‘Miners’ could devastate Bitcoin

LONDON — The Bitcoin virtual currency is vulnerable to an attack that could allow a group of “miners” to take control of the entire system, said a new report.

The success of the currency is predicated on the fact that it is decentralised and functions without the intermediation of any central authority. The calculations required to authenticate transactions are completed using a network of private computers. The operators of these computers, known as “miners”, are rewarded with transaction fees and newly minted Bitcoins.

Computer scientists at Cornell University have discovered a way for a group of miners to obtain more than their fair share of revenues and grow in number until they control more than 50 per cent of Bitcoin’s processing power. When this point is reached, the Bitcoin value proposition collapses, said the researchers.

“The currency comes under the control of a single entity; it is no longer decentralised; the controlling entity can determine who participates in mining and which transactions are (made), and can even roll back transactions at will,” researchers Ittay Eyal and Emin Gun Sirer wrote in a blog post.

“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.”

Typically, new Bitcoins are generated when groups of miners tackle complicated cryptographic puzzles. The first group to solve the puzzle is rewarded with Bitcoins, the news is circulated among the other miners and everyone starts working on the next puzzle.

However, so-called “selfish” miners can obtain an unfair share of Bitcoins by keeping the news that they have solved a puzzle to themselves and quietly moving onto the next one, leaving the rest of the miners to continue working on a puzzle that has already been solved.

“Once the system veers away from the happy mode where everyone is honest, there is no force that opposes the growth of really large pools that command control of the currency,” the researchers said.

While the attack is theoretical, the researchers claim that it could already be happening. They are calling for the Bitcoin community’s help in deploying a software fix that would limit groups of miners to no more than 25 per cent of the total number of nodes on the network, so the Bitcoin ecosystem can be made more robust.

The news comes as the value of Bitcoin hit an all-time high of US$267, surpassing the previous record of US$266. THE DAILY TELEGRAPH