In, like, a real magazine. Check it out (it’s on page 84), and the publishers have kindly placed an electronic copy online.
On the topic of bitcoins, there are two graphs that are striking fear into the hearts of all those bitcoining libertarians. Start with:
GHash.IO is a pool of bitcoin miners. For a time on Friday June 13th, they held 51% of the Bitcoin processing power. Which gave them the ability to control the network – almost like a central bank and/or government.
An extract from two Cornell computer science geeks:
Is this really Armageddon? Yes, it is. 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 whose maintenance requires constantly burning energy — worst of all worlds.
Anyway, fortunately, some miners have since left the pool, allowing the GHash.IO processing power to drop back to 35%. Here’s the latest graph from blockchain.info:
Why 51% is a big deal…
So if you read my article (not that I’m punting it at all), there is a section that deals with the problem of double-spend.
To illustrate that problem, let’s start with Harry Potter and the Goblet of Fire. If I possess it in hardcopy, I can either read the book myself, or lend it to a friend. But I can’t do both at the same time. Ebooks, however, are a different story. Ebooks are easily replicated – so both my friend and I could read my e-copy of Harry Potter and the Goblet of Fire simultaneously. Or many friends. And even people that aren’t my friends.
In the same way with an electronic currency, there is an issue of replication – because I could spend the same bitcoin that my friend is spending (ie. double-spend).
To address that, Mr Satoshi Nakamoto resorted to math:
- If you cast your mind back into school, you’ll recall dimly that there are irrational numbers in mathematics: numbers like π, e or √2.
- Meaning that their decimal string is infinite.
- So you could, if you wanted, expend lots of processing power looking for blocks of decimals in the deep dark space of their galactic stretch.
In the world of bitcoin, the mining computers look for the next block in the chain of a mathematical proof (one that has a similar infinite decimal string, as I understand it). And when one node (being one of the mining computers) thinks it has a solution, it broadcasts the solution to the network. If 51% of the network agree that the solution is correct, the block of proof gets embedded in any open bitcoin transactions, those transactions are marked as processed, and the network moves on in search of the next block of decimals.
The idea is that no bitcoin can be replicated: in order to replicate it, someone would have to have greater processing power than the whole combined processing power of the network (because it would have to go find the most recent block, and all the preceding blocks which the network has produced since inception).
So the problem of double-spend is solved.
But let’s go back to the “if 51% of the network agree that the solution is correct” part…
If you controlled 51% of the network, you could instruct your mining computers to accept solutions only from other computers in your 51%. It means that you would find all the bitcoins, and you would earn all the transaction fees, and you would control anything that the network does from that point going forward.
According to Business Insider, the only counteraction to this type of processing power is that it’s a policy of mutual destruction: once a single entity gains control of the network, Bitcoin’s value would tank.
Well here’s a lesson in empiricism: it didn’t. Its value fell slightly. So clearly bitcoin users are kind of okay with the network being controlled. And if you’re looking for historical precedent of currencies being under the control of single entities, look no further than everywhere.
Here’s a theory: free markets contain within them the seeds of their own destruction, because the rise of a dominant player is simply an inevitability of time?