The Unreasonable Fundamental Incertitudes Behind Bitcoin Mining
This work addresses fundamental uncertainties in Bitcoin mining for miners and the cryptocurrency community, highlighting potential inefficiencies and proposing changes to the specification, though it is incremental in its cryptographic analysis.
The paper tackles the cryptographic process of Bitcoin mining by reformulating it as a Constrained Input Small Output (CISO) hashing problem and reducing it to a block cipher problem, estimating a cryptographic constant of at most 1.86 to show that mining costs are lower than perceived, potentially saving tens of millions of dollars annually in electricity bills.
Bitcoin is a "crypto currency", a decentralized electronic payment scheme based on cryptography which has recently gained excessive popularity. Scientific research on bitcoin is less abundant. A paper at Financial Cryptography 2012 conference explains that it is a system which "uses no fancy cryptography", and is "by no means perfect". It depends on a well-known cryptographic standard SHA-256. In this paper we revisit the cryptographic process which allows one to make money by producing bitcoins. We reformulate this problem as a Constrained Input Small Output (CISO) hashing problem and reduce the problem to a pure block cipher problem. We estimate the speed of this process and we show that the cost of this process is less than it seems and it depends on a certain cryptographic constant which we estimated to be at most 1.86. These optimizations enable bitcoin miners to save tens of millions of dollars per year in electricity bills. Miners who set up mining operations face many economic incertitudes such as high volatility. In this paper we point out that there are fundamental incertitudes which depend very strongly on the bitcoin specification. The energy efficiency of bitcoin miners have already been improved by a factor of about 10,000, and we claim that further improvements are inevitable. Better technology is bound to be invented, would it be quantum miners. More importantly, the specification is likely to change. A major change have been proposed in May 2013 at Bitcoin conference in San Diego by Dan Kaminsky. However, any sort of change could be flatly rejected by the community which have heavily invested in mining with the current technology. Another question is the reward halving scheme in bitcoin. The current bitcoin specification mandates a strong 4-year cyclic property. We find this property totally unreasonable and harmful and explain why and how it needs to be changed.