Bitcoin at the limit? Why hard times are waiting for cryptocurrency

More than a lot has been written about the advantages, beauty and elegance of Bitcoin, miners build factories, integration into e-commerce is more or less. But despite the relatively short history of cryptocurrency, you can already notice the disturbing symptoms that, in the near future, may make the quality of its work unacceptable or distort its fundamental principles.



In game theory, among other things, a phenomenon called the “tragedy of the communal field” is investigated. In short, it is the inability to contain one’s personal appetites (or fulfill one’s personal obligations) in situations where personal gain is opposed to collective responsibility. What lies at the root of this phenomenon is more a question for philosophers and psychologists, let us dwell on the fact that it simply exists, and has manifested itself throughout the history of mankind.

In IT, the phenomenon results in the inability to provide quality service when the system depends on the coordinated behavior of independent players. For example, if you ask site visitors to voluntarily visit the site on a schedule so as not to create overloads, then this simply will not work.
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And several recent incidents suggest that Bitcoin is no exception.

Fork chain 04-07-2015

A bitcoin block chain fork is a state where two versions of a block chain exist on the network and continue to be calculated simultaneously. This is possible when there are miners in the network who calculate new blocks, but do not design them correctly, and there are a significant number of network participants (about 50%) who consider such incorrect blocks to be correct, include them in their local copy of the chain, announce their own and continue to count the next block after the wrong one. And the remaining 50%, who reject the wrong block, continue to count their version of the chain according to the new rules.

Actually, this is what happened . On January 10, an update bulletin was announced, in which the format of the signature in the blocks was slightly changed. It was assumed that by July, when the changed rules come into force, the update will be installed on most (well over 50%) network participants. But the reality was different, and it had consequences:

1. loss of sellers money - loss of transactions processed in the wrong blocks
2. loss of miners' money - according to approximate calculations, miners spent about $ 50,000 to calculate blocks, which were later rejected
3. drop in the speed of transactions - it was recommended to expect 30 (!) confirmations (this is the number of blocks in the chain, after the block in which the transaction in question is processed, that is, ~ 10 minutes each) to maintain confidence.

Flood void transactions 07-07-15

Someone began to exploit the “common field”, creating a large (tens of thousands) number of transactions with the minimum amount of transfer. These transactions began to "blur" the queue of useful transactions (on average, somewhere around 2 thousand), which were waiting for their (inclusion in the unit). The attack lasted until July 15, the attacker spent about 30 BTC ($ 7,500), and despite the miners' attempts to filter garbage transactions, the attacker was able to achieve:

1. Loss of payment speed
2. Network connectivity issues — transactions created traffic that not all network members could afford
3. Problems with mining - some miners were not technically ready to work in a queue of this size
4. Tension in the bitcoin community - there were suspicions that in this way someone decided to demonstrate the need to change the size of the block.

The End Is Nigh?

“Today, not everyone can watch tomorrow. Rather, not only everyone can watch, few can do it. ”(C)

But we will try, in spite of the warning of the wise. Recall the main qualities of bitcoin, for which we love him so much:

1. There is no single center of trust or management. The client software is managed only by the user, the chain can be checked locally.
2. The system is distributed, there is no single arbiter who can take it all, for example, stop or clean it.
3. The complexity of mining depends on the computational capabilities of the network, roughly speaking, the more miners, the more difficult it is to conduct two conflicting transactions ( doublespending attack ).

The described problem with client software is a direct consequence of clause 1: we cannot force a centralized update, since we do not have a control center, and if we roll it voluntarily, the fork is obtained and network participants are collectively responsible (hello, community field). In what, in such a situation, will the protocol updates pour out if the network grows 2 times and 3 times?

The consequence of clause 2 is the described possibility of flooding. In order to somehow experience it, it took the work of the miners, who had to manually clear the transaction, coordinating their efforts on the forums. How effectively it was difficult to establish.

But the third point is the most disturbing, it is analytically proved that in order to start the entire network to dictate its version of the chain (start with the probability 1), you must have 51% of the computing power of the network. If you look at the current capacity distribution, it turns out that 90% of the total computing power is controlled by 10 subjects:



In 2017, the remuneration for the unit (therefore, the miners' income) will be halved , which may lead to a “mora” of some top miners who have to spend a lot on depreciation of factories, and the number of top miners will be even smaller.



Total, on the one hand, there are problems with the quality of service that can be solved in the foreseeable time only through dictating solutions, and on the other hand we have 10 players who are interested in the system. Consequently, conditions have been created for the formation of a cartel, a narrow circle, which is the main beneficiary of infrastructure changes, and who will be forced to find a way to dictate these solutions to all participants in the system so that it develops without failures and brings profit. (Regarding the cartels in the conditions of the communal field, an interesting example to study is OPEC, or rather their unsuccessful attempts to agree to influence the price of oil.)

And now, the main question is when there are 10 subjects who are forced to negotiate (to make changes in a coordinated manner so that the system’s operation has not been disrupted) and control the entire system with the help of its enormous computing power, what kind of distribution and independence can we talk about, and how can such a system be better What system is controlled by 10 subjects, but without huge mining factories, and in some cheaper way?