Will the blockchain survive for the next 10 years?

Round thing

10 years of Bitcoin and Blockchain: Amazingly robust

Climate killers, unsuitable as a means of payment, insubstantial and generally much too limited: the crypto currency Bitcoin has many flaws, one believes its critics. But even after ten years, the Bitcoin blockchain still works according to the same rules - while the competition was only able to survive thanks to emergency measures and hard forks. Somebody has yet to imitate Bitcoin inventor Satoshi Nakamoto.

The alleged Japanese Satoshi Nakamoto chose the global financial crisis of all times: while the governments of all over the world were busy trying to save their failing banks from collapse with billions of taxpayers' money, Satoshi published the first block of a revolutionary new one on January 9, 2009 Currency. It should be completely independent of banks and governments, decentralized and democratic, neither to be controlled nor manipulated - a counterpoint to the existing banking system, which at the time clung to state lifebuoys and yet threatened to perish.

But how should a currency work if there is no central point that manages credit balances or carries out transfers? How should fraud and manipulation be prevented, without a complaints office and without jurisdiction? The key is to save all transactions in a public blockchain - a data structure that computer science students already got to know in their first semester under the term "simply linked list": In addition to the (transaction) data, a node in the list contains a reference to the next knot. Satoshi called the nodes blocks and the linked list of blocks the blockchain.

What was new was that the blocks were not linked based on their number in the blockchain, but that the successor block referenced the hash value of the previous block. This made the hash value of a block its key element. The trick is that a hash value is, so to speak, the fingerprint of the data: If you change even a single bit of the data, the result is a completely different hash value.

The exact effects of a change cannot be predicted - it is not possible to compile the data in such a way that it results in a specific hash value. If you wanted to achieve a certain hash value, you would have to change the data again and again, recalculate the hash value and see whether the new value is what you are looking for. With Bitcoin, this endeavor is even more difficult because a SHA256 hash is calculated from the SHA256 hash value of the data, which then represents the ID of the block.

As a block of the simply chained Bitcoin blockchain refers to the hash value of the previous block, not only is the sequence of the blocks in the blockchain clearly defined - at the same time, the hash value can be used to check whether there is even a single bit of the previous block was subsequently manipulated. Because any change would mean that the block has a different hash value than is referenced in the next block.

If you wanted to manipulate the data of the penultimate block, you would not only have to recalculate its hash value, but also the new hash value of the last block so that the hash value of the predecessor named in the last block matches the manipulated block. In order to change something in the third from last block, three blocks would have to be recalculated so that the manipulation would go unnoticed. The further back the block to be manipulated, the more blocks have to be recalculated.

Hurdles

Not a big hurdle: Even the CPUs common in 2009 managed to recalculate the hash of a block several million times per second - the hash performance of conventional desktop CPUs was in the range of around 1 to 25 mega hashes per second (MH / s). A single computer could have changed the Bitcoin blockchain at will.

To prevent this from happening, Satoshi literally made the task more difficult with an additional level of difficulty. This means that the hash value of an acceptable block must have at least a certain number of zero bits at the beginning. If the hash value of a new block does not have enough zeros, the computer can count up a specially provided number in the block, the so-called nonce. Since the change to the nonce has unpredictable effects on the hash value, the computer has no choice but to redetermine the hash value and hope that it has enough zeros. The search for a sufficiently small hash value is basically a lottery.

Satoshi also wanted Bitcoin to be decentralized and democratically organized. Everyone should be allowed to work on the continuation of the blockchain, nobody should be able to control the cryptocurrency. However, if several computers are looking for a suitable hash value at the same time, the probability that one will be successful increases. As the number of computers increased, the level of difficulty also had to increase.

Belly landing

Satoshi's ingenious solution: He stipulated that the level of difficulty would automatically adjust every two weeks so that a new block would be found every ten minutes. If the last 2016 blocks of the blockchain were calculated faster than in exactly two weeks, the difficulty automatically increases by the factor that the computers were too fast. If, on the other hand, it took longer than two weeks to find new blocks in 2016, the difficulty drops by the corresponding factor. So everyone can determine the currently applicable difficulty using the blockchain; there is no need for a central body or organization to monitor the difficulty. The foresight that Satoshi demonstrated in the design of the difficulty algorithm and the choice of the ten-minute block time is shown by the Bitcoin fork Bitcoin Cash.

One point of criticism of the Bitcoin Cash developers about Bitcoin was that the difficulty is measured over such a long period of time and therefore only slowly adapts to the global computing power. When they spun off Bitcoin Cash from Bitcoin in August 2017, they therefore built in their own, supposedly much better, algorithm that should adapt the difficulty to the hash performance much faster. And they landed flat on their belly: in some phases, several new blocks were created with an interval of just a few seconds to minutes, then again it took half an hour in which nothing happened - until a flood of new blocks was found again. The result was so bad that just three months later they had to perform another hard fork and replace the difficulty algorithm.

The difficulty only changes for new blocks of the Bitcoin blockchain, never for old ones. As a result, it would be easy today to manipulate all the blocks published in 2009 within a few hours and then recalculate them - today's special hardware is a trillion times more powerful than the CPUs of the time. But after the blocks from 2009 you would have to recalculate all blocks from 2010, which takes a lot longer - because back then graphics cards were already used for hash value calculation, which had many times more power than the CPUs, which is why the difficulty accordingly rise.

Once you get to the recalculation of the blocks from 2013, it becomes much more difficult again. Then the first ASIC computers went into operation, which are still standard today and whose performance has multiplied several times in recent years. The closer you get to the present with your manipulations, the longer it takes to find the next block. During all this time, new blocks are created every ten minutes, which you also have to recalculate later - in less than ten minutes, because otherwise you cannot catch up. So only someone who controls more than 50 percent of the global computing power for Bitcoin would have a chance of success. In such a case, one speaks of a 51 percent attack [1] with which it would be possible (in the long term) to manipulate the crypto currency at will.

Hostile takeover

The Bitcoin offshoot Bitcoin Gold fell victim to two 51 percent attacks in mid-May 2018, the worst case scenario for any cryptocurrency. Attackers controlled considerably more computing power than was publicly known at the time and was taken into account by the difficulty. So they could initially sell Bitcoin Gold worth 18 million US dollars and, thanks to the overpowering computing power, generate new, manipulated blocks a little later without the sales transactions. With this, the original sale disappeared from the Bitcoin-Gold blockchain and the perpetrators had collected money for no consideration. The Bitcoin fork Bitcoin Private was also hostile taken in mid-October 2018 - for demonstration purposes: The hacker Geocold showed how easy it is in a live video stream.

The Bitcoin Gold raid was possible because comparatively few computers were working on the Bitcoin Gold blockchain. By allegedly renting a data center for a few days, the perpetrators had far more hash power for Bitcoin Gold than the rest of the world. For the attack on Bitcoin Private, the effort was even less, Geocold had bought the necessary mining power for a few hundred dollars.

In the case of Bitcoin, such an attack would no longer be feasible even for governments: the Bitcoin blockchain simply has too much computing power, worldwide there are currently around 40 EH / s. This corresponds to around 3 million of the currently most powerful computers with a power consumption of 4 gigawatts. So it is precisely the large number of computers and their high power consumption that protects Bitcoin against manipulation.

The reason for the large number is that working on the Bitcoin blockchain has been extremely profitable in recent years - because there is a reward in the form of new bitcoins for every newly found block. That is why the computers that process transactions into new blocks are called miners - like gold diggers, they find new blocks and thus new bitcoins. Another brilliant idea by Satoshi that solved several problems at the same time.

Money out of nowhere

When Satoshi Nakamoto calculated the so-called Genesis block of the Bitcoin blockchain by hand at the beginning of January 2009, there were neither Bitcoins that could have been transferred, nor computers that could process transactions into new blocks and continue the blockchain. Today, this chicken and egg problem is often solved by the inventor of a new cryptocurrency first calculating all currency units in advance and selling them to investors for money - sometimes even before the associated blockchain even starts operating. This is called Initial Coin Offerings, or ICO for short. This is extremely lucrative for the inventor, he sold his idea for a lot of money before it had proven that it would even work. This means that there is no incentive to even launch the cryptocurrency. In 2017 and the beginning of 2018 in particular, many ignorant investors were fleeced in this way - due to the massive abuse, ICOs are now strictly regulated in many countries.

Satoshi, on the other hand, introduced a reward for newly found blocks. For example, Satoshi received a reward of 50 Bitcoin for his hand-made Genesis block - with which the first 50 Bitcoins of the cryptocurrency were created. This gave an incentive to have your own computer calculate new blocks and thus keep the blockchain alive. Many early cryptocurrency enthusiasts therefore let their computers mine Bitcoins when they were not needed.

Much bitcoin fortune dates back to that time, including that of the computer scientist James Howell from Newport. He had already started mining on his PC in 2009 and mined an impressive 7,500 Bitcoin. In 2013, however, he stupidly threw his hard drive on the trash, which contained the only copy of his Bitcoin wallet. That was annoying, but not a catastrophe: Up until the beginning of 2011, a Bitcoin was only worth a few cents, but at the beginning of 2013 the price was already a good ten dollars. The cryptocurrency had its first soaring at the end of November 2013, when up to 1000 US dollars per bitcoin was paid for a short time. The following year, however, the price dropped back to $ 250.

It was not until the end of 2016 that Bitcoin reached its old high and continued to rise. In December 2017, up to 20,000 US dollars per bitcoin were paid at times - Howell's lost wallet was suddenly worth around 150 million US dollars. No wonder the computer scientist regretted his mistake and wanted to dig up the Newport dump for his hard drive. But he was refused permission. Howell's 7500 Bitcoin and thus 0.36 per thousand of the entire cryptocurrency are lost forever.

Because Satoshi has limited the amount of Bitcoins that are created by the reward to a maximum of 21 million: The Reward halves every four years, so that in 2140 the reward falls to zero because the smallest unit that can be represented is a hundred-millionth Bitcoin - called Satoshi in honor of its inventor. After that there will be no more new bitcoins.

The halving of the reward after every 210,000 blocks ensures that the miners cannot rest on the subsidy: in the long term, they have to cover their electricity and operating costs elsewhere. There is the so-called transaction fee, a kind of transfer fee. While you cannot haggle over the transfer fee as a customer at banks, with Bitcoin it is completely in the hands of the user how much money he wants to pay for the execution of a transfer. Bargain hunters can even send their transactions for free.

But as is usual in the market economy, supply and demand ultimately determine the price: Miner operators will of course choose those transactions for processing that earn them the most transaction fees. They will only consider transfers without fees if no further paid transactions are pending. It can sometimes take days before a transaction without a fee is carried out.

Artificially limited

If there is a high volume of transactions, it may well happen that transfers with little or no fee are no longer executed at all. The reason for this is that Bitcoin blocks can only be a maximum of 1 MB in size, which corresponded to a maximum of around 2000 transactions by mid-2017. When Bitcoin was invented, there was initially no size limit - Satoshi only introduced it on September 12, 2010 as part of a so-called soft fork. He wanted to prevent an attacker from tying up a lot of computing power and storage space by publishing huge forged blocks and thus bringing Bitcoin trading to a standstill.

It was the subsequent restriction to 1 MB per block that led to the splitting off of the new crypto currency Bitcoin Cash from Bitcoin: Some of the Bitcoin miners wanted to expand the maximum size to 8 MB, but this would have required a hard fork of the Bitcoin. Ultimately, a redesign of the Bitcoin blocks prevailed, with parts of the data previously stored in the block being outsourced (SegWit, Segregated Witness). As a result, almost twice the number of transactions now fit in one block. This change was compatible with older Bitcoin clients, so just a soft fork of the cryptocurrency. Some of the developers wanted to increase the size of the blocks to 8 MB anyway and at the same time created a hard fork - Bitcoin Cash was born.

Thanks to Satoshi's foresight and the fact that changes were always carried out carefully, not a single hard fork was necessary for the oldest cryptocurrency still traded in the past ten years. Bitcoin's development is far from over. So you could simply cut the block time in half to five minutes and double the transaction volume again. Or the Bitcoin community agrees on a hard fork and increases the maximum block size. With the Lightning network, there is also an interesting extension that is particularly suitable for quick transfers of small amounts - ideal for paying for your coffee with Bitcoin, for example.

The Bitcoin blockchain can even be used as a tool for freedom of expression. It is the ideal place to disseminate uncensored information around the world. Various people have used this to immortalize texts, program code and even images in the blockchain. Satoshi Nakamoto started very personally, in the Genesis Block: There he quotes the cover story of the London Times of January 3, 2009, which reported on plans of the then Finance Minister Alistair Darling, banks in a second bailout with trillions of pounds of tax money to rescue. Banks that, thanks to Bitcoin and its successors, may one day no longer exist. Let's just see what happens up to the twentieth birthday. ([email protected])

literature

  • [1] Mirko Dölle, chain reaction, How 51 percent attacks threaten Bitcoin & Co., c’t 14/2018, p. 26