Posted: November 12, 2013 by Adam Kujawa
Last updated: November 14, 2018
Bitcoin commenced out spil a digital currency, free from duplication and free from centralization and assumed, free from organized crime. However overheen the last duo weeks, there have bot two major incidents against online Bitcoin trading and storage that have resulted ter the loss of approximately $Five.Four Million te Bitcoins.
The exchange rate presently lies at $354.00 = 1 BTC, that sounds like a pretty good currency, until you realize that one year ago, the rate wasgoed $11.Legal = 1 BTC, according to the charts at blockchain.informatie. If the dynamic state of the exchange doesn’t coax you about the volatile nature of the Bitcoin currency, just wait until I tell you about the vulnerabilities.
Embarking on Oct 23rd and continuing on Oct 26th, the input.io Bitcoin wallet service wasgoed hacked, spil reported by Wired, and the culprits made out with a total of Four,100 BTC or $1.Two Million (at the time, $1.Four Mil now). The attack consisted of a large social-engineering factor that permitted the attackers admin access to the cloud-based storage provider of Input.io.
The purpose of Input.io wasgoed to permit an online source for users to store their Bitcoins, presumably, securely spil well spil speed up Bitcoin payments. There is of course the possibility for users to store their Bitcoins offline, however the payment process wasgoed slower.
TradeFortress, the creator of Input.io informed the user base after the attack that they did not posess enough Bitcoins to compensate the amount lost te the attack and instead vowed to pay back what he could, from his private Bitcoin balance.
Chinese Bitcoin traders were out more than $Four million on Oct 26th when the trading service they were using called GBL all of a sudden went offline. Ter an article on CoinDesk, it emerges that the creators of GBL provided false identification when registering the business and never actually received any official documentation to permit them to run spil a financial institution. Therefore, it is believed that the owners of this service, set it up, waited until they had a fair amount of investors (approx 1,000) then took the money and ran.
I imagine it looked something like this
Since it’s inception, Bitcoin users have bot subjected to a multiplicity of scams and threats, spil listed on the Bitcoin Talk Forum. The greatest of which occurred te 2011-2012 where an estimated 263,024 BTC were stolen, using todays exchange rate, that would be worth $92,240,000!
Greedy Miners and Rogue Pools
So thieves and scammers exist for every type of currency, doesn’t mean wij need to question whether or not to use it. However, most currency doesn’t have a built te option for accomplish destabilization, or if it does it’s a very well kept secret.
Spil postulated by researchers at Cornell ter a paper titled “Majority is not Enough: Bitcoin Mining is Vulnerable”, the decentralized nature of Bitcoin could be threatened by some clever and greedy miners.
Now before I get into this, it’s very likely significant to know what Bitcoin mining is: basically, it’s putting your laptop to work performing very sophisticated mathematical operations ter order to crack a cryptographic puzzle for the sake of helping Bitcoin transactions do their thing. Te comeback for this, people are rewarded with Bitcoins. Those who devote their systems to this end are known spil Miners.
That might not be the BEST explanation spil there is much more to it, so here is a neat movie that explains it well enough:
So every transaction done on the Bitcoin network is grouped into a ‘block’, for organizational purposes thesis blocks are lined up ter a ‘block chain’. Bitcoin miners pool together to ‘solve’ the cryptographic puzzle introduced with each block ter order to verify and authenticate the transactions. The very first miner to solve a block receives a prize and shares it with the pool. That same miner creates a fresh block by grabbing a fresh pile of transactions.
If two miners solve the same block at the same time, two fresh blocks are created and it comes down to which block is seen very first by other miners who then attempt to solve it, this creates two ‘branches’. Once a subsequent block is found on a certain branch, it is deemed the longer branch and therefore everyone else starts working on that longer branch and it becomes the primary and proceeds on the chain.
If a rogue pool of miners determines to withhold the fact that they have solved a block from the surplus of the miners ter the world, they can proceed solving the subsequent block ter a ‘private’ chain. Spil long spil they are able to solve the blocks swifter than the other or ‘fair’ miner pools, they can proceed keeping it private.
Since an individual pool, especially a rogue one, very likely doesn’t have the kleintje of processing power spil the fair miners, they will lose their lead. When this becomes apparent, they publish not just the block they have solved but also all the subsequent blocks. What does that mean?
Like I said earlier, when a branch is deemed longer than any others, it becomes the primary and all miners involved ter solving that chain earn $$ for their efforts. When the rogue pool publishes their branch, if it is longer than the fair branch, it becomes the primary and the rogue pool gets rewarded for not only solving the very first block but also all subsequent ones.
For example, if the rogue pool solved the very first, kept it to themselves and then created three more blocks ahead of the fair pool, then published it, they would receive 4x the prize. and every miner ter that pool would receive 4x the amount of bitcoins for their efforts.
Ter addition, all the effort made by the fair miners would be for naught. So if they were to solve Three subsequent blocks on the fair block-chain, but the rogue pool solved Four before they published, the fair miners would receive no prize at all and would eat the cost of processing power and violet wand they spent attempting to solve blocks te a chain that wasgoed deemed invalid.
Courtesy of Allie Brosh
Now back to how that could end up CENTRALIZING the bitcoin currency. If fair miners caught wind that they could make more $$ by joining the Rogue pool, ter their own rente they would join up. Eventually, the number of fair miners would decrease and the Rogue pool would become so large that they end up solving all blocks and becoming a central authority for all authentication of transactions. I leave it to your own imagination what could become of Bitcoin if that happened, but here is a hint: some transactions, even if they aren’t “legitimate” might make it into the block chains and somebody could make a Lotsbestemming of money.
The researchers pose a solution of randomizing which branches are chosen, rather than just using the longest one or the very first seen. This would decrease the likelihood that the Rogue branch wasgoed used and the pool would receive any prize.
This solution, unluckily, doesn’t zekering the fact that there are already miner pools that wield overheen 25% of the computational power on the Bitcoin network. Te the event that a single group grows large enough, the same problem could toebijten and Biitcoin could become centralized.
I personally think that man’s nature to make more $$ would prevail te the end. If you are part of a miner pool that only gives you a very puny prize for your efforts, you may be more inclined to branch off into smaller pools that have a higher terugwedstrijd value, even if the likelihood of success is smaller than with the larger pool.
Even the punt with Rogue pools and branches, eventually the problem will solve itself spil the method thesis miners use to earn more $ will become ineffective and obsolete spil their methods become the primary authentication standard. At that point, fresh pools will arise to do exactly the same thing te order to make more $ and the process will commence overheen again.
My predictions for Bitcoin are that it will proceed to be a competitive and fast-paced market where one person or a group of people will always attempt to outdo the other ter an attempt to earn more specie. Centralization would not only be hurtful to Bitcoin miners but to the standard itself and therefore, regardless of greedy miner pools, eventually they will need to censor their own efforts ter the name of keeping the currency valuable and the efforts worthwhile.
And spil far spil crime goes, wij will proceed to see attempts at scams and theft just spil wij do with paper money, but Bitcoin is still youthful and wij are all still figuring out how to use it. I think it is exceptionally promising, having grown to such a valuable ‘virtual’ currency ter the span of Four years, once wij know how to decently overeenkomst with it, I expect to see clear sailing with a more secure and stable currency than the world has everzwijn seen.
Thanks for reading, safe surfing and DFTBA!