[Cryptography] Another Bitcoin issue (maybe) (was: BitCoin bug reported)

[Theodore Ts'o]

On Thu, Feb 13, 2014 at 07:17:12PM -0500, Jeffrey I Schiller wrote:
> 
> However when the block rewards go away (years from now) it doesn?t
> make sense to me to spend a lot of effort mining for the tiny
> transaiction fees. I know the theory is that the transaction fees will
> motivate miners. Really?

Well, the maximum block size is 1MB, and the smallest transaction size
is aronud 300, plus or minus.  So that means you could pack a maximum
of around 3500 transactions, although looking at blockchain.info, the
number of transactions per block is currently around 350, with peaks
up to around 600 transactions/per block.

If we do have 3000 transactions per block (which is the absolute best
case), times a transaction fee of 0.0001, then the reward per block
becomes $200 USD given today's bitcoin prices; if the number of
transactions per block remain at today's levels, then it's more like
$20 to $40 USD per block.

Of course, by the time block rewards go away, we will have a fixed
supply of bitcoins, and if bitcoin becomes super popular, then
increasing demand and a fixed supply will cause deflation, and the
value of the transaction fees for an entire block BTC --- 0.3 BTC in
the best case --- might become much more valuable.

(OTOH, if the hijinks with Mt. Gox and Bitstamp shake the the general
public's faith in bit coins, or more countries outlaw bitcoins and/or
indict Bitcoin Foundation board members, such that the demand of
bitcoin doesn't take off, who knows where the value of an BTC will end
up.  It seems to me quite unknowable at this point where the value of
a BTC will be by 2140.)

> Here is what I fear may happen. When the reward goes away, so will the
> miners. So the protocol will adapt by reducing the work factor
> required to create a block. At some point it will stabilize. But what
> of all of that idle mining hardware? I wonder if someone could
> purchase enough of it to capture the blockchain and have their way
> with us? The security of Bitcoin is dependent on no one entity being
> able to do more work then the rest of the network... but will this
> remain a valid assumption?

That's a really interesting question.  Suppose the total rewards
generated by the entire network from transaction fees is 43 BTC/day
(0.3 BTC/block times 6 blocks/hour times 24 hours/day), shared across
the entire set of miners.  How valuable does a BTC need to be such
that 43 BTC/day will motivate enough miners to stay in the game to
make it not worthwhile for an attacker to try to buy or create enough
mining hardware to control 51% of the mining resources in the network?

              		   	       	      - Ted

P.S.  Is discussions of bitcoin in or out of scope of this mailing
list?  Apologies in advance if the moderators consider it too far
afield of the ML's charter.

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