[Cryptography] ghash.io hits 50% of the Bitcoin compute power

[Jerry Leichter]

On Jun 13, 2014, at 10:43 PM, Perry E. Metzger <perry at piermont.com> wrote:
> Bitcoin isn't primarily protected by mathematics, it is primarily
> protected by a social process that can be gamed. Gaming it is
> nontrivial because the social process is protected by cryptography,
> but there seems like a great deal of religion behind people's claims
> of how well it all works in the face of attack, perhaps because a lot
> of people want it to work very, very badly.
There's a social/economic process that I'm surprised hasn't kicked in yet - and perhaps it tells us something.

If the press - and the Winklevoss brothers - are to be believed, Bitcoin has become a vehicle of speculation (I won't say investment) on a large scale.  A substantial pool of large investors in Bitcoin would, of course, be a group with an interest in keeping Bitcoin not just safe, but trusted.  Having 50% of Bitcoin compute power in the hands of a single other group, whatever its effect on actual safety, certainly has the power to destroy trust in Bitcoin - and hence the value of investment.  So it would behoove those with large positions to begin mining as a way to break up the control, even if on a per-Bitcoin basis that mining loses money.  In a way, it's like a national bank trading in its own currency in an attempt to break the influence of others on its value.

The economics are not trivial, since for one thing it's hard to know where the red line of lost trust is - and once you've crossed it, how much further back you have to push things to restore trust once lost.  And the analogy to national banks indicates that maybe you can't succeed in this game anyway - the international markets in currencies have for years been so large that most national banks that have tried to influence them have failed.  (The Chinese, who use other techniques as well, may be the only ones who've succeeded.)

Still, the lack of any hint of an effort in this direction may well be evidence that there's much less high-end speculation in Bitcoin than we've been led to believe.
                                                        -- Jerry