3

I am watching video that explains original Bitcoin whitepaper by Satoshi Nakomoto.

I totally understand that as long as 51% of the CPU power is legitimate then using bitcoins is safe.

But then the person says, "If ghash.io hits 51% [hashing power], people would just leave them".

I listened to this part so many times, but don't understand what it means.

Does it mean if one entity has over 51% CPU power, the network would disconnect them?

  • Thank you for taking an active interest in understanding this issue. I believe more people understanding the problem would be part of the solution. Sorry for the length of my answer - I have given this some thought over the years. – Dr.Haribo Oct 26 '16 at 17:54
2

If you control hashrate majority you can do bad things like change the past. You can reverse transactions. That's not supposed to happen. This is the Achilles heel of Bitcoin.

The Ghash pool used their hashpower to scam a casino. So people absolutely should fear centralization of hashpower. Ghash later said it was a rogue employee that did this and that this person no longer worked for them.

Rational miners, as long as they still hold bitcoin or equipment to mine bitcoin, would not do things to hurt Bitcoin as it would hurt their own interests. Therefore many people assume that if hashpower becomes too centralized then miners will move to another pool and decentralize it on their own, to protect their own interests.

Rational pool operators would also voluntarily give up some hashpower to keep Bitcoin safe, for instance by raising their fees so that some miners will leave. This is the rational choice, the pool operator would do this to protect their own interests. This is what BTCGuild did when they were growing too large.

Unfortunately neither of these things happened. Ghash said it was not fair that they should be punished for being too successful. Their miners also did not leave on their own. Ghash had too much hashpower for a long time.

Three pools so far have become too large on their own. Deepbit, BTCGuild and Ghash. Only BTCGuild raised fees to reduce their own size. In each case a small handful of miners acted responsibly, but their hashpower was not enough to make a difference.

Some people think the problem is that a single pool becomes too big. I've heard the suggestion "why doesn't Ghash just make a second pool?" Of course that would not change anything at all, as they would still control all that hashpower. In fact it would make things worse as it becomes more difficult to see who controls what amount of hashpower.

As I write this Ghash has shut down their pool just a few days ago, and it has been a long time since they were too large. The problem now is China. Over two thirds of hashpower is now in China. This basically means that the Chinese government controls Bitcoin to some degree. They could require pools to filter certain transactions, or even reverse transactions mined by non-Chinese pools. The solution to this problem is not obvious since much of that hashpower is physically situated in China. But again very few are talking about this problem and even fewer are trying to do something about it.

So, what to make of all this? Kudos to Eleuthria who acted responsibly when his pool BTCGuild became too large, and kudos to the few miners who move when their pool becomes too large. However, as a rule, it seems most people do not care if they create a dangerous situation for Bitcoin, even if that puts the value of their own bitcoins at risk. We can only speculate as to why people's behavior does not appear more rational. As a pool operator I have noticed that miners knew a lot more about Bitcoin when I started my pool in 2011 than they do now in 2016. So I have a feeling much of the reason is ignorance.

It is also interesting to note that when Bitcoin is in a risky situation like this there is very little news or discussion about it, and the bitcoin price does not seem to be affected by it either. Even when an employee at Ghash used the pool to steal from a casino there was no reaction in bitcoin news or price. After seeing this I believe it would take some very bad things to happen before news or market would react. After that miners and pool operators would probably act more responsibly, but it would be a little late in my opinion.

  • 1
    You may also want to read Organofcorti's post about this on his Neighborhood Pool Watch blog: organofcorti.blogspot.com/2014/06/166-fifty-percent-club.html This was written as Ghash had recently become too large, so lacks most of that history, but has good data on Deepbit and BTCGuild. – Dr.Haribo Oct 26 '16 at 17:47
  • Wow that is quite interesting. So far I only read that it makes no sense to reverse bitcoin transactions because the same entity can use that CPU power to create bitcoins. But then I ask myself, What about irrational people who wish to hurt others, even if they themselves get hurt. Think about those suicide bombers in middle east And so far, no one has answered that question --- only now your reply addresses this issue. – Rhonda Oct 26 '16 at 19:30
  • By the way, what do you think about regulating Bitcoins --- if you don't mind answering. – Rhonda Oct 26 '16 at 19:31
  • If you paid someone a lot of bitcoins then it can be very valuable (although immoral) to reverse the transaction. In some cases it doesn't even need to be a lot to be profitable. The Ghash employee reversed his bets whenever he lost. Profitable way to "gamble". – Dr.Haribo Oct 27 '16 at 15:08
  • That's a bit political, but OK. I think regulations are rarely useful, except if you want to hold back the competition - a kind of welfare for the rich. One of the more serious problems of our time, in my opinion. – Dr.Haribo Oct 27 '16 at 15:46
3

No, the network wouldn't disconnect them. There's no way for that to happen.

Recall that a pool is an association of miners who agree to share the proceeds of their mining; whenever anyone mines a block, the other members of the pool get a share. But miners are free to leave at any time, simply by stopping mining blocks for that pool and joining another one, or switching to solo mining.

There is a general belief that it is not good for the Bitcoin community for any one miner or pool to control more than 50% of all mining capacity. The speaker in that video believes that if ghash.io miners were to eventually constitute 51% of all mining power, then some of those miners would choose to leave the pool. It could be argued that it would be in their self-interest to do so; they'll make approximately the same mining profits no matter which pool they use, but since their profits are in Bitcoin, they have an incentive to ensure that the currency stays stable and usable.

The sentence you quote might sound like a statement of fact, but it's really just the speaker's prediction as to what he thinks would happen in that situation. He might be wrong, but many other people have made the same prediction.

3

GHash.io was a big mining pool back when mining pools were mostly just a way to organize for large numbers of small private mining operations. (Whereas today, the biggest mining pools own huge mining farms and provide most of their hashing power themselves.)

There was a situation a few years ago, when GHash.io was dominating the mining market and had more than 30% of it for quite some time. At some point they started gaining an even larger margin. Even though the pool organizers requested that miners stop adding their hashing power to the pool, they peaked shortly at around 50% and large parts of their miners deserted them almost instantly, quickly driving the mining pool below 10%. (everything IIRC)

Today, GHash.io doesn't show up on mining pool charts anymore. I don't know whether they changed their name, got bought or just disappeared altogether.

1

It means they could add illegitimate transactions to the public ledger, but actually I think theoretically all they need is 34% to do that.

The network wouldn't disconnect them.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.