Bitcoin miner could discredit currency’s decentralized benefits

Jun 16, 2014
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Bitcoin miner could discredit currency’s decentralized benefits

Bitcoin might once again be losing some face. After a series of controversies surrounding the once-popular Mt. Gox bitcoin exchange, the cryptocurrency might soon be put under a microscope after one miner has been noticed to be providing 51 percent of the whole network's computational power and putting the currency's security in jeopardy.

One of Bitcoin's major advertised benefits is that the whole currency is decentralized, never relying on a single bank or organization to dictate value and authorize transactions. In exchange, however, Bitcoin relies on miners to carry the brunt of the work by providing the computational power to generate and process the cryptographic hashes that the currency is founded on. These miners are often rewarded with bitcoins, which is how many of them earn this kind of money. In most cases, the miners are small and independent entities, but this miner that is coming to light defies those conventions.

The miner's name is GHash, and it has been linked before to misconduct involving Bitcoin. Based on observations of the miner's movements, GHash was able to hold 51 percent of all Bitcoin hash output for short spurts of time. Such a temporary event doesn't do much harm. However, the Bitcoin community was alarmed when GHash was able to hold on to that position for 12 hours on June 12, calling into question the whole concept of decentralization with Bitcoin and the danger that these incidents pose.

The problem is that any single entity who holds a majority of the hash output can practically exercise a monopoly on the whole currency. They can do things that normal bitcoin users and miners can't, like using a coin more than once or reject transactions coming from other miners. It practically puts them in a position of power that nullifies all the benefits of Bitcoin's decentralized nature. GHash, whose owners and operators still remain unknown, promises it would never cross that line, but it is unlikely that the Bitcoin community can simply take their word for it.

The somewhat good news is that GHash has so far not exploited its new found powers. Perhaps even better news is that analysts believe that even if GHash should, it would not be to its own benefit, as it would bring down the house on its own head, so to speak. Bitcoin is built on trust, not of a single entity but on the integrity of the network and system itself. If a single entity like GHash were to hold that power, it would practically be asking users to trust it, its database, its service. It would be like a real-world currency again, only in digital form, and with none of the benefits. That would then drive away users and crash the Bitcoin economy, which is something that isn't in the best interests of anyone, even GHash.

VIA: Ars Technica


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