Is Bitcoin Doomed To Fail?

By now, the people who say that Bitcoin will fail are starting to sound like the boy who cried wolf. However, some experts like Professor Ross Anderson say that it’s still quite vulnerable.

It would be disingenuous to say that there won’t be some problems to solve before cryptocurrencies are truly ready for interplanetary commerce. Cryptocurrencies aren’t completely infallible, not even Bitcoin, and most of the Blockchain apps are still Version 1.0 apps that may still have some bugs. This shouldn’t discourage their use when colonists will already be accustomed to anticipating and solving problems before they have the chance to become fatal. These common problems can be anticipated and planned for by people who already understand the value of making careful preparations before they forge ahead.

The Node Problem

Running a full node on a cryptocurrency network does not come with any payoff for the owner of that node. For that reason, the owners of full nodes will sometimes turn the node off because they can’t afford to run it anymore. This can lead to a more centralized system where one or a small handful of node owners control the system and decide among themselves which transactions are going to be relayed. If this happens to Bitcoin, that would be the effective end of Bitcoin as we know it because no dedicated Bitcoin user is going to put up with Bitcoin being controlled by a small group of people who can decide who gets to use the system. Bitcoin Core developer Jeff Garzik suggested a very Space Age solution to this problem by proposing a constellation of satellites in Earth orbit that function as full Bitcoin nodes.

Future space colonies that wish to participate in trade can take this one step farther by reserving server space to host nodes for the cryptocurrencies they wish to use. As the above video shows, the technology behind Bitcoin can be scaled as needed if engineers are willing to keep up with the task. No, it does not have to be Bitcoin itself even though “Bitcoin” is usually used synonymously with “cryptocurrency” by people who have not dived into it very much. It just has to be one that the colonies involved agree is worth scaling to the point where every participant in their trading network can readily connect to a full node.

This gives them ready access to the data stored in that cryptocurrency’s Blockchain ledger and ensures that the colonies that use a popular cryptocurrency can’t be effectively blackmailed by a third party who controls the only means of relaying transactions on that cryptocurrency’s network. Because these colonies are giving up storage for this purpose, they could be compensated with a system similar to Storj’s proof-of-retrievability system in which they receive rewards for maintaining a node in a way that makes its data available to other nodes in the system.

Security Issues

Modern cryptocurrencies face two known security issues. The first is the risk that a malicious actor may run false nodes in what’s known as a “Sybil attack.” These nodes would not relay transactions to the valid network, thus creating an effective denial-of-service attack for the clients that connect to the fake nodes. Chainalysis revealed this weakness in March 2015, when Bitcoin users caught it running fake nodes in what it called a test of a system that would have helped it provide regulatory compliance services. Chainalysis was not believed and the kindest thing that was said about this partial Sybil attack was that it was “rude.”

This problem might be detected first by users of a cryptocurrency client who notice that their transactions are not being confirmed. This means that their transactions are not being relayed to the rest of the network for some reason. A knowledgeable Blockchain expert can check the nodes they’re connecting to so that he can make sure they’re valid ones that are communicating with the rest of the network. If these nodes are being used as part of a Sybil attack, the Blockchain expert should know how to track them down and kick them off the network.

It would be preferable to have some method to prevent fake nodes from carrying out a Sybil attack and tricking clients into connecting to them in the first place. For this reason, a permissioned network in which nodes that can transmit data designed to prove that they have permission to validate transacions may not be a good idea. They might be transmitting the validation data, but they’re also transmitting fake transaction data or no transaction data at all. As Leemon Baird, CEO of the distributed applications platform provider Swirlds said, it also gets back to the trust issue:

“[W]e need to avoid permissioned networks. “Permissioned” means you completely trust everyone who runs a node. The colonists and the earth dwellers might not trust each other.”

Likewise, we might also have two or more colonies that don’t entirely trust one another. The Cold War between the United States of America and the USSR was basically a massive competition between two different socioeconomic systems backed by two superpowers. The same might be true for a rivalry between two or more large colonies that compete for markets and for alliances with other colonies, with the occasional proxy war for good measure. Even if they agree to join the same coalition of trading partners, they won’t want a system where everybody just trusts everybody else without a mechanism in place for disciplining colonies that violate that trust by running a fake node.

The other issue is a direct attack on the Blockchain ledger system. Records on the Blockchain are regarded as very difficult, if not impossible, to modify without sending up all kinds of red flags because they are secured with a cryptographic hash and a timestamp. An attempt to alter existing records will result in what Blockchain experts call a fork – a new chain of records that has branched off from the original. The original version of the chain can be detected by comparing the hashing function and timestamps of records on both chains that were created beyond the point where the fork occurred.

There is one other way to attack the ledger for the purpose of altering it: scrap it and start over. Destroying all the nodes and clients on the Blockchain network, but saving the code it’s based on, would have the effect of rebooting the Blockchain ledger. This hasn’t been a problem for Bitcoin so far because there are hundreds of nodes and thousands of mining rigs run by independent operators around the world. It would be very difficult to destroy Bitcoin in this way without simultaneously shutting down the entire Internet.

This is one more reason why the application should be decentralized as much as is practical for the application’s purpose. Each valid node can be regarded as a backup for every other valid node on the network. If a medium-sized bank has forty branches in fourteen cities and each branch is running a valid node (and contributing to the processing of transactions of which the bank is an interested party), the data will not be lost if three valid nodes suddenly go down.

Of course, this doesn’t mean that somebody won’t notice. What are the odds of three nodes in two cities going down at the exact same time? Is it an attack or just bad luck? Blockchain experts and server administrators can be scrambled to respond to the situation, starting by isolating the malfunctioning nodes from the rest of the network infrastructure. They can update one another’s data later if it turns out to be just a freak happening and the data is still valid. For now, we’re analyzing logs to find out what happened and resolving the issue.

For this reason alone, the Blockchain ledger should be regarded as a means to create skilled jobs if you care about such things. Every single hacker, “black hat” or otherwise, will tell you that hacking is not like what you see in the movies. Ultimately, the security of Bitcoin and Blockchain apps relies on people, starting with the highly trained and alert Blockchain security expert who can watch the Blockchain and the activity on nodes and clients for potential problems.

In terms of space colonization and future interplanetary trade, colonies should be encouraged to contribute resources for the purpose of maintaining the cryptocurrencies they choose to use. Not only does this make a network that was meant to be decentralized more secure, but it will also create incentives to create resources and make them available for use.

The Speed of Light

This is an obvious problem for communication between planets, which means it will be an issue for nodes on our currencies’ network, too. The nature of a decentralized cryptocurrency allows for the establishment of nodes on Earth, Mars, Ganymede and Pluto and the Blockchain won’t care much until the limitations of radio communications create delays in the receipt and confirmation of new transaction data. The node on Ganymede might even be out of communication on a regular basis because Jupiter has a severe case of bloat and might block its transmissions sometimes. Most cryptocurrencies require confirmation from multiple nodes before a transaction can be considered valid. Traders won’t want to wait hours or days for distant nodes to receive and confirm transactions.

This can be gotten around by establishing local sidechains that can temporarily store data until it’s convenient to exchange data with the main Blockchain. A sidechain can consider a transaction valid if it has already been confirmed by the nearest node and pass that data along to other nodes on a schedule that allows it to get a clear line-of-sight transmission to the nearest nodes on other colonies. Then it wouldn’t really matter if a large planet is in the way or if we haven’t invented instantaneous communications between colonies that are far enough apart to make the speed of light an issue.

Another option is called the Lightning Network. It’s a way for sidechains to rapidly swap data without relying on the existence of a unified, main Blockchain. Jameson Lopp of Coinometrics described the Lightning Network this way:

“It’s … possible that a Lightning Network could be used to perform cross-chain atomic swaps between different planetary sidechains without even touching the parent Bitcoin blockchain.”

The Lightning Network could be adopted for use in a Blockchain application that’s going to be used by multiple, far-flung colonies. Then we don’t need to mess with having what amounts to a master server that needs to be constantly updated with data in an order and format that makes sense to the ledger.

The speed of light is also where Einsteinian physics gets more than a little annoying. According to Einstein’s Special Theory of Relativity, a clock moving at 99.9% lightspeed will appear to run slower than a clock moving at 50% lightspeed to an observer who is standing still. In that case, will there be a way for a node that is being updated with information from nodes that may be moving at speeds that cause time dilation of varying degrees and are far enough away for transmissions at the speed of light to take several minutes or hours to reach their destinations, to tell which transaction came first? Leemon Baird says that his team is aware of the situation and has built elements that could solve this problem into the Swirlds platform:

“[W]e need to work despite Relativity. Suppose Alice spends a coin on earth, and Bob spends a coin on Mars at about the same time (less than 3 minutes apart). Someone might claim Alice was first. Someone else might claim Bob was first. Einstein’s Special Theory of Relativity says they’re both right! Mars is always at least 3 light minutes from earth, so those events within 3 minutes of each other don’t have a “true” order. We need some way to agree on what happened “first”, when physics itself says there’s no single, right answer. … It [a cryptocurrency designed to compensate for this problem] can put events in order, even when relativity says they don’t have an order.”

So the observer who is not moving fast enough for Einsteinian physics to have much of an effect may still have a way to make sense of events that the clock that is moving at 50% lightspeed says happened at a certain time even when the clock moving at 99.9% lightspeed disagrees. The best we can do in this situation is to have a way to compensate for the speed of light and its effects on Einsteinian physics in a way that neither Alice nor Bob have reason to complain.

The Adoption Issue

The creators of a new cryptocurrency will usually fight hard to get their cryptocurrency accepted on one or more of the major cryptocurrency exchanges. If they can gain a slot, they increase their odds of gaining the attention of traders on that exchange and it’s one major step toward increased adoption of that cryptocurrency.

The problem here is that the creators of any particular cryptocurrency will usually dump their holdings and quit once they’ve gotten on their exchanges. They don’t take the next step of courting merchants who might be interested in doing business with that currency. This has led to a perception that any cryptocurrency that hasn’t already gained a fair amount of traction among ordinary users was created as part of a scam. There’s even a term for cryptocurrencies that never really got very far because they were quickly abandoned by their creators – scamcoins. This should simply be regarded as a warning for any colony that wishes to only use its own currency or no currency at all. It might be able to list that currency on an effective foreign exchange, but the currency may not be taken very seriously and traders might choose to detour around what they see as an unprofitable stop on their trade route.

The situation isn’t completely hopeless for a seemingly abandoned cryptocurrency, though. A former scamcoin called Europecoin is being rebooted. Auroracoin is in the middle of a resurgence after stalling out for a long time. Rebooting a previously abandoned cryptocurrency does require a considerable amount of dedication and an ability to convince a skeptical audience that the new team is really serious about making it work this time.

Widespread adoption will be the primary obstacle for a future currency that has been created specifically for economic activity on another planet. Although Lennart Lopin’s team of developers attempted to brand Marscoin as the “official” currency of Mars, he was honest that future Martians don’t have to use it if they don’t want to. It would be nice if they did, though, because as Lennart Lopin told me in an interview, he doesn’t want Marscoin to be “a stupid, useless little cryptocurrency.” A new currency, even one that has already been branded for Mars, means nothing if nobody ever touches it.

Lennart Lopin, Marscoin Foundation Member

This can be gotten around simply because future colonies who wish to participate in trade with one another will find that it’s convenient to agree on a common medium of exchange. It will be most convenient for both colonies and future interplanetary traders if that medium of exchange is a cryptocurrency that has been refined for use throughout the entire solar system.

The bottom line is that these problems can be gotten around if future experts that set up the infrastructure for interplanetary trade are aware of them and plan accordingly. These will be experts who know cryptocurrencies and Blockchain apps well enough to set up that infrastructure.