Tuesday, November 7, 2017

Responsible cryptocurrency

A good friend recently sent me a link to an article estimating the (very large) amount of electricity consumed by Bitcoin's Proof of Work algorithm. In the message, he said "fix this."

My primary concern to date has been the economic risk of transitioning a large amount of economic activity onto cryptocurrencies, only to have the cryptographic foundation collapse very suddenly and spectacularly. This is why I have been probing the potential vulnerabilities in that foundation, and looking at ways to mitigate. If cryptocurrencies are to fractional reserve fiat banking as airplanes are to cars, then I've been looking at the risk of crashing. But what about fuel economy? It is difficult to optimize a thing before you have finished inventing it. On the other hand, network effects can lock in unfortunate design decisions. Perhaps it is not too soon. Perhaps these questions can't be asked soon enough.

The lightning network and other off-blockchain scale mechanisms will inevitably improve efficiency. Those are going to happen. But can we do better than pure proof of work for the underlying blockchains? What about Proof of Stake? I don't like Casper's exposure of public keys and the implied failure modes should the asymmetry one day be lost - which brings us back to the economic risk of crashing our plane.  One might think of running BIP 32 backwards to protect public keys, but that would contain a subtle but serious vulnerability. But then, BIP 32 was not designed for this application and was not intended to be run backwards. Perhaps we can design a better solution. Hmm...

I'll tag posts related to economic and environmental responsibility as "responsible cryptocurrency", since the two considerations cannot be addressed separately.


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