

Bitcoin’s Collusion Problem - mwsherman
http://timothyblee.com/2011/04/19/bitcoins-collusion-problem/

======
GavinB
This is basically saying "Bitcoin might not work because some nodes might
decide to go start another currency."

That's a threat to any monetary system. With Bitcoin, as soon as nodes start
breaking the rules, they are ejected from the system. The fact that a bunch of
them could leave together and start a new system can hardly be considered a
real criticism of the protocol itself.

~~~
jerf
It isn't a criticism of the protocol. It's a threat to the current system. A
centrally-controlled, government-sanctioned/mandated fork of the protocol that
removes the bulk of the desirable properties could starve the "good" BitCoin
by stealing away the vast bulk of the users that BitCoin needs for long-term
effectiveness, and long-term protection from the charge that it is only useful
for money laundering and drug deals. That charge needs to be visibly false for
it to stand a chance.

The best way to guarantee that this threat manifests is to just poo-poo it as
an impossibility, and not prepare for it. No matter how you slice it, BitCoin
faces an uphill battle to get to the point where it has enough acceptance to
dodge the laundering charge, and a quasi-religious denial of the problems
because "BitCoin is just too _awesome_ to be affected by anything bad!" is a
quick path to total failure.

One entity dominating the network may not be a serious threat. A cartel damn
well is. The article is correct, the resources are not centrally distributed
and you don't need anything like 50% of the humans to cooperate to end up
possession 50%+ of the network power, especially if you've got the men-with-
guns backing you and even modest cleverness.

I've seen a couple of dismissals of this possibility, linked elsewhere in this
comment section, but it's like the BitCoin proponents suddenly forget they're
up against _men with guns_ , despite starting out with this understanding, not
just some people who want to play modestly unfairly and merely "collaborate
when they shouldn't", but otherwise follow the rules. Effort bent towards
breaking BitCoins will be proportionate to the size of the BitCoin economy.

~~~
euccastro
A "centrally-controlled, government-sanctioned/mandated fork of the protocol"
would steal few users from the BitCoin economy, because the kind of people
that would move to the new system were probably using fiat currencies to begin
with.

Men-with-guns haven't brought down p2p file sharing yet.

~~~
jeromec
If the BitCoin economy is mostly only applicable to libertarians, it won't be
all that large.

~~~
euccastro
I'm not a libertarian, yet I like BitCoin better than fiat currencies and
centrally manipulated monetary systems.

If other people are happy with whatever features of BitCoin remain under
centralized control, more power to them. I see no problem.

But you're saying we have to fear that someone will start effectively issuing
p2p dollars. I think it kind of defeats the purpose, but I can't see why
that's a more of a threat to the principles of Bitcoin than plain old USD.

~~~
jeromec
Because of loss of value. Without backing there would be nothing guaranteeing
the BitCoins in your wallet would hold close to the same purchasing power from
before the time the network split.

~~~
euccastro
It would not be so much a network split as a network copy. Every user of the
original network would have, to begin with, identical balances in both. Until
inflation adjusted things, there would be an ephemeral increase in purchasing
power.

If the new network implemented inflationary logic, as a modern state is wont
to do, I can't exactly see people rushing to convert their old (relatively
stable, perhaps deflationary) money to the new one. Therefore, I can't see
many businesses stopping to accept the old bitcoin.

And after whatever adjustments are made, it will be business as usual. Bitcoin
will remain the network for people that want a decentralized currency. Not
necessarily of libertarians, but of anyone with distrust or disillusion with
their governments and the banking system. Which I don't think is such a small
demographic.

~~~
jeromec
_I can't exactly see people rushing to convert their old (relatively stable,
perhaps deflationary) money to the new one. Therefore, I can't see many
businesses stopping to accept the old bitcoin._

Rushing to convert "old network" BitCoins into the new network (or dollars, or
whatever), and businesses stopping acceptance of them is _exactly_ what will
happen. Don't forget the primary function of money is to allow people to trade
it for things they want. Unless you're a staunch ideological libertarian you
will want as much of your "money" as you can get in whatever system offers the
most goods and services. Otherwise you have lost value. That system will
certainly not be the one containing only sparsely geographically spaced
libertarians.

------
chwahoo
I think this article nails the description of a problem that Russ Roberts also
alluded to on EconTalk -- that bitcoin can change and those changes are made
somewhat
democratically.([http://www.econtalk.org/archives/2011/04/andresen_on_bit.htm...](http://www.econtalk.org/archives/2011/04/andresen_on_bit.html)).
I think libertarians assume that the bitcoin network will be full of other
libertarians. The article is right that the network may also be full of big
entities whose behavior is regulated. Whatever your feelings about regulation,
this would seem to make bitcoin less interesting.

I think one option is to accept that the bitcoin protocol will be forked
massively and design it from the ground up to support exchanges between
various versions of the protocol. That way, libertarians could avoid versions
with inflationary policies. In this setup, would there be any reason for an
entity to choose an inflatable flavor of bitcoin? Perhaps certain businesses
and banks would be coerced to through regulation and that would create more
widespread demand for those forks. It seems possible that most users would use
the regulated bitcoins and the libertarian version might become a black-market
currency.

All this feels not too different from the current situation where you can
invest in gold or leave your money in a fiat currency. I guess the main
difference is that the "gold" (i.e., the non-inflating bitcoin forks) might be
less traceable and more liquid than true gold is today. I'm beginning to
suspect that, while bitcoin is a damned-cool technical idea, it isn't likely
to massively change the world other than, perhaps, to grease the wheels of
black-market transactions.

~~~
cube13
>I think one option is to accept that the bitcoin protocol will be forked
massively and design it from the ground up to support exchanges between
various versions of the protocol. That way, libertarians could avoid versions
with inflationary policies. In this setup, would there be any reason for an
entity to choose an inflatable flavor of bitcoin? Perhaps certain businesses
and banks would be coerced to through regulation and that would create more
widespread demand for those forks. It seems possible that most users would use
the regulated bitcoins and the libertarian version might become a black-market
currency.

And to do this, that means that you need some trusted way to determine the
price of Bitcoin 1.0 versus Bitcoin 2.0.

Which means you need a centralized place, let's call it an exchange, to
determine the rates between the two version. Since you probably want the rates
to be consistent across the entire network at any given time(otherwise, what's
the point of a non-inflationary currency), it's probably a decent idea to
maintain a centralized location for that that decides the rates. A
decentralized method may be possible, but I sincerely doubt that it will work
in a way that would actually encourage people to convert to the other currency
to purchase things.

In either case, you still need something that can regulate the transactions to
make sure that everyone is behaving correctly. If people aren't(which should
be the first assumption you make about anything), you'll need some method of
dealing with it.

So... yeah. You just created the Federal Reserve and money markets.

Realistically, given that it's a democratically run, the current Bitcoin
implementation is in the same boat, if the biggest users decide to change
their policies, the entire network can end up in a similar situation where a
Bitcoin from X is worth a different amount from a Bitcoin from Y.

I don't really understand how Bitcoin is better than the current currency
system. It's just different because it's on the internet.

~~~
euccastro
[Edit] I was repeating myself. See

<http://news.ycombinator.com/item?id=2463284>

------
joeyh
Look at it this way: It would be approximately as hard to change the rules of
a mature bitcoin network as it would be to change say, the rules of the web
(perhaps adding something easier to implement than <video>; more of a server-
side change like say, TCP fast start) ...

But to make the change stick in the bitcoin network, the change would have to
be made to all peers, network-wide, in the time it takes to calculate a few
blocks. Otherwise the fork doesn't succeed.

~~~
binarybits
The rules of the web are changing constantly. All you have to do to change the
web is convince Google, Apple, Microsoft, and Mozilla to go along with it.

~~~
samatman
Three of the four will do nicely.

------
rick888
This is exactly what I thought when I saw all of the bitcoin articles on HN
last week: essentially, the people who control the top Bitcoin applications
are like the central banks: They control the protocols/how much money is
released and also how Bitcoins are mined.

~~~
sadfsa
The Bitcoin protocol fixes the rate of inflation by adjusting the size of the
hash that needs to be calculated. Big Bitcoin rigs don't cause inflation, they
merely increase the odds that newly minted Bitcoins will accrue to them.

------
euccastro
OK, here's plan B. You just start a new network and seed it with a copy of the
old block chain (to bribe old users into at least trying it out). No need for
elaborate and potentially expensive takeovers. Then you advertise the new
network as the one sanctioned by Your Friendly Government.

What does the OP's elaborate, hostile, expensive plan buy you over plan B?
That users will have to opt-out of your branch, rather than opt-in? Is that
wise PR?

~~~
dublinclontarf
With that second network users will be able to spend twice, once on the first
network and then again on the second network.

------
nicpottier
Although this is true as I understand Bitcoins it kind of ignores how it would
work in practice.

Essentially, if we had a mature Bitcoin network, then we'd all have some money
in it. And we obviously have an interest in keeping that money valid.

Sure, half the people could fork off with new rules for Bitcoins, but they
leave behind everybody's old bitcoins in the process. As others have
commented, it is a fork of the currency, but you don't get to keep your old
bitcoins.

So although the rules can change, you start from scratch again. Your old
bitcoins won't work in the new world of 100 bitcoins / 10 mins, and those new
bitcoins won't work in the old world.

So we'd all have to start over. Ergo, it doesn't seem very likely.

~~~
chwahoo
I believe the new network could choose to accept the old coins so you wouldn't
have to start from scratch.

~~~
IgorPartola
If you had the "old" coins, would you want to spend them in the "new" network
where their value is much lower?

~~~
euccastro
The coins are copied. You could spend them in both networks independently.

~~~
IgorPartola
Ah, so you are saying that I can use the same coin twice: once on each
network. Basically, as long as the networks keep splitting the coins can be
re-used. However, this would devalue the coin, independently of whether the
new networks introduce further inflation. This seems undesirable to most
people on all the networks: if by splitting I can still only buy 10 cups of
coffee with my bitcoins, just now it's more of a pain because I have to
remember through which network to use it, I wouldn't want to do it.

~~~
euccastro
If someone started a new Bitcoin-like currency they should start from a blank
slate. Cloning the network chains would be confusing and frivolous at best.

------
ck2
Bitcoin is interesting to play with.

But I'd like it much better if the massive amount of computing power being
poured into the hashes was actually being used for a good cause like folding,
seti, etc. and the bitcoins were still the reward

~~~
mburns
(new) bitcoins can't be the reward of a project like seti@home, because to
find a valid bitcoin in the first place (to mine it) takes _that much_
computing power. Now that some valid bitcoins have been discovered, those
cryptographically valid 'coins' (hashes) can be used as money. Such as a
reward to SETI@home users. But whoever takes the time to mine that unique,
distributed blockchain (the consensus' transaction log of all bitcoins) has to
choose to give the SETI project those unique bitcoins. The process of
rewarding a good deed and the process of mining a safe blockchain are
independent, and can easily take many thousands of volunteer computers,
respectively.

If you can design a system that generates a cryptographic secure chain of the
collective transactions of volunteers computing _unrelated_ problems... you
should publish the design.

------
aidenn0
I would really like to see a conversation between Timothy and Jonathan about
this; it seemed like they were the only ones with useful comments on that
article, and everyone else missed the point Timothy was making.

~~~
freshhawk
Reading through those comments to follow the interesting parts of the
discussion made me depressed.

90% of the commenters failed a pretty basic reading comprehension test, maybe
I shouldn't be surprised (it's the internet) but I figured a bitcoin related
blog conversation would be substantially different from youtube comments.

------
nickpinkston
The other threat to such a system, when it gets larger, is that others who
make interfaces to store/use BitCoins might also allows other BitCoin-esque
currencies. Which is fine if each of these currencies is vetted the way
BitCoin is undergoing right now, however if it's very automated we could see
new distributed currencies issued when the demand for new BitCoins is high
enough.

TL;DR: Other BitCoin-like currencies could be used to grow the money supply -
which might lead to bubbles of such currency or perhaps solve the growth
issues BitCoin will deal with.

------
feydr
I love the idea of alternate currencies and think BitCoin is a step in the
right direction but this article points out the obvious -- the # of bitcoins
does not grow is a straight up lie. I don't know why people keep believing
this when you can look at the design and plainly see that it's not true.

~~~
euccastro
The # of bitcoins will grow up until an established number, ~21M. That's
what's being advertised.

~~~
cpeterso
Why 21M bitcoins? Wikipedia doesn't explain.

~~~
vessenes
The published spec conceives of halving the number of bitcoins a block miner
receives every n years (4 or so?). Right now, a block miner will get 50 BTC.
In a year or two, they'll only get 25. A few years later, 12.5. The Sum of the
BTC generated before the block generation gets really really little is roughly
21 million.

As has been pointed out copiously today, that's a convention that BTC clients
and users all claim to agree to. It seems likely to me that they will continue
to agree to it, and it also seems likely to me that the major hurdle will be
the first '25 BTC/block' downgrade. If the community survives that, the others
will likely follow easily.

------
jamespitts
The feasibility of a challenge to any reigning monetary scheme creates great
incentives to bolster its integrity. Lacking integrity, the last resort is of
course coercion.

------
rchowe
> verifying solutions is much easier than finding them

If P = NP Bitcoin breaks down. Interesting.

~~~
knowtheory
I mean... the whole secure internet breaks down if P = NP. The world will be a
new and different place if we find out that P = NP.

------
kiba
[http://inertia.posterous.com/bitcoin-mining-cartels-a-
total-...](http://inertia.posterous.com/bitcoin-mining-cartels-a-total-non-
threat)

Already discussed months ago. Bitcoin critics are for some reason less
knowledgeable about potential weakness of bitcoin than bitcoiners who are
enthusiastic about bitcoin.

~~~
binarybits
Except that that post addresses a different problem than the one I raise.

~~~
euccastro
Yes, but in all fairness, that post addresses problems that can result from a
computational attack. The one you raise doesn't need such at all. If a state
wanted to compete with Bitcoin on all features but distributedness, a peaceful
fork in an independent network would have essentially the same effect.

