In January, there was worry in the bitcoin community regarding GHash, a mining pool. It controlled a rising share of the total bitcoin computational power used to mine the cryptocurrency — it’s share was creeping towards the 50% mark.
Here’s a sample of what was written in January, when GHash was at a still-distant 42%: “[That percentage puts] uncomfortably close to the 51% hash power mark, which some argue is the Achilles heel of bitcoin and similar cryptocurrencies.”
Why? Because of the potential of what the bitcoin community calls a ‘51% attack.’ In short, once you control more than 50% of the total hashing power of the bitcoin network, you can do nasty things, like spend bitcoins twice, and reverse and block transactions.
GHash went over the 50% mark recently, and held that rate for a period of more than 12 hours, it became generally known on Friday.
This was not well received. A well known bitcoin developer publicly sold 50% of his holdings in the cryptocurrency, and the price of bitcoin fell to the $550 mark. It was trading recently around $670.
Previously, GHash said that it would not break the 51% mark. “Reaching 51% of all hashing power,” the company said in a release, “is a serious threat to the bitcoin community.”
I contacted the firm, asking why they went over their prior promise. I’ll update this post if I hear back.
A 51% attack is something you do willfully. So, GHash would have to want to behave badly. As Ars Techica reported recently, GHash was accused less than a year ago of “using its considerable hashing power to attack a gambling site.” As such we’re not dealing with an actor that we should implicitly trust.
Ittay Eyal, and Emin Gün Sirer, both of Cornell, detailed the 51% event on Friday. To them, this is “armageddon.” Their critique is simple:
GHash is in a position to exercise complete control over which transactions appear on the blockchain and which miners reap mining rewards. They could keep 100% of the mining profits to themselves if they so chose. Bitcoin is currently an expensive distributed database under the control of a single entity, albeit one that requires constantly burning energy to maintain — worst of all worlds.
The two advocate a “hard fork” in bitcoin, to prevent this sort of thing from happening in the future.
It isn’t clear what is next. If GHash can in fact keep itself over 51%, it makes bitcoin unstable, which could harm the cryptocurrency’s price. At the same time, GHash’s percentage could spur others to bring more computational power online, and thus make it harder for GHash to have a shot at staying over the 50% level.
This is the sort of issue, I think, that could keep regular folks from adopting the crytocurrency. Imagine sitting your parents down and telling to shunt their bitcoin into litecoin until GHash is less powerful and thus bitcoin is safe to use again. Not going to work.
If the implicit trust that undergirds bitcoin is denigrated, or destroyed all together, its price will hit the skids. Harder than it recently did.