Sharing algorithms is dangerous? Unless you have enough computing power

Last week, Charlie Lee said that Litecoin (LTC) controlled 98% of its "Scrypt" mining algorithm, which is critical to the safety of LTC. At the same time, other currencies such as Bitcoin Cash (BCH) and Bitcoin SV (BSV) that have little control over the algorithm are still at higher risk of being maliciously attacked.

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Most of the computational power of Scrypt or other algorithms plays an important role in maintaining the security of the network, preventing malicious mining attacks from illegally obtaining cryptocurrencies.

Malicious mining attack

Game theory plays an important role in well-designed cryptocurrencies. Unlike previous technologies, some cryptocurrencies use economic incentives to ensure that participants are honest and that the network has a clear preventive effect on the perpetrators. When these incentives deviate, the system will collapse.

A cold knowledge about PoW cryptocurrencies is the importance of leading computing power in specific mining algorithms.

Often, what we know is that if a miner can get most of the computing power of a cryptocurrency (51% of computing power), then it can perform malicious attacks on the network.

The most common form of attack is to refuse to receive blocks that others have dug, allowing a single miner to get rewards for all blocks. Other more sophisticated attacks include rejecting transactions and attempting to double-spend.

Ethereum co-founder Vitalik Buterin has developed another more exotic attack mode – self-propelled mining, in which case miners with less than 25% of their power can force other miners to form by manipulating the block mode. alliance.

For smaller currencies, it is even easier to launch the above attacks, because large miners can easily control more than 50% of the calculations in small currencies compared to mainstream currencies.

Having said that, even if a miner controls most of the calculations, they still have the power to make honest mining. Sia co-founder David Vorick wrote in the article that malicious miners need to take huge risks.

Other stakeholders in the network can limit the impact of malicious miners. For example, Vorick said that in a bitcoin network, the entire node can reject blocks of malicious miners.

The value of cryptocurrencies attacked by miners may also fall sharply, affecting the long-term profitability of mining machines. This does not include the damage to the reputation that miners may face.

Vorick said:

“In a nutshell, this kind of attack doesn’t really make much sense from an economic point of view because it doesn’t have enough benefits for the attacker.”

In a sense, ASICs are like guarantees between miners and the cryptocurrency networks they support. Suppose a currency dominates its mining algorithm, and if a miner attacks it, it will affect the value of that currency. This will reduce the value of subsequent block rewards and thus reduce the long-term benefits and value of the ASIC miners, provided they cannot be exchanged for other currencies.

In summary, unless the short-term income from double-flowering, hoarding block rewards, and refusal transactions exceeds the risk of failure and long-term damage to earnings, it is meaningless for miners to launch attacks.

Small currency raid attack

Still, in some cases, economics actually encourages malicious attacks on cryptocurrencies—especially when a certain currency only occupies a small amount of computing power of an algorithm.

When two or more cryptocurrencies use the same mining algorithm, the ratio of powers they hold cannot be exactly the same. Taking Bitcoin as an example, it controls the 90% of the power of the SHA-256 algorithm, while the computational power of the BCH, BSV, and all other fork control is less than 10%. Another extreme example is Zcash, which holds 98% of the Equihash algorithm, and the remaining 2% in the Horizen (formerly Zen) and Hush currencies.

Under these circumstances, it is possible for miners to divert from dominant currencies (such as bitcoin) to another currency (such as BCH) and attack.

The reason is that there are fewer economic penalties for such behavior. As mentioned above, malicious attacks usually reduce the long-term income of miners. When a miner attacks a relatively small currency in an algorithm, the reduction in long-term gains may be negligible.

These attacks not only affected the ASIC, but also became a trouble for general-purpose hardware. Cpu and gpu have a healthy secondary resale market. Many currencies are also designing their own mining algorithms, hoping to compete with these devices. Therefore, miners can attack and switch at any time without penalty.

Under these circumstances, miners can switch to a relatively low-cost currency and thoroughly plunder. After the market is full of counterfeit money, the miner can start to re-excavate the dominant currency and obtain considerable profits.

These attacks are not just theoretical. Both Ethereum Classic and Zen suffered 51% of attacks due to the above phenomenon. BCH and BSV also suffered similar attacks in the split and subsequent power wars.

These considerations are very important for investors who want to hold cryptocurrencies, especially competing currencies. Evaluating whether a cryptocurrency is at risk of mining attacks, or as relatively secure as bitcoin, is important for long-term returns.