1

I am new to understanding how bitcoin works but reading up a little on PoS and PoW, I understand that anyone with over 50% of the network resources (bitcoins or computing power respectively) can validate false transactions and effectively game the system.

In a future state where bitcoins are the primary currency, is this not a bigger issue than is being made out to be? More than 50% of the mining power is already in one mining pool and I can easily envision a scenario where a similar wealth distribution is concentrated among a few people (as is the case with regular money now) in case PoS becomes the chosen alternative.

What makes the creators of Bitcoin or Ethereum think that a "regular Joe" user would trust such a system? The rich game the system today e.g. tax laws and this kind of flaw would make things even easier for them. Of course, they'd want to keep the system going so they can't simply go nuts on the double spending but with some discipline, a group can exploit this to their advantage.

Or have I misunderstood something about how this works?

  • "More than 50% of the mining power is already in one mining pool[…]" I'm a bit confused, are you talking about Bitcoin here? Because last I checked, it took four mining pools to reach 51%. – Murch Dec 5 '16 at 21:35
2

Let's call the entity to control over 50% of the hashing power Carlos so we can call it something.

Carlos' ability to double-spend doesn't mean he is able to create money. His double spendings are temporary and you can read up here how it works.

You can play around with double spending but doing it when buying stuff from others is illegal, just like paying with a check you know will bounce is illegal. In both cases, the person you allegedly payed to will not receive to money and you actively caused it to happen. This is fraud.

Anyone with enough money to control over 50% of the hashing power in the network doesn't care about scamming the tiny bit of money they can get away with without being caught and convicted of fraud. Billionaires don't care about allegedly giving $2000 to a shop when buying a good PC but getting their money back after they left the shop. And this is about the most expensive something gets without the seller knowing enough details to report you to the police for sure (like when you buy a car or a house).

Regular Joe isn't even affected by this problem. The only times he's ever paid are at the end of the month by his employer, and for a few gifts or exchanges of moneys by his family and friends. The latter surely aren't billionaires able to control over 50% of the hashing power and wouldn't try to defraud him anyways, and the former has a legally binding contract with him, requiring them by law to pay him. If they don't do so, Joe can sue them and win, and the prospect of winning probably doesn't get smaller if they maliciously defrauded him, rather than straight-up not paying him.

That's of course not to say that a single entity controlling over 50% of the hashing power is harmless. If Carlos owns 10% of the total hashing power, he makes 10% of the total profit from mining. If he owns 20%, he makes 20%. But if he owns over 50%, he makes all of the profits because he can create a consecutive of arbitrary length of blocks he created, therefore eliminating anyone else making profit.

It goes like this: Suppose, you mine block n and your hashing power is << 50% total hashing power. You now have an interest of showing it to others asap so either you or they can mine block n+1, securing the money you made by mining block n. If you don't show your block n to others, chances are, someone else's block n is the one others use to mine block n+1, rendering your block n worthless. If you own over 50% of the total hashing power, suppose someone else mines block n before you do. You want to have all the mining profits for yourself, so you continue mining your own block n. Once you got it, you mine block n+1 on of of your own block n. Because you control over 50% of the hashing power, your block sequence (n, n+1, ..., m) will reach some block m faster than the block sequence (n, n+1, ..., m) of everyone else. Once that's the case, you publish all of your mined blocks until block m. This gives everyone else an incentive to mine on top of your block m because m is the largest block number of any published block chain.

It's already possible to gain such an advantage when controlling less than 50% of the hashing power but above 50% of it, it's easy to understand.

This in fact is a big problem, as you can see. For the most part for the miners, of course, but also for the people using the crypto currency. This is because it's against one of the ideas Bitcoin was founded upon: Taking control of payments away from the few power holders currently controlling them.

However, it is to be noted that an entity controlling over 50% of the hashing power would harm itself a lot when taking profits away from other miners as trust in the currency would diminish, taking away its own profit's, too. Even more so if it prevents or hinders payments.

A good counter measure I see for this is making the hashing function use a lot of the instructions of a modern CPU with a very large instruction set like the one the x86 processor family features. This makes designing specialized circuits very hard, meaning that that original idea of Bitcoin being mined on people's home PCs would come true, again. The resistance to specialized circuits being designed for it would have to be so big that the possible advantage one can get from using one of them is smaller than the profits, compared to mining using the desktop PC one buys for purposes other than mining Bitcoin.

However, while having lots of upsides, this idea also has a downside: People had to agree on a different hash function when the x86 processor family is being superseded by a different architecture.

Furthermore, the people using Bitcoin had to be persuaded that switching to a different hash function is a good idea. That's especially hard because miners already invested a lot of money in their specialized hardware. But if there is an entity threatening the entire project, people will be willing to take counter measures.

  • But what if Carlos orders from merchants and defrauds them? The merchants would have to raise their prices, and Joe ends up paying for this when he buys something. – Nick ODell Dec 3 '16 at 2:29
  • @UTF-8 thank you for the answer and the link. "Regular Joe" could be anyone, including a merchant of course. The point seems to be that a single global digital currency cannot work because a colluding "rich" group always retains the ability to carry out fraud (the scale of it is irrelevant) and some sort of manual intervention (as in the Reddcoin case) is the only way to stop it. The anonymity of the wallets ensures that there are no legal or external repercussions to such a group. – user1936752 Dec 3 '16 at 5:49
  • Someone who owned more than 50% of the system would harm himself more than anyone else if he did anything to reduce the value of the system. And the remaining 49% could just switch to a different system in which he had nothing and then he'd own 100% of a system only he used which would be worthless. – David Schwartz Dec 3 '16 at 18:31
  • @DavidSchwartz fair enough and I'm not trying to be difficult but it seems that you're saying that there isn't really a future where there is a single digital currency - rather one needs several of them to exist so we can have such alternatives. Alternatively, there is also a case where a disciplined fraud makes small but significant amounts of money this way without causing the remaining to leave the system. – user1936752 Dec 3 '16 at 19:35
  • 1
    @user1936752 That's not quite what I'm saying. There would only be a single digital currency if everyone preferred that outcome and decided the benefits were worth the risks. If you had a system where disciplined fraud makes small but significant amounts of money, but not enough to induce anyone to leave, that would mean that the system was still better than the next best choice, even with the fraud. I think you can argue that pretty much all existing systems have that property. Why Democracy? Why Capitalism? Etcetera. Perfection is not an option. – David Schwartz Dec 3 '16 at 22:37

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.