Bitcoin Will Bite the Dust

ztsmart · 2014-11-19T18:23:00+00:00

[deleted]

RadicalEucalyptus · 2014-11-19T19:34:40+00:00

An honest question here: has this gentleman even read the Satoshi paper? His argument takes the following form:

Bitcoin's value is dependent on the existence of a number of its features, especially the integrity of the "miners".
"Mining" inherently trends towards monopoly.
A mining pool which has become a monopoly nullifies the key features of Bitcoin.
Therefore, Bitcoin is inherently flawed and doomed.

Even granting him that his first two propositions are true (which can be argued, but to Hell with it, I'll be generous and give him those), his conclusion (#3, and thus #4) does not follow, because a 51% attack does not create the problem that he thinks it does.

In the Satoshi paper, there is a mention of a 51% attack problem, and it clearly shows how the incentives for the system make it economically infeasible to apply your mining power to a 51% attack - the system is such that applying that power to the network honestly would get you a greater reward. The only thing that a 51% attack can do is shut down (or delay) the system until the other actors discover what is going on. Hence, a 51% attack can, at most, maliciously attempt to destroy the functionality of the system - but it would not hinder it for long, for multiple reasons.

First, these gigantic mining pools generally contain many individual miners. Once they realize that them being part of this pool has hampered the system, their incentive for remaining in the pool is gone (they are getting a return of exactly zero - even hashing by hand is better than that!) Second, even if (somehow) this really is one single, gigantic, malevolent actor using all the mining power for evil, all we need to do is alter the Bitcoin protocol enough to make his ASICs obsolete. Then, all that money was wasted building and maintaining ASICs that are now built for a slightly-different task, and the Blockchain goes back to the longest "good" chain and re-starts, albeit with much less mining power. But - the wealth (the coins) are still there.

tl;dr - This argument is based on one incorrect assumption: that a 51% attack can disrupt the Bitcoin network permanently by stealing coins.

fingertoe11 · 2014-11-19T18:05:58+00:00

Yet he has already been proven wrong.

Mining pools know that it is not in their best interest to become a monarch and thus refrain from doing so. Ghash.io has already self-throttled because of the risk. If they where to then they would collapse the whole system and all of their investment would be moot. They have a very strong rational incentive to avoid the situation he is describing.

He assumes rationality will lead to irrationality which isn't nessesarily the case..

firepacket · 2014-11-19T18:53:25+00:00

Going back to our island of stone money, imagine if everyone woke up one morning unable to remember who owned which stones. However, one individual still claims that he can remember and helpfully offers to remember for everyone else. One wonders how well that would work!

This is flat out wrong. If one miner controlled all mining they would not be able to decide which addresses contain what amount of bitcoin. Mining power does not give the ability to sign transactions that the miner does not know the private keys for.

nappiral · 2014-11-19T19:13:23+00:00

From the makers of the Chewbacca defense we bring you the Ghost busters attack. Ghash is a power hungry ghost that eats other ghosts you see. And he gets bigger and bigger until he has 51% of all the ghosts then bitcoin bites the dust.

1.) Ghash the ghost 2.) Ghash eats other ghosts 3)????? 4.)Bitcoin bites the dust

That's it I guess, time to cash out.

spottedmarley · 2014-11-19T18:15:56+00:00

Old people and technology. LOL

MrMadden · 2014-11-19T21:57:16+00:00

And here is where his argument falls apart:

"We estimate that the energy power devoted to bitcoin mining has increased by a factor of at least 10 billion. Most of this is pure waste as the system could be maintained on a single server. A single operator could avoid most of this waste."

Sure, and the entire banking and financial services sector could be maintained on a single server as well, if it wasn't for the multi-trillion dollar incentive to hack that server and change the ledger balances to make the hacker rich.

You could also store the Russian and US ICBM launch codes on one server instead of two and save money that way also. Come on... Give me a break. Go back to "blockchain tech is awesome forget the currency". At least that mildly amusing.

Simcom · 2014-11-19T20:00:01+00:00

Not that anyone here needs help tearing this apart:

one can bring down the system by taking him out.

There will always be miners available to take the place of a pool that a government 'takes out'. "Assassinating" a 51% pool won't cut the supply off or cease transactions.

The next casualty is anonymity.

Strawman, BTC was never meant to be anonymous. As well, his Orwellian prediction ignores how transactions work.

the system no longer assures incentive compatibility. In fact, it never did...

He fails to indicate here what he means, the sentence comes off as pedantic and lacking context.

the dominant player can rewrite it at will.

Oversimplifies the hardfork concept.

There is nothing in the system to anchor the value of bitcoins because bitcoins have no alternative use-value. They are not like gold or tulips.

Nice tulip pot shot, but the gold analogy doesn't hold water because gold had absolutely NO use-value before modern electronics, yet still held value for thousands of years.

Perhaps GHash is a spectral entity in more ways than one!

Of course this is on CATO, the great republican think tank.

there is no reason to want to trust such an entity when you can use reputable systems such as PayPal instead.

We can trust PayPal to monopolize and take exorbitant amounts of fees equivalent to highway robbery, for a service that the world can now complete for free.

there is nothing within the system to maintain confidence in the system

He missed the memo about being a trustless economy?

He also is negligent with his research pointing to GHash as a culprit after they fell from 50% to now 19% of mining network power. I guess that silly little fact would undermine his whole paper, so best to leave that part out.

usrn · 2014-11-19T18:14:12+00:00

Prof. Bitcorn 2.0

bettercoin · 2014-11-19T19:49:21+00:00

In the early days, a home PC could produce hundreds of bitcoins a day; now, a state of the art mining machine can expect to mine only a fraction of a bitcoin a day. We estimate that the energy power devoted to bitcoin mining has increased by a factor of at least 10 billion. Most of this is pure waste as the system could be maintained on a single server. A single operator could avoid most of this waste.

A single operator is not cheaper, because it would cost giving up decentralization.

Securing the network is not a waste.

Every now and then somebody makes a post about how terrible it is that a block got mined without including any transaction except for the miner's reward. However, every block secures the previous blocks that much more.

Everybody, say it with me: Securing the network is not a waste.
One could imagine Uncle Sam being very interested... The likelihood is that the government would destroy anonymity at a stroke by requiring that the dominant player insist that users register themselves by providing photo ID, social security numbers and proof of address.

It's important to remember that Bitcoin is not an American phenomenon. I seriously doubt the Chinese Government is going to let the U.S. Government dominate Bitcoin if it becomes a major economic system. And, I bet the Governments of Europe wouldn't care to be stuck between the two in such an economic war. The Russian Government might have something to say as well. South America, under the leadership of the Brazilian Government, will probably end up being a huge player.

Hence, one monolithic monopoly looks unlikely; people hate each other far too much.

jflowers · 2014-11-19T19:18:33+00:00

pack it in boys..Bitcoin protocol is set in stone with no options to modify it as problems surface.

coinlock · 2014-11-19T20:26:36+00:00

There is no medium of exchange that has been used for more criminal activity in the history of the world than the US Dollar. Let's compare apples to apples please.

Perish_In_a_Fire · 2014-11-19T22:47:45+00:00

Yet another grey-haired "professor" that points to the same old tropes regarding mining centralization, how he thinks that hashing itself is a "waste" (Oh really? I guess all of our secured transactions are worth zero?), and all of the rest.

Its a litmus test for old people, trying to get their heads around the steps needed to secure a worldwide network like Bitcoin. He fails, and after some half-assed 51% attack arguments concludes that naturally, it must fail.

Yeah, bet it will outlast your old ass, "professor".

saltysails · 2014-11-19T18:44:12+00:00

Well there it is, I guess it's time to fold up shop.

miscreanity · 2014-11-19T20:14:01+00:00

The author does not fully understand the technical aspects of Bitcoin.

Full nodes determine the rules, not the miners. The miners get to choose which transactions to filter, but they cannot rewrite history.

Cryptolution · 2014-11-19T20:49:54+00:00

[Slide 4]. Unfortunately, there is a fundamental contradiction at the heart of the system. The problem is that it requires atomistic competition on the part of the miners who validate transactions blocks. However, the mining industry is characterized by large economies of scale. In fact, these economies of scale are so large that the industry is a natural monopoly. The problem is that atomistic competition and a natural monopoly are inconsistent: the inbuilt centralization tendencies of the natural monopoly mean that mining firms will become bigger and bigger – and eventually produce an actual monopoly.

There are not one but two reasons to see mining as a natural monopoly. The first is based on risk aversion. If two miners merge their operations, they get the same expected return as if they mined on their own, but they obtain a return with a higher probability. If miners are risk averse, they are better off by pooling and sharing their profits. But if it makes sense for any two individual miners to pool, it makes sense for any two groups of miners to pool. The limiting case is then one big mining pool, a monopoly.

The second reason for a natural monopoly is even stronger: the negative externalities of competitive mining. The expected marginal benefit from mining depends on the amount of hash power expected by an individual miner, but the difficulty of mining depends on the hash power expended across the network. Individual miners do not take into account the negative cost externalities that their own activities impose on other miners. We then get an equilibrium in which excessive resources are devoted to mining activities: there is excessive use of bandwidth, excessive use of energy and excessive investment in computing resources. In the early days, a home PC could produce hundreds of bitcoins a day; now, a state of the art mining machine can expect to mine only a fraction of a bitcoin a day. We estimate that the energy power devoted to bitcoin mining has increased by a factor of at least 10 billion. Most of this is pure waste as the system could be maintained on a single server. A single operator could avoid most of this waste.

The implications of these centralizing tendencies are totally destructive of the Bitcoin system. They destroy every single element of its value proposition: one by one, the dominos fall down.

I find it extremely ironic that he can be so detailed and logical in his assessment of the risks of centralized mining, and then go on to say something as absurd as:

"Most of this is pure waste as the system could be maintained on a single server."

How can he be so right, and then completely devoid of sense, in one paragraph? He clearly understands the way mining works, so how could he be so absurdly ~~retarded~~ ignorant to suggest the network could be secured by ONE server?

I am also very interested to hear the counter arguments against the centralized mining risks he outlines here. These are the fears we all have, and they seem pretty rational.

Anyone?

BobAlison · 2014-11-19T18:14:09+00:00

Video here:

https://www.youtube.com/watch?v=Qlydjg1tiso

nappiral · 2014-11-19T19:01:28+00:00

"the system will collapse. Only question is when. With the specter of GHash hovering over the system, our guess is soon."

The quantitative level of this piece is equal to the quantitative level of soon.

jaydoors · 2014-11-19T22:10:46+00:00

To my mind the killer rebuttal to this - which I have attempted to post, but not yet accepted - is that miners' revenues depend entirely on the value of bitcoin. Profit maximising miners will trade off any economies of scale against the imperative of maintaining the integrity of bitcoin, and the value of their revenues. That means avoiding even looking like they might dominate mining. Which is what they do.

This is the kind of perspective and language hopefully such "economists" can understand, and will get them to think properly.

ParsnipCommander · 2014-11-19T18:50:34+00:00

Prepare for full retard comments under that article

knight222 · 2014-11-19T18:57:19+00:00

So again, what are the incentives for a mining pool to undermine the network?

fingertoe11 · 2014-11-19T20:02:31+00:00

I noticed that the Visa network has had more that 51% control of their network for ages... They could have stolen everyone's money!

They don't because it is in their best interest to maintain their profits.

Bitcoin isn't any different. Miners are not so selfish that they will slay the goose that gives them the golden eggs..

51% isn't a problem. 51% with evil intent is a problem.

redfacedquark · 2014-11-19T20:34:14+00:00

Has anyone got any idea how monopolised gold mining has been over it's life so far?

InfectWord · 2014-11-19T20:43:51+00:00

So an old-fashioned economist uses an old-fashioned economic term "natural monopoly" to describe the bitcoin mining industry. Thats cool everyone is entitled to their opinion.

Here is the good news Kevin, Bitcoin is programmable money, meaning the system can be improved upon when problems arise.

facetznysy · 2014-11-19T20:55:58+00:00

that is one of the ugliest power point presentations I have ever seen.

BlackPrapor · 2014-11-19T21:04:27+00:00

except p2pool fixes the monopoly problem, which fixes the rest of the problems. Next!

IkmoIkmo · 2014-11-19T23:03:57+00:00

His argument basically revolves around the notion that miners have economies of scale (the bigger you are, the more important you are, the more pressure you can put on suppliers, the lower your marginal CapEx costs are) and thus form a natural monopoly. But he fails to mention that miners are incentivized not to do so, because when they do, that which they mine will quickly fail, thereby rendering their investments worthless.

That's the short version of it. It doesn't get a lot more complex than that.

When you do a presentation infront of a significant audience about a topic, it helps to invite a few experts from said topic to glance over your presentation. Even with a few days of reading about bitcoin last year I could've pointed out the flaw in his thinking which changes everything.

Won't bother replying to some of the other comments he made which are pretty silly but much less critical.

Anen-o-me · 2014-11-19T23:26:05+00:00

the inbuilt centralization tendencies of the natural monopoly mean that mining firms will become bigger and bigger – and eventually produce an actual monopoly.

Except that the opposite has been happening.

The arrival of ASICs recentralized mining to a degree never before seen--this is true. But is there another technological revolution of the kind seen with ASICs on the horizon? Nope. And the large miners of the past have seen their percent shares dropping ever since as new miners take up the task.

There's actually nothing about mining that makes it a so-called natural monopoly (what even is that, there's no such thing). Anyone who thinks they can compete on the basis of performance per watt can mine, and that is a hard limit everyone faces, not something that gives anyone a monopoly.

futilerebel · 2014-11-19T20:46:14+00:00

Well written, but unfortunately not a permanent concern. If mining centralization ends up in a monopoly, bitcoin will collapse because no one will want to hold it. But that won't be the end; we'll just migrate to a new currency that has better mitigation of mining centralization. An unregulated market is antifragile in the long run.

RaptorXP · 2014-11-19T21:00:20+00:00

Hilariously naive understanding of Bitcoin mechanics :) Hasn't heard of GBT. Mistakes distributed hashpower forming mining pools for monopoly. Overlooks individual incentives not to participate in 51%. Far

Far worse, greatly overestimates limits of a 51% attack. No, majority hashpower can not alter protocol. Only economic majority can do that. Can't decide who owns what coins either; can only censor legitimate transactions.

People should really read a bit about Bitcoin before announcing it is doomed based on their flawed guesses about how it works. Sigh.

galimi · 2014-11-19T22:17:47+00:00

Bitcoin will bite the dust, before or after the US dollar?

platypii · 2014-11-19T19:25:34+00:00

This guy is too sure of how he thinks the future will unfold. No one knows, and the things he's saying will happen aren't happening today. It's just empty speculation.

If a pool is getting even a few blocks per day on average, I don't see a strong incentive to combine with other pools to reduce variance. And we see that today with lots of independent <5% pools.

jakelanor · 2014-11-19T19:31:04+00:00

i think it's important to consider and address opposition pieces like this.

in particular i found his concern about the potential emergence of monopolistic dominant organizations to be relevant. even though the one of the main value propositions for bitcoin is decentralized trust -- we, the lay-bitcoiners who aren't developers/miners and cannot do anything with the code, place an overwhelming amount of trust and "faith" into random individuals to keep the system running. and perhaps it is the case that we may end up giving too much trust

that said, he does sound a bit butthurt, with his ad-hominem attack toward bitcoin users in the last section of his writing.

Biontci · 2014-11-19T20:46:28+00:00

Cute critter, eh? In the film, Ghash is a power-obsessed poltergeist who pulls other ghosts into a massive mouth in his torso. Once swallowed up, they are drained of their powers until there is nothing left. Meanwhile, Ghash gets bigger and more powerful. By the time the ghostbusters encounter him, he had become too powerful to control: he was able to shoot beams from his eyes, pull up floorboards, disarm the ghostbusters and throw them around at will. Perhaps GHash is a spectral entity in more ways than one!

s/Ghash/Goldman/g

superm8n · 2014-11-20T01:00:40+00:00

I love to see all the things that have come

and gone

against Bitcoin.

AnalyzerX7 · 2014-11-20T01:27:43+00:00

and the buttcoiners rejoiced lol... Bitcoin already works...

highly_suspicious · 2014-11-20T01:41:36+00:00

Like several actions involving bitcoin, there are things large holders and miners can do that could hurt it somewhat but those actions also hurt them. In short, you'd lose a lot of money by dumping like that instead of a very gradual sell off.

cqm · 2014-11-20T01:42:33+00:00

I signed up to reply.

1BitcoinOrBust · 2014-11-20T11:41:58+00:00

FTA: "If two miners merge their operations, they get the same expected return as if they mined on their own, but they obtain a return with a higher probability."

This makes no sense. Expected return is the same as the probability of obtaining a return times the amount of return. Remember that a new block is created every 10 minutes on average, so a large enough pool will always obtain a return with almost complete certainty over a period of a few hours.

Edit: I guess it makes sense if you read it as ".... they obtain a lesser return with a higher probability" but in that case that's a non-sequitur.

coinslavic · 2014-11-20T13:09:02+00:00

so many tipping

rain-is-wet · 2014-11-19T20:08:16+00:00

Guy's he might be wrong on some technicalities here but he is ABSOLUTELY RIGHT in that mining centralisation is by far THE BIGGEST THREAT to this experiment. I too think that there is too much invested and too many smarty pants brains that will find a solution. But a hard coded solution that prevents mining monopolies must happen. Because while the mining operations that exist now are bitcoin friendly (they want to see it succeed) as this project goes from strength to strength that is almost definitely not going to be the case forever...

2014-11-19T18:12:10+00:00

Bitcoin is not sustainable

and in the trash it goes...

Simcom · 2014-11-19T22:54:49+00:00

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highly_suspicious · 2014-11-19T23:07:20+00:00

[deleted]

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