A research study published on Oct. 5 claimed growing Chinese influence over the Bitcoin protocol is a “looming threat” to the $114 billion network. The paper alleged that China presents a problem to the security, stability, viability of the pioneer cryptocurrency.
The Case Against China
According to the paper, which was published by Florida International University and Princeton University, China has strong motives and a regulatory and technologically “mature” capability to launch an attack against the Bitcoin network, owing to the former’s strict economic control rules over the global internet infrastructure. The country is aware of the significant increase in Bitcoin’s value and economic utility, and the implication of disrupting such a vast network.
The paper begins its conjecture by calling out the dominance of Chinese businesses mining Bitcoin, making the protocol “heavily centralized.” Researchers allege that six mining pools control mining–with five located in China–and together, they make up 80 percent of the Bitcoin’s hashing power.
Bitcoin primarily faces a threat from the evil “51 percent attack,” which if executed, could result in the creation of fraudulent side-chains containing transactions that never took place. With much of the hashing power pooled by the Chinese, miners can influence what happens on the Bitcoin network, and perhaps, even spoof transactions to China’s benefits.
Chinese Mining Situation “Unsettling”
The research pointed out the five mining pools in China comprise 74 percent of Bitcoin hash power, an evidently “unsettling” situation. Given the country’s harsh policies, control over the network could mean censorship and other damaging attacks.
Blocks mined in China are in proximity to a large share of hash power, meaning validations and consensus are reached faster than blocks elsewhere. In addition, as the managers of mining units can control the inputs of outputs of their rigs, the hashing power is indirectly in control of strict Chinese authorities, who are authorized by law to influence a corporation’s business decisions.
The point mentioned above implies that the Chinese government can wholly-assume control of regional hashing power, giving them an advantage in selecting specific blocks for the ledger, which is essential for 51 percent-styled attacks.
Skewed Mining Rewards
The researchers believe mining rewards are being distributed unfairly, and China’s infamous “Great Firewall” is to be blamed. The 1995-levied dictum saw the government introduce a set of local regulations and Internet Service Provider limitations to control cross-border internet traffic.
Researchers note non-Chinese miners face increased latency–or a rise in hashing power – to compete for rewards within the network, as China controls the flow of information for those outside its borders. The nefarious step is achieved by mining “empty blocks,” which do not contain any transactional data, yet, provide a reward to miners while consuming expensive resources for the process.
To back their claims, the paper combined the average rates of empty blocks produced by each mining pool, noting those originating in China created a considerably high percentage of empty blocks, with over 7 percent. In contrast, non-Chinese pools produced 2 percent of all such blocks, in line with historical rates.
However, mining empty blocks make the network less efficient, which led the researchers to question why the mining of empty blocks incentivized the Chinese miners. The benefits of mining an empty block are limited to its respective miner. Also, quickly mining such blocks means filled blocks are moved up the queue for confirmation, increasing the probability for the empty block miner to capture a filled block as well.
In total, the research listed out 19 attack vectors that are available to Chinese mining pools, broadly classified under four categories: disruption, censorship, deanonymization, and weakening consensus.
Of these, the deadliest ones involve killing off the Bitcoin network by forcing non-Chinese miners out and combining all hash power to control Bitcoin, in a move dubbed “Goldfinger attack.” Another is to “weaponize” the country’s control over the network to destabilize foreign economies depending on the pioneer cryptocurrency to generate meaningful industry.
Both moves would cause rational miners to leave the protocol, and provide no incentive to newcomers either. For researchers, Bitcoin plays its role as an “ideological opposition” to China’s communist ideologies, and the country aims to stifle the rise of any opposing factor as it marches towards being a superpower.
The paper noted:
“[China] may be motivated to weaken or destroy it to make an ideological statement; for example, demonstrating the futility of decentralized control paradigms. Virtually any violation of Bitcoin’s security suffices to achieve this goal as long as it is highly visible.”
While most of the paper’s narrative plays out logically, it presents a rather damning view of China, especially with the latter’s push towards introducing blockchain standards and conducting government-backed experiments with the technology underpinning cryptocurrencies.
The country may enforce its control over Bitcoin, but killing a network worth $114 billion and supporting millions of peer-to-peer transactions across the globe would see its reputation in serious jeopardy.
Cover Photo by Claudia Seidensticker on Pexels