CoinShares locates 65 percent of the Bitcoin hash rate in China – 54 percent of it in the Sichuan province alone. Why is there no need to worry.
After the Bitcoin Hash Ribbon has turned negative, the next horror message from the Mining FUD category is on the threshold: More than half of the hash rate comes from the Middle Kingdom. This can be seen in the latest CoinShares report released on December 12th.
China of all places
Since Bitcoin came into existence, Mining FUD has excited the minds of the community. There is great concern about an excessive concentration of hash power on individual actors or regions. After all, increasing centralization of Bitcoin Mining could be a shame – reports like CoinShares’ sound like confirmation to those who have been warning about the Chinese takeover of BTC for some time. In particular, taking China as an example, whose government is not exactly characterized by a clear stance on Bitcoin & Co. and is otherwise more impressive through censorship and totalitarianism, market observers are suspicious of an increasing concentration of mining power.
However, if you take a look at the attack vectors that are actually possible, which are distinguished by such a mining concentration, the world looks very different again. Because despite all the prophecies of doom, Bitcoin is becoming increasingly decentralized.
Half of the miners may have settled in Sichuan. However, there are still a large number of mining pools. Even the largest Chinese mining pool, Poolin, only has 17 percent of the hash rate. Even the largest Chinese player is far from taking over the network.
Because it only becomes dangerous when a single mining actor accounts for over 50 percent of the hash rate in the network.
Possible attacks on Bitcoin
But even if the Bitcoin hash power is over 50 percent in the hands of a single mining pool for a certain period of time, the possible attack vectors are limited. Even with 100 percent of the hash rate, the following actions could not be performed:
- lever out algorithmic monetary policy, i.e. mine more BTC than planned
- Break SHA-256 and steal third-party BTC
- violate the consensus rules of the BTC network
Full nodes would see this as a rule violation and reject blocks as invalid.
Among other things, the following attacks with over 50 percent of the hash rate would be conceivable:
- Perform double spends
- Censor transactions
In connection with “China centralization”, the latter is considered to be a serious attack vector. After all, Bitcoin’s resistance to censorship is considered the ultimate value proposition. If a predominant part of the hash rate is in the hands of state actors, individual transactions could be held back and the functioning of the network could be curtailed.
State actor because it incurs enormous costs to maintain 51 percent for a period of time sufficient to seriously damage the network. On the other hand, there are still limited possibilities of exploitation – 51 percent attacks on Bitcoin are therefore not an economically sensible undertaking for private companies. That’s the nice thing about Bitcoin’s incentive system: it is simply more worthwhile to play by the rules than to cheat.