China accounts for more than half of the world’s Bitcoin mining capacity but Jameson Lopp, the co-founder and CTO of Casa, has hosed down fears that Chinese miners are a threat to Bitcoin in a blog post on Aug. 9.
Although many people have raised concerns over the concentration of such much hashpower being located in China, Loop pointed out that even in the event of a 51% attack on Bitcoin, attackers are limited in what they can actually do.
He explained that attackers can’t steal people’s Bitcoin arbitrarily, nor change the consensus rules. They can’t reverse valid transactions. The only thing they can do is double spend their own Bitcoin.
The best way for a 51% attacker to seek maximum profit is to cash out via crypto exchanges into “censorship resistant cryptocurrency or stablecoin”. However, this presents big problems in terms of withdrawal limits and Know Your Customer requirements among exchanges. It also doesn’t make much economical sense for attackers to dump a big chunk of Bitcoin at once:
“The value of the Bitcoin you still hold after the attack will likely have decreased substantially, thus a successful large attack could actually result in shooting yourself in the foot. You’d better not slip up while you’re accessing the exchange you target. For example, one hacker returned $25M in stolen funds after leaking their IP address.”
Bitcoiners to the rescue
Loop thinks it would be nearly impossible for a nation state to get in total control of mining facilities and that Bitcoin stakeholders would take immediate emergency actions against such an act.
Even if the attack shifts from targeting individual mining facilities to an easier attack of mining — 70% of hashpower in China is coordinated via fewer than 10 mining pools — switching mining pools is incredibly easy for miners. It’s also difficult to pull off covertly as there are plenty of independent companies putting out social media alerts against malicious actors.
“It’s hard to imagine a scenario in which a state actor would be able to quickly and covertly seize enough hashpower to perform an ongoing attack that lasts more than a few hours.”
According to Lopp, the reason hashpower has been concentrated in China ever since 2015 is due to the fact most of the mining chips are produced in Asia. Most importantly China also has “an abundance of cheap energy” and has the political and economical stability to facilitate the mining infrastructures.
Loop concluded any large-scale mining attack is going to be “limited in its effectiveness”. As reported before, in the long run, competition in semiconductor production and cheaper power sources will continue to rise globally and China’s mining dominance will not last.