A recent study by the Bank of Canada has found that double spending on Proof of Work [PoW] blockchain is an “unrealistic” outcome. This is modeled on the behaviors of an “honest miner” and “dishonest miner”.
Proof of Work is a consensus mechanism that is utilized by several blockchains, but its most famous implementation is in the Bitcoin [BTC] blockchain. Certain nodes on the network are tasked with packaging all the transactions in the network into groups known as ‘blocks’. This block is are then added to the blockchain, which is done by solving complex cryptographic processes known as ‘mining’. Miners compete for a chance to mine the next block, which then rewards them with Bitcoin.
Since the primary factor on the blockchain is hashpower, or processing power used to process mining processes, a single party with over 51% of the processing power can effectively take over control of the blockchain. This means that the party can essentially double-spend coins, which is what the PoW algorithm was designed to prevent.
The study states:
“We first express the PoW protocol as a simple Cournot game of mining. We then formalize the double-spending problem and show that it can be summarized as a simple incentive compatibility constraint given the Cournot game of mining.”
A Cournot competition is an economic model used to describe an industry structure. In the structure, companies compete on the amount of output they will produce, which they decide on independently of each other and at the same time. This basically represents the mining process, where different pools compete to mine the next block.
Currently, 42%, or maybe more, of the Bitcoin blockchain’s hashpower is controlled by one party, Bitmain. Many decentralization proponents believe that Bitmain is poised to take over control of the Bitcoin network due to their infiltration into Bitcoin’s third-biggest mining pool, ViaBTC. The study states that it is possible to stage a 51% attack, where:
“Confirmation lags, in theory, lose their power in controlling double-spending incentives. The dishonest miner creates an arrival rate that is larger than those of the other honest miners combined…and, thus, can always cheat by double spending.”
The study then goes on to say that:
“However, from an economic point of view, this requires that a dishonest miner has deep pockets and is risk neutral. These assumptions tend to be unrealistic and, in practice, users have little economic incentives to launch such an attack, especially when the computational investment by other miners is large.”
The post Double-spend on Bitcoin [BTC] requires “deep pockets”, says Bank of Canada study appeared first on AMBCrypto.