Chain Death Spiral - A Fatal Bitcoin VulnerabilitysteemCreated with Sketch.

in #bitcoin4 years ago

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Back in Bitcoin history, when Argentinian millionaire Wences Caseres ( Xapo, Paypal) came across Bitcoin he saw it as a potential solution to the periodic financial turmoil that totally wipes off the wealth of hard working Argentinians. In what I consider a very prudent act of due diligence, he paid a couple of hackers a sizable amount of money to hack and break the fledgling Bitcoin. Their conclusion was that it was unbreakable and that has remained true until today. The Bitcoin protocol has never been hacked. The vulnerabilities were the trusted infrastructure around it like the exchanges. The most memorable being MT Gox.

However on the 1st August 2017, Bitcoin main chain forked and a new coin Bitcoin Cash (BCH) came into existence. Some argue that it is closer to Satoshi's vision than the current Bitcoin (BTC) which separate the data portion from the address portion of the data structure. BTC became the main coin because it was supported by the majority of users, developers, Bitcoin businesses and miners in what is now knows as the New York Agreement.

Chain Death Spiral. (CDS)
After Bitcoin fork on 1 August it became obvious that Bitcoin the protocol did have an inherent vulnerability. This was that if the chain loses mining power it will have to wait a full 2016 blocks before the difficulty can be adjusted to bring the block time back to the normal 10 minutes. This vulnerability was never considered or analysed because until now the miners had no choice but to keep mining on the Bitcoin chain. After the fork however, the whole landscape has changed. Miners have a choice and power to influence the fate of the chain they are mining on.

This was brought clearly into focus when the blocktime of the BCH fork went as high as 15 hours per block in the beginning. BCH however was designed with Emergency Difficulty Adjustment (EDA) which adjusted the difficulty even before the 2016 block adjustment period is up. Bitcoin (BTC) does not have this safety feature and cannot have one unless a hardfork is performed to include it.

A Chain Death Spiral occurs when the block time increases leading to some miners switching chain. As more miners leave the problem gets worse and a feedback loop results in the dreaded Chain Death Spiral.

Bitcoin (BTC) mempool been increasing since after the fork on 1st August. It is currently 52MB which means it will take 52 blocks to clear without any additional transactions. The record was in May 2017 when it reached 120MB. The whole community was in an uproar resulting in a move towards other competing coins for transacting.

Looking at the hashrate distribution and starting from the 6th August we get the following

(Peta Hash)               BTC         BCH         TOTAL   (Block Time)    BTC         BCH

6 August 2017 7473 143 7617 8.13 110
7 August 2017 6023 499 6612 10.28 22.15
8 August 2017 6637 551 7188 9.41 18.46
9 August 2017 6835 154 6989 8.78 62
10 August 2017 6200 541 6741 10.43 15

A picture is forming. Between 8 to 10 August roughly 400 petahashes moved out of BCH which triggered the EDA adjustments then move back in. In addition there was a loss of 200 Peta Hashes on the 9th August and a further 200 Peta Hashes loss on the 10th August.

The current BTC mempool is 50MB and blocktime is 10.28 minutes. There is clearly a development and it will get clearer today. Will the 400 Peta Hashes leave BCH again or will the hashing power on BTC decrease further. What happened to the 400 Peta Hashes missing since 8th August. The BTC chain cannot afford further loss of hashing power. Its' blocktime must come back to within 10 minutes and soon.

What is certain is that the current price of BTC is not justified with this inherent vulnerability and a risk of the dreaded Chain Death Spiral setting in. Have the current investors totally abandoned any thought at due diligence? It is incredible how we lose sight of the risks when bamboozled with hype and misinformation. This blog will be updated tomorrow.

Bitcoin Cash activated at block 478577. This means that the standard difficulty adjustment will take place at block 480593. Currently at block 478016 it is 1577 blocks away. With about a 15 minutes block time, we can expect it to trigger in about 5 days, which is around 16th August. Segwit is expected to be activated in BTC on 23 August and segwit2x 90 days thereafter. Many things can change before then.

Related Articles:

BTC is Dead - Long Live BTC - Here

BTC is Dead - Long Live BTC Updated and Explained ELI5 - Here

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