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Hashing Out Bitcoin Ownership

Dave Emory’s entire life­time of work is avail­able on a flash dri­ve that can be obtained here. (The flash dri­ve includes the anti-fas­cist books avail­able on this site.)

COMMENT: In our ongo­ing cri­tique of Bit­coin, we’ve not­ed that it appears to be an “op,” exe­cut­ed by Siemens spin­off Lan­tiq, which was cap­i­tal­ized by Gold­en Gate Cap­i­tal (staffed by alum­ni of Bain Cap­i­tal, Mitt Rom­ney’s firm.)  

New­er readers/listeners should note that Siemens func­tions as some­thing of a quar­ter­mas­ter for BND–German’s for­eign intel­li­gence ser­vice, evolved from the Gehlen “Org.”

(We have done four pro­grams to date on Bit­coin: FTR #‘s 760764,770785.)

In a reprise of a pre­vi­ous and appar­ent ongo­ing vul­ner­a­bil­i­ty of Bit­coin, the pos­si­bil­i­ty of an “Armaged­don” in the Bit­coin world pro­duced by con­cen­tra­tion of own­er­ship looms.

Once again, the GHash.io min­ing pool is at the cen­ter of the plot. Because it had gar­nered con­trol of 51% of the Bit­coin mar­ket, it could “dou­ble-sell” coins and com­pro­mise the integri­ty of the entire net­work.

It is par­tic­u­lar­ly inter­est­ing to note that just exact­ly who owns GHash.io is a mys­tery, as is the true iden­ti­ty of “Satoshi Nakamoto,”–the inven­tor of Bit­coin.  Again, we feel we nailed it in FTR# 760.

” . . . . Mak­ing mat­ters worse, no one knows who is behind GHash or CEX. The own­ers of the Nether­lands-based com­pany (which lists a Lon­don mail­ing address) are noto­ri­ously secre­tive, mean­ing that the bit­coin com­mu­nity – which at this point rep­re­sents sev­eral bil­lion dol­lars in wealth and untold future val­ue – are left trust­ing a shad­owy enti­ty not to behave bad­ly with its new­found pow­er. . . .”

Hmm­m­mm! A “noto­ri­ous­ly secre­tive,” “Nether­lands-based company”–doesn’t sound good. We won­der if this is anoth­er prop­er­ty of the Bor­mann cap­i­tal net­work? Cer­tain­ly, the gen­er­al pro­file fits their front orga­ni­za­tions.

Front and cen­ter in the Bit­coin cheer­ing sec­tion are sup­port­ers of the Aus­tri­an School of economics–Ludwig von Mis­es, Friedrich von Hayek et al.

Adamant­ly opposed to “guv­ment in’fer­ence” in mar­kets, they advo­cate unreg­u­lat­ed finance. Bit­coin illus­trates in bru­tal­ly dra­mat­ic fash­ion why reg­u­la­tion is very much need­ed.

“Crypto-‘Armageddon:’ Researchers Claim Min­ing Con­cen­tra­tion Threat­ens to Destroy Bit­coin” by Michael Car­ney; Pan­do Dai­ly; 6/16/2014.

Here we go again. For the umteenth time in recent mem­ory, the sanc­tity of the bit­coin net­work is fac­ing an exis­ten­tial threat from a large and over­ly secre­tive orga­ni­za­tion. It’s not an exchange or wal­let ser­vice this time around that has the atten­tion of cryp­to-cur­ren­cy watch­ers, but rather a large min­ing pool, specif­i­cally GHash.io, the self-described world’s “#1 Cryp­to & Bit­coin Min­ing Pool.”

So why is the bit­coin world up in arms over GHash? On sev­eral occa­sions last week, one last­ing a full 12 hours, the group, which is owned by cloud-min­ing ser­vice CEX.io, con­trolled more than 50 per­cent of the glob­al com­pu­ta­tional pow­er direct­ed at min­ing bit­coin.

With such con­trol, GHash (or any group that finds itself in a sim­i­lar posi­tion) could manip­u­late the integri­ty of the bit­coin net­work by poten­tially dou­ble-spend­ing coins, block­ing or revers­ing trans­ac­tions by com­pet­ing min­ers, extort­ing increased trans­ac­tion pro­cess­ing fees from the net­work, or wag­ing a dis­trib­uted denial of ser­vice (DDoS) attack against the entire bit­coin net­work – col­lec­tively, a so-called “51 per­cent attack.” In oth­er words, it’s a major threat to bitcoin’s foun­da­tional dis­trib­uted, and there­fore trust­less, nature.

Cor­nell researchers Ittay Eyal and Emin Gün Sir­er were the first to rec­og­nize the 51 per­cent event, call­ing it “armaged­don” in a Fri­day blog post, and describ­ing GHash as a “de fac­to monop­oly.”The pair, who have long been thought lead­ers on the con­cepts of 51 per­cent attacks and “self­ish min­ing,” write:

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.

It’s a his­tor­i­cal first for any enti­ty to cross the 50 per­cent thresh­old, although GHash has been close before, approach­ing 45 per­cent in Jan­u­aryof this year. At the time, GHash issued a press release, pub­licly com­mit­ting to nev­er reach­ing the feared 51 per­cent thresh­old (real­ly, any­thing greater than 50 per­cent). So much for that promise.

To be clear, GHash doesn’t own 50 per­cent of the glob­al min­ing pow­er, it sim­ply “con­trols” it. This dis­tinc­tion is impor­tant, but does not nec­es­sar­ily elim­i­nate the threat the group pos­es. GHash has in the past claimed to own only half the hard­ware pro­vid­ing the hash­ing pow­er that it con­trols, with the rest con­tributed by third-par­ty min­ers that allo­cate min­ing pow­er to its pool. Nonethe­less, the bit­coin net­work has rea­son to be fear­ful of this con­cen­tra­tion of pow­er.

Mak­ing mat­ters worse, no one knows who is behind GHash or CEX. The own­ers of the Nether­lands-based com­pany (which lists a Lon­don mail­ing address) are noto­ri­ously secre­tive, mean­ing that the bit­coin com­mu­nity – which at this point rep­re­sents sev­eral bil­lion dol­lars in wealth and untold future val­ue – are left trust­ing a shad­owy enti­ty not to behave bad­ly with its new­found pow­er.

To be clear, GHash has not abused its pow­er yet. But if history’s taught us any­thing it’s that pow­er cor­rupts. Mak­ing mat­ters worse, the com­pany was pre­vi­ously accused of using its enor­mous size advan­tage to bul­ly a gam­bling site via dou­ble-spend­ing attacks.

Eyal and Sir­er write:

No one knows the ulti­mate aims of GHash. The peo­ple who join the GHash pool do so because GHash has zero fees — these peo­ple are essen­tially opti­miz­ing for short term prof­its over the long term well-being of the cur­rency. All of these are pre­cisely the points we cau­tioned about. So this is when we get to say “We told you so.”

The pair go on to advo­cate a “hard fork” in the code­base under­ly­ing bit­coin, with the goal of accom­plish­ing three core fix­es: dis­in­cen­tiviz­ing min­ing pools, com­bat­ting self­ish min­ing, and mak­ing min­ing activ­ity more trans­par­ent. They con­clude, sar­cas­ti­cal­ly:

Or we can car­ry on as if noth­ing of impor­tance hap­pened. GHash will be on their best behav­ior for the next few weeks, and Bit­coin will limp along. What will bring the actu­al demise of Bit­coin is the sub­ject of a future blog post, but this is by no means the end. Peo­ple can still use Bit­coin to buy drugs, trin­kets from Overstock.com, and maybe even grilled cheese from a food truck. There is an after­world. And for every­thing else, there is dirty fiat and Mas­ter­card.

As Eyal and Sir­er point out, the poten­tial of 51 per­cent attacks has been known for some time. As a whole, the bit­coin com­mu­nity lead­ers have been quick to write off the risks of such a sce­nario, offer­ing two com­mon jus­ti­fi­ca­tions. First, we’re told that the invest­ment required to cre­ate a min­ing pool would dis­in­cen­tivize a pool’s par­tic­i­pants from ever con­duct­ing such an attack. But, as the Cor­nel report explains:

…[this] assumes a sta­tic world. Instead, the min­ing rigs have a fair­ly short use­ful life­time. If a min­er knows that they will be over­taken by the next gen­er­a­tion of hard­ware about to be unleashed by a com­pet­ing min­ing pool, it will have a def­i­nite time hori­zon for extract­ing every last bit of val­ue, and that plan may not have room in it for a voy­age to the moon.

Sec­ondly, naysay­ers are quick to argue that the min­ing com­mu­nity and bitcoin’s core devel­op­ers will eas­ily rec­og­nize such an attack and will there­fore pre­vent the bad actors from harm­ing the broad­er bit­coin net­work. At best, this seems like an ide­al­is­tic view of like­ly events. Even if such an attack were rec­og­nized and ulti­mately inter­rupted, the trust-erod­ing effects – both with­in the com­mu­nity, but more so with­in main­stream con­sumers and media – would be stag­ger­ing. Assum­ing that no harm will come of even a brief 51 per­cent attack couldn’t be fur­ther from the truth.


A GHash spokesper­son told Cryp­to­Coin­News:

…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.

Bit­coin was cre­ated specif­i­cally to avoid the need to trust any cen­tral­ized author­ity, be it a fed­eral gov­ern­ment, the Fed­eral Reserve, the World Bank, or oth­er­wise. The fact that the cryp­to-cur­ren­cy com­mu­nity is now con­fronting this sce­nario is a legit­i­mate threat to the entire exper­i­ment.

The broad­er mar­ket seems to agree with this con­cern, push­ing the price of bit­coin down more than 16 per­cent in a few days, from a near-term high of $655 on Tues­day, June 10 to a low of $553 on Sun­day the 15th– cur­rently, the Coin­desk Price Index sits at $589. This drop fol­lows a recent upswing in price fol­low­ing a pro­longed bear mar­ket that coin­cided with the col­lapse of Mt. Gox. As of this moment, GHash con­trols rough­ly 35 per­cent of glob­al hash­ing pow­er while the next largest known group, Dis­cus Fish, con­trols 16 per­cent.

GHash doesn’t need to con­duct a 51 per­cent attack for their hash­ing pow­er con­cen­tra­tion to be a major issue. The sim­ple fact that the bit­coin net­work must look over its shoul­der to won­der if (or when) such an attack will arrive is enough to desta­bi­lize the sys­tem.


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