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Comment by danbruc | Hacker News Reader

The price does matter. Keeping a network with 250 PHash/s running costs 219 million Dollars per year (1 GHash/J mining efficiency, 100 $/MWh energy costs) and probably quite a bit more if you account for other costs like hardware, rental or cooling. If your block reward is worth nothing you will have a problem keeping the network running. Scale back the hash rate and you get vulnerable. Increase the fees - with 100k transaction per day you are looking at costs of 6 Dollars per transaction for electricity only - and you damage one of the main selling points of Bitcoin, cheap transactions. And this again is prohibitive for Bitcoin adoption in underdeveloped countries which are often suggested as a core market.

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This is the scariest thing about BitCoin, this efficiency bubble. What happens when the world's miners decide that a different crypto-coinage is more profitable?

I don't believe that the difficulty parameter in BitCoin adjusts very fast (every 2016 blocks or ~14 days) and you could have transaction speed disruptions. If a block doesn't solve in 10 minutes but instead an hour, you'll have a lot of very unhappy people waiting for transactions to seal and they'll abandon the network after selling off their assets. That's just the time aspect, you mention the transaction fee aspect, and that will drive people away as well if they start to creep near what legacy financial systems charge. The declining block reward in BitCoin guarantees that transaction fees will increase because of the limited capacity of the consensus network's data-storage/transaction block.

At present:

* Bitcoin is doing badly in terms of electricity cost versus block rewards. If it keeps going down, the miners are going to switch off.

* All altcoins are doing worse.

Because the altcoins are basically alternatives to Bitcoin, but their value has gone down even more than Bitcoin's.

(I could be wrong - are there any that haven't, which have non-negligible exchangeability and/or trading volume?)

I have a hard time believing that scaling back the hash rate gets you vulnerable. $219 million dollars per year ($7/second) in cryptographic operations to support a maximum of 7 transactions per second - the bitcoin network's current maximum is... a bit ridiculous

The hardware is out there. If you reduce the hash rate and therefore the operation costs tenfold you end up with a 25 PHash/s network on the one hand and unused hardware worth 225 PHash/s on the other hand. Significantly reducing the network hash rate without getting vulnerable seems a pretty hard problem to me.

I did not make the numbers up - hash rate and transaction volume [1], mining efficiencies [2] and energy costs [3]. Actually I think I underestimated the costs quite a bit.

[1] https://blockchain.info/stats

[2] https://en.bitcoin.it/wiki/Mining_hardware_comparison

[3] http://www.statista.com/statistics/263492/electricity-prices...

Are you saying it's worth the time of the owners of the hardware to break bitcoin? Why? When a mining pool recently reached 50% of hashrate, they didn't use it to break bitcoin. Just because something isn't cryptographically secure anymore (e.g. 51% owned by 1 single party) doesn't break anything. Likewise I doubt the $200 million worth of hardware needs to be used on the hashrate.

The cheapest hardware listed on the page linked before is 2.5 GHash/s/$. This yields hardware worth 100 million Dollars as a lower bound. But I did not think so much about hardware costs when I said that it is probably underestimated but because I picked the efficiency from the top of the range and energy costs from the bottom.

And it does not necessarily break anything but the security of Bitcoin is build on the assumption that it is very hard for any single entity to posses the majority of the hash rate. If you take the 100 million Dollars of hardware, reducing the hash rate tenfold will make the network attackable with only 10 million Dollars which seems pretty cheap to me. And being vulnerable does not imply the attack is actually executed, it only means it could happen anytime. But do you want your money in a system that could be attack anytime?

As I mentioned, 51% of the network did get controlled by one single entity. The question "do you want your money in a system that could be attacked anytime" has two answers: "Yes" or "I don't want any money." There is no perfectly secure third alternative.

They controlled 51 % and decided not to abuse their power. But the idea behind Bitcoin is that you don't have to trust any single entity and if you allow this to happen this idea goes straight out of the window. You could just as well throw out all the expensive cryptographic stuff, send them your transactions and let them manage them in an Excel sheet and hope they will not abuse your trust.

> You could just as well throw out all the expensive cryptographic stuff, send them your transactions and let them manage them in an Excel sheet

Hmm, that's not really how these attacks work. When a miner doesn't mine according to the rules, their blocks are invalid and rejected by the network.

edit: Unfortunately you have now given me an opportunity to admit that Excel is probably capable of running Bitcoin-equivalent software, though.... I would prefer not thinking about this.

There was a 51% attack against a gambling site before http://arstechnica.com/security/2014/06/bitcoin-security-gua...

But you don't actually mean "You could just as well throw out all the expensive cryptographic stuff, send them your transactions and let them manage them in an Excel sheet and hope they will not abuse your trust." You think you mean this, but you simply don't.

It's a nice ideal but none of it is true. The broken system we have, where 51% decided not to abuse their power, works. A trivial replacement without any cryptography relying on the honor system demonstrably (and obviously) doesn't.

That is not an insignificant difference. While you would like the cryptography to be provably secure, it simply isn't (51% control-by-one-group actually happened), and it wasn't a disaster. It was still far better than the alternative. The world is not black and white.

The original point was that lowering the hash rate is dangerous. As it turns out it is even dangerous at the current hash rate and distributions of this hash rate seen in the past. There have already been at least attempts of abuse. And again, the idea of Bitcoin is to remove the need of trusted entities. If you accept entities with more than 50 % of the hash rate, this idea is just gone. You have to trust them. Nobody says it can not work, but there is no guarantee that it will work.

And I did of course not seriously suggest to use a spreadsheet or even a shared spreadsheet. I set up a server here at home and write a bit of code that collects Bitcoin transactions and updates balances in my database. This is as secure as Bitcoin with me having more than 50 % of the hash rate. If I am a nice guy everything is fine, if I have a bad day you are screwed. Okay, not exactly but close enough.

And to finally come back to lowering the hash rate - if you make 50 % of the hash rate as cheap as 10 million Dollars any larger company or almost any state could just buy a few pieces of hardware and destroy Bitcoin. They would just have to generate empty blocks as fast as possible. You will have a hard time moving your coins to an exchange to cash them out. And even if you manage to do that, Bitcoins won't be worth anything in that scenario. Everybody just lost almost all of their money and this is just what Bitcoin was supposed to prevent.

So what is their incentive to do so? (That causes them to actually do so)? You are insecure because anyone can just kill you with a rock when you're not looking. So what - nobody is going to do so.

A really rich kid may just do it just for the lulz. A state may do in order to fight tax evasion, money laundering or drug sells. A bank or somebody like PayPal may do it to get rid of a competitor. And destroying Bitcoin was only a random example, somebody could as well blackmail you to pay a high fee to get your transactions processed. Or they could just double-spend coins for financial gains. There is a endless number of scenarios.

But actually this is all not really important. One of the main intentions of Bitcoin is to remove the need to trust a bank or a state. With more than 50 % of the hash rate in more or less a single hand you now have to trust a random guy on the Internet.

And even if the mining pool owner and all the miners are perfectly good people, there is now still a single target for an attacker. If I understand the internals of a mining pool correctly, there is a central server collecting transactions and handing out work items to the miners. If somebody gains control over such a system, he may be able to do bad things without anybody even noticing for some time.

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