Bitcoin Protocol Vulnerability Could Lead To a Collapse

First time accepted submitter stanga writes "Cornell researchers unveiled an attack on the Bitcoin mining protocol that enables selfish mining pools to earn more than their fair share. In a technical report the authors explain this attack can be performed by a pool of any size. Rational miners will join this pool to increase their benefits, creating a snowball effect that may end up with a pool commanding a majority of the system's mining power. Such a pool would be able to single-handedly control the blockchain, violating the decentralized nature of the increasingly successful Bitcoin. The authors propose a patch to the protocol that would protect the system from selfish mining pools smaller than 25% of the system. They also show that Bitcoin can never be safe from selfish mining pools larger than 33% of the network, whereas it was previously believed that only groups larger than 50% of the network were a threat to the system. The question is — can the miners operating today adopt the suggested fix and dismantle too-large pools before a selfish mining pool arises?"

Comments

The Wild West

[mythosaz]

Bitcoins are the wild west...and that's why they're so exciting.

I missed the gold rush, but there's still money to be made selling shovels and pans to those who think they didn't...

Re:The Wild West

[Aighearach]

Indeed, the built-in deflation ensures an eventual collapse, especially in the presence of alternatives currencies.

Re:The Wild West

[mysidia]

I missed the gold rush, but there's still money to be made selling shovels and pans to those who think they didn't...

*Cough* Excuse me, while I move over and start mining Litecoin.

Re:The Wild West

[Agent ME]

The point of Bitcoin isn't mining. Complaining that you can't make money mining is like criticizing the dollar because you don't have a dollar printing machine.

Re:The Wild West

[ultranova]

Computer sales use currency, but they are not themselves currency. A market segment can grow or shrink and supply and demand balance. People still need computers, and so there will still be a market.

Computers sales use currency, and that currency will get more computing power the longer you wait; in effect, your money will be worth more tomorrow than today, which is by definition deflation. And yes, people need or at least want computers today - and that goes for anything else they might buy.

A currency with built-in deflation has perverse incentives. Your money will be worth more if you don't spend it; investment is discouraged. By not engaging in commerce with your money, you enrich yourself.

How many people invest their money as is, rather than using it on coffee or other things they don't actually need? Remember, that Starbucks latte doesn't just cost you its nominal price, but also all the money you could had earned if you spent it on stock market instead. And yet I'm to believe that would suddenly start mattering to people if inflation went below zero?

Also, speaking of perverse incentives, inflationary currency actually encourages investment that has a negative return of investment, since that can still end up beating inflation. Such a business is doomed to failure, of course, yet inflationary currency incentivizes setting them up, thus wasting resources that could be used to set up more reasonable ones or even expand or maintain public infrastructure.

Compare that to all the real currencies, which have inflation; it will be worth less in the future. If you want to save it, you need to put it to some sort of use; for example an interest-bearing savings account where your money is actually be loaned out to other parties. And if you want better gain than that, you invest in something with either a higher risk level, or a more specific purpose.

And what is the actual result of this? Growth based on high-risk investments, where any bankruptcy makes every other investment even riskier, eventually resulting in a cascade failure, such as the current financial hulabaloo. Some people make out like bandits, if they are rich or clever enough to make their risks public while keeping profits private, but it's anything but good to people or economy in general.

The "middle manager" attack

[slew]

Start with an intense desire to building your own private empire that you control.
Hiding information from others to gain a competitive advantage.
Populating other groups with spys to see what progress they are making.
Eventually giving rational people no choice but to join your team or be crushed.

I propose to call this the middle manager attack.