I’ve written fairly a bit about my considerations concerning drivechains and miner incentives over time, as a result of I believe it’s a essential set of dangers to pay attention to. Bitcoin is nearly 15 years outdated as a stay community at this level, and it has stood as much as a very good little bit of stress and outright malicious griefing and assaults over these 15 years. Bitcoin has withstood inner assaults from builders making an attempt to radically alter the system, it has withstood the identical assault from a lot of the main companies within the house, it has survived what might have been deadly and catastrophic bugs, tremendous powers banning it, wild worth volatility, and many others. It has stood as much as every part so far that has been thrown at it. Why?
Due to the resilience of its incentive construction.
Developer coups failed due to invested customers incentivized to determine the rational long run route to go. Enterprise coups failed as a result of those self same customers and their prospects to these companies is what made them cash. Nation states coming down and banning Bitcoin had no impact, as a result of invested sufficient customers had each cause on the planet to go away and flee to friendlier jurisdictions. If it weren’t for the incentives of particular person customers, and the way their particular person incentives interacted with one another as a posh system, Bitcoin wouldn’t have survived any of these points.
Something that presents a critical chance of severely altering the steadiness of these incentives is one thing that ought to be approached with excessive warning and skepticism. For my part, destabilizing the motivation steadiness that makes Bitcoin work is actually the one option to actually trigger a system failure. Anything that may be thrown at Bitcoin is one thing that ought to be robustly tailored to, even when it does trigger you upset as a result of the fiat worth is affected negatively.
Closed Versus Open Layers
With regards to mining incentives and the way they’re affected by secondary layers on high of Bitcoin, there’s one vital variable or attribute to contemplate: Is the layer open or closed. What I imply by that, is how does the participation in that layer work? Does it truly require energetic collaboration and cooperation between individuals on the second layer to perform, or can it work asynchronously like Bitcoin’s base layer the place individuals don’t have to synchronously cooperate for it to work?
This single element has large implications for the impact any new Bitcoin layers can have on the bottom layer mining incentives. And, at the very least from my viewpoint, individuals on this house dangerously miscalculate which one has constructive penalties. A really broadly held perception is that layers which require synchronous cooperation are inherently flawed, and that property is a large shortcoming, whereas concurrently believing that asynchronous non-cooperative layers are the holy grail of scaling.
I’d contend the precise reverse is true. That requirement to synchronously cooperate that many individuals have a look at as a friction for customers, engineering constraints which can be crippling, or an insurmountable hurdle, will also be checked out as a type of defensive structure.
Whereas requiring interplay between individuals in a layer to replace the state of that layer, nobody exterior of the set of individuals can attempt to sport that layer. Take into consideration a Lightning channel: Who can replace the state of that Lightning channel? Solely the individuals. Who can immediately acquire from malicious actions on-chain to shut or modify a channel on-chain? The individuals. Miners can profit not directly from charges paid for malicious closures, however they don’t have any direct management over that. They’ll solely have a look at what every participant is prepared to pay in charges, and choose the very best payer. That’s on no account totally different than another case of conflicting on-chain transactions competing to be confirmed first. Miners will not even discover themselves in that state of affairs both, except a channel participant chooses to submit a malicious shut — which they don’t have any management over.
So what does this do to change or change the dynamic of miner incentives? Nothing. It’s in the end no totally different than Bitcoin incentives are with out Lightning. Miners have to decide on between a set of transactions, with no management in any way over what these transactions are, and choose those that make them essentially the most cash. Distinction that with drivechains.
The contents of a drivechain block may be regarded as a “transaction” for the aim of occupied with this right here, with the one exception that the one “transaction” incorporates a mess of inner transactions whose order all have critical penalties for the worth of the “transaction.” Who can modify or replace the contents of this “transaction?” Actually anybody. Now to be clear, it is a bizarre conceptual factor making an attempt to map the technical actuality to this analogy, nevertheless it’s needed I believe to make the purpose I’m making an attempt to make. The drivechain block, or the info that anybody can modify or replace and embrace in a transaction, is not a lot the transaction itself as it’s information anybody can embrace in their very own transaction. However the level is anybody can embrace their very own model in a transaction, and solely one among them can affirm.
That instantly provides miners an uneven benefit in interacting with that layer over another participant who is just not a miner. With regards to a Lightning channel, miners cannot simply replace or change the present state of the channel between you and another person. That another person needs to be the miner themselves, or they’ve zero affect over that. If you and another person have a channel, and your counterparty tries to substantiate an outdated state, the miner features nothing from that besides mining charges, identical to another transaction. They don’t have any particular incentive to substantiate an outdated state over the present one besides the feerates between one another, identical to each different transaction they contemplate. They obtain no particular profit from one or the opposite.
Distinction that with a drivechain. Let’s ignore the difficulty of miners stealing cash in a means that validates sidechain guidelines, and faux that’s not a problem and can by no means occur. Drivechains nonetheless add a totally totally different dynamic and incentive for miners: Their capacity to preferentially profit from particular transactions occurring, not occurring, or the order they happen in. A miner cannot simply bounce right into a Lightning channel they don’t seem to be a member of, and alter the way it updates off-chain. They can not cease you from making that off-chain cost simply because it might profit them to have it not happen. That is simply essentially not how Lightning works. That’s precisely how drivechains work although. Anybody could make a transaction crafting a brand new drivechain block, however that block won’t ever be confirmed with out miners approval. Mix that actuality with the truth that anybody could make a kind of transactions, together with miners themselves, and so they have a large uneven energy no different individuals do. They’ve whole management over what the contents of sidechain blocks each time they mine a mainchain block. So in contrast to Lightning, within the context of drivechains, if a miner can profit out of your transaction not occurring, they’ll forestall it occuring as long as they mine the subsequent block, and so they can exchange it with no matter they need.
That may be a very, very large distinction by way of how these two varieties of second layers affect total community incentives, and it would not simply apply to drivechains. It applies to any kind of second layer system that’s “open” within the sense that anybody can work together with it in a option to change or replace its state. The identical situation exists for non-federated rollup variants known as validiums. Any kind of rollup like system, similar to a validium, that does not retailer the knowledge customers require to withdraw their cash on the mainchain, however permits anybody who can present a Zero Data Proof or different type of proof that each one the steadiness updates are legitimate to carry out a state replace, is similar kind of dynamic, even worse arguably. Any miner at any time might replace that system’s state with completely legitimate transactions, and simply maintain the info customers have to exit the system hostage. At any time. Even when they’re simply 1% of the mining hashrate. Miners can do nothing of the type with “closed” methods like Lightning.
Wrapping It Up
Think about all of the varieties of methods individuals wish to construct on Bitcoin; decentralized exchanges, arbitrary good contracts, programmatic secure worth methods, and many others. Purposes constructed on high of Lightning inherently closely limit who can manipulate or attempt to sport these functions; i.e. solely the individuals truly concerned within the Lightning channels internet hosting these functions can achieve this. These varieties of functions constructed on one thing like a drivechain, or a rollup, are open for completely anybody to aim to control or sport. Any kind of software or system constructed on high of Bitcoin that has open entry is gameable by anybody. And in an open entry paradigm in Bitcoin, the miners at all times have the primary place in line to sport these functions. It doesn’t matter what the applying is, or how troublesome it’s to sport it, or how a lot you possibly can revenue by gaming it, the miners at all times have the flexibility to sport it first with out letting anybody else make that try.
This can be a very large deviation from the present dynamic, or the longer term dynamic of closed methods, whereby miners merely choose from a set of transactions introduced by different individuals with no capacity or management over what these transactions are. It is a fully totally different universe. Closed methods fully wall off the flexibility to extract worth by gaming the system from miners, absent energetic collaboration with a majority of miners by a participant in that system. Open methods may be gamed asymmetrically by miners with out even requiring a majority.
That may be a full paradigm shift, and a doubtlessly harmful one. The frequent argument why this is not a fear is that it’s already made attainable with methods like Stacks, or tokens on Ordinals. These methods, though they’re open methods, will not be a correct a part of the Bitcoin market. Stacks or an Ordinal token aren’t simply inherently going to extend in worth as a result of Bitcoin does: They’re freely floating tokens valued independently of bitcoin. If the worth of these methods does not develop in lockstep with the worth of bitcoin itself, then the diploma to which they distort or alter incentives shrinks accordingly to the hole in progress between these methods and Bitcoin itself. They don’t have the identical diploma of affect in any respect on incentives {that a} comparable open system pegged on to the worth of Bitcoin itself does.
Arguing we should always proceed constructing extra open methods on Bitcoin as a result of some are attainable now’s akin to arguing that you’ve a excessive however not fairly deadly dose of poison in your physique, so that you may as effectively preserve ingesting extra of that poison. It’s a fully irrational and self-harming angle and mind-set.
From the place I stand, the one most vital issue to contemplate when growing and increasing the performance of Bitcoin going ahead is to get the performance we would like or want whereas actively avoiding the enabling of any extra “open methods” as I’ve outlined them above. If distorting incentives is the one means for Bitcoin to fail, some of these methods are the poison capsule with a deadly dosage inside. We must always keep away from them just like the plague.
*NOTE* Article was up to date shortly after publication to appropriate terminology errors associated to rollups and rollup-like methods.
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