Pseudonymity And Cooperation

Ever since I explained the reasons why in 2014's Economies of Scale in Peer-to-Peer Networks, I have been pointing out that Bitcoin isn't decentralized, it is centralized around five or fewer large mining pools. Ethereum is even more centralized; last November two pools controlled the majority of Ethereum mining. On 13^th June 2014 GHash controlled 51% of the Bitcoin mining power. The miners understood that this looked bad, so they split into a few large pools. But there is nothing to stop these pools coordinating their activities. As Vitalik Buterin wrote:

can we really say that the uncoordinated choice model is realistic when 90% of the Bitcoin network’s mining power is well-coordinated enough to show up together at the same conference?

and Makarov and Schoar wrote:

Six out of the largest mining pools are registered in China and have strong ties to Bitmain Techonologies, which is the largest producer of Bitcoin mining hardware

Source

Although as I write it is still true that 5 pools control the majority of Bitcoin mining (and 3 pools control the majority of Ethereum mining), over the last 18 months there has been a significant change in the traceability of Bitcoin mining pools. The graph shows that the proportion of pools actively obfuscating their identities has increased, so that "unknown" has been close to and occasionally above 50% of the Bitcoin mining power. It was bad enough that "trustless" meant trusting 4-5 pools, mostly in cahoots with Bitmain. But now "trustless" means trusting a group of miners who are actively hiding their identities and, for all you know, could be one large confederation. Alternatively, they could fear attacks from other miners!

Earlier this month How ‘Trustless’ Is Bitcoin, Really? by Siobhan Roberts drew attention to Cooperation among an anonymous group protected Bitcoin during failures of decentralization by Alyssa Blackburn et al that pushed Bitcoin's centralization problem back to its earliest days. Below the fold I discuss the details.

Microeconomics Of Cryptocurrencies

The Microeconomics Of Cryptocurrencies by Hanna Halaburda, Guillaume Haeringer, Joshua S. Gans and Neil Gandal is an extremely valuable survey of the relevant research literature. Their abstract reads:

Since its launch in 2009 much has been written about Bitcoin, cryptocurrencies and blockchains. While the discussions initially took place mostly on blogs and other popular media, we now are witnessing the emergence of a growing body of rigorous academic research on these topics. By the nature of the phenomenon analyzed, this research spans many academic disciplines including macroeconomics, law and economics and computer science. This survey focuses on the microeconomics of cryptocurrencies themselves. What drives their supply, demand, trading price and competition amongst them. This literature has been emerging over the past decade and the purpose of this paper is to summarize its main findings so as to establish a base upon which future research can be conducted.

Below the fold, a few comments.

Where Did The Number 3 Come From?

The Keepers Registry, which tracks the preservation of academic journals by various "keepers" (preservation agencies), currently says:

20,127 titles are being ‘kept safe’ by 3 or more Keepers

The registry backs this up with this page, showing the number of journals being preserved by N keepers.

Source

The NDSA Levels of Digital Preservation: An Explanation and Uses from 2013 is still in wide use as a guide to preserving digital content. It uses specifies the number of independent copies as 2 for "Level 1" and 3 for "Levels 2-4".

Alicia Wise of CLOCKSS asked "where did the number 3 come from?" Below the fold I discuss the backstory.

Backblaze On Hard Disk Reliability

It has been a long time since I blogged about the invaluable hard drive reliability data that Backblaze has been publishing quarterly since 2015, so I checked their blog and found Andy Klein's Star Wars themed Backblaze Drive Stats for Q1 2022, as well as his fascinating How Long Do Disk Drives Last?. Below the fold I comment on both.

You Can't Have One Without The Other

I made the point of this post in my EE380 talk, and several times before that. But it was easy to miss, being buried half-way through a long argument. I'm rewriting it here to make it easy to link to specifically.

I can paraphrase an important part of the epidemic of Blockchain Gaslighting as "cryptocurrencies have all sorts of problems but blockchains are a fantastic new technology with all sorts of uses that are nothing to do with financial speculation". Below the fold I show why this is false.

Generally Accepted Accounting Principles

One thing that has been true since the first GPU hit the market is that a better one is close behind. The same has been true since the first mining ASIC hit the market. I first wrote about this in 2018's ASICs and Mining Centralization. Recently, Alex de Vries and Christian Stoll estimated that:

The average time to become unprofitable sums up to less than 1.29 years.

This of course causes Bitcoin's massive e-waste problem. But David Gerard links to a fascinating blog post entitled The problem with bitcoin miners in which Paul Butler describes a more immediate problem it causes. The explanation is below the fold.

Cryptocurrency Catch-22

A major criticism of Bitcoin is that its blockchain processes only around 230K transactions/day, of which only about 10% are "economically meaningful. That is less than 5 "economically meaningful" transactions between individuals' wallets per minute. 90% are wash trades, and 7.5% transactions between exchanges.

Source

As I described in Fixed Supply, Variable Demand, when the limited supply of Bitcoin and Ethereum transactions meets spikes in demand, the result is huge spikes in fees. This has made cryptocurrency boosters such as Vitalik Buterin unhappy:

Buterin didn’t predict the rise of NFTs, and has watched the phenomenon with a mixture of interest and anxiety. ... their volume has overwhelmed the network, leading to a steep rise in congestion fees, in which, for instance, bidders trying to secure a rare NFT pay hundreds of dollars extra to make sure their transactions are expedited.

The solution is obvious, greatly increase the rate at which the system can process transactions. Ethereum 2 is proposed to implement sharding, allowing parallelism. Avalanche claims 3400 transactions/sec with 1.35sec finality. Problem solved! Not so fast. Follow me below the fold.