Bitcoin has been around for over a decade now and one of its key features that solved the double-spend problem was its consensus algorithm – Proof of Work. Since then, however, PoW has come under increased scrutiny from many camps and with the likes of Ethereum transitioning towards Proof of Stake, there are many who feel that PoW has outstayed its welcome.
Nonetheless, whether or not PoW has innate security flaws and whether its reliance on ASIC miners negatively impacts the industry is an important question that needs to be addressed.
During a recent episode of the On the Brink podcast, James Lovejoy, Lead Maintainer of Vertcoin, discussed issues pertaining to how double-spends and reorgs can be detected across various cryptocurrencies. He also highlighted whether or not there are adequate incentives for a reorg on Bitcoin. He argued that are quite a few dis-incentives for orchestrating a reorg on Bitcoin, stating,
“In the case of Bitcoin to conduct a reorg, you have to acquire a lot of hash rate. You know, through ASICs and if you do attack Bitcoin and let’s say the price of Bitcoin falls, then the value of those ASICs is going to fall dramatically because an ASIC is just an option on a bunch of future coins.”
In the case of the world’s largest cryptocurrency, Bitcoin, ASIC miners have become the norm for quite a while now. Lovejoy pointed out that the rationale behind the Bitcoin network not worrying about such a scenario relies on the notion that the market conditions will not be very feasible for such kind of an attack. He argued,
“So that’s effectively the disincentive to attack the chain. So that’s their explanation for why miners don’t attack and are kind of disincentivized to lend their hardware to people who would attack.”
While there may not be sufficient incentives to attack a coin based on Proof of Work, the recent past has proved otherwise. Ethereum Classic suffered two 51 percent attacks this month alone. Crypto-exchange Binance reported the reorganization in which 4,000 blocks were reorganized on 6 August.
According to Lovejoy, such security implications may fuel larger concerns regarding PoW. However, in the case of ASIC miners and PoW as a consensus algorithm, the lead maintainer pointed out that it is important to understand PoW not just from a technological standpoint, but also from that of an economic one, while shedding light on why coins like Ethereum Classic are easy targets. He said,
“What we’re realizing is Proof of work security, well, actually it’s an economics problem. You know, if you’re not the biggest, you really don’t get much security. That’s why [Ethereum] classic is vulnerable because they share an algorithm with Ethereum.”