have more straightforward ways of hurting bitcoin, starting with outright bans.

danbruc 12y ago
I am not thinking about attacks for financial gains - if you already have 100 million Dollars there are probably better ways to get some more money than trying to double-spend Bitcoins. The really bad scenarios are probably adversary states or terroristic organization shutting down the circulation of money in case a state or a couple of states decide to use Bitcoin as the primary currency.