Bitcoin depends on its mining, this is one of the most fundamental activities for its operation. However, in recent years the mining ecosystem has been characterized by low transparency, making it difficult for the community to really understand how it works, says Bitcoin developer Jameson Lopp.
For example, it has always been believed that Bitcoin is in jeopardy because most of the mining industry is concentrated in China. Manufacturing companies, mining pools and even hundreds of farms are located in the Asian giant; which has directly affected the centralization of the network’s hash rate. In other words, most of the Bitcoin transactions and coins are confirmed and issued in Chinese territory.
A blockchain whose processing power (hash rate) is accumulated in the hands of a few miners or in a single territory – as is the case of China – is 51% more vulnerable to attacks. Although this is worrying for many members of the community, Jameson Loop assures that it is not so easy to carry out these types of attacks, since they are highly limited and not very profitable.
A 51% attack occurs when one or more miners manage to concentrate more than 50% of the computing power of a network like Bitcoin. This achievement gives them the ability to erase the history of the network to replace it with new convenient information, so they could spend more than once the coins they use and get the rewards for mining in a single operation.
If in a single territory several allied farms manage to concentrate this percentage, logic tells us that Bitcoin could definitely be vulnerable to an attack perpetrated from China. The alarms began to sound when in the first quarter of 2020 the Cambridge Center for Alternative Finance calculated that 70% of the Bitcoin hash rate was processed in China.
Given the chances are given, the question is: Will Chinese miners seize the opportunity to carry out a 51% attack? As the creator of the metrics platform Statoshi.info, Jameson Loop sees this as unlikely, even knowing that circumstances expose Bitcoin to malicious actors.
In a personal blog post, the researcher points out that the 51% attacks sound very dangerous, but are actually not that powerful. The miners who carry out these activities cannot tamper with the consensus laws of the blockchain, so this is a limited attack.
The attacker cannot steal bitcoin arbitrarily, for example. Also, you can only spend twice the bitcoins found in each affected block. Nor can they change the consensus rules, much less accept invalid transactions. In other words, their hands are tied, although they can do a lot of damage. All these maxims are exposed in the Bitcoin whitepaper, these being the laws of the network.
Loop also claims that most of these attacks can be successful only if the stolen coins can be exchanged at a highly liquid exchange. This complicates things even more, because most of these exchanges have withdrawal limits. Likewise, these platforms usually meet AML / KYC requirements, so they must be identified to be able to mobilize large amounts of money.
As if that were not enough, malicious actors will have to change the money as soon as possible, without anyone noticing, since as soon as the attack is known, the price of Bitcoin will surely fall. By explaining all this, Jameson Loop concludes that these attacks are not profitable for the miners, who have to cover the electricity costs of each of the connected machines to achieve more than 50% of the hash rate. If the price of Bitcoin falls, this could all turn out to be “a shot to the foot,” says the researcher.
Well, honest miners are not going to want to lose money stealing from the Bitcoin network. So, what happens if a State / government decides to sabotage the network? This is another of the theories that makes many bitcoiners tremble. However, Jameson Loop also believes that it is unlikely to be successful, even though the Chinese government could make these claims.
Loop highlights that there are only two ways that the Chinese state can take over Bitcoin: by taking control of all mining farms or all mining pools; industry sectors that are highly concentrated in its territory. In both cases, the investigator considers that the community would become aware of the plans before the attack was carried out, and would therefore take action on the matter.
It is very difficult for the Chinese government to dominate all the mining farms in the country, because they are distributed throughout its territory. Most of it is in Xinjiang, but there are also significant concentrations in Sichuan, Wei Mongol, and Yunnan.
In this sense, to achieve their mission, they would have to impose a national measure, which would not go unnoticed by the ears of miners and bitcoiners abroad. An algorithm change that disables ASICs produced in China could neutralize a government attack, as well as foreign miners connecting to pools outside of China’s control.
The 10 Chinese pools most used by Bitcoin miners, which represent 70% of the hash rate of the entire network, are considerably more exposed to an attack from the State. However, it is easy for miners to migrate from one pool to another emergency pool, especially if they notice an irregularity in the operator they are using.
Jameson Loop highlights that none of these moves would go unnoticed by the Bitcoin community, which has several companies specializing in blockchain research monitoring the network minute by minute. Likewise, he considers that little by little the Bitcoin community is becoming stronger so that these attack possibilities are remote.
Matt Corallo’s BetterHash proposal, which has been incorporated into the Stratum V2 group mining protocol, could be a solution that makes 51% attacks even more difficult, as CriptoNoticias has reported on several occasions. “Allowing miners to choose their own transaction sets moves some power away from mining pools to the miners themselves, increasing resistance to Bitcoin censorship,” describes Stratum V2 developer Braiins.
Faced with this type of progress, Loop points out that the Bitcoin community is willing to improve the levels of decentralization of its network. Also, competition between ASIC manufacturers and mining chip makers is expected to diversify outside Asia as well.
The Department of Industry and Information Technology of Mongolia, north China, said in a statement that it suspended subsidized electricity to 21 cryptocurrency mining farms. Among those affected is AntPool, one of the world’s top five bitcoin mining pools, owned by the manufacturer Bitmain.
The Inner Mongolia government suddenly determined that it was necessary to cancel the preferential prices for electricity service for cryptocurrency mining. Although the real causes that prompted the measure are unknown, there are suspicions that the reason would be related to the fact that mining companies have contributed little to the regional economy, says a report from the Weixin media.
Another element that may be related to the move is that after an assessment last year, the Inner Mongolia inspection team concluded that 6.732 billion yuan ($ 960 million) could be recovered after removing certain entities from the grant.
The measure will reduce the profit margins of the farms involved, whose costs will increase by at least 33%, taking into account that they will no longer have access to energy rates that ranged between 1 and 3 cents per kilowatt. The miners installed in other areas of the country, such as Xinjiang, now fear that resolutions of this type will also affect them, adds the aforementioned media outlet.
Inner Mongolia has been contributing about 10% of the hash power of the Bitcoin network that is produced in China. The country concentrates a monthly average of 65.08% of the world total, as can be seen in the bitcoin mining map of the University of Cambridge.
The northern part of China has been favorable for the settlement of mining farms that find in the region a cool climate, cheaper labor and, so far, cheaper energy compared to other parts of the country. Due to the new electricity tariff, mining companies may consider setting up in other regions where their revenues will not be affected.
Electricity has been cheaper in Inner Mongolia since the Electric Power Distribution Center, the first provincial power market to formally function in China, was founded. This center offers lower prices for electricity service in relation to the rates that exist in the rest of the country. Many in the region believe that access to cheaper electricity will allow the development of infrastructure that will boost the economy of Inner Mongolia.
In early June, CriptoNoticias reported that the local government of the Dehong Dai and Jingpo Autonomous Prefecture, in western Yunnan, demanded the dismantling of 57 Bitcoin mining projects. Apparently these governments have considered cleaning up the mining businesses.