China has played a vital part in the cryptocurrency world for many years, but a recent paper suggests that China’s influence over Bitcoin’s infrastructure has given the Chinese government the ability to destroy Bitcoin potentially.
In 2008 Satoshi Nakamoto published the Bitcoin white paper, using cryptography to create the world’s first decentralised currency. Since its creation, Bitcoin’s popularity has grown substantially, reaching a market capitalisation of over 300 billion USD at its peak in December 2018, as it continues to attract interest from technology enthusiasts, black markets, and legitimate markets. It was designed to be an answer to our centralised system by creating decentralised control.
The infrastructure was built to give all participants incentives to maintain the health and stability of the ecosystem. Up to now, there has been no successful attacks and is therefore completely secure. However, a new study suggests that this is about to change. The researchers from Princeton University and Florida University writes that by understanding the shifting nature of Bitcoin mining, one can understand the shift in power as well and says “Bitcoin is secure in practice but not in theory.”
Bitcoin mining was originally managed by normal computers from everyday people, but the increasing computational power required to mine Bitcoins today is too great for a normal computer. Today, a miner would need a highly specialised, and expensive “mining computer” and have resulted in the centralisation of the mining activity according to the researchers.
“Bitcoin mining has become heavily centralised due to advances in specialised hardware that render commodity hardware obsolete. As a result, miners have congregated into mining pools: consortia of miners who work together and share profits. As of June 2018, over 80% of Bitcoin mining is performed by six mining pools , and five of those six pools are managed by individuals or organisations located in China”.
Furthermore, the researcher writes that the Chinese government potentially could influence Bitcoin in four different ways: disrupt competing miners, undermine consensus and destabilise Bitcoin, de-anonymisation, and censorship. China is heavily controlled by the government, that controls the out- and inflow of information over the internet. According to the paper, 74% of the Hash power on the Bitcoin network are in China-based mining pools and are therefore subjects for the Chinese government. An example would be that the Chinese mining power could manipulate transaction and potentially execute a double spend attack.
Ripple’s CEO, Brad Garlinghouse, has earlier stated that China controls Bitcoin. It is a known issue, and the paper suggests that developers should focus on solutions on how to protect the Bitcoin network from the growing issue.
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Dennis Sahlström has been trading and investing since 2012 and has for the last two years been consistently profitable. He has been in the crypto- and blockchain space since the middle of 2017 and realized its potential for our world, not least how it is transforming the society we live in. He has now created an education platform, together with the wealth coach Marcus the Maria. They teach regular people how to invest and trade in the cryptocurrency market with proven strategies. If you want to learn more and feel like its time to get into this new asset class, download our free book and register to the next live training to get your future in cryptocurrencies started.