If someone were to actively attack the network with 51% of the hashrate, or otherwise attempt to attack the network, then the short term effect of bitcoin would likely be severe to the negative. If someone were to execute a successful 51% attack, then why would someone want to buy bitcoin? Why would someone not want to sell it until such attack is over? IMO any actual attack on the network that is successful will have very serious short term effects on the price of bitcoin. I don't think simply having 51% of the network alone would have any serious impact other then that miners will likely migrate away from that pool.
Those who dismiss the risk of a 51% attack by that argument usually assume that (a) the attack will be a double-spend or some other banal fraud, and (b) most bitcoiners will scream 'bitcoin is dead" and dump all their holdings when that happens.
As for (a): A cartel or monopoly is usually formed with the goal of increasing the members' revenue over the long term. In a free market (which is
not "a market without government regulation"), the price of the product or service ends up being a "fair" price, that makes its suppliers roughly as profitable as any other business. In a monopoly or oligopoly market, where new suppliers are excluded by non-market means, the price is such that maximizes the total net revenue of the suppliers. The banks use their cartel power by charging high fees, not by stealing money from client accounts.
It should be easy to see how a mining cartel with (say) 67% of the hashpower could make smaller miners or pools unprofitable, by selectively orphaning some of their blocks. If the cartel wished, they could starve all other miners that way, and earn 100% of the block reward instead of only 67%. That would be a 50% increase in their total revenue, probably a 100% increase in their profits. With current prices, that extra revenue would be almost 360'000 USD/day, or 130 million USD/year. The temptation is clearly there -- especially if a price drop to, say 200 USD/BTC, or the next halving of the reward, would make them unprofitable.
A large miner or mining cartel, even with less than 50%, could force an increase in the transaction fees, if there are enough clients who would pay a higher fee for a faster service. At present, that is not worthwhile, since even if they were 5 or 10 times higher, the transaction fees would still be peanuts compared to the block reward. However, a majority cartel could force arbitrarily high fees, by orphaning any block that contains transactions with lower fees.
In fact, I have described in detail, several times, how a majority cartel could impose a change in the protocol --such as a postponment of the next halving -- to all the other players. Most bitcoiners simply refuse to understand, and claim that the "economic majority" has the power, not the miners. The few who do understand have ready a "defense" against that: all faithful bitcoiners would abandon bitcoin, and create an altcoin that can be mined only with CPUs -- and declare it as being "the" true bitcoin.
As for (b), that is not the normal reaction of people in such cases. Americans did not burn their dollar bills when the US government removed their gold/silver backing. People do not stop using banks or credit cards in protest when these use their cartel power to raise fees or cut services. People do not stop buying medicines when the pharma industry uss patent laws to charge exorbitant prices. In general, a cartel or monopoly can force its users to accept any change (such as higher prices) that would be less harmful to them than doing without the service.
For example, suppose that a small miner complained of having a higher orphan rate than the rest, even when he won the block race by tens of seconds. I bet that 99% of the bitcoin users and holders would not even get to know about his complaint; and the other 1% would blame it on network delays, or some fault of the miner himself.
Even if it became obvious that a cartel of miners was targeting him, the few bitcoiners who cared would rationalize that "it is the free market at work" (obviously not!), "it has little effect on the hashrate", or "it is good for bitcoin". (Like: "Remember the 6-block reorg after the BIP66 fork? It was started by BTCNuggets, a small miner that had not yet upgraded to v3 when 95% of them already had. If there were no small miners, the reorg would not have happened. Small miners increase the risk of a persistent coin split at a fork.")
As for the miners in the cartel pools, why would they switch to a non-cartel pool? By staying with the cartel, they would increase their revenue as the small competitors are driven out of the field. By switching, they would risk becoming the next targets of the cartel. On the contrary, miners in the non-cartel pools would be tempted to join the cartel.
Even if the cartel used its majority power to impose a change in the halving schedule, I bet that most holders would hide their fears and speak out in support of the change, "because it strengthens the security of the network", "because it avoids a fee hike that would be fatal for bitcoin's adoption", etc.. They would do that precisely to preserve the value of their investment.
From the looks of it, the recent issues with the soft fork and f2pool mining invalid blocks cost [ the hash-stealing miners ] >100 BTC, although they claim it was less. The fact that they have not stopped SPV mining would imply that they made in excess of what they lost in additional mining revenue as a result of their SPV mining, probably from winning orphan races and from being able to mine additional blocks they would not otherwise be able to mine.
Indeed. I read somewhere a quote from F2Pool's reply to the critics. They said that they had disabled parent-block validation (in parallel with next-block mining) after losing a orphan race a while ago. They would re-enable that, but had no intention of stopping the hash-stealing practice (that implies mining an empty block, and possibly winning it, well before they get the whole parent block).
Owning 51% of the network hashrate in itself is not a major issue, the problem lies when a single entity starts to actually attack the network after they reach such a percentage. Even if they were to disguise their found blocks as belonging to other entities, it should still be fairly obvious when they are executing some kind of 51% attack.
IIRC, no one cared when GHash.io was accused of attempting double-spends against some gambling site. The "community" (actually, the 1% or so who follows such news) reacted only when they passed 51% -- because, until then, it was common knowledge that the security of the network would not be guaranteed if a miner had more than 51%.
However, the "51%" risk is not much less if >60% of the power is in the hands of 4 Chinese miners (who, in spite of being competitors, have already a history of cooperation on issues of common interest). Only that, since then, the "community" has developed a new "defense" against such risks: they convinced themselves that it is the "economic majority" that matters, not the mining majority.
I am not sure about this. Back in 2010, the terms nodes and miners were synonyms. He stated that he predicted that one or two nodes would feed a server farm via LAN, and I cannot think of any reason why any kind of server farm would be doing anything to do with bitcoin other then it is mining.
You've completely misunderstood what satoshi said.
Well, you can believe what you want. Considering how the protocol is supposed to work, decentralization of mining is
much more critical than decentralization of relay nodes. As long as a client has access to
one honest relay node, he will get and recognize the true blockchain, no matter what all the other nodes do; and he can drop any nodes that he suspects are trying to fool him. Whereas every client is forced by the protocol to use the blockchain that is being maintained by the majority of the miners, and cannot selectively "drop" suspect miners from it...
I suspect that over the long term, entities that have a vested interest in ensuring that transactions are properly propagated will be running a large number of full nodes. This would include entities similar to bitpay/coinbase who process transaction on behalf of merchants and have a vested interest in having all transactions (not just those being spent to them) in being properly propagated throughout the network.
That is exactly my understanding of what Satoshi meant by that quote. And it makes sense, too.
