A recent study from Princeton and Florida International University (FIU) details the potential threat that China poses to the Bitcoin network stemming from its centralized economic, political, and domestic Internet control in the country.
According to the report, as of June 2018, more than 80 percent of Bitcoin’s mining is performed by 6 mining pools, with 5 of those pools managed by individuals or organizations located in China. The stong exertion of influence by the Chinese government over economic, political, and social aspects of the country subsequently present a legitimate threat to the Bitcoin ecosystem. As stated by the study:
“These capabilities do not grant them direct command of all of the hash power in Chinese-managed pools, but they do have a variety of tools at their disposal to influence those pools and Bitcoin in general.”
A Precedent for Motivation
The report outlines how mining power in China has contributed to over 50 percent of the hash power in Bitcoin since 2015. During this time, China’s position on Bitcoin and cryptocurrencies has been largely unclear and often times repressive. The regulatory authority of the Chinese government has consequences on domestic crypto users, exchanges, and miners.
China already has a precedent for interfering with Bitcoin, targeting Bitcoin through energy prices in the country and passing decrees that directly affect exchanges and miners. The report outlines 4 potential reasons that the Chinese government may want to affect Bitcoin adversely:
- Ideological Statement
- Law Enforcement
- Benefits of Control Over the System
- Exert Influence on A Foreign Country Where Bitcoin is Used
China also has enormous influence through its extensive Internet traffic censoring and surveillance in the country in what is known as the Great Firewall of China (GFC). The Chinese government can affect Bitcoin traffic through a variety of methods, notably using the Great Cannon, a method for injecting malicious code into data packets and launching DoS attacks on directed targets.
The report states that — at the time of the writing — 74 percent of the hash power in Bitcoin is confined to Chinese-managed pools. Although China cannot directly influence the pools themselves, the operators are subject to coercive actions by the government. Specifically, China can exert influence over mining operator decisions for the inputs and outputs of miners in their pools, enabling an indirect control over mining pools based in the country.
Interference and Attack Vectors in Bitcoin
To demonstrate the potential of China’s exertion of influence over Bitcoin from a technical perspective, the report dives into an — now abated — attack where Chinese miners were incentivized to mine empty blocks due to latency problems that led to block propagation issues. This creates a more inefficient global Bitcoin network by allowing Chinese miners to occasionally reap block rewards for publishing empty blocks. This type of attack was eventually mitigated with BIP 152, but the unintentional result of China’s increased latency from the GFC is noteworthy.
China can attack the Bitcoin network through direct censorship of Bitcoin users in the country that prevents them from committing transactions to the blockchain. China could effectively censor specific addresses which could cause a subsequent chain reaction by miners to not mine on chains containing transactions from censored addresses. However, according to the report:
“…the forks that succeed orphan the blocks found by miners that include censored transactions, reducing their profits, so some may be convinced to follow China’s censorship rules. This is a (b) feather forking attack [32,36]. As both attacks require announcing intent, we classify them as overt.”
China could also weaken confidence in the robustness of the consensus in Bitcoin as an ideological move to prove it is not as secure as perceived. The Chinese government could potentially accomplish this through a double-spend using a balance attack. China could disrupt communication between two mining groups and send the initial transaction to one group and the confirming transaction that send the funds to the other group, thereby creating a situation where each mining group is building a valid chain containing their respective transaction. Subsequently, China could invalidate the initial transaction using their influence on the hash rate. They could accomplish this attack using the GFC to disrupt payments by foreign merchants.
China’s influence over miner hash rate can be increased with an eclipse attack which also improves the possibility of a Goldfinger attack, as stated by the study:
“By targeting miners with significant hash power and controlling which transactions they see, China could prevent them from contributing their hash power to forks that China is trying to orphan. According to Heilman et al. , this permits a Goldfinger attack to be achieved with only 40% of the network hash power, and it similarly lowers the threshold for the other forking-based destabilization attacks we have described.”
Other attacks that China could leverage include the selfish mining attack and a block withholding attack. The report goes into detail on all of the possible attacks that China’s influence could potentially support.
As Bitcoin’s prominence and value grow, so does the incentive to attack it. While it remains exceedingly secure, the recent study shows that China’s unique position enables it both direct and indirect influence over Bitcoin that could have adverse consequences if successfully wielded maliciously.