China Can Still Hurt Bitcoin
A new paper has looked into how China’s capability can threaten the security, stability, and viability of Bitcoin based on its dominant position in the ecosystem. In The Looming Threat of China: An Analysis of Chinese Inﬂuence on Bitcoin, the authors touch on what could be China’s motivation to undermine Bitcoin, its strong inﬂuence over the cryptocurrency and the class of attacks the Asian giant can deploy against Bitcoin.
Motivation to attack Bitcoin
To make an ideological statement as Bitcoin stands in opposition to China’s centralized governing philosophy; for the purpose of law enforcement; to determine that increasing control over the system is beneﬁcial; and when more widely-used globally, it can be used to exert inﬂuence on a foreign country where Bitcoin is in use.
Areas of influence
The paper notes that as of June 2018, over 80% of Bitcoin mining is handled by six pools, of which ﬁve are managed by individuals or organizations located in China. These mining pools have reportedly constituted over half of the total network hash power since 2015 translating to more hash power being currently located in China than in any other country. These Facts are used to explain how the Chinese government could influence the sector through its strong centralized control over economic and ﬁnancial activity in the country and its surveillance over the domestic Internet.
At the time of writing the study, the authors – Ben Kaiser, Mireya Jurado and Alex Ledger of Princeton University and Florida International University – point that 74% of the hashrate on the Bitcoin network is in Chinese-managed mining pools. Hence, while pool miners cannot be directly controlled by China but the managers are located within China, they are subject to Chinese authorities.
They conclude that China has a number of “mature capabilities for executing a variety of attacks” and the technical power to domestically control and weaken Bitcoin, even unintentionally, on a global scale. They cite China’s operation of a variety of Internet control measures that can aﬀect Bitcoin traﬃc including the most well-understood system – the Great Firewall (GFW).
On the contrary
Some of the arguments that may be raised against this study are that the claims are not likely to happen. First, the fact that the centralization of mining pools locate in China does not necessarily mean the government can control them. Also, that mining pools are in China does not mean they all share similar interests to all connive against Bitcoin.
It should also be noted that thousands of miners – most of whom are not in China – make up the mining pools in China. These miners are free to switch to another pool elsewhere in the world if they feel otherwise. Hurting mining could fall the overall network difficulty level but will eventually strengthen and increase decentralization of the Bitcoin network outside China.