Blockchain Governance and dispute resolution Flashcards
what is Bitcoin improvement proposal (BIP)
-Bitcoin not controlled by single entity
- Anyone from anywhere in the world can propose a BIP
-Acceptance depends on user/ miner adoption
what are the Two types of blockchain forks, describe them.
Soft fork:
software upgrade that is backward compatible.
- non-upgraded nodes will recognize new blocks as valid
- A soft fork may require a minimum rate of adoption (eg. 51% ) to take effect
Hard fork:
software upgrade, not compatible with older software; changes rules for validating blocks:
- Non-upgraded nodes will not recognise new blocks as valid
A hard fork is therefore mandatory
soft fork vs. hard fork
Soft Fork:
- tightening the rules
-backwards compatible
- old nodes accept new blocks
Hark fork:
- expanding the rules
- not backwards compatibel
- old nodes will not accept new blocks
what are the 3 blockchain category’s
Public blockchains, that anyone in the world can:
Read, send transactions, participate in consensus processes
Consortium blockchains:
- Consensus process controlled by pre-selected set of nodes
Fully private blockchains
- Write permissions centralised to one organisation
Advantages open vs private blockchains:
Open blockchain:
- Protect users from developers
- Organic democracy
- “Code = law”
Private or “permissioned” blockchain:
- Rules of blockchain can easily be changed
- Validators are known
- Cheaper transactions (fewer node verification needed)
Why may code law be a good idea?
Cost savings:
- Better designed software might lead to fewer disputes - transparency and better security.
- In the legal system, everyone pays a “tax” for consumer protection
> often an artefact of aggressive regulation that protects the lazy or uniformed (eg. CFPB)
> reduces freedom of choice
> prevents the market from deciding upon the optimal amount of consumer protection
Places responsibility on parties to monitor, thereby reducing moral hazard problems
>The current system encourages free riding
What are public blockchains lacking
Innitionally lack:
- Terms or service, end-user licencing agreement, consumer protection, ect (would lead to central controller)
Because anonymous, no linkage to external identification and no hooks into traditional legal system.
- User experience is poor for unsavvy users and full of frictions
why was bitcoin thought to be safe?
In original white paper, nakamoto argued that 51% of mining power hard to achieve
Proof-of-work: hard (solving the puzzle) and expensive (electricity) to win hashing come
> anyone who has such hing hashing power will be better of getting the block/ fee reward
what could go wrong with the blockchain
Problem 1: a “51% attack”
○ Theft or counterfeiting
○ Sabotage
> terrorists
> rouge government
> nations at war
> rival currency sponsors
Problem 2: selfish miner:
Keep longer chain private and once revealed, force honest miners to waste resources
what are two strategies to organise a 51% attack
Strategy 1:
* Brute force: invest enough to double the existing CPU power of the network
> would cost perhaps $200 million
> some mining pools have come close to this
Strategy 2:
* Artifice: create a false code that looks like the real one
* Splintering: create a large number of forks within a short period of time, causing irreversible chaos
* Temptation: create a collective action problem that provides incentives that lure people to use a malicious version of the code.
Existence of mining pools creates organisational issues, name 4 potential issues
1) collusion/ cartel behaviour
> bitcoin scalability rebate amounts to a negotiation among mining pools
> GHash briefly achieved > 51% market share
2) Internal governance
3) Potential for vertical integration by hardware manufacturers merging with mining pools
4) Possible market entry by amazon, microsoft, and other cloud computing providers.
