⚡ StackSats Saturdays | 2021 Week#1

🔳 Orphan blocks, ⚔ 51% attacks, 🏛 Will governments lose power?

🎇 Happy New Year 2021! If you’re new to this newsletter, its a weekly roundup of 3 technical ideas + 10 happenings in the crypto space.

🤔 How are orphaned blocks dealt with on the blockchain?

AN “ORPHAN BLOCK” occurs when two miners satisfy the proof-of-work at approximately the same time.

The two blocks created by the two miners are different since they may not contain all of the same Bitcoin transactions, in which case the transactions wherein the two “winning” miners transfer the block’s transaction fees to their accounts are also different. But only one of those two blocks will ultimately be added to the block chain, while the other will become an “orphan block”.

Any transactions present in the orphan block but not included in the accepted block will be included in the next block for which miners are competing.

OK, suppose one node incorporates a bunch of transactions in its proof of work, all of them honest legitimate single spends and another node incorporates a different bunch of transactions in its proof of work, all of them equally honest legitimate single spends, and both proofs are generated at about the same time. What happens then? They both broadcast their blocks.

All nodes receive them and keep both, but only work on the one they received first. We’ll suppose exactly half received one first, half the other. In a short time, all the transactions will finish propagating so that everyone has the full set. The nodes working on each side will be trying to add the transactions that are missing from their side.

When the next proof-of-work is found, whichever previous block that node was working on, that branch becomes longer and the tie is broken. Whichever side it is, the new block will contain the other half of the transactions, so in either case, the branch will contain all transactions.

Even in the unlikely event that a split happened twice in a row, both sides of the second split would contain the full set of transactions anyway. It’s not a problem if transactions have to wait one or a few extra cycles to get into a block.

🤔 Is a 51% attack a fatal security risk for bitcoin?

There’s been a lot of debate going on about the possibility and implications of the 51% attack. Which in my opinion is bound to happen. But should we be overly worried over it?

Let’s listen to what the founder of Bitcoin has to say…

Re: Bitcoin P2P e-cash paper Satoshi Nakamoto Mon, 03 Nov 2008 11:45:580800

“Thanks for bringing up that point. I didn’t really make that statement as strong as I could have. The requirement is that the good guys collectively have more CPU power than any single attacker. There would be many smaller zombie farms that are not big enough to overpower the network, and they could still make money by generating bitcoins. The smaller farms are then the “honest nodes”. (I need a better term than “honest”) The more smaller farms resort to generating bitcoins, the higher the bar gets to overpower the network, making larger farms also too small to overpower it so that they may as well generate bitcoins too. According to the “long tail” theory, the small, medium and merely large farms put together should add up to a lot more than the biggest zombie farm. Even if a bad guy does overpower the network, it’s not like he’s instantly rich. All he can accomplish is to take back money he himself spent, like bouncing a check. To exploit it, he would have to buy something from a merchant, wait till it ships, then overpower the network and try to take his money back. I don’t think he could make as much money trying to pull a carding scheme like that as he could by generating bitcoins. With a zombie farm that big, he could generate more bitcoins than everyone else combined. The Bitcoin network might actually reduce spam by diverting zombie farms to generating bitcoins instead. Satoshi Nakamoto”

🤔 If bitcoins becomes widely used, will governments lose power since they no longer control the money supply?

Let’s take a second here to consider this.

Nearly every aspect of modern civilization has been flattening down except one: money.

Minting money is one of the last jobs left for a central government that most political parties agree is legitimate.

It takes a central bank to battle the perennial scourges of counterfeit and fraud. Someone has to regulate the amount of money issued, keep track of the serial numbers, ensure that the money is trusted.

A robust currency requires accuracy, coordination, security, enforcement—and an institution that takes responsibility for all those.

Thus behind every currency stands a watchful central bank.

But what if you could decentralize money as well?

What if you created a distributed currency that was secure, accurate, and trustworthy without centralization? Because if money could be decentralized, then anything can be decentralized. But even if you could, why would you?

Turns out you can decentralize money, and the technology to do this may be instrumental in decentralizing many other centralized institutions.

The story of how the most centralized aspect of modern life is being decentralized holds lessons for many other unrelated industries. To begin: I can pay you in cash, and that decentralized transaction is anonymous to a central bank.

But moving physical cash around is not practical as our economy goes global.

PayPal and other peer-to-peer electronic systems are able to bridge the vast geographical spans on a global economy, but each of its peer-to-peer payments must go through a central database to be sure a dollar is not spent twice or is not fraudulent.

Mobile phone and internet companies devised very useful payment schemes for impoverished areas based on a phone app, such as M-Pesa.

But until recently even the most advanced e-money system needed a central bank to keep the money honest. Six years ago some shady characters who wanted to sell drugs online with the anonymity of cash were looking for a currency without a government hand.

And some admirable characters championing human rights were looking for a money system that would work outside of corrupt or repressive governments, or in places of no governance at all. What they together came up with is Bitcoin.

👀 Highlights of the week:

  • Data Shows 78% of the Circulating Bitcoin Supply Is Illiquid, Only 4.2M BTC in Constant Circulation. (Bitcoin.com)

  • FinCEN Proposes KYC For Withdrawing Cryptocurrency To Private Wallets. (BitcoinMagazine.com)

  • This Ethereum-based crypto just launched and it already has a $2 billion diluted market cap. (CryptoSlate)

  • Crypto Dollars and CBDCs: The Battle to Come. (CoinDesk)

  • Tax justice for crypto users: The immediate and compelling need for an amnesty program. (Cointelegraph)

  • I bought the ATH in 2011: A decade of HODLing. (r/Bitcoin)

  • Bitcoin Price Will Top Out At $73,200 in 2021, Claims Analyst. (Bitcoinist)

  • The top 6 bitcoin price predictions for 2021. (Coinmonks)

  • Crypto New Year's Resolutions: 2021. (Decrypt)

  • A Bitcoin Supercycle. (Dan Held)

just HODL.

Not financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Do your own research.