Researchers Found a Way to Game Bitcoin

It’s entirely likely and understandable, despite our better efforts to bombard you with Bitcoin stories recently, that you still don’t know what Bitcoin is. (To be honest, 92 articles about it later we still don’t fully grasp it.) But all you need to know is that it’s digital money that’s exchangeable for real world currencies, and computer science researchers at Cornell claim they can game the process that governs the “minting” of new ones.

What makes Bitcoin revolutionary is that it cuts out the middle man — historically a bank — in any transaction by keeping an ongoing public record of every transaction. But in a paper titled “Majority is not Enough: Bitcoin Mining is Vulnerable,” Ittay Eyal and Emin G un Sirer explain how the current pooling of participants in Bitcoin mining, powered by the wrong intentions, could threaten the decentralization that makes Bitcoin so revolutionary.

We lied; you need to know more about Bitcoin
Bitcoins are added to the economy when users solve increasingly difficult mathematical problems that require increasing amounts of computer processing power, making each bitcoin mined more valuable than the last and driving up the overall value of the currency, which CNN Money reports is currently worth $2.6 billion. “The more mining power (resources) a miner applies,” say the researchers, “the better are its chances to solve the puzzle first.”

Solving one puzzle (or block) begets another puzzle, building on the “block chain” that governs the whole Bitcoin economy. It’s as if the Internet is a quarry from which these users are mining virtual gems and precious metals, only instead of beautiful gold and rubies, they’re boring zeros and ones. Rewards are supposed to be proportional to the amount of processing power allocated to mine them, but since computations are getting exponentially more complex — there are whole machines for sale just to mine bitcoins — single miners have very little chance of profiting on their own. In one case, an online mining profitability calculator estimated it would take one user 13 years, 152 days to dislodge his first set of bitcoins.

So most miners increase their chances of a reward by forming alliances and pooling their processing power. Seems obvious, and the paper acknowledges that plenty of miners have collectivized within the parameters of Bitcoin’s protocols, but so far it’s been with the intent of increasing their chances of solving a puzzle and sharing fractionally in its rewards — not to assert inordinate control over the currency. There are two classes of miner emerging, however: honest and selfish, and the researchers warn of the combination of selfishness and collusion in mining.

How the few could ruin it for — then become — the many
Selfish miners withhold making the results of their work public, instead working on the next puzzle in a private branch of the chain and leaving honest miners to work unwittingly on puzzles that have already been solved. The further ahead a selfish miner can work before any honest miners solve the original puzzle, the more he/she stands to gain.

The researchers argue that the increased profitability of selfish mining naturally attracts more miners — even honest ones — to the selfish pool. If enough miners combine forces, it could not only net them disproportionate profits, it could threaten to consolidate power over the currency in one pool of users, jeopardizing Bitcoin’s guiding ethic of decentralization.

Eyal and Sirer propose a solution that involves a lot of math, but basically it limits the number of selfish miners working on any one puzzle/block by randomizing the process of selecting which ones to solve/mine. This would limit the number of users inclined to join any one pool, though they acknowledge that there are already pools large enough to destabilize the currency.

The researchers recommend that users withdraw from pools that exceed the size threshold that could cause collapse, but Bitcoin’s greatest strength is also its greatest weakness: without a central power controlling the currency, no one has the authority to force miners to do anything. That would seem to make the currency’s collapse inevitable, but the uncertainty of when that crash may come — as with any market — will drive speculation right until the bloody end.