A study by Princeton and Florida International University was done with the goal of looking at the influence China has over Bitcoin. It explores China’s ability to threaten or destroy the stability and viability of Bitcoin. This is because China has extensive control over the country’s Internet infrastructure, as well as most of the Bitcoin miners.
Some fear that China could destroy the Bitcoin network. According to researchers, China possesses both the capability and the motive to perform attacks against Bitcoin.
[Also read: Will Quantum Computers Hack Bitcoin by 2022?]
Ten years ago, Bitcoin was a pet project. No one thought anything would come of it. Banks, regulators, and governments saw it as nothing more than a curiosity. Now, with Bitcoin trading at stellar levels, the economic utility of Bitcoin has grown. With this growth, there is greater incentive to destabilize the currency.
China is not the only government that is not a fan of Bitcoin. However, it is the most powerful adversary; it might be seeing Bitcoin as too decentralized and uncontrollable. Bitcoin might also be a rival for the new Chinese digital currency about to launch soon. China has the regulatory and technological capabilities to successfully carry out attacks against Bitcoin.
China’s Influence Over Bitcoin
Bitcoin mining was at first seen as a democratic process. It allowed anyone with a powerful enough computer to perform a task in exchange for the cryptocurrency.
Since bitcoin mining became more industrialized in 2015, concerns have arisen about a concentration of hashpower in China. China is ideal for this type of processing – it is highly industrialized, a massive producer of semiconductors and a source of cheap electricity.
This presents a danger to Bitcoin’s infrastructure. Any entity who control who control 51% or more of Bitcoin hashpower can prevent payment to some users and reverse completed transactions, causing the dreaded double spend issue. This would lead to a loss in faith of the network and cause Bitcoin to collapse.
As the value of Bitcoin has increased, the mining ecosystem has become more centralized. Cryptocurrency miners have joined forces to such an extent that approximately 70 percent of Bitcoin mining is done by just six mining pools. Of those six, five are managed by companies or by individuals based in China.
However, there is the risk of a scenario playing out where blocks found in China can reach a consensus quicker than blocks in other parts of the world. If the Chinese government took control of that hash power, they would have an advantage in choosing blocks for the ledger. Doing this opens up the doors for so many types of attacks.
Fortunately safeguards exist, for example twitter bots calling out alerts about stale blocks. Miners can take action within minutes. It would be easy for miners to switch mining pools after a major attack.
Bitcoin Is Slowing down Because of China
China is unfairly impacting how miners are getting rewarded for the work that they do. They are in effect making Bitcoin inefficient.
One needs to look no farther than China’s great firewall to see why this is happening. China’s great firewall adds additional latency for miners who are working outside of China. This seems to give Chinese mining pools the advantage in deciding what blocks they will mine. They are focusing on empty blocks.
One might think that this is not a big deal because you need to use the same time and the same amount of power to mine an empty block. However, mining an empty block does nothing to benefit the network. Yet, miners get the same reward as those who mine full blocks.
Chinese mining pools are mining empty blocks at a rate of seven percent over a set amount of time. Non-Chinese mining pools are mining empty blocks at a rate of two percent. This has been consistent throughout.
There is a benefit to mining empty blocks. If you mine empty blocks, you get the reward. Then, you get moved up the queue to receive another less empty block. This means that you are able to mine more blocks in a shorter amount of time and get a higher reward. You can do all of this while adding nothing of quality to the network. As a result, China might be impacting the integrity of Bitcoin.
Would a Concentered Attack on Bitcoin Work?
In a scenario where enough physical equipment is seized to perform an on-going attack, the worst-case result could only be the mining of empty blocks and lead to blocks being orphaned that does contain transactions. This would halt all transaction confirmations on the network. An attack like this could be waited out as it would be difficult to maintain for long, or a code change could be implemented to make their hashing machines useless.
It does seem likely that a concerted attack on Bitcoin would be limited in effect and would not disrupt the network for an extended period of time.