Dynamic Defensive Hashing for the Bitcoin Network

Hello.  I just want to clear up some half-truths about this topic. First:  Difficulty != Security. -  However generally there lots of correlation between the two. Security is defined by: Cost of carrying out a successful attack against the bitcoin network v.s. direct gain to the attacker. Bitcoin has never provided security against attacks that have 3rd party financial gain. Even with the block reward at 50, bitcoin is not secure against a large attacker whom take their gain from maintain the status co.  For example: a Bank, or a Government.  (This is why it is important that the community designs non-proof-of-work based crypto-currencies as alternatives) So point 1:  Bitcoin isn’t secure from a power determined attracter, even with the ideal settings that it has now. Continually-high difficulty will tend to be less secure than ‘very high only when needed’ difficulty. If the entire network is expending large amounts of resources on maintaining a constant very high difficulty; this will lower the total resources available to the bitcoin economy to defend against a (relatively) short-term attack. For example, maintaining a difficulty of 1M necessitates that the entire bitcoin community spend the resources to maintain that value.  However an attacker only needs to spend the resources to gain a hashing value of 2M equiv. for two weeks, to do significant disruption to the entire bitcoin economy. There is a constant loss of 1M equiv. on the bitcoin economy.  However the attacker only needs to budget for a loss of 2M equiv. for a much shorter time… This gives the potential attacker a large financial advantage over the long term. Point 2:  Continuous high difficulty make the bitcoin economy less well positioned to defend against a real attack. Attacks against the bitcoin network are statistically easily detectable and can be quickly defended against. There are two main types of attacks that an opponent with a majority hashing power would carry out; the they are both very obvious. 1.   Double Spending, this attack “re-writes” the order of the transactions, making retrospectively (to the POV of the receiver of the coins), removing the previously agreed to transaction. 2.   Supply blocking.  This attack either the attacker requires a registration of every transaction before accepting them into the block chain… or will just reject every transaction.  This is likely to me a much more damaging attack to the long-term future of the bitcoin economy. When either of these attacks happen, the bitcoin economy is going to be very away of them happening.  There will be time to mount a significant defence before serious damage has been done to the economy. Point 3:  Attacks are easily detected, and there is enough time to mount a defence against them. Vested interest in the Bitcoin economy’s health Everyone who owns bitcoins, or indirectly is dependent on the bitcoin economy, has a financial (or philosophical) interest to defend the bitcoin network from attack. This means that there is a very large potential amount of value that can be put behind the bitcoin network in the case that the bitcoin network is indeed actively being attacked.  (50% value is better than 0% value on investment). This value is NOT dependant on the rewards that the bitcoin network provides to the continuous active miners.  This value is dependent on the bitcoin economy size at-large. Point 4:  The value behind protecting the bitcoin network is much larger than the value provided by the block rearwards or transaction fees. With these points in mind, I would like to make this suggestion for the most secure way that the bitcoin network may wish to work: 1.    The block rewards (eg, new bitcoins, + transaction fees), only need to cover trivial internal annoyances that happen when the continuous hash rate is too-low.  I suggest that 0.1% of the bitcoin market cap per year will be about what is required to stop these trivial attacks. 2.   The bitcoin network may have a continuous hashing value as low as 100K or less.  Yet remain generally secure. Conclusions Bitcoin Transaction Insurance companies will hold much of the 1st line dynamic hashing power.  The will be companies that sell a service to businesses that will cover any losses due to reversed transaction double spending. When an double spending attempt is (automatically) detected, against one of the insurances companies clients, they will dynamically decide if it is cheaper to fire up their miners and orphan the offending block, or pay-out the value of the transaction. For the functional security of their customers they don’t require a very high constant hashing rate.  Rather a known potential very high hash rate.  (Something that it isn’t profitable to attack against). The free market will bring down the price of the insurance to the minimum cost that it requires to defend against the attackers. The 2nd line of dynamic hashing power will be bitcoin banks and other bitcoin trading businesses. These companies will keep very large hashing power offline, unless there a systematic attack against the network is detected.  In that case, they will turn on their miners and out-power the attacker for as long as the attacker has resources for.  Once the attack has been given up the miners turn off, and are ready to turn on again at the drop of a hat. The 3rd line of dynamic hashing power will be individuals whom have a large stake in the success of bitcoin.  They will work much the same as the 2nd line, however will only turn their miners on when everything else looks about to fail. TL;DR: Once the network changes from a static hashing defence, to a dynamic hashing defence; and potential attacker must not only overcome continuous hashing rate, (that may be quite low).  But also overcome a massive hashing power that is only activated in the case of an attack. The bitcoin economy only needs to expend additional resources _when_ an attack is occurring. (and expending resources in maintaining the offline miners, and purchasing them in the first case; but this is generally a one-off investment, not a continuous cost). While the attacker must provide a continuously high hash rate, above all the defensive dynamic hash rate available. Edit: Formating/Spelling

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