Shocking Crisis Coming to Cryptocurrency (in Sept?)steemCreated with Sketch.

in cryptocurrency •  2 years ago

Miners will eventually be incentivized to spend to themselves (i.e. “steal”) all the historic SegWit transactions which accumulate sometime after SegWit goes live on approximately August 23.

I’ve elaborated on this here, here and here (archived). The last link contains some discourse with Andrew Chow— a Core and Armory developer.

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Bitcoin’s Existential Crisis

When?

Nobody knows yet how long it will take for enough value to accumulate so that a miner of significant enough hashrate is incentivized to take the leap to “steal” the SegWit transactions by spending them to themselves on Satoshi’s original protocol rules. Satoshi’s rules that were afaik compatible up to now* until SegWit forks those protocol rules unilaterally to foster a high volume of transactions which can be eventually stolen. WTF?? 😱

* except for any (rare?) P2SH transactions which miners validated incompatibly, but afaics now I presume these would not be orphaned in the future and instead just incorporated as validation errors that the chain mistakenly accepted!

Who?

One of the issues is that if a more powerful miner decides to mine The Real Bitcoin (aka TRB, which is Satoshi’s original Bitcoin) and is able to more than double the network hashrate, then they can orphan any prior miners’ blocks. Therefor there is probably no Schelling point towards mining TRB until a miner with very significant hashrate decides to, e.g. Bitmain. Which probably will not happen until the accumulated SegWit booty is sufficiently humongous. Could Bitmain be positioning themselves now by offering the Bitcoin Cash fork (which presumably they know will fail to achieve the status of the true Bitcoin) so they will plausibly have an excuse to go back to mining TRB after the 2MB plan of the New York Agreement fails to materialize. I see possibly Bitmain is playing a very clever political game here to position themselves. And remember Bitmain retains also the AsciiBoost weapon which they can activate to hypothetically increase their hashrate by ~30%.

However there is an alternative scenario in that Bitmain et al might entirely ignore TRB and so a smaller miner such as perhaps Craig Wright’s claimed 20% share of network hashrate might take the risk to start “stealing” the SegWit transactions on and by mining TRB. As time goes on, it becomes more difficult for even Bitmain to orphan those older blocks as the amount of proof-of-work difficulty on the longest chain accumulates over time. The Bitcoin million BTC kingpin Mircea Popescu and others who are astute will be selling their BTC on the Core fork (as I explained how to do) and buying TRB somehow (will Craig Wright be providing an exchange?). This will continue to raise the hashrate of TRB relative to the Core fork.

A third and perhaps less likely scenario is that a sufficiently powerful player such as Bitmain could periodically swoop in driving hashrate of TRB up, orphaning recent blocks to steal back more SegWit (and any replayed Core transactions that were paid by Bitmain or proxies/allies), and then appear to leave only to come back again. This might be done to attack confidence in TRB and Core/SegWit in order to make the Bitcoin Cash fork look more relatively stable.

Speculation

I anticipate the vast majority (if not all) of the news during August should be about the successful activation of SegWit and the euphoria of finally getting some scaling moving forward on Bitcoin. As well, the inability of Bitcoin Cash to dominate thus leading to more confidence in a victory of the New York Agreement. Thus I expect a blow off top in the BTC price perhaps even north of $4000. Not sure if we will get a waterfall crash after that peak or just a Fibonacci pullback, perhaps the latter if TRB has not kicked into high gear yet. It is also possible that Bitcoin Cash (BCC) has more initial success than I expect, and thus we might see instead of a moderation of the BTC and BCC prices, but perhaps the sum of the two $4000+.

Then as SegWit usage increases with adoption of Lightning Networks, the carrot for “stealing” SegWit on TRB increases until it (not if it) happens.

Unfortunately I think when this plays out fully, then we will see a waterfall crash in the cryptocurrency prices, because it will obliterate confidence in Bitcoin for perhaps up to a year or so (maybe only 6 months but I doubt it because it will be so shocking to everyone that Core was never really Bitcoin). Everyone will think that TRB is about theft and that cryptocurrency can never be trusted (when in fact it is Core that is enabling the loss of Bitcoins). The majority will be fearful as they see the price of Core BTC collapsing and they will fear to hold any cryptocurrency. Remember what Mt. Gox’s collapse did to Bitcoin (and altcoins) after crashed from over $1000+ in 2013.

Additionally on the macroeconomic level, 2018 appears to be (c.f. also) when the short dollar vortex kicks into high gear thus a strong dollar and USA stocks due to international safe haven stampede into dollar and dollar denominated stocks, which could possibly mean other speculative assets (such as gold and crypto) sell off (as priced in dollars, but rising in Euro) temporarily (as gold did in 2008 with the liquidity crisis caused by the subprime crash, but this time it will be an international effect, not local USA stocks).

This would be a buyers market and those who buy when there is “blood in the streets” should end up being very wealthy in concurrency when it eventually recovers.


Disclaimer: This is provided for the entertainment value only and should not be construed as advice. Please consult an expert on these matters.

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For the lolz…

karimkorun wrote:

I pose that this thesis is wrong, since this never happened with P2SH. No supporting evidence, spamming FUD. https://bitcoin.stackexchange.com/questions/9678/what-is-script-hash-address-exactly-and-how-does-it-work/40730?noredirect=1#comment65390_40730

@karimkorun, unless you’re a poser (which seems likely), the correct word is ‘posit’ not ‘pose’. It is technically possible. I have provided considerable evidence that it is plausible at my blog which I linked to. The DAO attacker is the one who is promising that all the SegWit will eventually be stolen. That is cred.

P.S. That DAO attacker put this 2014 blog post on his Trilema homepage today. I interpret this that he is relishing the impending destruction of Core and @gmaxwell.

Edit: maybe @karimkorun is running a “bullshit test” on me or by extension Mircea Popescu.

This ability to steal coins is part of the reason that Segwit is DOA

Bitcoin Cash is poised to become the dominant fork, which will put all coins from segwit transactions at risk of being stolen.

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Unlimited block sizes are not incentives compatible without an oligarchy in control of the mining:

…we are able to prove that an equilibrium exists. However, it is one where miners include only a fraction of available transactions into their blocks. This results in a backlog of transactions whose size grows indefinitely with time. We confirm this result using simulation.

And note that Byzcoin is not a solution to the above problem.

My understanding is both Bitcoin Cash and Core forks will eventually fail and Bitcoin will remain Satoshi’s original Bitcoin protocol (aka TRB) as explained in this blog and my prior blog.

But I am delighted that a lot of people think these two flawed forks will succeed, as it allows me to sell and obtain more of Satoshi’s Bitcoin, i.e. The Real Bitcoin.

Thanks for commenting on my blog, and I wish you the best with your decisions.

Edit: afaics, Monero’s block resizing algorithm does not resolve the scaling economics issues either.

And Bitcoin’s 0-confirmations become less secure as transaction fees revenue per block becomes more significant relative to the declining protocol determined block reward.

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You do realize that satoshi himself planned to raise the block size limit to scale, right?

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satoshi himself planned to raise the block size limit

Satoshi put in the 1MB limit, then later made a post about what could be done without ever doing it in order to stop the push for a patch (see the linked thread). So IMO that post he made was a diversion, so people wouldn’t fret or focus on the fact that he had designed the game theory of Bitcoin such that it can never fork.

Sincerely I hope you don’t lose all your BTC. Think carefully.

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"So IMO that post he made was a diversion"

That seems like quite a leap, and based entirely on your belief and not facts.

My simple, moderately priced desktop can easily handle 16MB blocks. Cox Communication is now offering 300mbps bandwidth and its only going up. Storage is now in the TBs.

What is your problem with bigger blocks?

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That seems like quite a leap, and based entirely on your belief and not facts.

The fact is that Satoshi put in the 1 MB limit. And then users in that thread I linked to were clamoring for (i.e. putting pressure on) Satoshi to accept a patch to increase the block size. The fact is that Satoshi replied to that thread and did not accept the patch and provided the excuse that it could be done in the future, but the fact is he never did and he disappeared a couple of months after that. Facts are facts.

My simple, moderately priced desktop can easily handle 16MB blocks. Cox Communication is now offering 300mbps bandwidth and its only going up. Storage is now in the TBs.

Irrelevant. You seem to be ignoring the economic game theory. See my first reply to you where I quoted a research paper. You seem to be ignoring that research paper. Granted that research is only a model and a simulation, but I find it to be credible.

What is your problem with bigger blocks?

I want scaling, but not if it breaks Bitcoin. I depend on Bitcoin primarily to be the way to move value from fiat into our crypto ecosystem and provide a stable reference point for trading capital between altcoins; thus $10 transaction fees is not a problem for that use case. Note I am also working on my own altcoin which will scale. Steem also scales (but arguably not decentralized as it is arguably controlled by the whales).

  1. If some cartel or mob-of-users could violate Bitcoin’s immutability (but you can’t as you will soon learn by losing your BTC on a fork), then they could also increase the 21 million coin supply in the future as well.

  2. There is no specific block size increase that will be enough to handle the volume of transactions the Internet will need. It will need to be perpetually raised. And the only way to keep on raising it is to have an oligarchy in control of it. Unlimited block size would cause Bitcoin to become non-functional as is explained in the research paper I quoted for you. I know it does not make sense to simpletons, but I am actually a programmer who is capable of comprehending research.

  3. Increasing the block size, decreases Bitcoin’s value from a finance analysis.

  4. There is no clear consensus, thus it is dilutive.

  5. The research I had quoted for you explains that the faster Bitcoin grows transaction revenue per block, the sooner the game theory kicks in for Bitcoin such that it stops working.

    Keeping the block size small (discouraging transaction volume growth) delays the demise portended by that research; thus giving us more time while we try to find an altcoin technology which can scale decentralized. Maybe Bitcoin was only put here to help us get to through the imminent global economic crisis and not be permanently viable (the block reward is nearing 0 after next decade).

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Do you realize that no other crypto has the same block limit and none of them are experiencing any of the problems you laid out?

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We are not seeing those catastrophic effects in other proof-of-work altcoins (yet) because:

  1. Does not apply to altcoins which employ proof-of-stake, such as Steem.

  2. Many if not all other proof-of-work altcoins are controlled by an oligarchy of whales who makes their profits by raping the system in various sneaky ways, e.g. Dash’s and PIVX’s masternode scam snake oil marketed as being “decentralized governance” (governance can only be a corrupted power vacuum). Thus the incentives of transaction fees would be irrelevant presuming the whales maintain enough control over mining to maintain the lie of “decentralization”. The failure mode of course is when those whales are attacked (e.g. by the governments such as we see with BTE-e whale recently arrested in Greece on behalf of the USA and you can presume the Feds laid in wait to find a way to grab his private keys or can eventually use waterboarding torture to extract them). Centralized money always fails because money is inherently a decentralized free market valuation system:

    Money doesn't need to physically leave your clawy grasp, it will just revalue itself so as to bring whatever volume you hold in line with its correct relative value. In this perspective, inflation in the US is not something that can be avoided, and not something that's done by politicians : it's just money reacting to the problem that a lot of it is held by comparatively very lame people. In general inflation is always the companion of societies that used to be cool but aren't anymore.

  3. The research explains that such catastrophic failure should not occur until the transaction revenue is significant (or probably greater than) the revenue from the block reward.

P.S. I hope you will not be offended if I remark that the “do you realize” and “You do realize” seem to reflect an incorrect belief you may have about my lack of expertise (or maybe it is just your style of phrasing). I hope you know that I’ve been knee deep into researching and discussing all such issues about blockchains and cryptocurrency nonstop 24 x 7 since 2013.

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That's why I'm betting heavily on Dash. Dash is simply what real world governments should be modeled after. It has both top-down and bottom-up incentives, Rewards the miners and nodes equally and funds itself on it's own.

It is set to scale upto 400MB blocks. Almost non-existent Tx fees. PrivateSend and InstaSend(1.3 seconds for confirmation)

I also really like NEM. They are simply the proper cash alternatives. ETH, NEO, Waves, Sia, Factom, Maidsafe has different futures and I'm optimistic about them all

Extremely interesting content my friend. Thanks for sharing your thoughts, upvoted/followed.

Thanks Shelby. A couple questions...

  1. If Segwit is a "a broken scaling coin for the masses riddled with economics security flaws", how is it any better on Litecoin?

  2. Any idea where these "btcbase" chats occur (with mircea_popescu active)? Is it IRC?

Seems like we might have a tough time ahead. LTC may continue to drop as fake Segwit on fake BTC becomes more of a reality. Once this happens, fake BTC will continue to pump until TRB comes into play. Then everything including LTC will drop due to the loss of confidence in the entire space...

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How to participate in the affairs of The Most Serene Republic contains a link to irc.freednode.

I presume technically the same vulnerability exists on Litecoin wherein SegWit transactions could be double-spent on a fork that would reject the SegWit upgrade. But the distinction is that Bitmain has been in control of Litecoin since early on and probably not any whales threatening to fork off if SegWit is employed. If Bitmain starts stealing SegWit transactions by forking Litecoin, they will destroy Litecoin.

So it appears to me that Litecoin is Bitmain’s leverage against those who think they control cryptocurrency with Bitcoin. He can wreck havoc in Bitcoin to divide-and-conquer by keeping Litecoin stable as the scaling coin. Or at least that may be one of his many optional strategies. I have not tried to analyze the chess of it all. I also do not know his affiliations that might be driving his motivations, e.g. is he an arm of the Chinese government and thus does he want to destroy the power of decentralization and prefer off chain centralized control of Lightning Networks.

Remember I had predicted since LTC was $6 - $7 (around 0.006 BTC) that LTC would rise in a highly volatile (yo-yo on the way up) manner to $50+ and probably 0.05 BTC before the peak in this current crypto bull market waterfall collapses into another 2014 - 2016 crypto winter (although maybe not 2 years again). When it shot up to 0.021, I predicted it would decline to 0.009 which it exactly did (only for a few minutes though). I had predicted at that time that it would go back up to 0.021 then decline again, then back up to 0.032 then decline again, then back up to 0.05. I still think that 0.032 is coming for LTC. I had advised to sell at 0.021 and wait for BTC to make another move up in order to create the bottom for LTC before the move to 0.032. (Note that many of my BCT posts got deleted by the mods so some of those predictions were deleted but those who are in private discussions with me on http://Crypto.cat can verify I made these statements). However, readers should note that also tried and failed to make correct predictions about smaller moves within those larger ones detailed above.

I think Bitcoin and Litecoin (and probably all other altcoins as well) are moving to a blowoff peak. I do not think we are there yet. Altcoins usually lag Bitcoin on the way up, because everyone is getting positioned first in BTC then they sell to roll into altcoins. I imagine right now everyone wants to hold BTC so they can get the BCC fork for free. I could be wrong about this and the forking to BCC could create fear, but rather I think the fact that BCC has replay protection and both SegWit and BCC are forms of scaling will be taken positively overall by the market.

Until later when the theft of SegWit ensues and the Core fork is being sold in favor of buying TRB or BCC. Bitmain must know about everything I am writing, so they may see BCC as a safe haven play for these who want to escape the coming fork war between TRB and Core, which they may even foster by surreptiously providing hashrate to steal SegWit on a TRB chain that Core forks off from (Edit: I just found out that ZeroHedge’s Tyler Durden and WhalePanda had a similar hypothesis). Thus the idea to not dump BCC too quickly might be a good one.

Disclaimer: no one is correct all the of time about speculation. Factors in the markets are fluid and subject to change. Please this is for your entertainment and is not to be construed as advice.

Edit: I see you were asking about me over there and received an answer.

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Yes, I thought they would appreciate some of the work you are doing here, but I am beginning to think they don't care. : / Sorry for name dropping without permission

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Tell me the technical BTC chart does not look like it is preparing to skyrocket? Ditto LTC and Steem.

Massive selling of BCC and buying of BTC and alts ahead? The later comes the recoil where BCC rebounds and then later SegWit is attacked?

Have you seen this FUD? Tyler Durden wrote something similar at ZeroHedge.

Aside form being a weapon to destabilise BTC, Bitcoin Cash might also be a safe channel for transferring wealth while attack on Segwit BTC is underway. A way to get coins safely to exchanges that only take TRB. It seems very fish. The price of BCH is tethered to the USD or CNY.

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The price of BCH is tethered to the USD or CNY.

Why do you claim this?

If you believe in the possiblity of this SegWit "bug", there is $1M up for grabs in Litecoin. Feel free to help yourself there. https://www.reddit.com/r/litecoin/comments/6azeu1/1mm_segwit_bounty/

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You seem to misunderstand the nature of the threat and why it doesn't likely apply to Litecoin.

Bitcoin has a historic set of whales who want to maintain the immutability of Satoshi’s (aka TRB) protocol (version 0.5.3). Thus they are likely to support a theft of SegWit P2SH transactions. It is not a bug in SegWit, but a protocol violation because the historic Bitcoin didn’t have P2SH.

Whereas, Litecoin needs an identity distinct from Bitcoin in order to survive, so it is likely that the whales of Litecoin will not support stealing SegWit transactions and reverting to the protocol that did not have P2SH.

The amount of $1M would not be any where near enough to fight the whales of Litecoin.

Thanks for your comment thus giving me the opportunity to respond to misunderstandings that other readers may share with you. It helps.

MP, #trilema, Crypto Kingdom, The Most Serene Republic... Can you help me understand the connection between all of this? I have spent the little part of days digging in circles trying to wrap my head around.....................

The Real Bitcoin (aka TRB) is version 0.5.3 of Satoshi’s Bitcoin code. All the unnecessary shit Core has added since is not Bitcoin. Actually afaik (actually a presumption as I have not studied in great detail) the original protocol of Satoshi’s code has been mostly compatible with the blockchain produced by those who are running Core code, except for P2SH (pay to script hash) but that has been rarely used until henceforth SegWit is activated. In Satoshi’s Bitcoin, the P2SH transactions all pay to the same address. Any powerful miner who has found a private key that hashes to that address can spend all the P2SH (including all SegWit) transactions to themselves in Satoshi’s Bitcoin protocol. Thus at that point Core’s protocol will be forked off from Satoshi’s protocol.

IMO, make sure at the end of this you own TRB and not some “fake” SegWit or BCC altcoin (unless you are just speculating and buying low to sell high an altcoin to get more of TRB).

Crypto Kingdom is some game that has nothing to do with any of this.

P.S. To understand why TRB has more sustainable value than the copycoins, read the quote about money in my other comment post. The most productive people want TRB, and productivity is not defined to be Core’s creation of clusterfucked Mt. Box designs such as SegWit and Lightning Networks.

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I read that Craig Wright of nChain also identified this potential attack scenario.

His blog post caused me to realize that Lightning Networks offchain payments (even without SegWit) also encourages a 51% attack on the network, because Mt.Box hub entities will end up signing for most of the transactions off chain, thus making double-spends on chain much more profitable. I presume Craig already knows that also.

If there is a major global economic collapse, the only sensible choice will be to sell everything and buy crypto. Then use it later to buy real assets, investments and remote property.

https://www.bloomberg.com/news/articles/2017-08-08/putin-s-aide-seeks-100-million-to-rival-china-in-bitcoin-mining

This is what should bring crypto back up fairly quickly after any “SLINGSHOT” crash this fall. The “SLINGSHOT” crash maybe coming because of the BTC splitting into 3 forks (BCH, BTC, and BTC+SegWit). In the end, BTC wins. The Russians will mine BTC.

And what do you say now? Do you still think it's possible to screw over all the SegWit adopters?

Those who doubt my blogs here and here about a potential massive miner theft of SegWit tainted Bitcoin hodlings, might want to read my rebuttals.

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I have been following your posts on different subjects for a couple months, thank you for all the information you offer which i try to make good use of.

I still have some difficulty understanding all the technical validation of your point of view on the segwit theft... (yeah took me 2-3 min to get the 144...)

How could someone buy some btc at this moment with no Segwit lineage ?
If someone has some btc bought on exchange after the fork, should he just get rid of them and forgot about btc ?

Even if most people don't fully understand your flow of information, you help a lot of us to open our vision of the world, again, thank you for that.

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Regarding the SegWit issue, please see also the links in a comment on Part 1 of my recent blog series on extant ledger consensus systems. If you haven’t read all my recent posts over at bitcointalk.org as user @‍anunymint (with ‘u’ instead of ‘o’), then I suggest taking a look.

First of all, I don’t expect any SegWit theft until the booty piles up and I would presume they would like to short from nosebleed ATHs, so the timing might be early next year if Bitcoin is over $30,000 or so (possibly as high as $70,000).

Also I can’t be 100% certain such an attack will occur. It’s just a risk that has to be weighed and I don’t think it’s correct to dismiss it as an irrelevant risk as many Bitcoiners seem to want to do (maybe at their peril).

I don’t know how to obtain BTC without any SegWit lineage pollution. I don’t even know if there’s a tool to check UTXO for that. My plan is to sell all my BTC at the new ATHs and get out and wait for the dust to settle. I do expect another cryptowinter after we set new ATHs above $30,000. But no one can have perfect performance on predicting the future, so I could of course be wrong about this issue and/or timing. Keep that in mind. Also the Trilema dude seems to think that mixing SegWit tainted UTXO with non-tainted would be sufficient to protect it. I’m not so sure about that.

Unfortunately I don’t have the free time explain everything with a whiteboard in a video as would probably really be required to help everyone understand fully some of the technological points I make. Also I would hope that my writings would receive more peer review from other experts to find any mistakes I may have. I do try my best to not have mistakes. But we’re human, not perfect.

Thanks I am trying to present what I think is a logical rationalization of the reality as I discern it to be. That doesn’t mean I am correct or that there’s not other valid perspectives.

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Apparently I was mistaken and the SegWit theft of your Bitcoin can be averted simply by spending to a non-SegWit address asap:

https://web.archive.org/web/20180625103052/https://bitcointalk.org/index.php?topic=4433000.0;all#msg40418200

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How do I go about doing this? do any bitcoin wallets even support this? If so which ones? Because non of them mention this capability.