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 crucial set of dangers to pay attention to. Bitcoin is nearly 15 years outdated as a dwell community at this level, and it has stood as much as a superb little bit of stress and outright malicious griefing and assaults over these 15 years. Bitcoin has withstood inside assaults from builders making an attempt to radically alter the system, it has withstood the identical assault from many of the main companies within the area, it has survived what may have been deadly and catastrophic bugs, tremendous powers banning it, wild value volatility, and so on. It has stood as much as all the things thus 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 clients 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 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 needs to be approached with excessive warning and skepticism. In my view, destabilizing the inducement steadiness that makes Bitcoin work is actually the one solution to actually trigger a system failure. Anything that may be thrown at Bitcoin is one thing that needs to be robustly tailored to, even when it does trigger you upset as a result of the fiat value is affected negatively.
Closed Versus Open Layers
In relation to mining incentives and the way they’re affected by secondary layers on high of Bitcoin, there may be one necessary 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 really require energetic collaboration and cooperation between members on the second layer to operate, or can it work asynchronously like Bitcoin’s base layer the place members don’t must 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, a minimum of from my viewpoint, folks on this area 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 an enormous 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 take a look at as a friction for customers, engineering constraints which might be crippling, or an insurmountable hurdle, can 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 sport that layer. Take into consideration a Lightning channel: Who can replace the state of that Lightning channel? Solely the members. Who can instantly 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 take a look at what every participant is prepared to pay in charges, and decide the best payer. That’s by no means completely different than another case of conflicting on-chain transactions competing to be confirmed first. Miners will not even discover themselves in that scenario 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 completely 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 decide those that make them essentially the most cash. Distinction that with drivechains.
The contents of a drivechain block might be considered a “transaction” for the aim of fascinated with this right here, with the one exception that the only “transaction” comprises 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 making an attempt to map the technical actuality to this analogy, but it surely’s crucial 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 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 considered one of them can affirm.
That instantly provides miners an uneven benefit in interacting with that layer over another participant who isn’t a miner. In relation 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. While you and another person have a channel, and your counterparty tries to substantiate an outdated state, the miner positive aspects nothing from that besides mining charges, identical to another 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 take into account. 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 manner that validates sidechain guidelines, and fake that’s not a problem and can by no means occur. Drivechains nonetheless add a very completely different dynamic and incentive for miners: Their potential 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 aren’t 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 kind of transactions, together with miners themselves, and so they have an enormous 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 in contrast to Lightning, within the context of drivechains, if a miner can profit out of your transaction not occurring, they’ll stop it occuring as long as they mine the subsequent block, and so they can substitute it with no matter they need.
That may be a very, very massive distinction by way of how these two sorts of second layers affect total community incentives, and it does 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 solution to change or replace its state. The identical challenge exists for non-federated rollup variants known as validiums. Any kind of rollup like system, reminiscent of 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 identical kind 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 must 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” techniques like Lightning.
Wrapping It Up
Think about all of the sorts of techniques folks wish to construct on Bitcoin; decentralized exchanges, arbitrary sensible contracts, programmatic secure worth techniques, and so on. Purposes constructed on high of Lightning inherently closely prohibit who can manipulate or attempt to sport these functions; i.e. solely the folks really concerned within the Lightning channels internet hosting these functions can accomplish that. These sorts of functions constructed on one thing like a drivechain, or a rollup, are open for completely anybody to try to govern 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 all the time have the primary place in line to sport these functions. It doesn’t matter what the applying is, or how tough it’s to sport it, or how a lot you’ll be able to revenue by gaming it, the miners all the time have the power 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 techniques, whereby miners merely choose from a set of transactions introduced by different folks with no potential or management over what these transactions are. It is a utterly completely different universe. Closed techniques fully wall off the power to extract worth by gaming the system from miners, absent energetic collaboration with a majority of miners by a participant in that system. Open techniques might 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 potential with techniques like Stacks, or tokens on Ordinals. These techniques, although they’re open techniques, 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 techniques 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 techniques 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 must always proceed constructing extra open techniques on Bitcoin as a result of some are potential 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 hold ingesting extra of that poison. It’s a utterly irrational and self-harming angle and mind-set.
From the place I stand, the only most necessary issue to think about when growing and lengthening 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 techniques” as I’ve outlined them above. If distorting incentives is the one manner for Bitcoin to fail, all these techniques are the poison capsule with a deadly dosage inside. We should 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 techniques.
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