Post
Topic
Board Bitcoin Discussion
Re: How are large mining pools not a threat?
by
eleuthria
on 03/01/2014, 23:00:20 UTC
I think one thing you're missing is the fact that the nefarious miner can only succeed with a certain probability.  Consider a nefarious miner with 25% of the global hash power:


The probability that he mines the next block = 25%
The probability that he mines the next two blocks is 0.25 x 0.25 = 6.25%
...
The probability that he mines the next six blocks is 0.25^6 = 0.024%
The probability that he mines the next seven block is 0.25^7 = 0.0061%


Consider your example of double-spending to crash the market: the nefarious miner transfers 10,000 BTC to MtGox to dump, and then starts trying to mine a new chain fast enough that he can "undo" this 10,000 BTC transaction.  While feverishly mining, he waits till his MtGox deposit has confirmed, and then market sells his 10,000 BTC.  Due to slippage he gets significantly below market price.  Then it dawns on him that since he only has 25% of the global hash power, the chances that he will actually succeed in this double-spend attempt is remarkably small.  He literally must perform this fraud attempt hundreds of times before he is likely to succeed.  Each time he fails, he looses a significant amount of his capital (because he just did something stupid like market selling 10,000 coins).  In the extremely unlikely event that he succeeds before he runs out of bitcoins, what he did will be pretty obvious since he would orphan a long valid chain, that, hmm, just happens to correspond with the big dump at MtGox.  
  


Don't forget that no exchange will actually send your funds instantly, they all wait days/hours, and large transactions are manually processed.  Additionally, a double spend is not only publicly viewable but OBVIOUS once it has successfully happened.  You'd never get any money from the exchange.