Subject: Re: [Bitcoin-development] Auto-generated miner backbone

From: Peter Todd <[email-masked]>
Date: Mon, 4 Nov 2013 16:04:51 -0500

On Mon, Nov 04, 2013 at 02:12:44PM -0500, Ittay wrote:
> On Mon, Nov 4, 2013 at 10:25 AM, Ittay <[email-masked]> wrote:
> 
> > As for the rational motivation of the individual miners - that's a good
> > point!
> > Here is a solution we did not put in the paper due to space constraints
> > that should alleviate your concern:
> > Instead of locally choosing a block at random, have a deterministic
> > pseudo-random mechanism for choosing between competing chains. E.g., take
> > the one whose last block hash is smaller. This way all miners choose the
> > same chain, and the guarantees of our solution hold.
> >
> 
> I take that back.

Speaking of, I'm going to take back my solution as well; I misunderstood
your paper.

So here's your argument in a ELI5 nutshell:

Alice is a miner with some amount of hashing power. She has the ability
to detect new blocks on the network extremely effectively for whatever
reason; in short she has unusually good knowledge of the state of the
network. She is also very good at publishing her blocks and getting them
to the majority of hashing power in very little time; she has unusually
good connectivity to all miners. (low-latency and high bandwidth)

She's so good at this that when she finds a new block, she keeps it a
secret! She can get away with this because she knows that the moment Bob
finds a block, she can immediately broadcast it to the rest of the
network before the other block propagates. Instead of building on Bob's
blocks, almost everyone builds on Alice's block, depriving Bob of the
revenue. Gradually Alice gets more and more miners because Bob, and
other pools, don't pay out as much.

You propose a rule where essentially miners extend Bob's block 50% of
the time, and show in your paper how that leads to a scenario where
Alice needs to have at leastr 1/4 of the total hashing power to
succesfully pull this attack off anyway.

What I did succesfully show is that for a short-term rational miner
they're still better off mining to extend the block they hear about
first rather than using your pick-one-at-random rule, because when you
hear about a block is important information about whether or not the
majority is mining on it. This is true even if others are using the
pick-one-at-random rule. (they're better defecting than doing what's
right for the whole network) Even worse is that miners have a rational
incentive to broadcast such near-target headers to try to encourage
other miners to work on the same fork that they are working on. The
near-target idea came about for a totally different reason, so it's
something that might wind up being implemented anyway.

Mike Hearn's idea of making it easy to identify nodes associated with
hashing power is still wrong. Although again, it's something that miners
themselves have rational incentives to do. (you always want to encourage
others to send you their blocks, and you also want to be able to send
your blocks to the majority of hashing power as quickly as possible)

Where the idea goes wrong is it makes it easier for Alice to identify
hashing power, specifically where she needs to send her blocks to
distribute them to the majority as quickly as possible. The second
problem occurs if those nodes also distribute blocks to connecting
peers: this makes it easy for Alice to be sure she'll hear about a new
block as soon as possible by connecting to every one of those peers with
a high-speed, low-latency connection. Bizzarely the idea does work if
the advertised nodes only accept blocks, and never send blocks - instead
miners would *only* send their blocks to other miners who have proven
their hashing power, and do so essentially largest miner to smallest.
Now unless Alice already is a large miner, her strategy can't work.  Of
course this will strongly encourage further centralization of pools. But
it is in the interests of rational miners sadly.

That blocks take a finite amount of time to propagate makes the problem
worse: for Alice to learn that another block has been mined only
requires her to receive the small 80 byte header from a peer; she
doesn't need the whole block. She thus can know the block exists well
before it has a chance to propagate fully. Even if every miner were
directly peered to every other as some suggest, Alice could simply make
smaller blocks, faster propagating than everyone else and use especially
low-latency connections to win the race.

On the other hand, the Bitcoin protocol is currently designed such that
a miner can mine a block without knowing the previous block in full.
Given the large block reward and/or a supply of transactions they knew
no other miner had a rational miner would start trying to extend the
longest chain they know about prior to actually receiving and validating
the full block. Again, when miners start doing this - perhaps out of
desperation due to low revenue - as long as Alice has the lowest latency
network she'll win. (she doesn't even need to have the highest bandwidth
in this case) We can change the protocol to force miners to fully
validate blocks prior to mining extensions, but that only forces Alice
to get more bandwidth - she still wins.

Speaking of low-latency, latency not only centralizes control in a
single pool, it centralizes pools and even mining hardware itself in a
single physical location. Anyone at the edges of the propagation network
will get comparatively less revenue than those in the center, gradually
tightening the network, even without selfish mining. Alice's strategy of
course should be to position her nodes in the geographical center. It's
worth noting how if Alice is the one with the lowest average latency,
she will win against any other miner trying to persue the same selfish
miner strategy that she is using.

Finally nLockTime makes the selfish miner strategy even more profitable.
You may not be aware, but it's possible to make a transaction that can't
be mined until some time in the future, measured by either block height
or block timestamp. I've proposed to use this mechanism in
announce/commit sacrifices: you create a transaction that can't be mined
until some point in the future that sacrifices a large amount to mining
fees, and then prior to that point you include it in the blockchain as
data, proving the whole world knew about your transaction. The idea was
that which miner managed to include the transaction, and collect the
reward, would be random. However whenever Alice is able to maintain a
lead over other miners she's able to reliably mine significantly more of
those valuable transactions, further increasing her revenue over other
miners.

I must say, you've really opened a can of worms...

-- 
'peter'[:-1]@petertodd.org
000000000000000379e2a349ccee65efc29d43e2c742f8e4a9247d68025ace84