You Can Break Bitcoin With Selfishness

Some researchers published an article recently that exposes some fundamental flaws with how Bitcoin operates:

Ittay Eyal and I outline an attack by which a minority group of miners can obtain revenues in excess of their fair share, and grow in number until they reach a majority. When this point is reached, the Bitcoin value-proposition collapses: the currency comes under the control of a single entity; it is no longer decentralized; the controlling entity can determine who participates in mining and which transactions are committed, and can even roll back transactions at will. This snowball scenario does not require an ill-intentioned Bond-style villain to launch; it can take place as the collaborative result of people trying to earn a bit more money for their mining efforts.

How could this happen, you ask?

Conventional wisdom has long asserted that Bitcoin is secure against groups of colluding miners as long as the majority of the miners are honest…. Our work shows that this assertion is wrong. We show that, at the moment, any group of nodes employing our attack will succeed in earning an income above their fair share. We also show a new bound that invalidates the honest majority claim: under the best of circumstances, at least 2/3rds of the participating nodes have to be honest to protect against our attack…. [H]owever, there is a problem: there are mining pools at the moment that command more than 25% of the mining power, and, in the past, there have been mining pools that commanded more than 33% of the mining power.

The full paper is available here. I’m no economist, but it appears to me that the real-world financial system should be paying attention to how the Bitcoin community solves the problem of selfish/dishonest brokers in a market. They could use some lessons about small but powerful groups colluding to take over a financial system. Or, you know, being too big to fail…

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