Bitcoin’s cleverly constructed incentive structures are the basis of its decentralized consensus system. First and foremost, the rule that is fundamental is: the chain which has the most effort is correct. It is this one rule that eliminates the need for central arbitration, as it determines which chain to use based on thousands of different decentralized parties all working together to extend the Blockchain. Subsidies to miners keep the blockchain moving forward and create painful opportunity costs for those who do not mine the tip. The combination of these mechanisms and the difficulty adjustments set the framework for game theory for a block-by-block chain which has been moving forward with near 100 percent clarity in the last 15 year.
Only one caveat applies: if a miner (or coalition) is able get more than half of the hashrate in their possession, then they have the power to erase recent blocks and prevent others from putting future blocks into the ledger. They can also decide what transactions go on the official ledger. That would be an absolute disaster. This was the whole point of trying to avoid situations where a party had control. Satoshi’s game theory is based on the idea that there should be some incentives to avoid this. According to the Whitepaper:
This incentive could encourage honest nodes. The greedy attacker would then have to make a choice between using the CPU power to steal back payments or use it to generate coins. The attacker should find it profitable to adhere to the rules. These rules would benefit him by giving him more new coins.
It would be more lucrative for him to follow the rules
In fact, it is this fundamental principle that underpins the entire game theory of Bitcoin. Bitcoin is only viable if at all times, 50% of miners have an incentive to remain honest. It has been this way since 2009.
The reason why it is more lucrative to follow the rules, which has been under-discussed but may be the most important part of this theory. In 2009, 2010 and 2011, the answer has been always the same. If he did not, then it would crash. The Bitcoin experiment will be over if it fails, and whoever mined the Bitcoins would have a huge landfill of useless E-waste. Satoshi’s point was made, and that is why there were panic attacks in 2014 after the ghash-pool exceeded 50% hashrate. It is so dangerous to think that one group (even if it’s a pool), could control the entire system that people try their best to prevent this.
The game theory assumes that someone, with considerable costs, could theoretically direct more than 50% of hashrate in an unhonest manner, causing a constitutional crise. The natural outcome of this situation is that all miner and holders will be destroyed. It is the most effective way to deter misbehavior.
The theoretical possibility of 51% attacks is always present. This applies to all hashrates and costs, whether it’s electricity or ASICs. This is a tautological consequence of the fact that 51% < 100%: At any point in time, a pool could be created with malicious intentions, and 60% of miners could join this pool. In recent years, 100 percent of miners have been mining the tip. The issue is not one of physical feasibility, but rather of incentive.
The security model prevents those who do not own ASICs from attacking the system. Security model not designed only to defend against external threats. You can find out more about this by clicking here. The system is also protected by the miners. The system is protected by miners from both non-miners and other miners.
Think about selfish mining. Mathematically, this technique gives an advantage to 34% miners that use it beyond the difficulty adjustment period. Selfish mining does not involve explicit stealing, or even censorship. Instead it is about a greater ROI for miners that would join the coalition. The miner shares of top publicly owned mining corporations are close to 30 percent and increasing. Add a few big private miners, and you’ve reached the threshold of selfish mining. Do you think selfish mining will always be a thing? It is enough for a group of 34% miners to jump on the phone and begin the process. Three weeks later, they reap the benefits. So far, no group of miners has tried this. Why?
Selfish mining is a violation of norms. Bitcoin would be in a bad place if competing groups were fighting each other. Under monopoly, the winning miner will get to keep the block subsidies and fees, they can reduce their hashrate in order to increase profits and even directly negotiate or set fees. It would have been a catastrophe for Bitcoin. For this reason, no one is making that call.
In my book, I have a chapter on coalitional games theory that analyzes this exact problem with regard to monopoly mines. This analysis is a simple comparison between the benefits accrued by a grand coalition that sticks to its competitive path and a coalition of 51% which shares the rewards accrued from monopolized chains. The answer in the beginning was simple: Monopoly would have destroyed the entire industry, therefore there’s no need for a partnership.
USG
The USG will create something that cannot fail if it commits over many years to an investment plan in Bitcoin. This simply can’t happen. It cannot and will not fail regardless of who uses the chain or who mines Bitcoin. There will not be a constitutional issue about mining.
When you include central options in your view, there are many ways to solve a constitutional crises. In the beginning, these options were discarded because they are inferior to failure. But if failing is no longer an option, then all options will be taken into consideration. USG, and US-controlled miners could assert their 51% control by brute force (without censorial mining). A permissioned, soft-fork that only permits new blocks from publicly listed miners is another solution. Proof of Stake, of course, is an option. A second option is to convert Bitcoin’s UTXO set into a CBDC whose transaction are verified by the Fed. The Fed would then confirm the transactions of a CBDC. This could bring Bitcoins to a mass audience at lightning-fast speeds and provide massive value for early Bitcoin holders.
Under this regime, the monopoly of mining no longer represents a failure. A coalition of miner could start with selfish mining to snowball their coalition up to 51%. So long as the USG is not directly annoyed, the system will remain intact. The USG will still be there to support Bitcoin if they manage to achieve monopoly-like mining.
By entangling itself in the success of Bitcoin decades down the road, the USG removes Bitcoin’s greatest weapon against centralization – its failure option.
The decentralization of mining is a wasteful practice. It would be more beneficial to create a monopoly or coalition mine. This, strictly speaking, does not violate the law.
Micah Warren is the author of this guest post. The opinions expressed by Micah Warren are theirs alone and not those of BTC Inc. or Bitcoin Magazine.
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Source: bitcoinmagazine.com
