[Cryptography] Another Bitcoin issue (maybe)

ianG iang at iang.org
Fri Feb 14 03:57:14 EST 2014

On 14/02/2014 03:17 am, Jeffrey I Schiller wrote:
> I?ve been playing with Bitcoin myself. When I first looked at it
> when it came out, I was convinced it would not scale because of the
> ever growing size of the blockchain (on my system it is currently
> around 20Gb). But then again, I though that .COM wouldn?t scale
> either. :-)
> So disks are getting bigger and we are seeing ?light weight?
> wallets (aka they depend on other peers instead of having their own
> copy of the blockchain). I don?t believe this will be a long term
> problem.

It is a problem, if you don't rely on it.  If you need to rely on it,
as per Mt.Gox, it becomes a problem.  An exchange merchant friend of
mine was telling me that his database to manage the blockchain is now
at 40Gb.  As a merchant, he's subject to attack .. so he's keen to
manage the entire process.

> However, I am concerned about mining and the diminishing rewards.
> Today, as has been said here, a tremendous amount of mining is
> going on. However the block reward is 25 BTC (~$15,000) so there
> is real motivation to use hardware and really go all out to do
> mining.
> 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 
> transaction fees. I know the theory is that the transaction fees
> will motivate miners. Really?

Fees will rise, certainly.  On today, the cost of bitcoin transactions
is running at order of $33 over average $1000 transactions, of which
about 0.34% is made from fees.


Last week it was over $60.  So, what is going on is that is there is a
sort of inflation tax transfer from existing owners to miners to pay
for the infrastructure (those 25btc are issued at expense of everyone
who holds any btc, pro rata).

As this disappears, there is a need to change the fee structure (fees
go up or costs go down).  However, as the daily economics are driven
more by exogenous factors (shutdowns, scares, incoming bubble blowers,
new countries) I think it is impractical to predict in advance how
this will pan out, only to predict the forces and possibilities.

> Here is what I fear may happen. When the reward goes away, so will
> the miners.

An alternate speculative hypothesize is that as the miners lose their
reward income, they have to use their huge purpose built hardware rigs
to make money other ways.  As the only thing it can do is hash
collisions, they might turn to market timing attacks.


Of course, this is just idle speculation at the moment.

> 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?

Yup, the 51% attack is something that bothers a lot of people.  A
perfectly smooth and competitive market typically shows no one player
getting economies of scale beyond say 15% of the overall, whereas most
markets have leading players up above 25% and often enough above 50%.

The leading miner announced that he would never do that, so that's
good.  I've also got a nice bridge for sale, send me a BTC advance,
and I'll send you photos.


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