China had 70% of the Bitcoin hashrate in the first quarter of 2020. Jameson Lopp highlights that a 51% attack on Bitcoin is limited and unprofitable.
The operation of Bitcoin depends on its mining, but the mining ecosystem has been not very transparent in recent years. That situation makes it difficult for the community to really understand how it works, according to Bitcoin developer Jameson Lopp.
There has always been the belief that Bitcoin is in danger as China concentrates most of the mining industry. Manufacturing companies, mining pools, and even hundreds of farms are located in the Asian giant. This has directly affected the centralization of the network’s hashrate.
There is a greater vulnerability to 51% attacks if the hashrate of a blockchain accumulates in the hands of a few miners or a single territory. This worries many members of the community, but Jameson Loop says that it is not easy to perpetrate this type of attack since they are highly limited and not very profitable.
These attacks occur when one or more miners manage to concentrate more than 50% of the hashrate of a network like Bitcoin. This gives them the ability to delete the network’s history to replace it with new convenient information. That way, they would be able to spend the coins more than once and get hold of the rewards for mining in a single operation.
If several allied farms manage to concentrate this percentage in a single territory, the logic suggests that Bitcoin could be vulnerable to an attack from China. In the first quarter of 2020, the Cambridge Center for Alternative Finance calculated that 70% of the Bitcoin hashrate was processed in China.
Reasons for Concern about Centralization of Mining in China
On his blog, the researcher states that 51% of attacks sound very dangerous, but they are not that powerful. The miners doing these activities cannot tamper with the consensus laws of the blockchain, so it is a limited attack.
The attacker cannot arbitrarily steal Bitcoin and can only spend twice the amount of Bitcoin in each of the affected blocks. The consensus rules cannot change either, much less accept invalid transactions. In other words, their hands are tied, but they can still do a lot of damage. The Bitcoin Whitepaper exposes all these maxims, which are the laws of the network.
According to Loop, most attackers can be successful if they manage to trade the stolen coins on a highly liquid exchange. This complicates things even more since most of these exchanges have withdrawal limits. Likewise, these platforms usually meet AML/KYC requirements, so they must identify themselves to be able to move large amounts of money.
On top of that, malicious actors will have to exchange money as soon as possible without anyone noticing. When people learn of the attack, the price of Bitcoin will surely drop. Jameson Loop concludes that these attacks are not profitable for the miners, who have to cover the electricity costs of each connected device to achieve more than 50% of the hashrate.
By Alexander Salazar
