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With the recent hack at Bter that saw 51 million NXT exit the exchange, the NXT community was granted a choice: change the blockchain or not. While the decision was made moot by the negotiated return of the stolen NXT, it still brought up major philosophical choices for the entire cryptocurrency community.
NXT, Vericoin, Interview, Patrick Nosker, Bas Wisselink
Popular exchange Bter recently suffered a hack that resulted in more than 51 million NXT being stolen from the exchange, at the time worth more than USD $1.7 Million. This brought up the question: much manipulation of the blockchain is acceptable? While Bter managed to negotiate most of the NXT back into its possession, before that happened the NXT community was presented with a choice: Change the blockchain to reverse the hack and save Bter and the 51 million NXT or allow the transaction to remain and preserve the integrity of the blockchain.
They overwhelmingly decided against changing the blockchain.
Vericoin developer Patrick Nosker, who had to help implement a hardfork on his coin after Mintpal lost most of the Vericoin it held in a hack, came out against NXT changing their blockchain. NXT Community Manager Bas Wisselink publicly came out against changing the blockchain but agreed that giving the option to the community was the right decision, something some in the community disagreed with.
We decided now would be a good time to talk to each of them about the future of their coins, if each coin made the right choice and the philosophical implications of changing a public ledger.
CoinTelegraph: While most of the Nxt has been returned, before that happened you both came out against the fork in NXT. For the benefit of our readers, can both of you give a quick rundown on why and why it was different than Vericoin's situation?
Patrick Nosker: VeriCoin saw 30% of the total coinbase stolen allowing for an attack anytime there was less than 30% of the coin staking. According to previous weeks worth of staking data, this was highly probable. Without a hard fork preventing the illicit holder from having the stolen coins, a perpetual attack would have been possible with the attacker having the majority of stake for a seemingly unlimited time window. This would have made VeriCoin useless as any transaction could be invalidated at the whim of the hacker.
NXT lost 5% of coins to a hacker, much too small to attack the blockchain. Because of this, the only losers in this situation is BTER and the NXT holders who didn't have their coins locally or on another service. It's unfortunate for their loss, but the integrity of the NXT blockchain was never at risk.
Bas Wissellink: I came out publicly against the fork, because the cure in this case would have been worse than the malady.
Even with 50 million in the hands of a bad actor, the Nxt network was not compromised.
At worst, we would have had a severe setback, and a LOT of people losing their funds.
I really feel for these people, and also am on record that I would support ány action getting the funds back, but not through a reordering or reroll of the blockchain.
This is not because of some esoteric "the blockchain is holy" reason, but because we'd end up on a slippery slope.
Where do you draw the line, and whó draws the line for reordering?
Short of a critical bug, or complete collapse of the blockchain due to security issues, there should never be a rollback, in my opinion.
Also, the power to do this should always be in the hands of only the stakeholders. The devs can offer the choice, as they have in our case, but the casting vote should always be in the hands of the stakeholders and no one else.
That's PoS, and the only way to show the viability of PoS is to adhere to that.
CoinTelegraph: Yeah, both of your answers seem to echo what I heard from most in the NXT community about the fork. There were a lot of comparisons made to bailing out the banks. Obviously the Vericoin situation was different because its hack threatened the actual currency, but in the case of NXT, how apt do you feel the comparison of modifying the blockchain for the benefit of Bter and saving "too big to fail" banks would have been?
Patrick Nosker: I think there's some similarity of a roll-back to the "bailouts" however it's important to note that there's no central funding agency in crypto that pays taxpayer dollars. I'm not particularly up-to-date with NXT's situation however I've heard that the hacker returned most of the coin-- possibly due to the threat of a rollback or account blocking and a payment. I don't really see a parallel here between that and a bank bailout. In VRC's case, the US bank bailout took taxpayer dollars to do it-- a roll back doesn't rely on the bystander's contributions to prevent a serious loss of an exchange.
Bas Wissellink: I find the "bailout" argument one that clouds the issue.
The main point is that the blockchain has only legitimate way of making a decision: the stakeholders, and nothing else.
So, in this case, because the community (which does not equal the stakeholders) was in uproar, the devs did the right thing by giving us the choice to vote the legitimate way: to fork or not, and to reorg or not.
Nót having done that would have been the wrong choice. It would have been a decision made by the people who aren't in charge of the chain.
So the decision "too big to fail" is still up to the stakeholders. They may very well decide to do it next time. That would still be decentralised. There is a lot of confusion on this part: decentralised does not mean morally right.
Decentralisation does not mean that we are suddenly living in paradise, it just means that the decisions are made by a majority in such a way that it cannot be gamed.
Thát is the power of the blockchain.
To introduce concepts like justice or fairness into this discussion just clouds the issue of what crypto actually does.
CoinTelegraph: Maybe it would be fair to say something like old quote often attributed to Alexis de Toqueville, but in this case it would be "In Cryptocurrencies, people get the [monetary system] they deserve?"
Patrick Nosker: I agree completely with this statement.
CoinTelegraph: The concentration of wealth is well known in fiat currencies, particularly here in the United States which now has one of the largest income gaps in the industrialized world. Most popular Cryptocurrencies have a better distribution level, but are usually still fairly skewed towards early adopters.
As we move into the digital currency revolution, or whatever these days will be called in the future, can we expect cryptos to be more evenly distributed, particularly in Proof-of-Stake coins where the pure number of coins has a level of power on the blockchain? Right now, the 85 richest families in the world have as much wealth as the 3.5 Billion poorest. I guess what I am asking is, can NXT or Vericoin prevent the income inequality gap we often see in fiat currencies, and if not what can be done to secure the currencies if a similar concentration of wealth does happen in PoS coins?
Patrick Nosker: I don't think there's any way to prevent someone with enough money from controlling anything. Unfortunately this is the case. If Bill Gates wanted to control 51% of BTC mining power, he could afford it. If he wanted to buy out all of NXT or VRC, he could, too. There's no real way to prevent someone who has enough money from doing that.
Bas Wisselink: Normal economic factors in all probability prevent this from changing in any significant way: en.wikipedia.org/wiki/Pareto_principle
This principle is of course déscriptive and now préscriptive, but overall, it seems to hold.
Many people, and we see this in our crypto communities too, simply do not want to engage in activity that will net them a profit.
This may be due to lack of education, lack of resources, or just lack of will. There is no simple answer.
However, as long as this is the case, a larger amount of funds will always flow to fewer hands.
If you look at the coins who have tried to solve this by opting for a "fairer" distribution, you can see that this principle already takes place when people start trading their stake shares before the markets even open.
Before they even get started, the intention of getting a more uniform distribution is frustrated by the actions of smart traders.
I would also like to say that "fair" is not a principle that is measurable. In crypto, I would first like to see the word "secure".
"Fairness" is a personal value, "security" much less so.
CoinTelegraph: Interesting. You both seem to be in sort of agreement there. So is this a real concern of PoS coins? In America the Pareto principle has been doubled (10 % owns 80 %)? Of course, in PoW coins, the threat of a 51 % attack does exist. But in Proof of Stake coins, someone could threaten it simply be becoming too rich.
I believe I read somewhere on the NXT forums about a potential switch to a more secure version of PoS that would require a 90 % stake in order to threaten the blockchain, have you heard of anything like that? For both coins, is there anyway to make PoS more resistant to blockchain tampering if someone has a large stake in the coin?
Patrick Nosker: The idea of a free-market controlling PoS is that if someone does own 51%, they would be stupid to attack because it would reduce the value of their coins significantly. A revamp of PoS requiring 90% would be interesting-- though you can effectively make any PoS coin like that by increasing the confirms required to validate the coin. If you require 100 confirms, the chance of someone controlling enough coin to build 100 blocks in a row is very low unless they own over 90% of the coin.
Bas Wisselink: Formally, PoS is just another way of validating the chain.
However, "Stake" of course goes a lot farther than that.
First, there is the economic value. No one with a huge amount of value invested is expected to endanger that value.
Secondly, actually getting a hold of that amount of stake to make such an attack is expected to drive up the price exponentially, making it economically non-viable.
Thirdly, a lot of people simply are invested in the movement itself. Why destroy something you have spend months working on (this is informal "stake", not formal as "stake" in the currency itself)
Nxt has had the possibility of implementing what is called Transparent Forging from the start. This is an algorithm that would make it possible to make the chain safe to a 90% attack.
In its simplest forms, it can predict with a high degree of accuracy which node is supposed to create the next block. If this node does not do this, it will lose its forging power for 1440 blocks, making such an attack impossible.
In the worst case, the attacker would basically fork, leaving him on a chain where only he exists.
This TF is expected to be finished on the "birthday" of Nxt if all goes well.
CoinTelegraph: Awesome, so getting back on track to the hack itself. Bter negotiated the majority of the NXT coins back into their exchange, how much do you think the threat of a rollback from the community gave Bter some leverage? The deal happened after it became clear that a rollback wasn't going to happen, but it is still an idea many have floated.
Bas Wisselink: I cannot really say anything about the negotiations, but I would think it would give him an extra reason to negotiate for sure. We'll probably find out more over the next few days about this.
CoinTelegraph: A hard fork (or roll back) was able to be accomplished with Vericoin and NXT because of the relatively small size of the network. But when and if the networks get the size of BTC's current size or even larger, it's unlikely any fork would be able to be accomplished.
Is some of the aversion to forking except in situations of security of the coin's network have something to do with the desire to take the training wheels off as soon as possible? Every coin wants to be big, do you think there is there sort of a "lets just get used to it now" sentiment out there?
Bas Wisselink: I don't think so.
Most of the people who were adamantly against a fork understood very well why they didn't want one. They take their system of choice very seriously, plus they believe that to succeed you need to be able to take what comes.
I am convinced the Nxt community would have done everything within their power (as it has) to get back the funds of these people, but also understood they would have undermined the entire system if they had forked.
This would have lead to a loss for *everyone*, not just the people directly involved in the theft.
CoinTelegraph: While you had to change Vericoin's blockchain due to security issues of the coin and staking, you guys still ultimately did it. How has the community responded post fork and have you noticed any consequences after doing it?
Patrick Nosker: We have been criticized mostly by people with their own agenda (people on BitcoinTalk bashing VRC in the thread, then saying to buy another coin, for example). Most community members agree with it and indeed most upgraded their wallets to provide consensus. One VRC holder is convinced that we forked to somehow benefit myself, colluding with Moolah (who acquired MintPal well after the hack). I'm not really sure why he thinks that, however, for the most part, I believe the community supported the decision.
Immediately post-hack, the price dropped a little bit but for days stayed around the pre-hack price. It's since fallen considerably, as other altcoins have, but the relationship between price and hack seems to be relatively inconclusive.
CoinTelegraph: True, a lot alts have been getting killed, can't really blame that on the fork.
So, moving forward, how do you think these respective hacks will affect your currencies long term and what is next for each of them?
Patrick Nosker: I don't see any long term effects of the hack and rollback. VeriCoin is working on more features for mass ease-of-use and adoption.
Bas Wisselink: For Nxt, it has been a true testing ground. How a community [acts] in times of stress shows a lot. I think we have proven we take our platform seriously and can handle extreme situations.
We chose for the integrity of our blockchain and showed Nxt can take a huge hit and still come out fighting.
I am confident this has been a very good learning experience and we will continue to develop our features and build towards real life use.
We haven't even slowed down development of the implementations of the Digital Goods Store for this, and that shows we keep going even in bad circumstances.
We want to thank both Bas Wisselink and Patrick Nosker for taking the time out to talk to us.
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