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Why do people keep repeating this myth that Bitcoin is "efficient"? It's not, even hardcore bitcoiners like Peter Todd admit this. [1] And the most important po
by wsxcde 12y ago
Why do people keep repeating this myth that Bitcoin is "efficient"? It's not, even hardcore bitcoiners like Peter Todd admit this. [1] And the most important point is, it cannot be, this is a mathematical fact underlying trustless systems based on the blockchain.
If I give a $100 to you, a centralized entity like my bank just has to subtract 100 from a database which contains my my account balance and 100 to your account balance. And now the transaction is complete. In the case of bitcoin, you still have to do this, but you also need to run a proof-of-work competition among a whole bunch of miners. This proof-of-work competition has to cost significant money in comparison to the amounts being transacted on the network, because if it didn't, a 51% attack would become easy.
Suppose for the sake of argument that the cost of a bitcoin transaction, by which I mean the money invested in mining equipment and cost of electricity of the the mining network, is $1. Assume for simplicity that there's only one transaction per block. Now suppose I'm a malicious actor who just paid you $1000 through the bitcoin network and would now like to execute a double-spend attack. Amassing more hashpower than the rest of the network and "overtaking" the longest chain after 6 confirmations is, on average, only going to cost me 7 * $1.01. In other words, this network with a cost per transaction of $1 is insecure for transacting amounts like $1000. The point is, the mining rewards + transaction fees on the btc network, which in turn are equal or slightly greater than the the cost per transaction block, have to be roughly similar to the amounts being transacted on the network for it to be secure.
The TLDR is this: for a secure btc-like network, transaction cost ~ O(transaction amount). For a centralized ledger (bank): transaction cost ~ O(1). By no means can you call this "efficient."
I'm not saying bitcoin is useless. It is a very clever trustless distributed ledger, but this trustlessness comes at a significant cost.
https://twitter.com/petertoddbtc/status/513195104023359488 https://twitter.com/petertoddbtc/status/513195104023359488
- DoctorBit 12y agoThe organization that administers the centralized ledger could be bribed with a value greater than the transaction amounts. One could say "yes, but regulators..." - then one has to add the cost of the regulators, courts, jails, etc... It would be interesting if it turned out that the technical cost of a safe bitcoin network was the same as the human cost for a centralized network. I'm going to think about this some more.
- wsxcde 12y agoNo, there's a big difference between your bribing experiment and the thought-experiment I described. The value 7 * 1.01 is the amount it costs me to conduct the attack. I don't need anybody to collude with me. The bribe is an unknown quantity that has to be greater than the revenue the operators of the centralized ledger forgo when they decide to collude with me and attack their other users. The equivalent to the bribing the centralized ledger would be me trying to bribe the top 5 or so pools to conduct a 51% attack on my behalf. This is obviously going to cost me a lot of money because the pools have little interest in becoming accomplices in my criminal conspiracy.
- kruczek 12y agoI think the reason people call Bitcoin efficient is because transactions actually happen much faster than through regular banks. In a real bank typically you need to wait one workday to get the money transferred, whereas in Bitcoin timescale is in the range of minutes.