[bitcoin-dev] Improving JoinMarket's resistance to sybil attacks using fidelity bonds

[Leo Wandersleb]

On 8/6/19 10:27 PM, Chris Belcher via bitcoin-dev wrote:
> I think this is absolutely wrong, because sybil attackers give up some
> fee income. Here is a worked example:
>
> Let's say the sybil attacker is operating the top 5 most valuable maker
> bots. If this attacker has X coins they would split them equally into 5,
> so each maker has X/5 coins and their bond is worth (X^5)^2 = X^2/25,
> with a total of 5 bots the fee income would be proportional to 5*X^2/25
> = X^2/5. However if an honest maker had X coins they could create a
> single bond which would be worth simply X^2 with a fee income
> proportional to X^2. So the honest maker has a fee income higher by a
> factor of 5 than the sybil attacker. The sybil attacker must take a 5x
> hit to their fee income in order to sybil attack. This is the crucial
> effect of the V^2 term.
>
> The V^2 term is important, it just has the downside of incentivizing
> renting of coins. If we can make that impossible then the problem would
> go away.

To show how this argument is wrong, think about the market being split between
100 makers, each making 1% of the fees. By your argument, by colluding, they
could make far more than 100% of the fees.

Every cartel of makers pooling their bonds beating the odds can't be the goal.

And again, bonds are just a cost of business. If a $10/month in bonds (paid to a
guy to sign with his UTXOs or interest for BTCs lent or ...) leaves me with zero
fees, a $100/month with $1k in fees and $10k/month with $40k in fees, then there
might be a $1000/month barrier to entry for this market but there are enough
people with $10k available to enter the market and drive the fees (earned per
maker) down such that the barrier to entry increases even further. In the end,
only the holders of the 20 biggest bonds will get meaningful business and the
rest will lose their investment or just not bother being makers. And the sibyl
attackers again are the ones that put up the necessary funds with most ease of
them all.