Why Proof-of-work isn’t suitable for small cryptocurrencies | Hacker News Reader

Why Proof-of-work isn’t suitable for small cryptocurrencies

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43 pointspetethomas34 comments

As opposed to what? Proof of Stake? Not even Ethereum can get that to work securely.

I'm not familiar with all of those small coins, but the problem with Bitcoin Gold is that it uses the same Proof of Work that several other coins use, so a miner can buy ASICs and then switch between coins.

So they can mine honestly on Coin 1 for a while, then switch to Coin 2 and do some double-spend attacks, then when Coin 2's price collapses, they switch back to Coin 1 or move on to Coin 3. The miner has no long term incentive to support the value proposition of any one coin, and they can attack coins that use the same PoW algorithm as their "main" coin at will.

The same problem applies for coins that use ASIC-resistant PoW's, only more so. You can just rent an AWS cluster for an hour to run your attack, then ghost with the profits.

What coin developers need to do is design their proof of work and mining activity to ensure that miners have the same (or close-enough) long term incentives as coin holders.

> So they can mine honestly on Coin 1 for a while, then switch to Coin 2 and do some double-spend attacks, then when Coin 2's price collapses, they switch back to Coin 1 or move on to Coin 3. The miner has no long term incentive to support the value proposition of any one coin, and they can attack coins that use the same PoW algorithm as their "main" coin at will.

On top of that, I think proof of stake will make this sort of attack 10k worse. With proof of stake there is essentially no resource cost for you to mine an additional fork. Proof of Stake is not computationally expensive, so there's no pressure for you to choose the one coin/chain you want to invest your resources in.

> ...proof of stake will make this sort of attack 10k worse. With proof of stake there is essentially no resource cost.

This is not true. For a 51% style attack on a PoS chain, you need to acquire a majority of staked coins. Each coin you buy increases the cost of the next coin, (demand/supply and all that), and the price of the coin increases exponentially as an attacker accumulates 51% of the coins.

With PoW, cost of acquiring hashpower is linear (acquiring the last 1% costs the same as the first 1%), which is why PoW is easier to attack.

> For a 51% style attack on a PoS chain, you need to acquire a majority of staked coins.

Not really. All you need is a controlling vote for enough confirmations. At 51%, you’re very likely to have a controlling vote. Below 50%, it’s still possible.

And that is why these are not decentralised solutions. Just maintain a controlling stake and you are good to go!

I personally am happy about this. Maybe this will get rid of all the worthless alt coins that were created only pump and dump.

There are a lot of smart people out there working on some of these but I think the solution is the ones where alt coins are simple a 1:1 peg and essentially a side chain. All transactions are still mined by the same people so this attacks go away. At worst, we have 2 or 3 pools that are fighting for the fees and in the process keeping each other honest.

I think this is a bootstrapping problem for all new coins. As you say, novel mining methods are vulnerable to cloud-based "attacks", and existing mining methods mean that the economics of competing with the main coin's mining power can make you vulnerable to sharp swings in mining power.

As unpleasant as it sounds, a centrally managed coin is probably the only effective way to bootstrap a new coin securely at this point. A trusted source or groups of sources has to sign off on a "main" chain periodically until there is sufficient mining capacity that the cost (in coin units) of bringing new capacity online has reached some sort of equilibrium, after which you could soft fork to remove the signing requirement (or just release the private keys for any miner to use and let the consensus algorithm take over).

There are several coins that have been using PoS for years without known incident. I'm not sure where this idea that PoS is unproven or insecure comes from but it appears to be FUD. The facts on the ground indicate that PoS does work and it can work securely at scale.

For certain scenarios, it's possible to buy your security through anchoring. Use a dpos system to propose blocks on your chain, and then anchor a hash of your state into one tx in every Bitcoin or Ethereum block. Much cheaper solution overall, and allows the system's inflation to fund innovation in the community rather than just act as a subsidy for securing the network.

Interesting article, but perhaps the more important question is what exactly is the reason why we should have "small cryptocurrencies" in the world at all.

It is the free market

Newly introduced cryptocurrencies are likely to be "small" by necessity. That doesn't mean that they can't add value beyond Bitcoin and friends.

>Newly introduced cryptocurrencies are likely to be "small" by necessity

not if you fork. see: bcash's price of ~0.1BTC upon forking.

small can be defined in terms of hash power

If it's so easy so fork a cryptocurrency at high value, why don't you make a crypto fork that's worth 0.1BTC.

Right, and what is that value, beyond additional speculation?

Different technical solutions solving the problems of scalability, privacy, smart contract execution, governance, sidechain platforms, language and runtime improvements, etc. In any other tech, there exists a myriad of competing technical solutions, why should crypto be any different? And why should you presume that speculation alone is the driver behind all of them?

Same reason we have so many javascript frameworks I suspect.

Looks like the "proofof.js" namespace is available if you wanted to create another JS framework.

Maybe the answer is the Token concept, and building on top of existing larger blockchains for smaller corner cases.

We have so many small cryptocurrencies because so few buyers from last years boom bothered to read or understand anything about how Bitcoin worked.

I think this question is similar to me asking why we should have any "reality television" at all. The existence of a non-zero price demonstrates there is a demand, and quite substantial, for small cryptocurrencies. Just because they may not be your cup of tea ought not lead you to be judge, jury, and executioner in terms of their right to exist.

Perhaps not “executioner”, but we have every right to be jury.

I’m open to the observation that prohibition seldom (or never) fully achieves its goals, and the possibility that it can make things worse, but right now — based on all I know — my metaphorical jury vote would be “bitcoin is bad even for the goals people state when trying to promote it”.

We should have reality television because people find it to be entertaining.

That doesn't answer the question about small cryptocurrencies though. Or perhaps it does.

According to some. In my opinion reality TV does little than dumb down people and drive the normalization of emotion over logic that is playing a significant role in harming the country and the deterioration of American collective intellect - we're really not all that far from the satire of Idiocracy where people tune in to watch others get kicked in the balls.

In either case, entertainment is just another form of a "want". There are clearly people that want reality TV as judged by the shows' ratings. And there are clearly people that want small cryptocurrencies as judged by their market values. And the nice thing about a free country is that people are and ought be free to make their own decisions, even when many of us may feel such decisions are idiotic.

Right but I'll sit down and watch a reality program because I want to be entertained. That's understandable.

I can see buying a smaller or alt token because I hope to profit from speculating on it, that makes sense to me. What's the other reason?

And wanting to buy something because it might go up in value isn't understandable? But sure. A few random reasons off the top of my head:

Because I want to support a coin that I think has technological advantages over major coins.

Because I want to send $5 to somebody without being gouged by fees.

Because I think cryptos are the future and want to diversify my holdings to minimize uncertainty.

Because I'd rather own 20 tinycoins than 0.0001 bitcoin. Silly reason, but a real one nonetheless.

Because I'd rather see a cryptoconomy with lots of coins of varying size, than one or two behemoth coins.

Because I have no idea what cryptos are and would rather spend $5 to check things out than the relatively large minimum entry price for major coins.

Because I think the thing the crypto represents (in terms of ICO type coins) provides a good value (not necessarily value = $).

Because I prefer the software (mining/wallet/etc) for this coin over the software for majorcoins.

Because I find the coin hilarious. Dogecoin probably no longer counts as a 'small cryptocurrency' but it certainly started as a joke and still is pretty tongue in cheek even with a $400 million market cap. Who can't love a NASCAR dude driving around with Doge imagery, or fundraising for the Jamaican Olympic Bobsled Team? It's just entertaining.

I mean, with all due respect, there's only one actual reason there that reduces to an actual consumer need, and it's low fee transactions, which as we've seen is not really a selling point for crypto as of now. The rest of your reasons reduce to "I think it's cool" basically. Which is totally up to you but hardly diminishes my point.

They exist because people made them. I'm sure there are lots of things that exist despite what you want.

SpaceMesh[0] and Chia[1] are currencies that use "Proof of Space" (or "Proof of Space-Time") instead of Proof-of-Work or Proof-of-Stake. I wonder

[0] https://spacemesh.io/

[1] https://techcrunch.com/2018/03/28/chia-vs-bitcoin/

I prefer to think of this as a feature, not a bug, because it incentivizes vested parties to keep PoW-mining power parity with each other. Successful execution of a 51% attack shows that there's not sufficient volume and diversity of vested parties, and the dominant party is adversarial and can't be trusted to refrain from manipulating the chain.

Proof-of-work is fine for small crypto. Being ASIC and GPU resistant helps. XVG and Electroneum have been plagued with problems. Other devs point to the poor coding, but there doesn't seem to be a recognition by the coin devs that the code changes will actually address the exploit(s).

Or they don't really care about addressing the exploits at all.

Electroneum raised 10's of millions in ICO for a handful of "devs" and a former Herbalife salesman. I wonder what the real incentive to do the hard work is now? Sure they could dump a few more coins if they could pump price but maybe a lot of money they had to do almost no work for is worth more than a little they do.

In this case those pesky hackers taking down their network oh well shit happens may be ok from their perspective. I can't imagine they wouldn't take the basic steps they didn't if it wasn't.

Small coins can use merge mining if they really want to, most don't because they have some far-fetched idea on how PoW should work (like "ASIC resistance" and other tarpits)

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