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Bitcoin Faces Biggest Threat Yet: a Miner Takeover

Bitcoin Faces Biggest Threat Yet: a Miner Takeover
By Peter Svennsson

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A British-based "mining pool" called GHash has amassed nearly half of the Bitcoin computing power and has briefly gone over 50 percent. Miners operate the computers that keep track of bitcoins and create additional coins. The mere fact that one player can amass majority control could undermine trust in the currency, experts say.
 


The Bitcoin digital currency system is in danger of losing its credibility as an independent payment system because of the growing power of a group that runs some of the computers behind it.

In recent weeks, a British-based "mining pool" called GHash has amassed nearly half of the Bitcoin computing power and has briefly gone over 50 percent. Miners operate the computers that keep track of bitcoins and create additional coins.

Miners pool their computing power to spread the financial risk of their operations. If GHash amasses more than half of the computing power devoted to Bitcoin, it could in theory control the flow of transactions, freeze people out of the network and keep all future bitcoins for itself.

Although GHash says it's committed to preserving Bitcoin as a trustable technology, the mere fact that one player can amass majority control could undermine trust in the currency, which is worth only what people are willing to pay for it.

"The entire premise of bitcoin relies on the fact that no single authority would control the majority of the mining power," said Ittay Eyal, a Cornell University researcher who studies bitcoin vulnerabilities.

The value of bitcoins has fallen 6 percent in a week to around $600 as the threat posed by GHash has become clearer, although the decline is within the range of normal fluctuations for the volatile currency.

Bitcoins allow people to send money over the Internet without going through banks. This means transaction costs are low, but it also means they're useful for illegal activities such as money laundering and drug sales. Bitcoins have also become a target of speculators betting on a continued run-up in the currency. Its value has grown a hundredfold over two years.

From a technical standpoint, bitcoins are sequences of numbers, painstakingly produced by computers churning through millions of calculations. Bitcoin transactions are recorded in a virtual public ledger, known as the blockchain. Miners are in charge of maintaining the blockchain. As their computers perform the calculations to do that, the process rewards them with newly minted bitcoins.

A single mining computer might take years to produce a single block of coins, and there's no way to know when that might happen. In pools, miners divide the bitcoins they create among themselves in proportion to the work done, providing with them with a steadier stream of income. The pools aren't created to threaten the trust placed in bitcoin; it's a side effect of the pool's growth.

GHash is controlled by a British company, CEX.IO Ltd. The company said in a statement Monday that it wants to protect Bitcoin, but it doesn't want to turn away people from the pool or impose other temporary solutions to back away from the 50 percent threshold.

GHash said it's arranging a "round table" meeting of key players in the Bitcoin system in July to "with the aim of discussing and negotiating collectively ways to address the decentralisation of mining as an industry."

Eyal said the problem needs to be fixed in "a very drastic fashion" to reduce the incentive to create pools. That will probably with an update to the software the underlies the system, he said.
 


© 2014 Associated Press under contract with NewsEdge. All rights reserved.
 

Tell Us What You Think
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Name:

Marina:

Posted: 2014-06-22 @ 9:41pm PT
These kind of headlines will go down in history as one of the most circus related bit of Bitcoin BS like, ever. The only threat to the system are headlines and articles such as these.

We saw what happened to the Mt Gox operators. Lets see where any supposed 51% attackers to the Bitcoin system might run. Why didn't CEXIO attack when they could? Oh, that's right, because they couldn't, actually. It would have been a death move (for them) and they know it. 51% is not enough for an 'attack' anyhow --other factors for even a threat to truly be generated, are needed. CEXIO never intended a (nor could they have) take-over, it was just business muscle flexing whilst they could. It certainly worked and now they are on their way for security talks with London. Oh, well, what-ever. But either way, why are you media still filling eyeballs with such rot? Oh that's right, you need a big tent and bursting attention over nothing much. But please stop.

PhilipCohen:

Posted: 2014-06-20 @ 4:25pm PT
The fact is, the choice of payment vehicle, offered by the merchant, is driven by the payer who usually bears, directly, none of the cost of such choice. Why then would any buyer choose to complicate any transaction, particularly a “local” transaction, by paying with Bitcoins, that are effectively a volatile “foreign” currency which you have to buy/sell at a price and requiring a 1% buy/sell fee at both ends of every transaction (ie 2% total), and has no transaction dispute moderation process? Dream on Bitcoin fanboys …

eBay Inc, where the incompetent mingle with the malevolent and the criminal, and the just plain stupid ... http://bit.ly/11F2eas

Zelig:

Posted: 2014-06-20 @ 2:27am PT
Tired of this non-story, already.

CaptainColeslaw:

Posted: 2014-06-19 @ 2:01pm PT
Bitcoin has been facing a 51% attack since its inception. This is nothing new. The miners may be greedy but are they greedy enough to destroy their own bread and butter? I don't think so.

Anonymous:

Posted: 2014-06-19 @ 1:35pm PT
I believe there will be a long term solution sooner rather than later, however, in short term, hashrate distribution of GHash is down to 35% right now.

Waddle Duck:

Posted: 2014-06-19 @ 12:50pm PT
great article. It's good to hear not only about the good points of bitcoin, but the parts that need to be fixed as well. I am in the process of switching over to Virtex, a new platform that is launching soon and I am reading up on everything I can.

me:

Posted: 2014-06-19 @ 10:53am PT
It's not ONE PLAYER! It's a group of 1000's of individuals from across the planet pooling together.



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