VeriBlock and its PooP Protocol

A few days ago I became aware of the VeriBlock-IEO (“Initial Exchange Offering”) conducted by Bittrex. I heard about VeriBlock before, because half a year ago its testnet started cluttering the Bitcoin blockchain with its so-called Proof-of-Proof (“PoP”) publications. The IEO was a good occasion to take a closer look at it. This article is about what I found out.

In a nutshell, VeriBlock piggybacks on the BTC blockchain in order to inherit Bitcoin’s security (against 51% attacks). VeriBlock hopes that, in the future, willing altcoins will piggyback the same way on its VBK blockchain in order to (indirectly) inherit Bitcoin’s security themselves. The idea to piggyback on Bitcoin’s security is not new. It has been realized before in the form of merged mining and layered technologies (such as Omni Layer). However, all these approaches come with their specific trade-offs. Did VeriBlock maybe find a silver bullet?

VeriBlock’s piggybacking method consists in anchoring its blocks on the BTC blockchain by means of PoP publications. PoP publications are Bitcoin transactions that reference a VBK block in order to endorse that block. They are created by PoP miners each time a new VBK block is found. The more PoP publications reference a given VBK block, and the earlier these appear on the BTC blockchain, the deeper is the referenced VBK block anchored. Should there be a fork (i.e. two competing chains) on the VBK network, then the chain whose first few blocks (counted from the forking point) are anchored deeper becomes the winning chain.

Unfortunately, this consensus mechanism can easily be attacked as follows:

• Step 1: Privately mine a VBK block. (That is, find a VBK block and don’t broadcast it to the VBK network.)
• Step 2: Anchor your VBK block deeply in the BTC blockchain. (That is, make sure that a large part of the next BTC block is filled with PoP publications referencing your VBK block.)
• Step 3: Privately mine some more VBK blocks on top of your first block and anchor them about as deep in the BTC blockchain as the competing blocks of the attacked VBK chain are anchored. (Only the anchoring of the first few blocks determines the winning chain: According to page 12 of the VeriBlock whitepaper, the anchoring of the second block might only count 70%, the anchoring of the third only 55%, and so on.)
• Step 4: At any time of your choice (potentially weeks or months after Step 3) destroy the attacked VBK chain by broadcasting your mini-chain (consisting of your few privately mined blocks) to the VBK network.

Remark: This attack works for the PoP Protocol as described in the current version 1.0p of VeriBlock’s whitepaper. However, as will be discussed below, the real-world VBK software most probably contains undocumented (and potentially centralized) protection mechanisms that would need to be addressed as well in order for the attack to be successful. The whitepaper itself hints at “balance-based voting” as a potential mechanism against looming adversarial chains, but doesn’t go any further into it.

VeriBlock claims to be decentralized, transparent, trustless and permissionless (“DTTP”). This claim is not true. At this point, VeriBlock’s node software is closed source and therefore non-transparent and trusted. Also, because of the closed-sourceness, it is not possible to verify whether the software is really decentralized and permissionless. The team behind VeriBlock states that it intends to open-source the project at a future point in time but refuses to give reasons for why they haven’t done it by now. The decision to continue keeping the project closed source is particularly worrisome considering that VeriBlock launched its mainnet last week. Mainnet launch before open-souring means that, should VeriBlock ever deliver on its promise to open-source, any hitherto hidden bugs will become visible and immediately exploitable on the main chain. Obviously, VeriBlock must have strong reasons for keeping the software closed source. Two possible reasons suggest themselves:

1. There are potential or known vulnerabilities that would be exposed by open-sourcing (security by obscurity).
2. Open-sourcing would reveal a centralized mechanism able to enforce consensus in case of emergency.

These two reasons would also explain why VeriBlock prefers to rather not disclose them.

VeriBlock’s whole value proposition is based on the security promise of its PoP Protocol. If VeriBlock, after years of research and development, didn’t manage to get the PoP Protocol secure and, for this reason, considers it necessary to additionally secure its network via other means, then it is essentially vaporware.

Finally, some remarks regarding the IEO which took place three days ago (markets for the VBK coin are supposed to open today). The IEO was very successful; all allocated VBK coins were sold out within seconds. Factors which might have contributed to this success include VeriBlock’s list of advisors which contains some big names, and VeriBlock’s PoP footprint in the BTC blockchain which created brand awareness (serving a purpose after all). Considering the unfulfilled demand, the IEO will probably prove profitable for those who successfully participated. If you are one of those: Congratulations! However, watch out not to be left holding the bag eventually!