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Why BTCGuild is a bigger threat than you think (or: why 6 confirmations is not enough)

TL;DR: even 40% hash control is too big, and 6 confirmations is too few.
A lot of people have been worrying about the possibility of BTCGuild getting 51% of the mining power and pulling off a majority attack. Personally, I don't think it will; I believe that if it does they'll cut off getwork and drop down to 35% or however much, plus people might start leaving.
But even 35% is still a threat.
Consider the figures in Table 1 of this paper. Specifically, look at the success rates for reversing a 6-confirm transaction with 25% of the hashing power. It's about 5-8%. Do you really want to deal with BTCGuild having a 5-8% success rate at reversing a transaction? Obviously they're not going to try for tiny ones, but what if they try it on a transfer on the order of tens thousands of bitcoins? That's a couple hundred USD at today's prices; while that wouldn't hold in the resultant panic selling, it'd still be a sizeable loss.
A lot of people say 'well, BTCGuild wouldn't do that, because X and Y and Z'. I think this is an unreasonable defense. BTCGuild might not, because they're invested in BTC staying a strong currency. But someone who wants to see BTC fail would have reasons to try this. I'm not saying I think that the government or whoever is going to try to hack the BTCGuild servers and try this, but I think that given that the point of BTC is to be resilient to that sort of thing, we shouldn't be making it possible.
Another thing I see people say a lot is that people will notice. How? It's not like your miner is going to suddenly pop up a big "ACTIVATING EVIL MODE" dialog box. Plus, even when people do notice that it's been suspiciously long since BTCGuild found a block, it might just be probability. And even if it were confirmed that they're malicious, you'd have to wait for people to actually find it out and pull their mining power. There are altogether too many 'if's here.
The intermediate solution, if you're worried, is to wait for more than 10 transactions for high-value transactions. However, the transaction number required is extremely high; even with 100 transactions BTCGuild would have a roughly 0.5% chance of reversing the transfer. I'd like at least eight more zeroes in front of that number (this is supposed to be super-secure, right?), and for the transfer count to be no more than 25. According to this calculation, the success probability with nobody controlling more than 25% of the hash power and 25 confirmations is about 10-12; even with 10 confirmations it's 7 * 10-6, and with 6 it's 6 * 10-4. These are numbers I can live with, but I suspect they're still a lot higher than most people's intuition for how high the probabilities are.
submitted by MonadicTraversal to Bitcoin [link] [comments]

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