MemberFebruary 23, 2021 at 22:36
Alex Gladstein’s article is pretty ambitious and so necessarily somewhat superficial. I found I agreed with most of what Alex said, but in some areas he was less convincing.
I had previously read Joe Kelly’s article, and found it very compelling. They differ on how difficult it would be to attack the miners. Alex envisions a scenario where governments commission their own mining rigs and attempts to dominate mining using legitimate means. He assumes that this will require an investment of $5G, which is nothing for a government. However he claims:
it is unlikely that they (governments) would divert the precious fabrication capacity of the world’s few semiconductor manufacturers to this very speculative purpose.
I personally find this last statement unconvincing. TSMC, the largest such chip fabrication company, had revenues of $4.55G last month. I think they would be both happy and quite capable of providing the required silicon, and could do so without severely disrupting their other customers.
On the other hand, Joe Kelly envisions a scenario where the governments simply confiscate the mining hardware. Alex dismisses this saying:
An alternative would be to seize a majority of the world’s mining equipment in a military operation. But the logistics of trying to locate and violently capture hundreds of thousands of 5-pound machines owned by often pseudonymous actors across dozens of jurisdictions would be hugely prohibitive.
Here, Alex appears to be assuming that the mining rigs are owned by individuals, which I don’t believe has been true for a while. Most mining is done in industrial-scale data centers or increasingly in containers (think shipping containers filled with mining rigs, where the rig consists of rows of bare boards immersed in tanks filled special liquids for highly efficient cooling). It is hard to imagine that governments do not know know where these facilities are and could not commandeer them if they wished.
Currently, China has most of the mining capacity and might be able to pull off the attack that Joe warns of. And this statement from Alex suggests that the attack would do less damage to their own citizens than to citizens of the west:
The vast majority of mining takes place outside of the US in China and central Asia. But the vast majority of Bitcoin holders and buyers appear to be US and EU entities, and the software’s core developers and node-runners (who host Bitcoin’s servers) are scattered throughout the world.
In a very real sense, bitcoin suffers from the mining being overly centralized. In the past people worried about this because it could lead to double-spending. It was largely dismissed as being un-economic. It would require a tremendous investment in mining equipment, and the double spend, when discovered, would destroy the value of the network and the value of the investment in mining capacity. Nobody that was interested in maximizing their investment would engage in double spending.
However, Joe points out that a government interested in destroying bitcoin would not be concerned about losing their investment in mining hardware. And once they had the majority of the hashrate, they would not double spend. Rather they would simply mine empty blocks. In this way, the value of the bitcoin network disappears because no transactions are ever processed. Once the value of the network disappears, the price of bitcoin drops to zero, and the economic incentive of the remaining miners to try to compete with the confiscated miners disappears because the block reward has no value. At this point the government can simply turn off most of their mining rigs, meaning that continuing to suppress bitcoin is quite cheap.
This attack is less expensive than the attack envisioned by Alex. In Alex’s attack a country would have to buy more hashrate than currently exists in the world, whereas in Joe’s attack the country would simply have to confiscate more than half of the existing hashrate.
I find Joe’s scenario plausible as long as a region controlled by one government or a cooperating set of governments contains a majority of the mining hardware. Currently the Bitcoin Mining Map (https://cbeci.org/mining_map) allocates 71% of the hashrate to China, so they could pull this off on their own. If countries start to add bitcoin to their reserves, then presumably they would also add mining capacity to distribute the hashrate more evenly and protect themselves from this attack