1/ I’m late to the party (blame the World Cup, and thanks @moneyball for keeping pressing me to think about it
) but here’s my quick critique of Eric Budish’s paper on the theoretical threats of 51% attacks that could bring about the collapse of Bitcoin.
http://www.nber.org/papers/w24717
5b/ “If e ̃ [energy cost of old chip] is WITHIN A REASONABLE FACTOR of e∗ [energy cost of new chip] and there are a large enough number of the previous-generation chips available to amass N∗ of computational power, then the flow cost approach is appropriate.”
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6/ Intuitively, these (a) & (b) statements contain a contradiction. Surely a chip cannot be at once 1/ so inefficient to be useless (and free) & 2/ efficient enough that they can be practically used for mining computation?
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7/ Let’s examine: what would be the true market price of an old Bitcoin ASIC? Using hardware energy efficiency to model hardware pricing is insufficient, because energy efficiency is only one part of what goes into the price. There’re a number of other factors.
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8/ Factor #1: Differences in electricity costs will persist due to geographical/political reasons. A number of areas on Earth, not one, will enjoy the cheapest electricity rates, due to either natural advantages or local subsidies. There will be no monopoly on electricity.
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9/ (One could also imagine a future where a nation state, strategically invested in Bitcoin, gives subsidies specific to Bitcoin mining.)
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10/ This means that there will always be some miners at these low-cost-electricity locations, who could take advantage of these older chips that are not profitable for others, and this will create a healthy second-hard market for older ASICs.
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11/ Case in point is market value for Antminers S7 & S5, despite the S9’s two-year dominance.
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12/ Factor #2: Even if energy technology gets so good & *energy becomes practically free in most places*, older ASICs could still retain their value because the supply of new, state-of-the art chips is finite.
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13/ A rational miner will deploy all new chips he can get his hands on first. And THEN deploy his older ASICs that are still profitable.
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14/ Factor #3: Another thing to keep in mind is that even ASICs that are not profitable today can still be profitable *in the future*, i.e., when Bitcoin price rises. Smart miners won’t give away older ASICs for free, even if they are not deployable today.
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15/ So in summary, the true price of an old ASIC will have to take into account all these factors: i/ some miners can profitably mine using older ASICs ii/ supply of new ASICs is finite & iii/ expectation of a rise in Bitcoin’s future price. This price is not “negligible”.
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16/ There’s no such thing as ASICs that are “not economically efficient for mining but are efficient enough for the purpose of an attack.” (?!)
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17/ As long as there is a robust second-hand market for older ASICs (and I suspect this market will improve with time), the cost of using old ASICs or new ASICs for an attack (or honest mining) should be the same. And it’s a stock cost, not flow cost.
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18/ The entire paper is built on the assumption that the cost of 51% attacks is flow-based, not stock-based. So if the flow-based assumption is incorrect, the collapse theories advanced by the paper are invalid.
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19/ P.S.: The other thing the paper hugely underestimates is Bitcoin community's ability in dealing with such an attack. h/t
@nic__carter One only has to look at last year's UASF movement in dealing with Segwit2x. But this is a separate topic.Show this thread -
20/ P.S. #2: I want to say that regardless of the validity of the points discussed here, Budish's paper raises a very important topic. It forces us to look deeper into Bitcoin's security model & likely develop better pricing models. For that, it's a huge win.
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End of conversation
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