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Researchers Find Problems With Rules of Bitcoin

Posted by ryuzaki0 on from the ruining-everything-with-math dept.

holy_calamity (872269) writes "Using game theory to analyze the rules of cryptocurrency Bitcoin suggests some changes are needed to make the currency sustainable in the long term, reports MIT Technology Review. Studies from Princeton and Cornell found that current rules governing the mining of bitcoins leave room for cheats or encourage behavior that could destabilize the currency. Such changes could be difficult to implement, given the fact Bitcoin — by design — lacks any central authority." The main problem discovered is that transaction fees do not provide enough incentive to continue operating as "miner" after there are no more bitcoins left to be mined.

15 of 301 comments (clear)

  1. That main issue is actually the solution. by Kremmy · · Score: 4, Interesting

    After all of the bitcoins are mined, there is no longer an incentive to treat it in this goldrush-like manner. The only people who will have reason to run a miner are the people who use bitcoins as a currency, to be a node in their decentralized economy. Most of the problems people describe seem to be directly related to its use as a pump and dump, actually. I must wonder what's going to happen once we reach that point.

    1. Re:That main issue is actually the solution. by iluvcapra · · Score: 3, Interesting

      The problem with transaction fees is there's no way to properly market them-- theoretically the higher a transaction fee you pay will give you a higher quality of service, but in practice the terms under which your transaction is processed are completely voluntary. It might happen, it might not, and it's definitely in the interests of large mining guilds to run up the price, and the large guilds are very effective at locking out upstarts. A cartel of two of them would easily control a majority of the blocks that get signed onto the chain, and thus set the price of transaction processing.

      --
      Don't blame me, I voted for Baltar.
  2. Did they actually look at the bitcoin rules? by ras · · Score: 5, Informative

    Firstly, there already is a "tax" of the sort they say is needed. Currently the bitcoin relays don't accept transactions containing a tip of less than 0.6cents per kilobyte.

    Secondly, there is nothing to force a miner to pick up a transaction, now. Right now, if a transaction doesn't contain a fee there is no incentive for the miner to include it in the block they are working on. Regardless of whether the miner includes transactions or not, they still get the mining reward.

    Transaction fees are like an auction. The customer puts in a bid at the lowest price he thinks the miners will accept, each miner decides whether that fee makes it worth his while to include the block. If the customer wants the transaction processed quickly he will put a comparatively high fee on it so every miner will be interested. If not, they put a low fee on it.

    This is called a market. It is how bitcoin is supposed to work.

    1. Re:Did they actually look at the bitcoin rules? by ras · · Score: 5, Informative

      except the problem of criminals leveraging other peoples resources. When you can utilise bots to farm for you you can effectively undercut other peoples market making any legitimate miner completely unprofitable.

      Said like a person who doesn't have a clue about the shear amount of resources being thrown at bitcoin mining.

      Currently, the bitcoin mining network is doing 6,549,663,840,000,000 SHA-256 hashes per second. Lets say you have a botnet of 1 million Haswell's. The fastest Intel CPU there is, a Xeon, and it can't do more than 20M hashes per second. So your 1 million Haswell botnet will manage to capture 0.3% of the bitcoin networks mining power.

      Yes, people have speculated in the past that bitcoin might be susceptible to botnets. Even if was true the vulnerability window has well and truly closed.

    2. Re:Did they actually look at the bitcoin rules? by ras · · Score: 3, Informative

      and you really think all that effort in mining is going to be maintained once the coin pool is exhausted and they are only competing for transaction fees?

      Just about all mining is done using ASIC now, and ASIC's are in an unenviable position. Unlike CPU's and GPU's or even FPGA's, they are utterly useless outside of bitcoin. So they will remain deployed until they cost more in power to run than they get in mining fees. This means the current mining power isn't going away any time soon.

      Botnet's can earn a return from a variety of sources, not just mining. So the question becomes "is it worth competing against the ASIC's"? In terms of power cost a top end Intel CPU's is roughly 100,000 worse than an ASIC. So even if some miners drop out Botnet's are unlikely to win more than a minor percentage. If the rewards of mining have dropped so much that ASIC's are dropping out, then it's a minor percentage of a small number. Add to that mining's soaking up 100% of CPU time makes an infection by the bot stand out, which decreases the half life of your botnet ... and yeah, I expect it will continue even when there are only transaction fees.

      Then there is the whole other question of "does it matter?" If a botnet does take over the mining pool, there is the little issue that bitcoin is intrinsically worth nothing. It's not like they have taken over a pot of gold. Bitcoin is only worth something if people trust it. So if they don't undermine it, they have something that will pay out forever. If they do undermine it, they have got control of 2^51 bits that no one in the right mind would buy and their source of transaction fees has dried up.

      It's weird actually. Claiming bitcoin can never succeed because it is worth nothing has to be one of the more popular meme's. The reality is being worth nothing is one of bitcoin's core defences. So far all currencies that have been based on something tangible (like e-Gold) have lacked that defence, and have failed.

  3. No big surprise there by retep · · Score: 5, Informative

    Ignoring game theory, it's easy to see how the model of mining being only paid by transaction fees doesn't make sense. After all, mining security is something that benefits all holders of Bitcoin, regardless of whether or not they perform transactions, so surely all Bitcoin holders should be contributing to that security.

    How do you do that? Make everyone pay equally. Currently that is how Bitcoin works due to the inflation subsidy. (about ~10% per year right now, leading to a per transaction cost of about $50) Just keeping that subsidy indefinitely at some sane level, say 1%, is perfectly reasonable. There's other options too, but fundamentally people like a free lunch.

    -Peter Todd, Bitcoin developer

  4. Transaction Fees Change by Bob9113 · · Score: 4, Insightful

    Such changes could be difficult to implement, given the fact Bitcoin - by design - lacks any central authority." The main problem discovered is that transaction fees do not provide enough incentive to continue operating as "miner" after there are no more bitcoins left to be mined.

    I'm not sure that is an accurate reflection of the research, but if it is, it is not very good research. Transaction fees can change, and have changed. The minimum transaction fee changed from 0.0005 BTC to 0.0001 BTC during the runup to $1100, to keep transaction fees low enough for small transactions. There is a central organization, The Bitcoin Foundation, whose authority is explicitly derived from consent of the governed; the miners and users choose to update their software to match recommendations by The Bitcoin Foundation.

    If that summary is an accurate reflection of the research, it sounds like they don't really know much about how Bitcoin works. I mean, I know that much, and I've only spent a few hours reading about it.

    --
    Stop-Prism.org: Opt Out of Surveillance
    1. Re:Transaction Fees Change by Anonymous Coward · · Score: 3, Insightful

      >>The minimum transaction fee changed from 0.0005 BTC to 0.0001 BTC during the runup to $1100

      >Which is exactly the problem they are referring to. The fee dropped to the point of being not worth it.

      Er, what? The fee went from 0.0005 BTC to 0.0001 BTC because the VALUE of the BTC went UP.

      Here is a hint:

        0.0005 * $5 0.0001 * $1100.

      Such arrogance.

    2. Re:Transaction Fees Change by compro01 · · Score: 3, Informative

      The minimum fee set by default on the client the Bitcoin Foundation maintains (Now called "Bitcoin-core") was changed.

      Any other clients or anyone who feels like doing their own compiling can set the minimum fee to anything they like, including 0, but there's no guarantee their transaction will ever get included in a block if they set it very small.

      --
      upon the advice of my lawyer, i have no sig at this time
  5. Bullshit by Laxori666 · · Score: 3, Insightful

    The difficulty of mining scales with the amount of miners. If the amount of miners drops, the difficulty will drop, such that you still get a block every ten minutes or so. Then the only danger is that it is easier to mount a 51% attack, since there's less total mining power. Everyone who transacts in bitcoins will have an incentive to keep the difficulty high enough such that this is unfeasible. Plus, all the transaction fees are optional - you can put out a zero-fee transaction, or a 5 BTC-fee transaction, if you like. If the recommended fees that Bitcoin Core suggests are not sufficient then everybody can just offer more fees.

    1. Re:Bullshit by Laxori666 · · Score: 3, Informative

      They're saying that the fee wont be enough to keep people in. Really, but bother to read their counter argument before you spout off about it.

      I RTFA. I countered this point in each of my replies. Here it is again. I'll even bold the important parts:

      As miners pull out, it will get easier to mine blocks. There will never be a shortage of computation power to run the network, because if half the miners pull out, it'll get twice as easy to mine blocks. If 75% of the miners pull out, it'll be 4x easier to mine blocks. If 90% of the miners pull out, it'll become 10x easier to mine blocks.

      Get it? Whatever the number of miners, transactions will continue to be verified at exactly the same rate. Look at the hashrate chart. The network was chugging along just fine in July when there were < 1,000 terahashes/second. Now there are over 40,000 terahashes/second. So if 97.5% of the miners drop out, the network will run just as well as it did in July, that is, perfectly fine.

      So when you reply, tell me again why it is a problem if some miners decide to pull out? Please don't just repeat once again that the article says that the fees will be too low and thus the miners will pull out. I get that that's what the article says. Why is this an issue, given the above?

  6. Crypto's Behave More Like Securities Than Currency by teambpsi · · Score: 3, Insightful

    Bitcoin for all its technical sophistication is more of a threat to "stock exchanges" or "equity allocation" than it ever will be to "currencies"

    It is not suitable to a "drive-thru" transactions due to the number of "confirms" required to have veracity in the exchange.

    However, it is VERY WELL SUITED to the exchange of equity -- and is, given the current settlement times, much more of a threat to public ledgers like TORRENS (property exchange logs) -- or stock/ownership exchanges.

    --

    Old age and treachery almost always overcome youth and skill.
  7. Way back when ... by Taco+Cowboy · · Score: 5, Interesting

    Back in the 1920's when that great depression struck, many banks folded, and people who had money in banks ended up with nothing.

    No matter for what reason the banks folded depositors were the ones left holding the empty bag.

    Kinda like what is happening in the various Bitcoin exchanges. No matter if it's stupidity, lack of security, or malice, it's the depositors (whoever parked their Bitcoins in that exchange) ended up losing it all.

    Well ... back to the 1920's.

    When the banks folded, did people abandon the greenbacks ? Yes or no ?

    Same situation here ... The fact that exchanges vanishing into thin air doesn't render Bitcoins invalid.

    True, some of the "rules" are flawed ( I kinda have a sense something is amissed ever since Bitcoin came out, back in 2009, but I just couldn't pin-point what is wrong with it, but thanks to those scientists at least now I know, but I digress ... ) and they may need to be changed ( ... as been pointed out, the implementation of the necessary rule change may turn out to be very hard ... ) but all in all, the system of Bitcoin, at least, for the concept of it, is still as valid as ever.

    Many people are digging at Bitcoin, trying their best to make it sounds as if it's something uncertain, something ephemeral, something "flash in the pan" but if we are to look at the alternative to Bitcoin, ie, the FIAT MONEY SYSTEM, it too has been damaged beyond repair --- as so much money was created out of thin air, which means, the value of the fiat money is no longer valid.

    --
    Muchas Gracias, Señor Edward Snowden !
    1. Re:Way back when ... by Anna+Merikin · · Score: 3, Interesting

      Geeks who run with anarchists will be the first the anarchists turn on when "authorities" are gone. The greenback has an important phrase printed thereon "For all debts public and private" (within the USA.) Bitcoin has no such mandate.

      And,. yes, people did abandon the greenback in the sense the greenback worth .05 oz. of gold was replaced by one worth .028 oz. in 1934.

      Two hundred-thirty-some years after independence, dollars are still circulating because people believe in them. Still, there are those old-fashioned enough to disbelieve in "new" currencies and hoard an even more ancient and worthless material -- gold. And there are nearly three billion people who live in nations where gold is more desired than fiat currencies.

      The world does not move as fast as true-believing miners would have us believe. Those who drink the crypto-curremcy kool-aid are clearly operating out of some fervor based entirely on faith, not logic.

      That's quite OK, as economics is simply applied mass psychology, more or less, and not a hard science. So one can excuse geeks' lack of understanding of the subject. But to ignore the impolsion of this particular crypto currency at this time is absurd.

  8. Re: wooo look at that strawman BURNNNNN by allcoolnameswheretak · · Score: 3, Insightful

    If you invest 100$ into one share, whoever sold you that share now has your 100$.
    If later you need cash and want so sell your share, but its price is only at 10$, it means that there are buyers willing to pay only 10$ for your share.

    Subjectively you could argue that you "lost" 90$. But the person who sold you the share for 100$ could now buy it back from you for 10$ and he would have "won" 90$. In total, the balance of the transactions is 110$. No money has vanished. The value of the commodity has changed, and there are winners and losers of the exchange. One mans loss is the other mans win.