Decentralization in crypto-mining

Decentralization & Mining

Julien from Cruxpool Team

Julien

The question of decentralization is closely related to crypto currency and blockchain as it is one of the main goal of those technologies. However, at different periods of time during the last decade, this vision has been challenged by several actors such as mining hardware provider, mining pools or other entities.

Why Decentralization Matters in Crypto-Mining?

Decentralization, n. The security assumption that a nineteen year old in Hangzhou and someone who is maybe in the UK, and maybe not, have not yet decided to collude with each other.

Vitalik Buterin

Decentralization is one of the main aspects of the blockchain technology and for sure the most important one as it was set by Satoshi Nakamoto, the founder of Bitcoin. It’s not a coincidence that the blockchain technology was created during the 2008/2010 financial crisis during which distrust in the financial institutions was at its peak. The Bitcoin protocol is an answer to the ubiquity of banks and other financial institutions in the everyday life of the people. However, tricky questions arose quickly and came to challenge the very core idea behind this revolution.

One of the biggest potential issue of a proof of work blockchain is the possibility of 51% attacks. Basically, it’s a situation where a stakeholder control more than 51% of the hash power of the blockchain. In this situation, this actor would potentially be able to rewrite the blockchain for his own purpose and could for instance transfer the ownership of a token or double spend some token.

What is double-spending?

This is a type of fraud that is specific to cryptocurrencies, when a crypto asset can be spent more than once. Simply imagine that you make a transaction and send money to a certain address. It would appear on the other party’s wallet and at the same time remain in your own wallet. More than just being an unfair process, it would have bad effects on the value and credibility of the cryptocurrency. That is why Bitcoin protocol had already, in 2009, a system that would prevent double spend frauds. Here’s a graph that sums up how Bitcoin protocol handles the double spend problem. The orignal article can be found here on CoinSutra

How bitcoin prevents double spend

The Fear of 51% Attacks

As security is at the center of all blockchain protocol, it is of tremendous importance that this kind of situation is avoided. The issue of 51% attack became widely known in 2013 when ghash.io became the largest Bitcoin pool and reach 51% of the hashing power of the network several time.

You also will find below a very interesting article about mining process which dates back to 2014 and that goes deep into the subject and gives very useful insights to understand what is at stake.

Since this period, the situation is precisely monitored by most of the member of the network in order to prevent this situation from happening once again.

Centralization in Decentralization

Another widely known issue that challenge decentralized architecture is ASICS mining. As the mining industry evolved, several companies developed dedicated computer to mine cryptocurrencies, starting with Bitcoin in 2013. Those computers, called ASICS for application specific integrated circuits, have a significant advantage against more handwork server. Consequently, ASICS tends to quickly gain considerable market share and completely stifle GPU mining. This is another example of centralization in the world of decentralization, because companies that build ASICS are not very numerous, there are only a few actors in the field.

One such company is Bitmain which at one point had 80% of market share of the Bitcoin ASICS industry. That posed a threat to the integrity of the network because Bitmain remain basically in control of the machine even after it has sold it. At one point, Bitmain was at the center of a scandal because of using the ASICS it has sold to mine for his own purpose with some tricks such as mining a few minutes when the machine is setting up.

Bitmain and Decentralization

As you understood, Bitmain is one of the main hardware mining providers in the world and was especially influential from 2015 to 2018. It’s also quite important to note that Bitmain is behind two of the biggest Bitcoin mining pool: BTC.com and Antpool. It’s also important to note that Bitmain was very influential in the creation of Bitcoin Cash by providing huge amount of hash power to support the network. All those facts highlight the influence of Bitmain on the Bitcoin network.

However, its grip has faded recently because of harder competition and strategic choice. Bitmain is facing a dire situation recently that leads Jihan Wu, founder and CEO, to resign.

What is ProgPow?

It’s a proposition (EIP 1057) that will be included in the next hard fork of the Ethereum network called Istanbul. The goal is to make the Ethereum blockchain ASICS resistant. For a year, ASICS miner started disrupting the mining activity on the Ethereum blockchain. The first of those ASICS was the E3 made by… Bitmain!

In order to secure the blockchain and avoid the trap of the Bitcoin network, several people put forward proposition to make the Ethereum network ASICS resistant. This effort leads to ProgPow. It’s a new algorithm that will frame the network, one that will make unusable all the ASICS developed for the Ethereum network. It will also have an impact on the mining capacity of GPU’s but the consequence is difficult to calculate for now. We’ll have to wait for the release on the main net to evaluate precisely the impact. Here is the detail of all the EIP planned in Istanbul.

Read more : https://en.ethereum.wiki/roadmap/istanbul

BONUS:  A very interesting article about ProgPow

 

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What is Ethereum?

What is Ethereum?

Eric from Cruxpool Team

ERIC

A brief history of the project and its future.​

Cruxpool is an Ethereum mining pool that first only proposed ETH as part of our coin portfolio, and as we are about to propose new coins in the system, we thought it would be a nice idea to go back to the basics of this project!

1. From Bitcoin to Ethereum

We all know that Ethereum is a project whose birth was closely tied to the very existence of the Bitcoin blockchain. It indeed borrowed to Bitcoin the concepts of decentralization, distributed consensus and cryptographic proof-of-work. While Bitcoin still is the #1 top-of-mind cryptocurrency for miners and traders, the Ethereum project is considered as an evolution of this technology. For the analogy, Bitcoin could be seen as “the floppy disk of blockchain, while Ethereum is the CD”.

Vitalik Buterin, its founder-inventor, is the one who produced the concept and the white paper that goes with it. The idea behind Ethereum was to be more than just a cryptocurrency, hence the introduction of the concept of smart contracts and decentralized apps (Dapps). The technology was already there thanks to the Bitcoin environment. Buterin used that and enhanced its capabilities to an all-new level. Vitalik Buterin wanted his blockchain to be a multi-tasking tool with functions only limited by human creativity, and taking as an example the revolution that smartphones were, he said:

“So [what I did is] basically taking that same kind of [smartphone] idea of increasing the power of the system by making it more general purpose and applying it to blockchains.”

Banner_Article_WhatIsEthereum_history

About Smart Contracts

A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. 

If you want examples of smart contracts, how it works and what purpose could they serve, I suggest you take a look at our article “A brave new blockchain world” and see for yourself. 

2. How does Ethereum work?

Ethereum network can be viewed as a programmable blockchain on which you can create and run applications, smart contracts, create tokens, make transactions etc. The structure of that blockchain is, as we said earlier, very similar to bitcoin’s. They share the same idea that every transaction is available and public and stored in a great ledger for everyone to see.

3. Ethereum and Ethereum Classic

For a time, there was only Ethereum and its blockchain kept stacking. As we wrote earlier, the Ethereum network allows applications to run and execute certain types of contracts when they meet specific conditions (on a “IF/THEN” basis).  All of this changed when a decentralized organization that ran on Ethereum got hacked: the DAO (Decentralized Autonomous Organization).

In a nutshell, the DAO intended to provide a voting system to decide which Dapps would be founded. Users had to buy DAO token by using Ether. Holders of this token were voters and gave the approval required for funding.  This project raised more than $150 millions in Ether in just a month. Problem was this project was not secure enough, and this led to a massive hack (about 30% of the initial funds disappeared).

This caused a massive backlash within the Ethereum community, divisions of opinions and instability. This required to rework Ethereum, imagining a fork somewhere in the original chain in order to create a new viable and more secure chain. More than just that, it was a solution to get back the stolen $50 million. This division is what we call a “fork”. The Ethereum branch became the new chain, and Ethereum Classic the “original” and “immutable” blockchain of the Ethereum. Note that the vast majority of the community voted for and followed the Ethereum fork instead of the Ethereum Classic (ETC)

4. Moving forward with Ethereum.

After these events, another phase began and introduced several updates and fixes, but also major changes such as:

Tangerine Whistle: In order to make DoS attacks on low gas much more expensive and therefore less appealing to hackers (reminder:  gas is the unit of cost required to operate transactions on the network). This resulted in an increased gas price for some operations and make them more adequate compared to the computational complexity.

Spurious Dragon: Made to counter another type of attack. At that time, it was possible to create an account by transferring 0 ETH to an address. These accounts, although empty were still stored on the blockchain. Spurious Dragon intend to disable and remove empty accounts that were present on the blockchain in order to prevent any multi-account attacks using that breach.

Metropolis: Byzantium and Constantinople

At this stage, Ethereum operated with a proof-of-work concept and the idea was to switch to a Proof-of-Stake concept, step by step. To prepare for the transition, they began with a set of updates. Without going too much into details, there was for instance an update made to delay what we call the difficulty bomb. Within Ethereum, mining is set to naturally become harder and harder as the blockchain progresses, this is what we call the difficulty bomb, a peak in the complexity. Also, in order to optimize gas costs again, Ethereum founders planned more modifications and fixes.

More on scalability problems

https://github.com/ethereum/wiki/wiki/Problems#1-blockchain-scalability

5. Ethereum 2.0 aka Serenity.

To address the problems of the actual network, the last phase of Ethereum development include major changes in the code. These changes will be rolled out gradually within the next months and years. Ethereum should become more efficient, faster, more secure and scalable. It will for instance allow the platform to handle thousands of transactions per second. Here are some of these evolutions:

From Proof-of-Work to Proof-of-Stake

On the current form of Ethereum, validators of transactions are called miners. They lend their computing power to produced shares (link article) in the hope that it will become a block to encapsulate transactions and add it to the blockchain.

The concept that lies behind PoS is that the validation model virtually reproduces the mining process not according to the computing power, but based on the stacking of tokens. Validator that creates a block will have to prove he is indeed the owner of the stacked tokens. The more tokens he possesses, the higher the chance that he becomes a validator, and eventually get the reward.

The switch from PoW to PoS will not be abrupt, and thus it will require a smooth transition. To this end, the Beacon chain will be introduced in parallel to the current PoW chain.

Transition to beacon chain: “The Beacon Chain is a brand-new, Proof-of-Stake blockchain. It is the spine that supports the whole of the new Ethereum 2.0 system”. In brief, the key idea behind the beacon chain is to run and manage the PoS protocol on the network.

Beacon chain explained: https://www.mycryptopedia.com/ethereum-beacon-chain-explained/

The concept of Sharding

This concept basically means we split a large database into separate parts, called “shards”. This will address the problem of scalability by speeding up transactions and avoid apps from slowing down the network. As a result, validators will have to handle and store a much smaller amount of data and will require less power. This will undoubtedly slow down the need to upgrade often their hardware (which represents a significant cost, with major influence in profitability calculations).

This is a view of how Ethereum Blockchain will look like after the next updates.

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Why cryptocurrencies have a bad reputation?

Cryptocurrencies:
a bad reputation?

Eric from Cruxpool Team

Eric

March 11, 2019. CRYPTO is out on theaters.

 This movie is a thriller that pushes a crypto-laundering narrative and is basically about Russians mafia using bitcoin to fraud money. A lot of comments have emerged by crypto supporters, some of them feeling offended, some others amused by this depiction of cryptocurrencies. Although it may be a sign that crypto slowly introduces itself in popular references, it also shows that cryptocurrencies are in the collective imagination, “the money of the bad guys”.

As you learn more and more about the Blockchain and all its projects, you start to think “Why isn’t everybody using cryptocurrencies? It’s so convenient!”. Well as much as I like the idea of mass adoption, when I talk with friends about it, it doesn’t sometimes seem they’re ready for this technology.

The blockchain looks like the internet in the 90’s

Back in the 90’s, the internet introduced itself to the world. There were advocators that had already a blind faith in what it could achieve, and that truly believed it would change the world and its people. But let’s go back to 1990 for a minute: back then, it was hard to explain this concept. And you know that very often, people fear what they don’t understand.

More specifically  it’s hard for the people to trust a new technology like the internet when media tells you it’s possible to find out how to create a bomb, buy drugs and watch very explicit content. Also remember that the dot.com/internet bubble era fragilized the reputation of the world wide web.

Does this ring a bell to you? Yes, it does, because it’s the same bad reputation that cryptocurrencies suffer from: it’s all about hacking, fraudulent techniques, scams and buying illicit stuff from the Dark Net with bitcoins.

The blockchain is somewhat similar to this in the sense that it’s not easy for anybody to understand how this is working. At the present time, we’re still stuck in a position where we have to spend time explaining “what is the blockchain” and “why it is safe and secure” . We need to start pitching new projects, and new protocols and go forward with new applications and regulations.

We’re a not quite in a situation where it’s ready for mass-adoption, although it might change when giants such Facebook and Amazon will launch their coins.

“ Fear, Uncertainty and Doubt – or FUD - is generally a strategy to influence perception by disseminating negative and dubious or false information and a manifestation of the appeal to fear.”

Where does this reputation come from?

“Cryptocurrency is the money of the criminals”.

Although it’s quite inaccurate, it is not false to underline that illegal transaction occurs with bitcoin. Yet in fact, recent studies tend to show that illegal activity is no longer the dominant factor in cryptocurrencies. DEA agents claim “The ratio of legal to illegal activity in bitcoin has flipped…Now, illegal activity has shrunk to about 10 percent and speculation has become the dominant driver.” This goes against the popular belief that crypto are made for illicit transactions.

The most famous story that pushed this bad reputation is probably the one of the Silk Road created by Ross Ulbricht aka “Dread Pirate Roberts”. (If you don’t know the background of the Silk Road, I encourage you to read this.)

On the anonymous marketplace “Silk Road”, bitcoins were compulsory for any transactions. Although it was not entirely anonymous, it offered more discretion for buyers and sellers of the dark net. This case is among the biggest that proved to give bitcoin a rather negative reputation while in fact, it just happened to be the mean of transaction.

There are several others cases like this and it’s probably impossible to accurately state how much of bitcoin transactions are used for illicit activities. Yet truth is that we just need for more regulation and security. Remember that this is not entirely anonymous, the blockchain is public and all transactions are documented in the blockchain.

Today there are more and more procedures required in blockchain platforms (exchanges, wallets etc.). For instance we have KYC (Know-your-customer) processes.  KYC is “the process of a business verifying the identity of its clients and assessing their suitability, along with the potential risks of illegal intentions towards the business relationship” so that “customers provide detailed due diligence information.

bitcoin from illicit activities have shrunk to 10%

“Cryptocurrencies are only about scams and frauds”.

A report from Satis Group highlighted the fact that 78% of ICO where identified as scams.

“On the basis of the above classification, as a percentage of the total number of ICOs, we found that approximately 78% of ICOs were Identified Scams, ~4% Failed, ~3% had Gone Dead, and ~15% went on to trade on an exchange.”

Another study from Boston College shows that 50% of blockchain projects were dead within 4 months of ICO. So, it seems true that the Investment frenzy probably did not do good on crypto reputation. But the fault should certainly not lie on the shoulders of the technology, but rather on those who backed these projects without using their common sense.

We can all agree that there’s a need for better business practices, in order to protect and inform investors better. Projects should demonstrate viability, legitimacy and sustainability. At the same time, investor should do their research and stop being delusional about the last “so called” revolutionary and disruptive crypto project they just heard about on twitter. (#HelloCryptoTwitter).

On top of that, from a philosophical point of view, it seems that nowadays people are much more interested in cryptocurrency and trading rather than interested in the blockchain technology itself. To me it appears that the perspective of making a fortune thanks to the “crypto el-dorado” ranks above the perspective of transforming our society and humanity. This maybe where the true problem lies. 

“It’s not a safe thing, I could be hacked”

There have been multiple occurrences of hacking related in the press the last few months. Most of the time when it appears in the media available to the general public, it feels like the crypto is not safe. Truth is: It’s tough to hack the blockchain. It’s the exchanges and the wallets that are unsafe because of their centralized characteristics. By extension, blockchain and cryptocurrencies suffer from this bad reputation.

There is a bit of a paradox in this because security is brought by the concept of decentralization (our article here). Yet for a better user experience we accept to put our trust in third-party platforms such as exchanges. These may put at risk the coins we stack there if thery’re not secure enough. 

It’s up to the users and participants of the blockchain to be able to put in safety their private and personal keys, use 2FA procedures. Also they have to be more responsible and do a bit of research when they choose to trade/exchange on a specific platform.

Cryptocurrencies: how to build trust and confidence?

To me there’s a bit of controversy and confusion, because it’s easy to forget that crypto is not fundamentally illicit, it’s the people that can use them badly. This is only a matter of reputation, image, and branding. Cryptocurrencies are not “bad” in essence.

 I remember reading an article explaining that more than 80% of dollar bills in circulation in the US had traces of cocaine (among other things) . It’s not because bills have been used for illicit activities that the money in itself suffers any form of prejudices. Nevertheless, think about it: money, credit card, ID’s can be stolen, your accounts can be hacked yet you don’t stop using these means of payments, you are covered by insurances etc. I believe that only the progressive introduction of bitcoin, ethereum (and others) into our daily lives could help increasing the positive opinion in the general public.

The paradox is here for me: the key to mass adoption … is mass adoption. In order to get to the point where you have trust and confidence in such payment methods, everybody needs to start using it. I read somewhere:  “Once we have integrity in the technology and the trading process then markets will be much safer.”

Having good regulation and diligence is the responsibility of every actor of this industry, because I doubt cryptocurrencies will at some point stop being the target of scammers and people who wants to make money out of other users by deceitful techniques. But as we are leaning towards more security and better understanding of how it works, fraud should be more easier to monitor. Criminals thought they would become untraceable, invisible to the system, which is not true. A 2018 study showed that digital forensic experts working on cybercrime and are able to identify criminal entities judging by their pseudonymous behaviors and link them to real-life identities. Always remember that most blockchain projects are public.

Matt Bisanz, financial services regulatory and enforcement associate at Mayer Brown:

“We still have to put more in place to build confidence, where crimes are rare or have little effect on the consumer. When you get your credit card stolen, you don’t stop using it. It has low impact. Until crypto gets to a similar level, where people are not losing these sums of money, there will always be a question mark.” 

(https://www.raconteur.net/finance/cryptocurrency-restoring-reputation)

What's next for cryptocurrencies reputation?

I truly believe in the power of the blockchain to transform our society for the better. But even though mass adoption does not seem to be for tomorrow just yet, it’s getting closer and closer. It’s our job, as a community (of miners, traders, businesses, enthusiasts) to collectively prepare and enforce the regulations, rules and best practices we need for a safer use of blockchain technologies. We need to help general public to understand that behind the cryptocurrencies, there is a project. We need them to know what can be achieved and we have to propose mature projects instead of “super hype altcoins” that makes no sense. When people will realize all the possibilities and feel more comfortable with this technology, blockchain will get to the next level.

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Infographics: A Brave New Blockchain World

A brave new blockchain world

Eric from Cruxpool Team

Eric

A brave new blockchain world

Many miners and traders are simply viewing cryptocurrencies and blockchain technology as a mean of creating some income and possibly earning some big numbers. Althought it’s not false, there’s so much to that. We firmly believe that blockchain has the power to transform in a positive way our society. Here is a non-exhaustive list of real-life applications to the blockchain technology.

Buy,sell and exchange

Digital security and identity

Imagine being able to buy and/or sell anything, anywhere in the world, with the same currency and with 100x smaller fees. Moreover, this would prove to be much more secure because all transactions would be verified by the blockchain system and encrypted into blocks that can be verified!

Think about it: transforming all your ID’s into hash-coded numbers so as to make identification and authorization processes faster and more secure. This would lead to much less identity fraud and theft, and less data breaches.

Including: Passports, Birth Certificates, Wedding Certificate, Identity Cards, ID on the web.

Blockchain in Business

In the manufacturing sector: companies could keep track of every item they produce in order to fight hazardous counterfeits and ensure high quality and transparency of their products.

Plus, with blockchain technology,  customers could get all the provenance details of their goods, without having to trust a simple packaging or “made in xxx” label!

Including: Luxury goods, Food, Pharmaceuticals

Support functions such as marketing, sales and finance could benefit from the power of the blockchain.

– Develop their very own smart contracts for customers (commitments, loyalty programs etc).
– Make payments more easier, faster, secure.
– Develop an all-new form of tokenized advertising methods that are more ethical and fair to the customers.

Traveling, Tourism

Healthcare

You wouldn’t have to change money or be impacted by any change fees. Go anywhere you want without the difficulties imposed by fiat money.

Moreover, ticketing system and booking would become much faster and more secure. It would be easier and 10x faster to get a refund with smart contract when a transport is canceled.

Gather all your medical data and records inside the blockchain and track any operation, vaccine, treatments plus all the medical history of your parents and grandparents.

On the other hand, you could also manage all your healthcare contracts, private life insurances and data with such a system.

Media & Entertainment

Government

Blockchain and smart contracts could benefit all content creators wether it’s about music, film, videos, books etc. and create a fairer deal between creators and consumers.

Also we could  see the emergence of in-game crypto-economy. Imagine having some specific and unique items that nobody else could have except you.

With Blockchain, electronic voting could be done within minutes and with the assurance that it is secure and impossible to falsify.

On top of that, this could also be applied to all forms of elections, votes, referendum that usually costs a lot to governments. It would become easy to replicate more often and for next to nothing in terms of finance.

Here's a little infographic that sums up the article, feel free to share it on the web!

An infography that represents blockchain applications to the real world
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