Tuesday, June 27, 2017

Cryptocurrency difficulty algorithm postulates

Here are my "difficulty algorithm postulates" I want people to consider before creating or changing a difficulty algorithm.
  1. For a given hashrate with gentle variation, the simple average below is the best algorithm: 
    • Next D = avg(past N Ds) x TargetInterval / avg(past N solve times)
    • For whatever reason, it needs an adjustment factor for low N to keep solve time on track and make D more accurate:  Next D x 1/(1+0.7/N).  
    • The N used for averaging past D must be set to the N used for past solve times.
    • Using median is not near as good as using average and there is no benefit to using median.
  2. A faster response to hashrate changes will come at a cost in solve time stability. This is not a bad thing. Use the lowest N you can tolerate to get the fastest response. Low N causes large non-attack solve time variation. Consider down to N=8 if hash-attacks are a problem.
  3. Limiting the rise and fall in the difficulty per block is similar to increasing N, but is much less accurate.
    • I place limits on the rise and fall to be equal to what I think possible only as a security measure. 
    • Placing limits on the rise and fall to block an event you do not want is denying the truth of the observation that you have asked the average to report.
  4. Enforcing asymmetric limits on difficulty and timestamp changes are risky.
    • There is a temptation to allow faster decreases than increases in the difficulty per block (that results from the average above) in order to get back to normal after an attack. This may help keep block emission rate on schedule and reduce normal miner loses.  But it also enables attacks to resume more quickly which might exactly negate the two benefits. Avoid this more seriously if the attacker is intelligent.  If timestamps are assigned by miners, forward-stamping (combined with this asymmetry) will make D begin artificially lower in the next attack, amplifying the original problem instead of helping it. But if the allowed increase and decrease in D is symmetrical, then a subsequent accurate timestamp that negates the previous bad timestamp will be able to get D back to its proper value.
    • Conversely, there is a temptation to allow faster increases than decreases in difficulty per block in order to dissuade on-off hash attacks.  This directly will slow block emission rate. It potentially increases normal miner loses if it does not actually dissuade attacks. Avoid this more seriously if the attacker is dumb. It better enables a malicious attack that is not interested in profit to drive the D up, or to drive it up for the purpose of causing future oscillations if the diff algo is unwisely advanced and complex..
    • Limiting the amount the timestamp can be ahead of time more than it can be negative is like allowing D to increase faster than decrease, with the same type of side effects.
    • Limiting the amount the timestamp can be negative is like allowing D to increase faster than it can decrease, with the same type of side effects.
    • Symmetrical in the above is not exactly linear because the median of a Poisson with mean TargetInterval (T) appears to be ln(2) x T = 0.693% of  T but I have not addressed this.
    • Timestamp limits: I believe the forward timestamp should be limited to +6x and -5x previous timestamp instead of my previous statements of +6x and -6x because the "expected" timestamp is 1x, so  +6x and -4x is mathematically required.  But I want a -5x limit in violation of perfect symmetry out of more fear of greedy +6x occuring than -4x accidents or maliciousness. Reminder: two -5x in a row could cause a negative difficulty if N=8, so there needs to be protection against a negative difficulty. 
  5. Despite 3 and 4, there may be a way to use them to enable D to return to normal more quickly in post-attack.  This is really needed because the avg solve time increases (delaying coin release) when there are a lot of large on-off instances because even with low N, D is getting stuck high in post-attack.
  6. There is no way to stop >50% miners from using the timestamp to make difficulty = 0.  This assumes there is not a trusted third party enforcing a clock (like ETH) which is in violation and Szabo and Satoshi mandates. 
    • Might is right. 51% power is truth.
    • 51% (or the trusted 3rd party) controls the clock which means they control coin emission rate.
    • Bitcoin uses > 50% consensus to certify not only single-spend transactions but also the time.
    • Fear of a hard fork may be what prevents miners from doing this overtly.
  7. Difficulty algorithms should not have momentum. Predictive algorithms that look at the slope of recent changes in D to estimate a future D are vulnerable to large on-off miners (and possibly even an accidental and unconscious consortium of miners in search of personal profit) who can force the algorithm into oscillations, turning on when D is low and is starting to rise, and off before it reaches a peak. This is the Derivative part in PID controllers. PI controllers such as the average of the past are safer.
  8. Algorithms that try to protect against specific attack behavior are inherently vulnerable. 
    • It should be assumed that protection against specific attacks is automatically leaving an unexpected hole.
    • If an opponent can see the strategy you've employed that assumes something beyond your scientific observations, he can change his plan of attack but you can't change your defense.
    • For example, if you choose a fixed N based on how long you expect attacks to last, the attacker may make the attacks shorter but more frequent. 
  9. Miners acting in their own best interests weed out weak coins, are the mothers of invention, and/or are encouraging adoption of a single coin. Each of these might be "good" instead of an "attack".
    • Item 6 may mean all coins that are not the largest for a specific type of hardware are destined for a limitation on their size (if not outright failure) that is more brutal than Zipf's law.  We currently see something like Zipf's law in cryptocurrency market caps but if item 5 is correct,  it might become 1/Rank^2 or worse in market caps instead of 1/Rank.  This enforces Satoshi's original vision that the largest coin's "might is right" will make it less subject to attack than its clones. 

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