What You Need To Know To Understand Blockchain Technology Part 9

ASIC Cards and economic incentives.

 

The second layer of defense on a popular proof-of-work blockchain network such as Bitcoin has to do with hardware called ASIC. The Bitcoin network is an excellent example of this even though this layer of defense applies to any blockchain network that uses specialized hardware. For example, Ethereum network also has specialized ASIC hardware. Sia network has announced in 2017 that it will have ASIC cards for the SIA network, too.

 

What is an ASIC card?

ASIC stands short for application-specific integrated circuit. In simple language, ASIC cards are similar to racecars. Racecars can do one thing really well, which is race according to the rules and regulations of the races that they participate in. However, if you place a powerful NASCAR car on a dirt road, the car will be almost useless. Different rules and regulations of different race competitions are also the reason why a NASCAR car looks very different from, say, a Formula 1 car. Both cars are really powerful, but they are built for very specific competitions, and one will not win under the rules for which the other one has been built. Also, both cars are almost useless on a regular road.

ASIC cards are very similar to that. There is one thing they do really-really well, which is producing hashes using a specific hashing function. This means that an Ethereum ASIC will be useless on the Bitcoin network because Bitcoin and Ethereum use different hashing functions, similarly to how Formula 1 and NASCAR are both car races, but have different rules.

Also similarly to race cars, while an ASIC card would outperform a regular computer running a hashing function it has been designed for, an ASIC card is useless in other operations just like a race car is not a car for a regular road.

 

ASIC cards as a second layer of defense

Here is how and why ASIC cards work as a second layer of defense for a blockchain network that has them: on the one hand, ASIC cards are useless for anything other than creating hashes using a specific hashing function. On the other hand, ASIC cards are really expensive. The latest models of the cards cost thousands of dollars.

This means that if someone wanted to attack a network such as Bitcoin successfully, the attacker would need to buy a lot of ASIC cards because currently there is no way to match the hashrate of ASIC cards in a way that would pose danger to the Bitcoin network.

This would mean three things. First, the market would notice if someone were to be buying a lot of cards and the market would find a way to react to such an event. Second, buying ASIC cards that could match the hashrate of 51% of the Bitcoin network would require a lot of funds. For someone with this kind of money, there are easier ways to invest this money to make a guaranteed return than to try and plan an attack on the Bitcoin network.

Third, buying a large number of ASIC cards and not using them to mine on the Bitcoin network (which strengthens the network by keeping its difficulty parameter high) would mean losing money. If the attacker were to use the cards he or she is buying today to mine on the Bitcoin network, he or she would be making money today and this would be guaranteed, risk-free money because the Bitcoin network is a transparent network and it is easy to calculate all the costs associated with mining and arrive at guaranteed profitability numbers.

Having someone spending large sums of money and ignoring the opportunities to make a guaranteed, risk-free return on the money versus losing money today in hopes of gaining something in the future is very unlikely and this is the second layer of defense for every blockchain network that allows miners to use specialized ASIC cards to create blocks of its blockchain.

 

Third layer of defense: economic incentives

The third layer of defense of a popular blockchain network is also economic. The difference between this layer of defense and the ASIC layer of defense is the economic angle.

Miners participate in mining on a popular public blockchain to turn a profit. Therefore, they are interested in the network functioning the way it is supposed to function, because otherwise the price of the token on the network can go down significantly. The blockchain and cryptocurrency space is known for its extremely high volatility and no miner wants to see the price of the coins on the network dropping 30%, 40%, 50%, or even higher, which has happened with virtually all cryptocurrencies, including Bitcoin and Ethereum, in very short time spans. This means that miners are interested in preventing the attacks because of pure self-interest. Even if someone could take over a network, what would it give them if the price of the coin plunges? And if all they want is the software and experiments with the software, then they do not need to attack a network for that because the software is open-source and free and they can download it and use it in any way they want.