Bitcoin War: The First Real Threat to Bitcoin?

Scumbag Bitcoin Miner

For most Bitcoiners, it is a well known fact that there is a significant risk in the decentralized peer-to-peer currency pertaining to hashing power.  In order to maintain a perfectly democratic internet currency, no one single entity should ever have control of 51%, or greater, of the total network hashing power.

Today, one of our researchers discovered that according to Blockchain.INFO, a miner at 85.214.124.168 currently has approximately 15% of the total hashing power.  This, in itself, is every day news.  However, the strange or even frightening fact is that it is producing empty blocks (single transaction blocks).  If this 15% turned into 51%, it could have the potential to kill bitcoin.   Why are they doing this?  There are a few possible reasons:

1. The entity may have discovered a method for increasing mining ROI, and essentially, is earning its 50 bitcoins per block much more quickly than others.  In general when finding a block, hashes for every transaction must be computed.  When computing 1 transaction per block versus 100, you can imagine the latter would be more costly than the former.  However, this means that the entity would not receive any fees for processing transactions.  It is difficult, at the current time, to determine whether this would be beneficial.

2. The entity is willing to blow money on mining these empty blocks.  Essentially, this could lead to a complete stop in bitcoin transaction processing.  If the entity obtains 51% of hashing power and fully stops processing transactions while mining against only its own blocks, the block chain will become useless.  Some people who might do this include governments, banks, competing currencies, or ridiculously wealthy and bored individuals who have a vendetta against bitcoin.

3. This could also be a botnet that does not wish to deal with the hassle of constantly sending all of the current transaction information to its zombies.  This would be more for coding simplicity rather than for financial gain.

As of today, there is still very little risk.  Additionally, assuming this entity falls under the #1 listed above (i.e., not entirely malicious), the worst thing that will happen is that bitcoin transaction confirmations will be slowed down by whatever percent of hashing power they are “contributing,” and Jerry McGuire will yell “SHOW ME THE MONEY!”

So what is it?  Is this entity generously increasing their ROI, or is it attacking and taking over?  With the recent security advisories and, of course, the widely publicized hacks, it looks like the WWW (Wild Wild West) is in full effect.

About Andrew

Andrew is a long-time advocate of privacy and the conservation of the personal realm. He served as the brand manager for an internationally recognized best-selling product prior to co-founding Private Internet Access. Additionally, he was the co-founder of Mt. Gox Live which was acquired by Mt. Gox and created their official mobile application.

  • david

     There are a number of misconceptions in your article:

     * Even at 51% mining power the blockchain is still going to be filled with transactions verified by other miners.  Just about half of all blocks are going to be empty.  Of course with 51% mining power, there would be potential for more harmful abuse like attempts to spend bitcoins twice, invalidating transactions after the fact etc.

     * For the miner it is (almost) not more costly to add more transactions to blocks, so that cannot be a reason why that entity refuses to validate transactions.  My first guess would just be that this host is misconfigured :)

    I’ve seen that possibly malicious host in the blockchain, too.  There are a few occurences in time where it provided every second block.  That could’ve been by chance.  It could also mean that 85.214… has more mining power than it shows most of the time, maybe somebody is still preparing for a larger attack on the bitcoin network and tries to stay below the radar by artificially limiting mining power.

    • realrasengan

      Yes, what I was saying in the post is that it will only kill Bitcoin if the miner only mines his own blocks.  This means his chain (which is completely empty) will be the longest, and thus, none of the blocks with transactions will make it into the chain.

      • realrasengan

        At 51% hashing power, he gains the option to do this.

        • http://twitter.com/JoelKatz David Schwartz

           He doesn’t just gain the option, but he gains the incentive. Say he has 60% of the mining power. If he mines “honestly”, he mines 60% of the blocks and gets 60% of the rewards. If he only builds off his own blocks, he gets 100% of the block rewards. Since the block rewards are fixed for now at 50 bitcoins per 10 minutes, he has a strong incentive to only build off his own blocks.

          However, he has no incentive (unless his motive is to kill Bitcoins) not to include transactions. If he includes no transactions, he makes Bitcoins useless and reduces the value of the Bitcoins he has mined.

          • cunicula

            Yes, I agree with this completely. It is a potential problem though that the view you express here is not more widespread. It could cause market panic to ensue even though the honest monopolist’s activities cause no direct harm to users. 

            I also think that honest monopoly is the most likely near-term scenario. As block reward decreases however, the temptation towards dishonesty increases. 

      • david

         Ah yes, now I see what you were referring to.  Didn’t even think of this attack (but who would do this kind of DoS if he could actually make money by spending his bitcoins twice?! :)

        Other than that, you write about the transactions fees that this host doesn’t collect. Transaction fees currently are at about 0.02 BTC per block (for the blocks I checked), so he doesn’t really loose much.  If people payed more fees, maybe that host would start to behave more socially?

    • http://pulse.yahoo.com/_FVQCHXZPJJVFB3EDAVRFJ65PXM Zaphod

      A miner with 51% of the hashing power could build a longer block chain than the rest of the network resulting in blocks generated by anyone else being ignored. A technically adept miner with 51% could prevent transactions being processed. In practice that would reduce the value of bitcoin so a miner is more likely to allow the system to work.
      It’s far more likely that this miner is just a botnet operator, not an organisation with an interest in destroying bitcoin like the NSA, Paypal, Visa or Mastercard.

  • Guest

    Why is 51% so important?

    • KenanY

      An attacker that controls more than 50% of the network’s computing power can, for the time that he is in control, exclude and modify the ordering of transactions. 

      • Kenneth Cole

        No. There is no magic with the 50% number relating to control of the network. In fact, if you have 10% of the network, you could choose to slow down transactions by 10%. Someone with 50% can slow it down by 50%. The ONLY serious consequence of a 51% attack is the potential to temporarily double-spend coins. The remaining 49% would continue on their merry way, ignoring the invalid transaction. The loser would be the original recipient of the bogus transaction.

        In other words, 51% lets someone do a chargeback.

  • IOIOOIIOIO

    The usual form of the 51% attack is to produce an alternative block chain that is longer than the legitimate one, then make a transaction with a third party to receive goods and then release your longer chain with alternate transactions that instead pay the money to yourself.

    There could be *several* attackers capable of the 51% attack, because the whole point is that you only employ your resources when you need it.   If these are single transaction blocks, it’s likely the single transaction is the one intended to invalidate the transaction conducted with the person being attacked.

    These could simply be proof of concept tests, categorizing and perfecting the system until they know exactly what services they can offer.

  • Justaguest303

    This is irresponsible journalism putting their IP address on here and subsequently copied over and over again by blogs linking here!!

    • realrasengan

      Hi, the IP is listed on blockchain.info.

      • Guester

        LOL

  • http://twitter.com/JoelKatz David Schwartz

    This shows that transaction fees are too low. If miners aren’t even bothering with them, there’s probably not a sufficient incentive. Raising transaction fees will increase the incentive for miners to include as many of them as possible. This is especially true for mining pools where the transaction fees are often pure profit for the pool operator.

    • Kb

      This is where the “free market” idea fails.

      If you tell people that they can pay whatever they want, they won’t pay anything.

      Just look at the size of fees right now. It’s usually about 0.001 bitcoins in the whole block. Who cares about that.

      • allten

        Actually, I was thinking this is where the “free market” idea excels. If miners are not including transactions it is begin the transaction fee people are paying is too low. Seems simple enough to me.

  • Stephen

    I does not matter if a block has 1 transaction or 100 in terms of the time to compute the hash.  Only the merkle root of the transactions is included in the hash.

    • plato

      to clarify: a miner attempting to mine a block calculates a “merkle root” of the transactions he wants to include. This takes longer if there are 1000 transactions than if there is one transaction. Then, along with some other stuff like an incrementing nonce, the miner hashes this over and over again.

      Once someone finds a block, everyone recalculates what transactions will be in their block, then continues hashing.

      Since miners are operating in the “billions of hashes per second” range during this second part, the time it takes to calculate the merkle root is insignificant.

  • http://blademccool.myopenid.com/ BladeMcCool

     Do we really need or want blocks that dont have any transactions in them? Could we agree on a BIP that says if the block doesnt have any non-block-reward transactions in it, its not a valid block? Is that something a majority of pools would be able to agree on?

    • Woof

      but what about when it’s a slow day and no transactions happen?  we need to be able to mine a new block every 10 mins.

      • mr_Ty

        no we don’t – the only point of having another blocks is that they contain transactions

    • runeks

      We could, but it doesn’t solve the problem. What we want from Bitcoin is an efficient decentralized electronic currency. If Bitcoin is susceptible to attacks like this, it doesn’t fill that role, and no patching up will do. If we implemented this rule, it would simply mean that the attacker would have to include a single transaction (besides the generation transaction) in the block, which is only slightly less detrimental to the network than zero transactions in the block is. Any arbitrary minimum amount of transactions to include in a block would restrict Bitcoin as much as it would restrict any potential attacker (as it would deter honest miners as well, when no or few transactions have occurred between two blocks).

      As someone else has pointed out, this signals that fees are not big enough (relative to the block subsidy). Fees from a block are literally like a 0.1% extra income for the miner (and that’s even a lot!). This is so small that it is simply not worth it – financially – to bother setting up a node that keeps a copy of the block chain, checks transactions, and includes them in blocks. This can be solved by fees relative to the block subsidy increasing (which will, in any case, happen around the mid-December, when subsidy halves to 25 BTC per block).

  • allten

    This is just BFL doing their “mandatory burn-in” on all those singles thousands of people are waiting to receive. Maybe after the block reward is cut in half they will finally send them out.

    Man they are taking forever!

  • Guest

    It is not making computing blocks any easier for that miner, it is making him being an asshole, however.

  • cunicula

    The most important thing about this in my opinion is that it illustrates how easy it is to monopolize the bitcoin network. 

    If you can get 15%, well 51% is only about 3.4 times as hard. 

    The question should be not if a 51% monopoly occur, but what will the monopolist decide to do once he accumulates 51%. 

    This could happen quite suddenly. Suppose for example that the btc price crashes again and GPU mining becomes unprofitable even with cheap electricity. Most miners will exit if they can’t recoup electricity costs. Most mining is still overwhelmingly GPU mining. If this guy is a botnet, electricity is irrelevant to him. If he is a botnet, a price crash could send him directly to 51%. If investors think that 51% control leads to the destruction of bitcoin (I don’t but many do), then a price crash would be a self-fulfilling prophecy. 

    Under a self-fulfilling prophecy, the bitcoin price has multiple equilibria. Price can be high with a diffused hashing control equilibrium and low with concentrated hashing control equilibrium. As a speculator, you can earn big bucks by investing money to switch between equilibria. All you need to do to profit is put a large chunk of money in shorts. Others will worry that heavy shorts could get the price drop and mining exit rolling, giving mystery miner more control. If you believe that most of the market also thinks 51% control is destructive, then it is individually rational to come on board and also sell. The speculator profits all the way down until the new equilibria is reached and bitcoin lies in ruin. The mystery miner and the speculator could be one and the same person. Due to this self-fulfilling prophecy effect, the actual threshold which leads to 51% control is much less than 51%, it could potentially be 20 or 30% though it is very hard to guess because it depends on perceptions about the price consequences of 51% attack.

    This is not FUD, just textbook international finance. If you think those are one and the same, I’m selling tinfoil hats on bitmit.

    Right now with block reward at 50, an attack is as costly as it will ever be. Around December, monopoly gets easier, and the plan for the future is to make it even easier. 

    Shouldn’t the development team make some statement about how they plan to address this pressing issue?

    • scumbag_cunicula

      It’s percentages, so it’s not “only 3.4 times more,” but more like 6 to 7 times more. And if you want guaranteed 51%+ control, more like 10 times more than the 15%

      • cunicula

        Let’s start out ignoring any possible speculative attack. 

        If we apply your logic, solo miner needs to increase by less than 6-fold to go from 15% to 51%. So it might appear that I overstated things (I did to some small degree). However, your logic assumes that GPU miners never respond to difficulty increases by shutting down there rigs. This is obviously untrue, so the actual increase necessary will be less than 6-fold. If we assume that at least 41% of incumbent miners are near their shutdown threshold (that is will shutdown if difficulty increases), then the actual number is 3.4 as originally stated. 3.4 is a lower bound, around 5.9 is an upper bound. I think 3.4 is closer to the real answer. 
        Let’s introduce speculative attackIn addition, if we allow for rational forward-looking behavior on the part of miners, coupled with perceived catastrophe in the event of 51% attack, then the actual  number could be much less than 3.4, perhaps even a 2-fold increase could be enough to cause the entire system to unravel.

        • scumbag_cunicula

          Care to plug in costs into those estimates? Currently they are very likely earning a profit. If they expand by 3.4 times, not only will they have to spend on hardware, all of their own hardware will become quite unprofitable, too. After they get to 51%, they will still have to deal with a long unprofitable lag as other miners continue to exit and profitability takes time to decrease. Unless the purpose is to destroy Bitcoin (a very expensive task), this seems like a pretty stupid thing to do.
          Btw, Gavin and group have figured out that this 15% is coming from a botnet, so I guess none of this is even an issue.

          • nope

            don’t bother, guy doesn’t know what he’s talking about. Even in my math above that assumes the network gains ZERO except for one miner suddenly. In fact the order of power gain would be higher because it would have to make up for the rest of the network gain.

            (attackerOriginalRate+attackerRateGain+otherNetworkGain) / (networkOriginalRate+attackerRateGain+otherNetworkGain) = .51

            A+B+C / D+B+C = .51

            A+B+C = .51D+.51B+.51C

            B = .51D-A+.51B-.49C

            -.49B=.51D-A-.49C

            B = -.49(.51D-A-.49C)

            B = .49A – .2499D + .2401C

            plug in any values for original rates and what the network gains to see how insane it would be to suddenly be 51% of the network. Nope.

        • youfailatmath

          don’t pretend like you had some other logic besides 15*3.4 = ~51… which is just terrible math.

          if you are 15 out of 100 computing power, that is 15%.

          to become 51% of the network would be

          (yourRate+newRate) / (totalRate+newRate)=.5

          so

          15+x

          ——–

          100+x = .51

          15+x = 51+.51x
          .49x = 36
          x = 73.46938

          you would have to go from 15 power to 88.46938 power, with the network total going from 100 to 173.46938 power.

          86.4285/171.4285 = .51

          86.4285 / 15 = 5.76x

          so yeah, 51% is not 3x as hard, its 5.76x as hard. You can backpedal all you want.

          Less than 6-fold when everyone else in the world has access to similar technology? Laff. Not even google was 1-2x more powerful than the previous search engine.

    • Monte

      in that case it is each miner’s duty to try to occupy as much of the network mining power as possible, if you’re all mining just as hard as the mystery miner it would be extremely difficult to overtake the rest.

  • manifold

    Well at first, yes I thought that could be a problem, but now I don’t think so any more:

    Well lets assume this strange miner gets 60%. Well ok, then only 40% of the blocks contain transactions and only these 40% get transaction fees. The strange miner will either realize some time that getting transaction fees is more profitable, or it will become too unprofitable to continue when the BTC reward cuts in half. 

    The problem that was clear from the beginning of BTC is that if someone gets over 50% of the hashing power and this miner makes invalid transactions. That would, I suspect, be followed by a short fractioning of the blockchain until the majority of miners would reject all blocks with invalid transactions and mine a different chain. Then all the money someone put into hashing invalid blocks would be wasted. That alone will prevent such an attack.

  • Kris Olhovsky

    Bitcoin doesn’t break if someone with 51% of the hash power doesn’t include transactions in their blocks, unless they try to fork the chain (only mine on top of their own blocks), which is not what this guy is doing.
    The other 49% can still include transactions, so your transactions will just take an extra 10 minutes on average for the *first* confirmation.

    A deposit to MtGox that normally took 60 minutes on average, would now take 70 minutes on average.

    • Robo

      yep, right. Bitcoin transactions are not completely dependable on mining new bitcoins. That would be a flaw by design :-)

  • Robo Pastierovič

    After all it turned out to be Eligius Mining Pool :-)

  • Anonymous

    85.214.124.168 is located somewhere in Berlin, Germany. Are you sure it isn’t Deepbit?

  • http://politicoid.us/blog/a-brief-discussion-on-education Kir (Politicoid)

    The problem with bitcoin is the same as any other fiat currency system. It, like all other fiat currencies in the world, will fail, though possibly not as miserably as the dollar will.

  • http://twitter.com/dangershony Dan Gershony

    How about the dev’s limit the percentage amount of processing power allowed by a single IP address? or a single a mining rig? 

    Perhaps some sort of a requirement by an entity to identify itself in order to be allowed processing over a certain percentage of the overall processing power?

    • duhduh

      has nothing to do with the mining, everything to do with unregulated cryptocurrency.

      mr. bitcoin could hold and distribute all the bitcoins, we wouldn’t have this feeding frenzy of valuation, but the system behind it would be no less sound.

  • John Tate

    This article is just a lie, there is no such information in the block chain. You can’t trace miners to their IPs. This is all made up.

    • nobody

      If a block is solo mined, you most certainly can trace where it came from. How do you think it was reported to the rest of the network? Granted, the miner could be using TOR to hide his or her true identity, but the block still comes onto the network from somewhere.

  • William Kostric

    What is the date of the original post?

  • http://www.facebook.com/profile.php?id=1106048312 Daniel Shawn

    Bitcoins are too much hassle anyway, I’ve had a bitcoin wallet for months and i still don’t have a single bitcoin in it.

    • Vlakorados

      If you are mining with your office PC solo or in a group you probably never will without just turning your hard cash into Bitcoins via an exchange. Just having a wallet doesn’t do squat.

    • MrDisability

      You are one of the lucky ones. When it crashes to zero you will have the same amount as the tools the actually put up hard earned money to buy them. SCAM!

      • troll-smasher

        Will someone please just finally put a bullet in this ignorant troll’s stupid looking face ffs?

  • 2SadButTrue

    What is the date of this article please?  I just came upon it and yet it has no date.

    You can bet the Rothschild Global Central Bankers (who work for the Jesuit global trusts) do not want this currency to succeed, and will do everything in their power and considerable wealth to crash it or cause it to become invalidated.  They have openly stated throughout history they do not like competition, sinking the Titanic (actually the Olympia) to rid some of their foes (do you homework).  That is just one of hundreds of examples.  If world wars, etc. are not beyond their means to secure their dominance, what makes you think they wouldn’t attempt to game this system?  Bitcoin represents their worst nightmare.

    I think the bitcoin community needs to learn from this instance and develop a new game – bitcoin v.2, that anticipates even this type of attempt.

    PS – A birdie told me this scenario is highly probably true, I’ll leave you all to ponder any of this.

  • gonesouth

    Hey, what happens to bitcoin when the net dies?

    • duh

      same thing that happens to banks when the net dies.

  • not 51%

    i love how people say 51% because it’s too annoying to say 50.000000000000000000000…1
    or
    > 50%
    or
    more than 50%

    all it is is simple majority. it is not 51%

    • joseph

      it’s over 9000!!!

  • danielle

    we are helping 2 kids with this bitcoin found,

    they have no parents, so we are creating a new way to help via internet and promoting bitcoins,

    address 17nVZEeEwgDfkCWXHgCNb8QuHXw5ZGKZtZ

    • MrDisability

      Sure you are and I am stocking up the tooth fairy with lots of bitcoins to put under the pillows of children.

  • null

    I’ll be that “Fusion Center” in Utah is behind it. The huge database is supposed to contain millions (yes millions) of computers underground which supposedly store data on you and me… but who knows, they could easily use those to mine. It’s the NWO bankers gone mad!!

  • http://www.facebook.com/mcaughey Michael Caughey

    It could also be one of the many mining pools, which is not a threat to the network. With the introduction of ASIC (Application Software on Integrated Circuit), which provides lower power high through put at an inexpensive price the network will grow much larger. this will make is more difficult to gain 51%. Avalon is about to fill 1200 orders in the next month, which should quadruple the network size. Butter Fly Labs will add enough to double that. The time for panic is not now.

    • Ernie

      ASIC = application specific integrated circuit

  • http://www.facebook.com/mcaughey Michael Caughey

    If you are interested in learning about Bitcoins, check out the book Bitcoin Step by Step on Amazon ($3.99). Download it now in Kindle format. It’s a step by Step guide for beginners to learn how to get into Bitcoin in a safe and secure way.

  • JustSomeThought

    Would it be possible and desirable to introduce an efficiency ponderation based on random data gathered by the bitcoin mining algorithm, so as to limit the power of botnets and introduce a bias in favor of diversity in mining ecosystem ?

  • MrDisability

    You f’ing idiots can calculate a string of numbers a mile long but you can’t see a common Ponzi scheme unfolding right under your noses? You will end up with EXACTLY what you deserve with ZERO in your bank and bitcoin account.

    • pekkerhead

      In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

      A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency.

      The fact that early adopters benefit more doesn’t alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

      • Kenneth Cole

        Well stated. Someone please write a botnet script to automatically post this whenever someone starts spewing the ‘OMG ITZ A PONZI SCHEME!!11!!1″ nonsense. Let’s get those little buggers to work for us for a change.

    • Intruder Zozor

      We can see a Ponzi scheme, because unlike you, we know what it means.
      You are the worst of all the idiots who call bitcoin a “Ponzi”, because you added “COMMON” in front of it.
      Go educate yourself dammit, look up “Ponzi” and try to understand.

  • http://www.facebook.com/profile.php?id=100001758175893 Roger Smith

    yes would be bad very bad if someone gets to 51%

  • spongecake

    Lol you guys worry too much. Do you really think the entire scene of underground computer hackers and enthusiasts will allow this to happen? They have gone up against much bigger opponents in the past, when they felt threatened or provoked. This is no different. Do you think groups that interact on IRC or come from the /b/ world are gonna let some “big banker” type come in and destroy their currency? Good luck ;)

  • 64bit

    The hashing power it would take to achieve 51% of the network hashes isn’t a constant number, and thanks to the pump and dump of April 2013, we have alot more people interested in mining. Also one should note the ASIC releases and the hashing power they bring to the network.

  • Hans

    Whats the date for this article?

  • Ɠ⊙иƶǾдҡĿдиɗ

    Am I missing something?

    I see absolutely no way to get meaningful profit out of a >50% attack. It’d be short-lived and in short order it would drive the value of BTC to zero.

    On the other hand, if you had that much of the network (or just under 50%) under your control and you just kept mining coins, wouldn’t you be making great hods of money consistently for the foreseeable future?

    Seems like the only entity that’d be motivated to try a >50% attack would be a large government, intending to destroy bitcoin forever.

    And the bigger the network gets and the bigger the market value of it gets, the more political power will exist that will want to stop that from happening.

    If you’re a government leader and you obliterate US$1.4 billion in value in an instant, you’re going to piss a lot of people off, and some of them might go crazy and try to kill you.

    If the total value of BTC hits US$100 billion, or US$1 trillion, and you’re a government leader and you authorize obliterating that value, that’s orders of magnitude more chances that some angry person who lost a lot of money is coming after you, and orders of magnitude more likelihood that one of those angry people is competent enough to get you.

    I am also curious: is there no way to alter the bitcoin infrastructure to block anybody who takes control of more than a certain % of the network?