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I’ve written fairly a bit about my considerations concerning drivechains and miner incentives over time, as a result of I feel 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 Bitcoin is nearly 15 years outdated as a stay community at this level, and it has stood as much as a great little bit of strain and outright malicious griefing and assaults over these 15 years. Bitcoin has withstood inside assaults from builders attempting 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 may have been deadly and catastrophic bugs, tremendous powers banning it, wild worth volatility, and many others. It has stood as much as the whole lot to this point 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 this planet to depart 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 stability of these incentives is one thing that must be approached with excessive warning and skepticism. For my part, destabilizing the motivation stability 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 must 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 may be one essential variable or attribute to think about: Is the layer open or closed. What I imply by that, is how does the participation in that layer work? Does it truly require lively collaboration and cooperation between members on the second layer to perform, or can it work asynchronously like Bitcoin’s base layer the place members don’t have to synchronously cooperate for it to work?
This single element has huge implications for the impact any new Bitcoin layers can have on the bottom layer mining incentives. And, not less than from my viewpoint, folks on this house dangerously miscalculate which one has constructive penalties. A really extensively 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 might 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 might be crippling, or an insurmountable hurdle, may also be checked out as a type of defensive structure.
Whereas requiring interplay between members in a layer to replace the state of that layer, nobody outdoors of the set of members can attempt to recreation that layer. Take into consideration a Lightning channel: Who can replace the state of that Lightning channel? Solely the members. Who can immediately achieve from malicious actions on-chain to shut or modify a channel on-chain? The members. Miners can profit not directly from charges paid for malicious closures, however they haven’t any direct management over that. They will solely have a look at what every participant is keen to pay in charges, and choose the very best payer. That’s on no account totally different than some other 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 haven’t any management over.
So what does this do to change or change the dynamic of miner incentives? Nothing. It’s finally no totally different than Bitcoin incentives are with out Lightning. Miners have to decide on between a set of transactions, with no management by any means over what these transactions are, and choose those that make them probably the most cash. Distinction that with drivechains.
The contents of a drivechain block could be regarded as a “transaction” for the aim of serious about this right here, with the one exception that the one “transaction” incorporates a large number of inside 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, this can be a bizarre conceptual factor attempting to map the technical actuality to this analogy, nevertheless it’s obligatory I feel to make the purpose I’m attempting to make. The drivechain block, or the info that anybody can modify or replace and embody in a transaction, is not a lot the transaction itself as it’s information anybody can embody in their very own transaction. However the level is anybody can embody their very own model in a transaction, and solely one in every of them can verify.
That instantly provides miners an uneven benefit in interacting with that layer over some other 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 must be the miner themselves, or they’ve zero affect over that. Whenever you and another person have a channel, and your counterparty tries to substantiate an outdated state, the miner good points nothing from that besides mining charges, identical to some other transaction. They haven’t any particular incentive to substantiate an outdated state over the present one besides the feerates between one another, identical to each different transaction they think about. They obtain no particular profit from one or the opposite.
Distinction that with a drivechain. Let’s ignore the problem of miners stealing cash in a method that validates sidechain guidelines, and fake 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 soar right into a Lightning channel they don’t seem to be a member of, and alter the way it updates off-chain. They cannot cease you from making that off-chain fee simply because it could 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 type of transactions, together with miners themselves, and so they have a large uneven energy no different members do. They’ve complete management over what the contents of sidechain blocks each time they mine a mainchain block. So not like Lightning, within the context of drivechains, if a miner can profit out of your transaction not occurring, they will stop it occuring as long as they mine the following block, and so they can exchange it with no matter they need.
That may be a very, very huge distinction when it comes to how these two kinds of second layers affect total community incentives, and it does not simply apply to drivechains. It applies to any sort 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 sort of rollup like system, resembling 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 Information Proof or different type of proof that each one the stability updates are legitimate to carry out a state replace, is identical sort of dynamic, even worse arguably. Any miner at any time may 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 kind with “closed” programs like Lightning.
Wrapping It Up
Think about all of the kinds of programs folks wish to construct on Bitcoin; decentralized exchanges, arbitrary sensible contracts, programmatic secure worth programs, and many others. Purposes constructed on high of Lightning inherently closely limit who can manipulate or attempt to recreation these purposes; i.e. solely the folks truly concerned within the Lightning channels internet hosting these purposes can achieve this. These kinds of purposes constructed on one thing like a drivechain, or a rollup, are open for completely anybody to aim to govern or recreation. Any sort of utility 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 recreation these purposes. It doesn’t matter what the applying is, or how tough it’s to recreation it, or how a lot you possibly can revenue by gaming it, the miners at all times have the flexibility to recreation it first with out letting anybody else make that try.
This can be a very huge deviation from the present dynamic, or the longer term dynamic of closed programs, whereby miners merely choose from a set of transactions offered by different folks with no capacity or management over what these transactions are. It is a utterly totally different universe. Closed programs totally wall off the flexibility to extract worth by gaming the system from miners, absent lively collaboration with a majority of miners by a participant in that system. Open programs could be gamed asymmetrically by miners with out even requiring a majority.
That may be a full paradigm shift, and a probably harmful one. The widespread argument why this is not a fear is that it’s already made potential with programs like Stacks, or tokens on Ordinals. These programs, regardless that they’re open programs, usually are not 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 programs doesn’t 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 programs and Bitcoin itself. They don’t have the identical diploma of affect in any respect on incentives {that a} related open system pegged on to the worth of Bitcoin itself does.
Arguing we must always proceed constructing extra open programs on Bitcoin as a result of some are potential now could be akin to arguing that you’ve got a excessive however not fairly deadly dose of poison in your physique, so that you would possibly as effectively preserve ingesting extra of that poison. It’s a utterly irrational and self-harming angle and mind-set.
From the place I stand, the one most essential issue to think about when creating and lengthening the performance of Bitcoin going ahead is to get the performance we wish or want whereas actively avoiding the enabling of any extra “open programs” as I’ve outlined them above. If distorting incentives is the one method for Bitcoin to fail, some of these programs 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 right terminology errors associated to rollups and rollup-like programs.
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