Bitcoin – s End Spel: The Benevolent Mining Monopoly?

Bitcoin - s End Game: The Benevolent Mining Monopoly?

By Rich Apodaca | Updated September 28th, 2018

Bitcoin payments are processed by a network of semi-independent auditors known spil miners. Each miner receives a subsidy proportional its share of the network’s total computational power, or hash rate. This prize system has driven intense competition among miners, who collectively dual the network’s hash rate every month.

Miners contributing less than half of the network hash rate contest under the same set of rules, but a miner contributing a majority of the network hash rate gains unique powers. Most discussions of thesis powers revolve around the potential to selectively rewrite the transaction history and prevent transaction confirmation.

However, a majority miner can play a different spel with greater profit potential and lower risk.

Concerns about a “51% attack” tend to concentrate on the potential for dual spending or denial of service (DoS). Countermeasures for both disruptions are relatively straightforward. Dual spending will be effortless to spot and penalize, and therefore brings too much risk for minimal prize. Likewise, a DoS attack could be countered with a plain protocol fix.

With no way to profit from its powers, a majority miner would be far better off just playing by the rules – so the thinking goes. A similar analysis wasgoed recently waterput forward by the Bitcoin Foundation. Others have come to the same conclusion.

Given the sum-zero nature of block prizes, miners are motivated to contest against each other. Aside from enhancing its own hash rate, a miner can build up an edge by decreasing the effective hash rate of its competitors. One way to do so is to prevent competitors’ blocks from injecting the block chain. For miners supplying less than half of the network hash rate, this stir is less than 100% effective and risks retaliation. Spil a result, it’s infrequently attempted.

However, a majority miner can do more. It can, with a 100% chance of success given enough time, prevent the blocks of other miners from injecting the block chain. Minority miners would have no choice but to go along with the project, assigning all block prizes to the majority and witholding them from every other miner. A slender computational advantage would result te an breathtaking financial advantage.

With little extra effort, the majority miner could translate this financial advantage into computational dominance. Incapable to generate revenue, minority miners would be coerced to take equipment offline. With the departure of each miner, the majority’s share of hash rate would increase. If left unchecked, this process would result ter the majority miner controlling close to 100% of the network hash rate.

A miner executing this strategy would do no overt harm to the interests of Bitcoin investors, merchants, or consumers. Every valid transaction would come in the block chain, and no dual spending would be attempted.

For this reason, countermeasures for bad mining behavior such spil DoS or dual spending would be futile against the monopoly. Dislodging the mining monopoly could require deeds that would permanently harm or fragment Bitcoin, and harm those who continued to use it. Once established, the mining monopoly might become a voortdurend fixture.

Aside from almost doubling its mining revenues, the advantages of operating a mining monopoly would be considerable. Free of the perverse cycle of competition and hardware upgrades that have defined Bitcoin mining for years, the monopoly could concentrate on keeping the network hash rate just high enough to repel a likely attacker.

During the time it controls the network, a monopoly would be entitled to the total block prize of Three,600 BTC vanaf day. At current exchange rates, the monopoly would gross just under $65 million vanaf month, or $778 million annually. This substantial contant flow could be used to further solidify the monopoly’s position.

The devastating nature of dual spending and DoS attacks have led some observers to conclude that any 51% attacker would have to be deranged, incompetent, or politically motivated.

Ter tegenstelling, the mining monopoly would be driven by the rational free-market idea of maximizing profits by cornering supply and eliminating the competition.

To prevent loss of confidence by investors and users, the monopoly would strongly fight back any act that would harm thesis groups.

Some users, recognizing the mining monopoly spil the very thing Bitcoin wasgoed created to eliminate, would leave. But remaining users, watching no practical differences inbetween centralized and decentralized mining, might be persuaded to stay.

A transition period te which the buying power of bitcoin fluctuated insanely could be followed by stabilization of the exchange rate. Going forward, the monopoly would have every incentive, and the financial means, to go after policies that ensured the future growth of Bitcoin.

Te some ways, Bitcoin under a mining monopoly might resemble a more open and pliable version of Visa or PayPal. Money would proceed to flow through the network, and many of Bitcoin’s useful security features could be preserved. Longstanding end-user gripes could be adressed, for example:

  • Zero transaction fees. Fees presently serve spil a spam deterrent. The mining monopoly could deploy responses that would render fees unnecessary.
  • Microtransactions. With no transaction fees, on-blockchain microtransactions might become feasible.
  • Shorter confirmation times. Without the need for independent miners to reach overeenstemming, confirmation times could be diminished.
  • Elimination of the 51% attack fear. The monopoly could secure the network ter such a way spil to eliminate the possibility of such an attack.
  • Rapid evolution. Without a diverse mining community to persuade, the monopoly might be able to budge quickly to implement protocol switches.

Of course, no amount of innovation would address the underlying punt of centralization. The mining monopoly would be a onveranderlijk target for thieves, attackers, and governments intent on channeling or controlling its power. Should one or more of thesis groups succeed, the system could collapse abruptly.

Achieving majority hash rate status involves many unknown factors. Spil a result, wildly-differing cost estimates have bot proposed. According to one estimate, a non-pooled mining organization could reach majority hash rate status with spil little spil $200 million or less if it worked with an ASIC chip foundry.

Even an estimate on the higher end of the scale, $750 million, would represent just a single year’s worth of gross income for the mining monopoly at today’s exchange rate.

Te its five-year history Bitcoin has faced and recovered from numerous technical challenges, proving its adaptability time and again. Albeit social and institutional pressures alone might be enough to prevent a mining monopoly, the only way to eliminate the threat would be to switch the Bitcoin protocol.

A mining majority exercises its unique powers by using a computational advantage to fork the block chain at will, and then build on its fork swifter than the surplus of the network can build on its own. A system that deserted a mining majority of this power could offerande a solution, but would also bring sweeping switches to Bitcoin itself. Here’s a puny selection of proposals:

Bitcoin’s overeenstemming mechanism can be used by any miner with a majority hash rate to eliminate its competitors, establishing a monopoly. Provided that the monopoly acted benevolently toward investors, merchants, and consumers, it could use its unique position to drive down costs and reap considerable profits. The effort would be driven by rational profit-seeking motives, not from disruptive or political goals.

Related movie: Roger Veraf on Bitcoin Specie & Federal Reserve Reduce Balance Sheet


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