Sybil attack bitcoin exchange
An identity may be validated either directly or indirectly. In direct validation the local entity queries the central authority to validate the remote identities. In indirect validation the local entity relies on already accepted identities which in turn vouch for the validity of the remote identity in question.
Identity-based validation techniques generally provide accountability at the expense of anonymity , which can be an undesirable tradeoff especially in online forums that wish to permit censorship -free information exchange and open discussion of sensitive topics.
A validation authority can attempt to preserve users' anonymity by refusing to perform reverse lookups, but this approach makes the validation authority a prime target for attack. Alternatively, the authority can use some mechanism other than knowledge of a user's real identity - such as verification of an unidentified person's physical presence at a particular place and time - to enforce a one-to-one correspondence between online identities and real-world users.
Sybil prevention techniques based on the connectivity characteristics of social graphs can also limit the extent of damage that can be caused by a given Sybil attacker while preserving anonymity, though these techniques cannot prevent Sybil attacks entirely, and may be vulnerable to widespread small-scale Sybil attacks.
Examples of such prevention techniques are SybilGuard and the Advogato Trust Metric  and also the sparsity based metric to identify Sybil clusters in a distributed P2P based reputation system. Alternatively, proof of work can be used to make Sybil attacks more expensive.
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The target rate of blocks is one block per 10 minutes in Bitcoin. The block size is 1 MB, and typically contains about transactions. In practice this makes less than 4 transactions per second, but at most that block size can contain 7 transactions per second. All open blockchains include a cryptocurrency tied to the transaction processing, because otherwise it would not be clear that the miners could be trusted.
If the miners' profits are tied to the cryptocurrency, they have an incentive to keep the infrastructure operational and healthy. The cryptocurrency accumulated by the miner only have value if the system works and the currency is used by many people. Proposing a yet another cryptocurrency is not an easy task, because to have value, the currency must have faith of many people. It must be publicly exchangeable in markets, and easily used in transactions.
If the currency has no value, few people will mine it and the system does not maintain itself in a stable fashion. The cost of energy spent for mining is offset by the mining rewards automatically given to the miner within the blocks, including the implicit block reward and the transaction fees paid in the transactions incorporated to the block.
As the transactions include the implicit transfer of money to the miner, the miner can only get hold of those bitcoins by incorporating the transaction to the blockchain. This clever game theoretic "hack" provides infrastructure for transaction processing much like the internet, where the rules of routing traffic between networks give rise to the internet networking, or postal regulations give rise to the international postal system.
At the moment it seems that the Bitcoin value is high enough so that it is economically feasible to spend somewhat extreme resources into transaction processing. No matter how much resources are spent for transaction processing in Bitcoin, the speed of transaction processing is the same. This is 7 transactions per second for the whole Bitcoin network at most. This corresponds to the whole network burning kilograms of equivalent coal every second, that is 64 kilograms of coal per transaction, for the highest possible transaction rate.
This animation represents the realtime speed of equivalent coal burned by the Bitcoin miners in kg reindeers. Bitcoin uses proof-of-work algorithm of double SHA hashing as its consensus algorithm. That means that for the miners to accept a new block to the blockchain and to start mining the next block on top of that, the block has to contain a nonce that leads to the double SHA hash digest of the whole block to be a smaller number than the current "difficulty".
The miners compete in who can first find a nonce that produces a valid block. Since this process is random, the miners get their turns to determine the next block weighted by the computing capacity, and energy they have expended. Because of a rather extreme strain this puts on the environment and resources, there is a general will for moving to different Proof-of-Work algorithms, or to Proof-of-Stake blockchains.
For example, Ethereum will migrate to Casper Proof-of-Stake algorithm in There are also different Proof-of-Work algorithms which represent clever utilitarian methods to make sure the miners provide a valuable service instead of simply hashing together dumb numbers.
For example Primecoin PoW algorithm publishes useful prime number values to the scientific community. Some PoW algorithms require the miners to store the whole blockchain, improving redundant storage.
Some PoW algorithms, like Litecoin Scrypt, aim to be efficient in normal consumer PC hardware utilizing the downtime in normal PC hardware pool making it less attractive for speculators to build large data centers for mining. Proof-of-Stake consensus algorithm also prevents a Sybil attack, but instead of giving "votes" based on energy spent, they give votes based on how many coins are owned. This produces novel game theoretic difficulties and new vulnerabilities, but there are also various solutions for those.
There are several PoS blockchains in existence, for example Peercoin. A corporation cannot simply introduce a new publicly exchangeable cryptocurrency for each blockchain application they introduce.
It would be very difficult to get the public to accept it and assign value to it. It is also often the case that existing public blockchains do not offer a good match for the purposes of specific applications, even with Turing complete smart contracts. The transaction costs are also high in public blockchains by comparison to private ones. With all these difficulties arising from the open system with untrusted, unknown participants, corporations have considered alternatives. If a corporation can manage the membership of the consortium in a trusted fashion, the Sybil attack becomes irrelevant or technically only the trusted party is able to perform a Sybil attack, which they swear to never, ever do.
Also if the miners or more commonly "validators" for consortium blockchains are assumed to gain from the operation of the infrastructure, with minimal processing costs, the requirement of needing a cryptocurrency to compensate the miners can be dropped. While it is still possible to cheat in the consortium blockchain system, as there are no cryptocurrency holdings that would lose value as a result, the transparent system allows the corporations to keep track on each other and potentially delegate disagreements to external courts.