In this guest post, Ben Rodriguez and ‘thatmanontheright’ from the Vertcoin team outline their views on the Monero hard fork and the importance of ASIC resistance.
Recently, there has been a lot of attention on ASICs and ASIC resistance. With the advent of ASICs for the Ethereum network, some coins pledged to be ASIC resistant through and through. Bitmain is a monopoly that has a stranglehold on this space. They are not only the main supplier of ASICs but also the primary users of these specialized miners; this results in them having a concerning amount of hash power (estimated to be 39 percent of Bitcoin’s).
When it comes to consensus, no one or small few entities should control that much of the network. If any one entity controls 51 percent of the hashing power in the network, then it can rewrite the entire blockchain. Not only is that dangerous and can encourage malicious activity but even if you assume it’s not malicious, trust comes back into the equation and at that point and you may as well just use a bank.
Several coins are dedicated to ASIC resistance. Monero is one of the coins that has pledged ASIC resistance, and their recent hard fork showed it. Vertcoin is another and has also forked in the past to brick ASICs. Ethereum actually seems to focus on no-action in their approach toward ASICs. To understand why ASICs can be a threat to the network, we first have to go back to the basics.
Back to the Basics
It’s been roughly ten years since the financial crisis. It has also been approximately ten years since the world’s most disruptive technology popped into existence in the form of Bitcoin.
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” – From the first sentence of the abstract of the original Bitcoin whitepaper
Satoshi Nakamoto released the whitepaper which was to become the foundation of Bitcoin; “A Peer-to-Peer Electronic Cash System.” This proposal for a digital currency set out to revolutionize the financial industry. Every transaction could be recorded in an immutable ledger, which could be verified by a wide variety of people. This mechanism became a sort of “distributed consensus on reality” where central authorities had no power over wealth or peer-to-peer transactions.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” – From the introduction of the original Bitcoin whitepaper.
The thought was that as long the work (mining) done came from a fair and distributed network, the integrity of the system would be maintained. However, if, for some reason, the majority of the network worked together to attack the network, the trust-less aspect of the system could be compromised.
The Problem with Centralization
The true power of a Proof-of-Work currency comes from its immutability and safety from control by centralized entities. If a network is truly decentralized, that means no government, company or Dr. Evil character can take control of the network.
This is the core of the financial freedom this system provides us with. This might seem trivial to you if you were born in a first-world country in the last 40 years. However, all it takes is a simple internet search to see how many third party, trusted entities behaved (not well) over the past 20 years alone.
As mentioned before, the integrity of a proof-of-work system can only be maintained if the work to verify the chain is performed by a distributed network. The reason Vertcoin and Monero focus on an anti-ASIC strategy is that ASICs currently are a great threat to all Proof-of-Work networks. We can clearly notice one central supplier taking a majority stake in every network it can. This is a danger to the network itself because it centralizes the network, which in turn opens up the network for control by centralized entities.
The problem is not that Bitmain is necessarily an evil company (although if they aren’t, the alternative is not much brighter). The problem is that in a centralized network, you have to trust Bitmain and you have to trust the government under which Bitmain operates. This is definitely not what was envisioned and should not be the goal of any cryptocurrency.
Back Up: Bitmain, ASICs?
What is an ASIC?
ASIC stands for Application-Specific Integrated Circuit. This is a circuit that is customized and intended for one specific usage. In the case of cryptocurrencies, it is usually a miner made for a specific coin. It is unlike a Computer’s GPU (Graphics Processing Unit) which is a type of FPGA (Field programmable gate array) intended for general consumer usage (think image processing, calculations, machine learning, etc.).
As it currently stands, Bitmain (ASIC miner-manufacturer) has a monopoly over the market to the tune where they can wreak havoc by controlling a cryptocurrency’s network with their machines.
What is Bitmain?
Bitmain is a privately owned company founded by Jihan Wu in 2013 headquartered in Beijing. The purpose of creating Bitmain was to help develop an ASIC chip that would mine Bitcoin.
So, What’s the Problem?
As mentioned above, the trust factor. Bitmain has full monopoly over ASIC based mining. A huge percentage of mining occurs in China or is owned by Chinese institutions. Bitmain not only is the main supplier of ASICs, but they also own and operate two of the world’s largest Bitcoin mining operations that account for some 38.9 percent of the entire network’s hashing power.
Satoshi created Bitcoin as a means to not have to rely on central points of failure such as banks and financial institutions. Bitmain monopolizing the ASIC market is a central point of failure. Things such as double spending and payment censorship would be possible if a mining pool(s) takes over majority hashrate.
The Bar of Entry
The point of a Proof-of-Work system is to have work distributed throughout the network. Everyone on the network should have a “vote” in consensus; this is what keeps a system decentralized.
However, it’s unprofitable to mine bitcoin (or any ASIC coin) with just a GPU. One would have to compete with an entity like Bitmain, which as mentioned, owns and operates two of world’s largest Bitcoin mining operations. To mine bitcoin with intentions of profit, which uses the SHA-256 hash function, you’d need to buy the Antminer S9 which costs around $1,800 for one. You’d likely have to buy a couple of them.
What is Monero?
Monero is a privacy-centric coin that used to use the CryptoNight hash function.
Monero recently raised heads in the entire cryptocurrency industry. Bitmain announced their Antminer X3 that would be able to mine the CryptoNight algorithm, primarily used by Monero. It costs about $2,000. However, Monero developers released their Lithium Luna update that squashed the effectiveness of X3 miner. The algorithm is now CryptoNightV7. In order to stay ahead of the game against ASICs, Monero releases updates to their algorithm on a bi-annual basis.
Ricardo “fluffypony” Spagni has said, “I will do everything in my power to help the community prevent the proliferation of centralization-inducing ASICs on the Monero network.”
Interestingly, Monero is supposed to be an ASIC resistant currency, and still, an ASIC was created for the network.
The truth is that there is no such thing as an ASIC-proof algorithm. You can make it less profitable to mine on a specific algorithm like Monero or Vertcoin did, but ASIC manufacturers can and will still develop ASICs for that algorithm. This is why ASIC resistance requires a form of social contract to fork when an ASIC is threatening the decentralized nature of the network. But the story isn’t over for Bitmain and Monero. Bitmain won’t let its Antminer X3 become a paperweight.
Yes, that’s right, we now have Monero-Classic. And now we are getting the narrative that Monero-Classic is the true vision of Monero. This sounds oddly familiar, doesn’t it? But that’s not the only fork; from that Lithium Luna update came four altcoins based on the same, old v6 chain; Monero Zero, Monero Original Monero Classic, and Monero-Classic. Yes, the latter two are two different coins apparently.
After Monero’s fork against ASICs, we witnessed a massive drop in hashrate. Hashrate plummeted from 1 GH/s to 157 MH/s; this clearly indicates that ASICs were actually mining on the XMR network.
This kind of drop may raise concerns regarding the security of the network.
If we look at it from a network security perspective, if there would have been malicious actors on the network, the network would indeed get much less secure with a big drop in hashrate. However, since we witnessed such a decline because of the fork, we can assume ASICs were in play. This means that the network is now likely to be more secure than ever because of the greater decentralization of mining operations.
Improved network security is not the only immediate benefit from the fork. Without ASICs on the network, anyone with a decent computer can mine Monero and still turn a profit with it. This increased profitability is a pleasant surprise for honest GPU miners.
What About Ethereum?
The ASIC news didn’t stop there. In fact, it turned out ASICs were recently developed for Ethereum as well. Some developers and much of the community stated their desires to fork Ethereum and brick the ASICs, but Ethereum’s Vitalik Buterin didn’t agree.
“Getting everybody to upgrade is likely to be fairly chaotic and detract from more important things. So, at this point, I personally lean quite significantly towards no action.” – Vitalik Buterin
Vitalik said he was not in favor of a hard fork, as he wants to put more energy toward turning Ethereum to Proof of Stake. Ethereum’s Proof of Stake proposal goes by the name of Casper.
While Casper definitely makes ASICs useless, it does not necessarily make the network safer or more decentralized. One of the strong points of proof of work cryptocurrencies is that everyone can have the same potential power to strengthen the network and to participate in consensus. You can turn on your PC right now and participate, no permission needed.
However, Ethereum’s Proof-of-Stake solution requires you to stake somewhere around 1,000 ETH in order to make it profitable. This is an amount of money that is inaccessible to most people. This creates the danger of making the Ethereum network incredibly centralized; yes even with staking pools because solo stakers would likely get the lion’s share of the rewards. This argument can be made in the Proof-of-Work space with Bitcoin, but this is why ASIC resistance is of the utmost importance.
“The issue is that the only way to gather enough Ethereum to participate in consensus is by purchasing it from someone else, which requires permission. Secondly, these holders who I would purchase from do not really have an incentive for selling their fortune to me to begin with.” – CryptoPlankton, Vertcoin Developer
Vertcoin has been committed to its fight against ASICs. Vertcoin has actually bricked ASICs before; on December 13, 2014, Vertcoin forked from Scrypt-Adaptive-N proof of work function to Lyra2RE to defend against Scrypt ASICs.
Lead Developer James Lovejoy has been adamant about keeping Vertcoin decentralized.
“80 percent of the bitcoin mining occurs in China. So, that isn’t very decentralized. What if China really did ban Bitcoin mining and they just turned the power off, which they totally have the power to do? 80 percent of Bitcoin’s hashrate would disappear overnight, which would be pretty catastrophic. With Vertcoin, that would be pretty hard to do because you would be going into people’s homes and telling them to turn their computer off.” – James Lovejoy, Vertcoin Lead Developer
“The key difference is between permissioned and permissionless systems. In my mind, the way the system is constructed now, ASICs in a system effectively makes it permissioned because you need to be friends with Bitmain in order to get the latest hardware so you can actually be a meaningful participant in consensus. Whereas with GPUs, they are general and they are everywhere, and they have been sold for years, and they are in every computer store. My propensity to contribute to a system in a consensus fashion is not limited by anyone else…” – James Lovejoy, Vertcoin Lead Developer
Vertcoin also has backup algorithms in place in case the current algorithm, Lyra2REv2, gets crowded by ASICs.
Consensus Should Be Decentralized
When consensus is on the line, no quarter should be taken. This isn’t some piece of hardware to streamline some of your computer processes; this is about consensus. Consensus is the lifeblood of a decentralized currency. The solution to keeping decentralization in the front seat is to commit to ASIC resistance and fair mining distributed amongst everyone in the network. When consensus is put in the hands of a centralized entity, we’ve essentially recreated the banking system; this is what Satoshi Nakamoto sought to fight against.
This article is a collaboration between Ben Rodriguez and thatmanontheright. Special thanks to the Vertcoin Marketing and Development Teams.
The article has been updated; the Lithium Luna update did not result in four chains as previously stated, but rather four altcoins on the same chain.