Five of the six mining pools that perform more than 80 percent of Bitcoin mining are located in China or managed by Chinese organizations, and this could threaten the world’s largest cryptocurrency, according to a new report by Princeton University researchers.
The report, titled “The Looming Threat of China: An Analysis of Chinese Influence on Bitcoin,” details out how China’s increasing influence over Bitcoin may be putting the network at severe risk.
“One broadly understood security property of Bitcoin is that no single party can control more than 50% of the hash rate, so this statistic is worrying,” the report said.
China’s immense control of the mining farms that serve Bitcoin performance could lead to what is known as the 51% attack, where a single entity or organization is able to control the majority of the hash rate, potentially causing a network disruption.
Hash power is the computing power needed to secure the Bitcoin network, or the amount of computing resources directed towards the cryptocurrency network in order to validate new blocks of transactions.
China’s firm grip over economic and financial activities within its borders and its increased surveillance and censorship over its domestic internet were identified as the “most powerful potential adversary to Bitcoin.”
The report also says there are a “variety of salient motives for attacking the system and a number of mature capabilities” that China uniquely possesses, which threaten Bitcoin’s integrity and future as a world currency.
There have been concerns about the concentration of hash power within China’s borders since the industrialization of BTC mining began in 2015, according to Jameson Lopp, the chief technical officer at Casa, a Bitcoin-focused security company.
“At the time of writing, 74% of the hash power on the Bitcoin network is in Chinese-managed mining pools,” the report stated. “Pool miners cannot be directly controlled by China, but the managers are located within China and as such are subject to Chinese authorities.”
But how would this threaten the Bitcoin ecosystem?
China could launch a Goldfinger attack – where mining pools apply their combined hash power to control or, in a worst-case scenario, kill the Bitcoin system.
China could resort to this form of attack if it feels that Bitcoin poses an “ideological opposition” to communist policy, and could “weaken or destroy it” to make a statement.
“Bitcoin can only survive such an attack if the remainder of the miners are willing to pay a cost greater than what China is willing to pay to pull off the attack,” a researcher explained.
“Because other Bitcoin miners are loosely organized and China can bring massive resources to bear, the most likely scenario is a death spiral in which China can credibly threaten a Goldfinger attack and rational miners will be scared off, thus destroying Bitcoin.”
The report says China could use its influence on the mining farms in its jurisdiction to weaponize Bitcoin and attack enemy economies that increasingly look at Bitcoin and other cryptocurrencies as safe havens due to the lack of financial infrastructure in their country, or due to the way their governments control traditional fiat currencies.
“To exert influence in a foreign country where Bitcoin is in use, China may aim to weaken or even totally destroy Bitcoin. This could be done by targeting specific users or miners for attack or by generally weakening consensus to increase volatility to a breaking point,” the report warned.
Due to its iron grip on local internet usage – referred to as the China’s Great Firewall — it is able to distort the playing field by adding latency for miners operating outside its borders and effectively making Bitcoin inefficient.
Chinese mining pools can have priority for deciding which blocks to mine, according to the researchers. They said that Chinese mining pools produced an unusually high rate of empty blocks – above 7 percent — compared to non-Chinese mining pools (around 2 percent).
Mining empty blocks makes the entire network less efficient since it leads to no transaction but also make the overall network consume costly resources. Researchers said it is not clear what motivated Chinese miners to do this.
Researchers concluded that as the value and influence of Bitcoin grows, the incentive to attack it increases and China is the most powerful potential adversary to launch such an attack.
“We found that they have a variety of salient motives for attacking the system and a number of mature capabilities, both regulatory and technical, to carry out those attacks,” they said in the report.
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