 | Chip contrarian The threat to proof-of-work blockchains from specially designed mining chips is overstated, while mining through regular video graphics cards may actually introduce vulnerabilities, argue Dovey Wan and Martina Long.
Read more in THE TAKEAWAY below. | | |
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DC BlockchainLawmakers, regulators and innovators poured into Washington D.C. this week for the Chamber of Digital Commerce’s 4th annual DC Blockchain Summit.
During the week, Perianne Boring, the Chamber’s founder, outlined the group’s recently-revealed National Action Plan, which calls on the federal government to, among other things, "establish an office that coordinates U.S. Blockchain strategy going forward."
That being said, some are wary about nationally coordinated approaches. U.S. Securities and Exchange Commissioner Hester Peirce – perhaps better known as “crypto mom” after she dissented from a vote rejecting a bitcoin exchange-traded fund proposal last year – offered a note of caution about such strategies.
During a fireside chat with Boring, Peirce called the Chamber's plan "helpful" but added that coordinated efforts with the government have "gotten us into lots of problems in the past."
Rather, she believes innovators must explain what specifically they might need from regulators such as the SEC, explaining “you all need to come in and tell us where the pain points are, where the old regime doesn’t fit, and then we can move forward with guidance.”
Ultimately, she does believe that the SEC must issue Commission-level guidance, which can provide “clear regulatory guidelines.”
“We do need to let people know where they stand, but then within that we need to let people do what they want to do and try not to have too much government partnership with the private sector,” she said.
Other prominent voices in the space weighed in on different topics and recent news, with Ripple CEO Brad Garlinghouse dismissing JPMorgan Chase’s JPM Coin during another fireside chat.
In short, Garlinghouse believes the only positive to JPM Coin is that it might be drawing banks such as JPMorgan into crypto, but “that’s the only nice thing I’m going to say about this.”
In particular, he doesn't see any other bank using the JPM Coin. If, instead, these other banks develop their own internal stablecoin-style tokens, that might just result in new interoperability challenges without solving any of the existing problems.
Moreover, he questioned the purpose of JPMorgan using a token to transfer value only within its internal ledger.
“I don’t understand. If you’re just moving within the JPM ledger, and it has to be dollar-to-dollar, one-to-one backing, I don’t understand what problem that solves,” he explained.
Other companies are going live with clear uses.
Fidelity Digital Assets has been live for some time, said president Tom Jessop. He told CoinDesk prior to a fireside chat at the summit that Fidelity Investments' digital asset trading and custody branch supports bitcoin already, and is working with clients to iron out any bugs and determine which other assets to support.
Further, the firm is working to secure state-level regulatory licenses, including money services business licenses, to continue to expand its operations. Fidelity Digital Assets is also still working to become a qualified custodian.
While Jessop explained that Fidelity would add assets based on client demand, and at present such demand correlates with market capitalization to some degree, he noted that ethereum (the world’s second-largest coin) would not be added immediately.
"We'd love to have support [for] ether but you know you have a hard fork coming up and some upgrades, so I think we're trying to see how those things work out before we make a decision to put them on the platform," he said. |
States wade in
U.S. states are continuing to gingerly look at blockchain and cryptocurrency regulations, with three filing new bills recently touching on different aspects of the nascent space.
Utah state senator Daniel Hemmert wants to ensure crypto firms that create, exchange or sell certain types of blockchain-based products are exempted from the state’s money transmission law, which has stringent registration requirements.
A group of lawmakers in Connecticut, meanwhile, want to legalize the use of smart contracts for businesses, in effect ensuring that transactions processed through smart contracts are as legally valid as any other transaction.
This would put firms using smart contracts to store data on equal legal footing as companies that use more traditional ledger technologies to secure information.
While legal recognition of blockchain and companies incorporating such tools is slowly growing, lawmakers are still only poking at the technology. Hemmert’s bill also calls for a task force to study how the government might be able to take advantage of blockchain.
The task force would look at how blockchain may be able to stimulate "future economic development," as well as recommend a pilot project using the technology at a state or municipal level.
A bill in Colorado similarly calls for a study on how blockchain technology can be used to create new efficiencies – in this case, for water rights management. If passed, the bill would authorize the Colorado Water Institute, an affiliate of Colorado State University, to determine whether blockchain can improve its water rights database, help establish water “banks” or general administrative tasks. |
 QUOTE OF THE WEEK | |  | "They are paradoxically creating something that is supposed to be transparent, but basing it on something that they apparently won’t explain.”
– Stephen Palley, a partner at Anderson Kill, on the lack of transparency around the DAI ecosystem. | | |
The Takeaway |  | | |
Dovey Wan is a founding partner of Primitive Ventures and a member of the CoinDesk advisory board. Martina Long is a partner at Primitive Ventures.
The authors thank Hugo Nguyen, Ha Su, David Vorick, Pete Rizzo, Nic Carter, James Prestwich, and Derek Hsue for helping develop these ideas. This article is for research purposes only and Primitive Ventures does not hold any $ETH, $ETC, or stock in ASIC or GPU manufacturing companies.
Recently, there has been discussion regarding a change of PoW proposal for Ethereum, called ProgPoW (short for programmatic proof of work). Proponents of ProgPoW want to flip the paradigm of the cryptocurrency mining industry on its head. Their thought is: instead of building hardware to fit the mining algorithms, a somewhat “wasteful” approach, we should be using mining algorithms that are optimized for GPUs to encourage the decentralization of mining.
At first glance, ProgPoW appears to minimize the advantage ASICs have over commodity hardware, making mining more accessible and thus decentralized. But upon further inspection, it becomes evident that ProgPoW doesn’t truly democratize mining as it claims.
The current implementation of ProgPoW in fact worsens the performance gap between the different GPU models, with preference given to the newer and more expensive GPU models from NVIDIA and AMD (the RTX 2080, TitanX and Vega 64). The team behind the proposition has been transparent about the fact that the algorithm is optimized for certain GPUs, and they are actively working on a newer version of the algorithm to make it more fair to all models. We will update the performance benchmark here once it’s available.
The table below (source) illustrates the hashrate reduction comparison between Ethereum’s current mining algorithm, Ethash, and ProgPoW for different GPUs. Highlighted in red are the models ProgPoW favors, which see a much smaller decrease in hashrate and greater improvement in bandwidth utilization under ProgPoW. The implementation of ProgPoW in Ethereum will potentially serve to centralize mining further in the hands of those mining farms which have these high-end GPUs, or urge farm owners to upgrade to those models.
A Nonexistent Problem
Putting that fact aside, the “ASIC threat” that ProgPoW purports to solve is actually not as much a problem as one might think. Even ProgPoW developers acknowledge that Ethereum’s algorithm is already one of the most ASIC-resistant. The best Ethereum ASICs have a tough time achieving a mere 2-4x improvement over GPU mining, far less than Bitcoin ASICs.
Vitalik Buterin, the founder of Ethereum, is also not concerned about the threat ASICs pose, saying: “If you look at the E3 that was released a few days ago the efficiency gains are relatively small compared to existing GPUs. My Chinese sources indicate a 220 MH/s miner costs about $2,500, while Bitmain is offering a 180 MH/s for $800, which is only a 2.5x factor of improvement.”
(Source.)
Indeed, though it is difficult to know exactly what proportion of Ethereum mining is performed by ASICs, most sources estimate that it is probably quite low . The “ASIC problem” is largely a non-issue for Ethereum. This is because an ASIC must have long term potential to be worth the high upfront cost to miners. Unlike GPUs, ASICs are highly specialized machines specific to the mining algorithm they are developed for, and are useless for mining other chains. With the switch to PoS planned for Ethereum in the near future, it doesn’t make economic sense for most miners to further massively invest in Ethereum ASICs for their brief lifespan.
GPU Mining != Decentralization
The reasoning behind the argument that GPU mining is more secure is that in theory it makes mining accessible to the layman, and thus more decentralized and resistant to 51% attacks. Regular “at-home” miners can’t afford expensive ASICs, and thus if we want to encourage decentralization, GPUs are a better option.
But in reality, even GPU mining is largely concentrated in mining pools or farms, not in the hands of individual hobbyists. Centralization in pools does not happen because ASICs are inaccessible to the layman. Rather, it is because of the benefit that economies of scale provide in giving miners belonging to pools a steadier payout. Centralization in farms is largely due to the cheap energy available in certain regions.
(Source)
GPU friendly mining is not going to encourage significantly more at-home miners and it won’t dissolve existing mining pools either. Rather than naively holding onto the hope of making mining slightly more accessible to a few at-home miners who barely make a drop in the ocean, we should disincentivize those pools which dominate from attacking the system. Here is where ASICs come in.
Seeing ASICs in a Different Light
The assumption that ASICs make a network less secure is misplaced. It comes from a failure to consider all the incentives at play. Namely, the fact that the specificity of ASICs is actually a key security component.
An ASIC is a machine whose circuits are designed specifically to run a single hashing algorithm, and are useless for any other purpose, unlike GPUs which are multipurpose and can be used to mine on many different chains. The sunk cost of both ASIC development and investment functions as a one-time entry ticket into network participation. Such a security expenditure incentivizes ASIC miners to protect the chain in order to preserve the future return on their hefty hardware investment.
Whereas a GPU miner does not need to be loyal to any particular hashing algorithm and can simply switch back and forth between chains to optimize their profits, or even repurpose their hardware for non-mining activities. Used GPUs can be resold for over 50% of their original value, while ASICs resell for only 5% of their original value, and that price is also dependent upon the value of the tokens it is specific to.
A key factor in a chain’s security against a 51% attack is whether there is excess hardware available for an attacker to accumulate hash power with. The excess hardware in ASIC mined chains is usually close to zero, but readily available for GPU mined chains. It’s extremely difficult to quickly acquire enough ASICs to launch an attack even when it is worthwhile to, whereas there are plenty of secondary markets for GPU hashrate and AWS GPU instances. The more general purpose the hardware is, the more available excess capacity there is, and the less secure the chain is against attacks.
This is not merely theoretical—multiple known 51% attacks on GPU coins have already happened. Most recently, Vertcoin and Ethereum Classic. David Vorick goes into the topic of ASICs as a security feature here and Dovey Wan has a thread on why 51% attacks are an evolutionary feature, not a bug, here.
Centralization on the Manufacturing Level
Centralization on the hardware manufacturing level is also a concern for networks, and GPUs are much more centralized on the manufacturing level than ASICs. GPU manufacturing has been largely dominated by 3 vendors in the past two decades, whereas ASICs remain a highly competitive industry due to the arm race of higher mining margin. In the past, while a given ASIC manufacturer may have become the dominant manufacturer of machines for a given hashing algorithm, they have never been able to dominate manufacturing for all chains. It’s possible to overthrow an ASIC leader in a few years, but almost impossible to overthrow Nvidia, AMD, and Intel.
Any update to an established mining algorithm comes with unproven security risks and the hassles associated with upgrading a worldwide system of miners. The upside of Ethereum adopting ProgPoW is minimal, since ASICs do not pose a large problem to the network.
And while it is no longer much of a debate for Ethereum, which is soon to switch to Proof of Stake, other Proof of Work coins still face the question of whether to freely allow ASICs. Those chains should consider whether GPU mining really does increase the security of their system or if it is, in fact, a security vulnerability in itself. — Dovey Wan and Martina Long |
 BEYOND COINDESK... | | |
CAITLIN LONG / FORBES: Wyoming has enacted 13 different laws, creating a “comprehensive, welcoming legal framework " for blockchain technologies, writes Wall Street veteran and prominent blockchain advocate Caitlin Long. In this Forbes piece, Long outlines what she believes these new laws mean for the state and for crypto startups looking to set up shop or move to the Cowboy State.
A16Z: Cryptocurrency networks are creating a new sort of digital community, one which uses "cooperative capitalism" to compete with existing types of co-ops and companies using cooperative networks, writes Andreessen Horowitz's Jesse Walden. What's more, these networks are demonstrating how they can "engender trust at new scales," grow more easily than existing co-ops and even establish their own governance structures that – obviously – don't require a centralized power structure.
BLOOMBERG: Major banks continue to refuse to provide banking services to crypto startups , including those raising millions of dollars with backing from established funds – such as Singapore’s sovereign wealth fund, according to Alastair Marsh and Silla Brush in Bloomberg. Part of this may come from the fact that while there are numerous entrepreneurs who need banking services for legitimate business needs, there remain fraudsters and grifters who would abuse such systems. As a result, banks may find it easier to ban an entire developing industry than put in the resources to develop full know-your-customer and other compliance controls. |
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