The following is taken from a recent edition of Deep Dive, Bitcoin Magazinethe premium markets newsletter. To be among the first to receive this and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
The Bitcoin SV altcoin was attacked at 51% earlier this week, and thus presented the opportunity to highlight the importance of the security model for “decentralized” blockchains. This tweet thread of Lucas Nuzzi did a great job of explaining what happened.
The notions that bitcoin is “too slow” or that it does not have “enough transactions per second” to be global money that many altcoin proponents have championed over the years are based on assumptions incorrect and an understanding of how blockchains work and what they fundamentally resolve.
First, what is a 51% attack?
A 51% attack occurs when an entity acquires a majority share of a network’s hash rate, it can maliciously double coins. Due to the longest blockchain’s default Bitcoin network, a 51% attack is only possible if the attacker can continue to produce blocks at a faster rate than honest miners.
“The system is secure as long as the honest nodes collectively control more CPU power than any group of cooperating attacking nodes…. If a majority of the CPU power is controlled by honest nodes, the honest chain will grow fastest and overtake all competing chains. To modify a past block, an attacker would have to redo the proof-of-work of the block and all blocks after it, then catch up and overtake the work of honest nodes. – Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Payment System”
In the case of Bitcoin SV, the security model is particularly compromised for two distinct reasons including:
- Due to the monopolistic nature of proof-of-work networks, it is often unprofitable to sell hash energy for forks. Less security, less liquidity, fewer users, etc. Network effects are important.
- Since Bitcoin SV (a fork of Bitcoin Cash) has further expanded the block size to 100 times the size of BTC, there is little to no transaction fees on the network, which further decreases the incentive to sell. of hash power to the network. As the issuance of bitcoin (or one of its forks) tends to zero asymptotically, the transaction fees will pay for the entire network security model. This is not viable for networks like BSV.
Below is the hash rate of BTC and BSV plotted together (in logarithmic and linear view for perspective):
Those who believe that a blockchain can evolve by simply multiplying a concept across the network have a fundamental misunderstanding of how a decentralized blockchain can evolve. Bitcoin SV is a classic example. Supporters of BSV would point out how “fast” and “cheap” transactions were on the network, but the reality is that there are always tradeoffs. BSV users ultimately chose inferior security and settlement guarantees.