We held a 0x Salon conversation under Chatham House Rule on our ‘Indifference Engine’ critique of Bitcoin’s proof-of-work. This is an audio report based on that discussion.
Hosts: Wassim Alsindi, Sarah Friend, Valentin Golev and Daniel Shinbaum.
Start – 1min
1min – 4min
To some extent, whether or not a network is permissionless gives an approximation of how equally tokens are distributed.
Anybody can attempt to mine a block using basic equipment available to them. But in practice, it’s almost essential for miners to use expensive specialised hardware to mine Bitcoin.
Mining in POS does not require specialised hardware. The only way to initially acquire tokens in a proof-of-stake system is through purchase on a market.
Both POW and POS favor wealthy miners in different ways.
Staking pools and mining pools are like cooperatives where users pool their resources together. If a member of the pool mines a block, the reward gets divided up and distribute to other members. This offers less wealthy members an avenue to earn tokens for participating in the consensus protocol.
4min – 5min
Bitcoins POW accomplishes several functions:
Any POS must meet all these functions.
Specialised hardware in POS - VDFs …
5min – 7min
Value of 1 BTC = Value of 96 seconds of computational resources directed at securing the blockchain against thermodynamic attacks
600 seconds (target interval between mined blocks) / 6.25 BTC (mining reward per block) = 96 seconds
7min – 17mins
Mining as it’s presented in the Bitcoin whitepaper was egalitarian: “one CPU = 1 vote”. Selfish mining and MEV present less egalitarian methods of mining.
Selfish mining pits the miner’s interests against the interest of the rest of the network. Unlike honest mining, selfish miners can receive outsized rewards while depriving the network of security.
“Miner extract is a term [for] when the miner is trying to extract value from the network in ways beyond just mining.” (9:41)
Miners on Ethereum are seeking other revenue streams because their profits are threatened by the planned switch to POS and other protocol changes like EIP-1559 which reduced miner fees.
MEV poses an existential threat to blockchain networks. It shatters the promise that anybody can have their transactions added to the blockchain if they pay a fair fee. Instead, a miner can execute other user’s transactions as if the miner made the transaction themself.
From a legal regulatory perspective, MEV makes miners look like financial intermediaries.
MEV, flashbots, and the Binance hack of 2019 point to the horizon where reorganizing the supposedly-immutable transaction history of a blockchain becomes a market commodity.
Reorganizing the blockchain after 100 blocks (the delay before mining rewards become spendable) is a line in the sand for Bitcoin. A reorg after 100 blocks would destabalise the miner’s profits.
17mins – 22mins
Cryptocurrency may have some use cases outside of finance. Blockchains is a censorship-resistant time stamping system.
2038 Problem: In the year 2038, Bitcoin runs out of 32-bit linux-based timestamps
Fake timestamps: Miners can generate fake timestamps to attempt to reduce randomness or speed up the clock
Integer Overflow & Clocks
22min – 28min
Seemingly simple numerical tasks, like representing amounts of money or reliably keeping time, become surprisingly complex in digital systems with limited disk space for storing an integer.
Unlike other modern programming languages, the smart contract programming language Solidity does not protect against integer overflows.
Bitcoin is a clock with its own internal logic. Like the arrow of time, Bitcoin’s blockchain increments in one direction and cannot be reversed.
As more computational resources become available for mining, Bitcoin’s difficulty adjustment algorithm keeps the rate of block production relatively consistent, with a new block mined on average every 10 minutes..