Craig Wright on “The Risks of Segregated Witness: Opening the Door to Mining Cartels”

There are numerous risks with SegWit, but one in particular needs more attention: SegWit opens the door to methods of collusion and mining cartels which could undermine the bitcoin network.

SegWit Creates Incentives to Form Mining Cartels If implemented, SegWit would change this for the worse.

SegWit introduces a fundamental change to bitcoin: the "AnyOneCanSpend address", or essentially a blank signature for transactions.

SegWit uses an "AnyOneCanSpend" address so that transactions will be validated and recorded into blocks, even though the sender/receiver signature data is separated.

Normally, an "AnyOneCanSpend" output would allow any miner to spend the funds associated with that transaction; therefore, SegWit would introduce new rules for interpreting "AnyOneCanSpend".

Proponents of SegWit assume that once its protocol change is activated, all miners will agree to play nicely, never steal funds, and funds will be locked up safely.

The major flaw in their thinking is that it ignores economic incentives for nefarious miners to do the following after SegWit activates: Form a cartel to take over the network 2.

Switch off SegWit and revert back to the current bitcoin protocol 3.

Take advantage of the "AnyoneCanSpend" address to instantly steal funds associated with all SegWit transactions in blocks they mined.

Over time, the more people use bitcoin, the more SegWit transactions are added to the blockchain, and the more funds are locked up with SegWit aspects of bitcoin, the more valuable this form of cartel attack becomes.

A defecting miner could access historical funds that have not been redirected from SegWit to a traditional bitcoin address.

The longer a SegWit system runs, the more likely it is that a cartel will form to steal funds.

Under SegWit, miners are not likely to form a cartel to recover an individual double spent transaction - even if it is a large single transaction.

If 51% of miners that signal for SegWit secretly support cartelisation of the protocol, it is only a matter of time before transactions are stolen.

The cartel group then stops signaling SegWit and returns to the network to the former bitcoin protocol.

If a sufficient quantity of bitcoin is transacted using SegWit, the cartel would switch from SegWit to treat all transactions using the original protocol.

Cartel members could then instantly use the "AnyOneCanSpend" address from SegWit to steal funds from the transactions in blocks they mined.

Under a SegWit regime, such attacks against the bitcoin network could work because the economics of the system would be changed; rather than illicit activity being discouraged, it would be encouraged under SegWit.

Such negative consequences of SegWit have not been explored and publicly vetted for the bitcoin community to consider.

Conversely, SegWit changes the model into a prisoner's dilemma, where groups of miners form into either "Honest" or defecting groups.

Figure 1: Stags or Hare Image by Chris Jensen and Greg Riestenberg When applied to the bitcoin network under SegWit, the game model will be perverted.

As the volume of payments into SegWit addresses increase, the incentives for miners to defect from the network also increase.

If in the first week of a SegWit implementation, there are $100 million worth of transactions, and in the first month $1 billion worth of transactions, the incentive to cheat is not simply from the amount in any one transaction or even in any one block, but the total outstanding within the system.

If SegWit is implemented, the longer the system runs and the more it is used, the incentives will only grow for miners to defect and compromise the system.

Risks from the introduction of new players One of the key flaws in the modelling of SegWit is the assumption that existing miners who may harbour good intentions towards the protocol will remain as the key players.

The mere possibility of the defection strategy described above is likely, under SegWit, to attract new pool miners with illicit motives.

These could be groups opposed to SegWit or those who have never mined bitcoin and seek a relatively quick profit.

The introduction of SegWit would alter the maximum known risk associated with bitcoin from a 51% attack with the ability to censor transactions or to engage in elaborate double-spending attacks, to a catastrophic risk that could possibly and completely destroy the whole ledger and all contained value.

These scenarios of cartel attacks against the bitcoin network may seem alarmist, but they are very real possibilities lurking behind the SegWit door.

nChain opposes SegWit and instead supports removing the Bitcoin blockchain's artificial block size limit to fuel increased scalability.

NOTE !! This text was summarized
Original Content https://news.bitcoin.com/risks-segregated-witness-opening-door-mining-cartels-undermine-bitcoin-network/