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omar
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Bitcoin flaws
« on: Jun 6th, 2011, 10:56am » |
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I just wanted to make those who are enthusiastic about bitcoins and buying them aware of some potential risks.
I really do believe that Bitcoins are a breakthrough in how people view money and it has given us a taste of what is possible. However, I think that there are some serious design flaws in the Bitcoin architecture.
First of all, please be aware that if you have installed the official bitcoin client (there is only one choice right now), it leaves your wallet.dat file unencrypted. So if you install a new program on that computer, make sure it is from a trusted source, otherwise the program can send your wallet.dat file to the hacker who wrote the program and you would not know it. The hacker would be able to spend your bitcoins. This can easily be fixed by the bitcoin developers by allowing you to encrypt the file with a password. But the fact that they have not done it already or did not consider this a serious flaw makes me suspicious of the security strength of other parts of the software. Also keep in mind that the price of bitcoins could take a nose dive if it was discovered that some website or program was stealing the wallet.dat file.
Valid transactions are passed around by the nodes in the bitcoin network and eventually added to a growing log file. Rather than adding one transaction at a time a group of unrelated transactions referred to as a block are added to the log file. All the nodes are competing with each other to come up with a block of transactions that other nodes will accept and add to the growing chain of blocks. To make a block a node takes the pending unrelated transactions along with a transaction which says to give 50 bitcoins to itself, appends a random number to the block and checks to see if the hash of the whole block is below some number agreed upon by all the nodes. If not it changes the random number and checks the hash again. If it eventually finds one then it passes that block on to it's peers and if they accept it they add it to their local copy of the growing chain of blocks and pass it on to their peers and so on. For more info see https://en.bitcoin.it/wiki/FAQ
In 2013 the amount of bitcoins that a node which finds an accepted block can claim will drop from 50 bitcoins down to 25, then drop by half again in 2017 and so on every 4 years until only the optional transaction fees will be what provides the incentive for the nodes to find acceptable blocks. If the transactions fees don't pick up over time the nodes will have less incentive to generate blocks and node operators will stop supporting the network because it won't pay for the energy needed to run the network. It's hard to say how this will play out over time, but if it doesn't go as planned it could cause the bitcoin network to eventually collapse. The value of bitcoins is related to the confidence people have that there will be node operates to provide the network. The node operators rely on the value of the bitcoins to pay for the energy needed to sustain the network. Right now it is in a positive vicious cycle, but it could get into a negative vicious cycle at some point if the transaction fees don't pick up.
The bitcoin network can be brought to a crawl by various denial of service attacks. Shortly before satoshi (the initial developer of bitcoin) disappeared he posted the following:
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- Added some DoS controls
As Gavin and I have said clearly before, the software is not at all resistant to DoS attack. This is one improvement, but there are still more ways to attack than I can count.
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http://forum.bitcoin.org/index.php?topic=2228.0
If the bitcoin network comes under such an attack, many people who are jumping into bitcoins without knowing the details will wake up to this and suddenly not value bitcoins as much as they had before; triggering a price crash.
So since I made many people here aware of bitcoins I thought I should also make them aware of some things that can go wrong with it. I am mostly optimistic about bitcoins, but its going to depend very much on the developers ironing out all the flaws in the software and in the long run the transaction fees sustaining the network.
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| « Last Edit: Jun 6th, 2011, 11:17am by omar » |
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UruramTururam
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Re: Bitcoin flaws
« Reply #1 on: Jun 6th, 2011, 11:11am » |
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Another risk: if a hacker manages to gain control of 50% computing power of the net (for now it means taking deepbit and slush pools) he is able to introduce fake transactions to the chain.
Such an activity would surely undermine the bitcoins value.
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omar
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Re: Bitcoin flaws
« Reply #2 on: Jun 8th, 2011, 12:59am » |
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on Jun 6th, 2011, 11:11am, UruramTururam wrote:Another risk: if a hacker manages to gain control of 50% computing power of the net (for now it means taking deepbit and slush pools) he is able to introduce fake transactions to the chain.
Such an activity would surely undermine the bitcoins value. |
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True, but I don't think it would be any individual hacker anymore. The total compute power of the bitcoin network has already surpassed the total compute power of the top 500 supercomputers combined.
http://forum.bitcoin.org/index.php?topic=7675.0
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Fritzlein
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Re: Bitcoin flaws
« Reply #3 on: Jun 8th, 2011, 1:18am » |
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on Jun 8th, 2011, 12:59am, omar wrote:http://forum.bitcoin.org/index.php?topic=7675.0
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By that thread the computing power of the BitCoin network has quadrupled in the last month. In the same time frame the price of BitCoins has slightly more than quadrupled. Perhaps this means at least some people are paying attention to the "fundamentals" of BitCoin value?
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UruramTururam
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Re: Bitcoin flaws
« Reply #4 on: Jun 8th, 2011, 2:37am » |
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on Jun 8th, 2011, 12:59am, omar wrote:
True, but I don't think it would be any individual hacker anymore. The total compute power of the bitcoin network has already surpassed the total compute power of the top 500 supercomputers combined. |
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There is no need to hack two pools anymore. The largest pool is now above 50% of total computing power. hacking it alone is enough to make a big crisis in BTC. I consider selling my BTC before the $50 target is reached...
http://forum.bitcoin.org/index.php?topic=13323.0
[TYCHO] controls the world most powerful scattered computer - ~2.5TH/s. Wow.
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