Researchers at Princeton University have identified a number of issues associated with Bitcoins which they assert must be remedied if the cryptocurrency is to survive.
In their research paper, Joshua Kroll, Ian Davey, and Edward Felten apply game theory to Bitcoins in an attempt to understand the behavior of traders.
Two findings have emerged from the researchers’ exercise. The first has to do with the way Bitcoin transactions are recorded. Given the nature of the currency, whenever a transaction is completed, its details are sent to others in the network for verification. Some of those in the network act as “miners” in that they compete to update the public transaction log for a reward, usually a specific number of Bitcoins. In this way, there is incentive for clients in the Bitcoin community to maintain the cryptocurrency’s records.
But this could pose problems in the future. The rewards for mining are periodically halved to prevent the circulation of Bitcoins from exceeding 21 million, a cap imposed by the original creator of the currency. This means that the reward for mining might need to be supplemented with or eventually replaced by transaction fees.
The researchers at Princeton are unconvinced these fees would make mining worthwhile, especially given the rise of expensive hardware necessary to compete in the mining game. This poses a serious problem to the future of Bitcoins: if mining ceases, the log of transactions would not be updated, which would cause the system of trust upon which the cryptocurrency is founded to collapse.
The second finding concerns the behavior of miners. As a result of the infrequent intervals over which rewards are allotted, miners have an incentive to form pools through which they can share potential rewards. The problem is that many think this type of collaboration encourages what is known as “selfish mining,” where miners work on their own private branch while misleading others to mine public blocks that serve ultimately serve no purpose. This strategy promises to yield more rewards than a given pool’s mining power and, by extension, encourages rational miners to join these cheater pools.
But it gets worse. Small mining pools have an incentive to attack larger mining pools to prevent any group from gaining too much control of the cryptocurrency and potentially changing the rules. To do this, some pools launch distributed denial of service (DDoS) attacks against others to slow down their operations or to force miners to leave a pool. The nature of mining therefore incentivizes pools to attack one another in cyberspace. This could have detrimental effects for the upkeep of the public transaction logs as well as for how the public views Bitcoins in general.
To address these issues, the Bitcoin community might need to create governance structures that incorporate transaction fees. Such measures would encounter fierce resistance given the decentralized nature of the cryptocurrency. Still, if Bitcoins are to survive, it seems that changes must be made to foster greater cooperation and to dissuade cheating.
David Bisson |
Bio: David is currently a senior at Bard College, where he is studying Political Studies and writing his senior thesis on cyberwar and cross-domain escalation. He also works at the Hannah Arendt Center for Politics and Humanities at Bard College as an Outreach intern. Post-graduation, David would like to leverage his extensive journalism experience as well as his interest in computer coding and social media to pursue a career in cyber security, both its practice and policy.