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Date: Fri, 10 Jan 2014 13:29:03 +0100
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From: =?ISO-8859-1?Q?Jorge_Tim=F3n?= <jtimon@monetize.io>
To: Peter Todd <pete@petertodd.org>
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Cc: bitcoin-development@lists.sourceforge.net
Subject: Re: [Bitcoin-development] The insecurity of merge-mining
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On 1/10/14, Peter Todd <pete@petertodd.org> wrote:
>> Fair enough.
>> Do you see any case where an independently pow validated altcoin is
>> more secure than a merged mined one?
>
> Situations where decentralized consensus systems are competing for
> market share in some domain certainely apply. For instance if I were to
> create a competitor to Namecoin, perhaps because I thought the existing
> allocation of names was unfair, and/or I had technical improvements like
> SPV, it's easy to imagine Namecoin miners deciding to attack my
> competitor to preserve the value of their namecoins and domain names
> registered in Namecoin.

Namecoin, Devcoin and Ixcoin are also currencies and therefore compete
with Bitcoin.
How is that even Ixcoin (clearly a scamcoin that indirectly damages
the image of Bitcoin) has survived?

My explanation is that miners aren't necessarily holders. It's certain
that there's holders who don't mind and "can't do anything about it".
In fact, I think many miners sell their mined coins for fiat to cover
their investment and costs. The profit margin is reduced as the mining
market becomes more competitive, so even for miners it will get very
expensive and risky to do stupid things.
Talking about stupid things, I don't see many bitcoiners throwing
rocks at local currency users or barter clubs nor burning down banks
to "protect their investment". Barter is just another competitor in
the media of exchange market.

> The problem here is that my new system has a substantial *negative*
> value to those existing Namecoin holders - if it catches on the value of
> their Namecoin investment in the form of coins and domain names may go
> down. Thus for them doing nothing has a negative return, attacking my
> coin has a positive return minus costs, and with merge-mining the costs
> are zero.

What percentage of Bitcoin/Namecoin miners do you think own namecoins?
How much can they afford to lose to attack competition?

> Without merge mining if the value to the participants in the new system
> is greater than the harm done to the participants in the old system the
> total work on the new system's chain will still be positive and it has a
> chance of surviving.

No, the "harm to the old system participants" is distributed among all
the participants, not only miners (assuming miners have any
speculative position at all).
I'm not denying that people do crazy and stupid things, but let's at
least allow the "anti-competition attacker" be equally crazy in both
cases.
Miners attacking "competition" for one or more of the chains they mine
are acting irrationally in both cases.
You're trying to rationalize the actions of the MM attackers, but
they're just being stupid, since if they weren't, they would just try
to maximize profits.

> Of course, this is what Luke-Jr was getting at when he was talking about
> scam-coins and merge mining: if you're alt-currency is a currency, and
> it catches on, then it dilutes the value of your existing coins and
> people who own those coins have an incentive to attack the competitor.
> That's why merge-mined alt-coins that are currencies get often get
> attacked very quickly.

I have many other explanations for the few currencies that died with
MM (can you remember any name?). At the beginning all altcoins were
much smaller and easier to attack, all of them. Bitcoin mining pools
didn't wanted to update to merged mining and didn't acted very
rationally about it.
Namecoin went through a really delicate situation just before
hardforking to MM, but now is by far the most secure altcoin of them
all, all thanks to MM.
All rational bitcoin miners should also mine namecoin. Period. All
those who consider it competition with their current Bitcoin
speculative position, should just "attack in the market" by selling
the namecoins as soon as they get them.
Providing security for a chain DOES NOT give it an utility or rise its demand.
Operation COSTS DO NOT CAUSE VALUE.

About Luke-Jr's thinking, I don't think it's along those lines.

If you create a new chain for the long term, you should try to
maximize its security and that currently means you should merged mine
with bitcoin.
The main rational reason to never do merged mining is to prevent
competitive and rational miners from crashing the price of your
currency, which is everything a scamcoiner cares about, the price and
market cap.

Of course Luke-Jr can correct me if that's not how he thinks.