One of the basic ideas behind Bitcoin is that it exists outside the control of any centralized power. That no longer seems necessarily true. GHash.IO, a particularly powerful organization of Bitcoin miners, turns out to have at times controlled more than half of all Bitcoin mining activity—a development that some think poses a new threat to the system.
The creation of new Bitcoins has increasingly become the preserve of sprawling groups known as mining pools. GHash.IO, the most successful of these pools, theoretically has enough power to cheat the system. The details are complicated, but it basically functions like this: The Bitcoin system works only if users guarantee that coins aren’t spent twice. This requires a good deal of computational power, so the system rewards users who verify blocks of transactions by awarding them new Bitcoins. The process is known as mining. Just like miners looking for gold, Bitcoin verifiers don’t know exactly where the rewards will be, but every once in a while, Bitcoin miners involved in verifying blocks of transactions will unlock a reward. They announce it, and everyone moves to the next block.
The supposed vulnerability comes when miners don’t tell everyone else when they’ve completed work on one block. So-called selfish miners could theoretically keep their success a secret to get a head start on the next block. This could allow them to double-spend transactions, trading Bitcoins for dollars, erasing the record of the transaction and getting their Bitcoins back.
This isn’t a new idea. Last November two researchers from Cornell University, Ittay Eyal and Emin Gun Sirer, described such a scheme and concluded that Bitcoin was broken—“not just superficially so, but fundamentally.” At the time, Gavin Andresen, chief scientist of the Bitcoin Foundation, essentially dismissed the concerns. He sounded less sanguine on Friday, when he said that power over Bitcoin mining is centralized in too few hands, and urged people to stop working with GHash.IO.
The bottom hasn’t fallen out of Bitcoin, but people are taking this seriously. Peter Todd, a designer for a Bitcoin miner, wrote on Reddit that he was selling half his Bitcoins. He floated a few solutions—including writing code that would get rid of pools like GHash.IO altogether. But he’s skeptical that a sufficiently drastic solution can happen without a serious Bitcoin failure. “If that failure happens it’s quite likely that the Bitcoin price will drop to essentially nothing—not a good way to start a few months of work fixing the problem when my expenses are denominated in Canadian dollars,” he wrote.
Andresen is more optimistic, saying there are practical problems that GHash.IO would run into if it tried something like this. Namely, it would get caught. Such misbehavior is “extremely unlikely from an economically rationally mining pool,” he said. In an interview with Cryptocoin News, Ghash.IO’s chief information officer, Jeffrey Smith, promised not to do anything untoward:
“We would never do anything to harm the Bitcoin economy; we believe in it. We have invested all our effort, time and money into the development of the Bitcoin economy. We agree that mining should be decentralized, but you cannot blame GHash.IO for being the #1 mining pool.”
It may be true that GHash.IO doesn’t want to abuse its power, and Andresen may be right that it would be irrational for any future Bitcoin mining powerhouse to do so as well. But basing a financial system on the benevolence of a centralized powerhouse isn’t exactly the utopia that Bitcoiners signed up for.