Craig Wright Discusses Proof of Work Economics for Bitcoin Mining in Interview
Over the last few weeks, Craig Wright has spent a lot of time talking about bitcoin mining, including how capitalism-fueled mining secures the foundation of the bitcoin network. In an interview earlier this week, Wright clarified his comments and discussed the economics of bitcoin mining.
On September 4, during an interview with Deconomy, Craig Wright spoke about the economic incentives of bitcoin mining. The quotes in this article were reported by AMBCrypto. Wright, who has previously claimed to be Satoshi Nakamoto and is the current Chief Scientist of nChain, has repeatedly insisted that bitcoin’s security comes from its proof of work system.
That proof of work system is based on the fundamental economic principles of capitalism. Namely, miners will secure the bitcoin network because it’s in their own best interests to do so.
Craig Wright described bitcoin’s proof of work system as “incentive compatible”. Miners have no incentive to attack the bitcoin network. In fact, it would cost over $100 million to create a system capable of attacking the bitcoin network.
Even if someone did choose to invest $100 million in a system that attacked the bitcoin network, they would be losing $80 million of that investment immediately due to the effect it has on the bitcoin network. Unless someone feels like losing $80 million for no reason, there’s no incentive to attack the bitcoin network.
Here’s how Wright explained it:
“The concept that those miners are going to spend to get a little tiny bit of profit to do something like a selfish mining attack to take a bribe for a double spend but is just asinine. If you think about it for a second, people talk about the miner could take a small percentage of a sale to include a double spend transaction.”
The concept is based on the cost of running a bitcoin mining operation. If you want to control 10% of bitcoin’s hashrate, for example, then you’ll need to invest a minimum of $75 to $100 million in infrastructure to achieve that 10% hashrate. The infrastructure has a lifespan of 18 months to 10 years, with miners needing to replace their inventory periodically.
All of this investment helps secure the bitcoin network. Because miners have to invest significant resources in establishing mining operations, they have little incentive to sacrifice that investment by launching an attack against the network.
This is why someone who operates a network of miners won’t take a “bribe” to target the bitcoin network:
“So if that miner starts doing things like taking small bribes to help someone steal a coffee, that miner is going to actually undercut their own incentives. They’re going to, now, in a game theoretic sense, think about taking a five cent bribe which will probably end up cutting between 50 and 90 percent of the value of market.”
If a miner did this, according to Craig’s calculations, then they would have invested $100 million to wipe off $50 to $80 million of their own value. Here’s why:
“…because if you cut that much of the earnings, it will affect profit. So that miner has, now, destroyed their own business. Why? So they could save five cents and help someone steal from Bitcoin and in a stupid way because everything in Bitcoin is digitally signed.”
Ultimately, a significant part of bitcoin’s value comes from its security. That security comes from a network of nodes who are operating on a set of agreed-upon rules.
As long as the network agrees on a specific set of rules, and the network is operating in their own best interests, the bitcoin network will be totally secure – at least, that’s how Craig Wright sees it.