This is an opinion piece by Shinobi, a self-taught educator in the Bitcoin space and tech-oriented Bitcoin podcast host.
Since the ban on mining in China, there has been a massive migration of the Bitcoin hash rate to the United States. There have been many stories and pushes from pro-American Bitcoiners to continue attracting more hash rates to the United States, including pushing to create favorable regulatory environments for miners here in North America. This was done on the premise of the historic strength of US property rights, which is a big reason why US capital and stock markets are the largest in the world.
This is a huge miscalculation and is something that, if successful, will have a huge negative effect on Bitcoin in the long run. The whole theory of the game around Bitcoin mining security is decentralization/distribution. From day one, it has been very clearly defined that a majority (51%) or more of the Bitcoin hash rate can act maliciously in a way that severely degrades or entirely breaks the security of the entire system. They can orphan blocks from other miners, even preventing them from participating in the system to earn Bitcoin revenue. They can exclude transactions from parties they do not wish to process, again orphaning the blocks of any miner processing such transactions from the blockchain. They could selectively refuse to properly process lightning channel closures, they could prevent sidechain reattachments or unattachments. They can entirely break the system’s censorship resistance and undermine the security of not only the base layer, but also any secondary layers built on top of it to scale the system.
Miners themselves voluntarily deciding to act maliciously are not the only form this particular risk takes. They have to set up their operation somewhere, which means – unless they’re able to successfully operate off-grid illegally and invisibly, which is impractical on a large scale – they have to abide by the laws and regulations of the jurisdiction they established in Too much of the total network hash rate being in a single jurisdiction poses a risk to the security of the network as a whole. Think about the share of hash rate currently going on in the US, and the proportion of public companies, registered co-hosting facilities, easily locatable businesses, and people with sufficient hash rate at home with a power signature easily recognized by a utility company. All of this hash rate is subject to enforcement action by the US government with varying degrees of difficulty. And by varying, I mean, all but the individual home miners could probably be trivially accomplished in the span of a single week.
As of December 2021, the Cambridge Bitcoin Power Consumption Index shows 38% of the network hash rate as located in the United States. That’s 13% less than the bare minimum needed to engage in disruptive activity on the network. Bitcoiners should not encourage action and legislation to tip the scales even closer to this inflection point. The United States government is the biggest empire in the world, we are literally mining the world’s reserve currency, which is already facing big problems in the world simply because of the political fallout in response to decades of engaging in a foreign policy focused almost entirely on benefiting America at the cost of harming countless other nations of the world.
Bitcoin is yet another existential threat to this reserve currency and the benefits the rest of the world depends on it. Things are constantly painted as if America is a shining beacon of freedom in the world that will embrace bitcoin because of it, and in some ways America is that beacon, but in other ways it looks eerily like the totalitarian state of China under the thumb of the CCP. The US government has a vested interest in attacking or capturing Bitcoin like China does, even more so in the case of the threat Bitcoin poses to the US dollar. Bitcoin is a fundamental threat to the global order that the US empire has established. If the government sees an opportunity to neutralize this threat, it will seize it.
Carrying out such attacks is not a mere intellectual exercise, the government having no idea or plan to do anything about it. In 2016 MIT designed a system called Chain Anchor. The goal of the system is literally to perform a 51% attack to permanently defeat Bitcoin’s censorship resistance:
Read all of this carefully. Now consider the FATF regulations that have been dragging on and slowly rolling out over the past few years. The rule of travel. Almost all major exchanges in this ecosystem are actively working on protocols allowing them to exchange personally identifiable information with each other, or at least commitments to it, whenever they engage in a transaction. on behalf of one of their users who goes directly to another exchange. It wouldn’t be an opt-in – it’s a warrant, even worse than Chain Anchor’s proposal. European politicians have even danced the line with public proposals to extend these KYC requirements to non-custodial wallets.
Now consider the current dominance of ESG narratives over Bitcoin mining. There are discussions (and literally regulations enforcing it in some places) about the preferential treatment of mining powered by renewable energy. Typically, these are economic incentives in the form of tax breaks/operating subsidies. These types of non-Bitcoin economic agreements, and in the future even outright payments, are an exact form of miner corruption. They economically incentivize them to act in a specific way outside of the Bitcoin protocol itself.
These actions are slowly normalizing the idea that miners act with such external protocol inducements in mind. Public mining companies don’t get such offers without identifying themselves, consumers don’t get rack space in a co-hosting facility without KYC themselves. All of this fits the demands of Chain Anchor slowly creeping in.
All that’s left is the hash rate needed to fully enforce the use of whitelisted bitcoin and exclude non-compliant miners from the system, and bam, Chain Anchor’ has effectively neutered and turned bitcoin into a whitelisted and authorized system . At this point, there is no choice but to hope that new miners can be produced and released to overwhelm this majority of attackers, which is a long way off considering the centralization of design and of ASIC production.
Other than that, the only option is to modify the PoW algorithm. It is, I believe, even in the face of such an attack, highly unlikely. This calls into question the whole idea of a neutral system and indiscriminately destroys the value of the investments of malicious and non-malicious miners. Also, looking again at the centralization of ASIC production, once this attack has been demonstrated to be feasible, there is nothing stopping it from happening again. Nucking the previous generation of ASICs in a fork also discourages honest miners from trying again. What happens if another fork occurs because the attack is fired again? They run the risk of again sinking a large amount of capital into a hardware investment that loses all value by responding to the attack.
I don’t believe Bitcoin can recover from such an attack. Either people will suck it up and appreciate it for what it is simply as a rare economic asset with no real censorship resistance, or it will fail outright. If a socially coordinated mole game is needed to make it work in a censorship-resistant way, it completely undermines the value of a neutral censorship-resistant system that doesn’t require such social coordination to work. Either he dies or he limps like a neutered rare good.
For Bitcoin to truly function as a censorship-resistant system, it must first avoid finding itself in this situation. Bitcoiners should not encourage such concentration of hashrate in one jurisdiction and try to encourage it further by lobbying industry and politicians to make things even more favorable for miners to concentrate in one place. Thoughtless patriotism and hyperfocus on “Make America Great Again” in this way is not good for Bitcoin – in fact, it is actively dangerous for it.
If Bitcoin is to succeed, it must succeed as a securely distributed system around the world, not heavily concentrated in America because “America is awesome.”
This is a guest post from Shinobi. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.