The bitcoin digital currency could be vulnerable to exploitation and implosion, if so-called "selfish miners" hijacked the system. The conditions are already in place, say a team of researchers.
Since all currencies depend on scarcity, bitcoins are produced using a computationally-intensive process called "mining". Mining bitcoins involves setting computers to work generating rare block chains. Mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady.
Essentially, miners - who usually collaborate in mining pools - are rewarded every 10 minutes with 25 bitcoins for lending their computing power to bitcoin by solving complex cryptographic puzzles. Some malware designers have even been using their captive botnets to mine for bitcoins.
It has long been realised that if one group controlled more than 50 per cent of the world's bitcoins, the currency would be vulnerable to attack.
Now Ittay Eyal and Emin Gun Sirer, of the computing science department at Cornell University, claim that the selfish mining group would need only a 33 per cent share of the computational power currently being used worldwide for generating bitcoins to effect a takeover and collapse of the system.
Some groups of bitcoin miners regularly break 25 per cent of the global collective mining power, and some already exceed the 33 per cent share, according to the research.
In their recently published paper, "Majority is not Enough: Bitcoin Mining is Vulnerable", Eyal and Gun Sirer argue that "the bitcoin ecosystem is open to manipulation, and potential takeover, by miners seeking to maximise their rewards."
The problems are inherent to the digital currency, the pair claim.
"The protocol will never be safe against attacks by a selfish mining pool that commands more than 33 per cent of the total mining power of the network."
This is because a group of colluding bitcoin miners could act to destabilise the decentralised currency, and essentially put themselves in control of the flow of bitcoin cash.
The problem arises when these selfish miners gain a large enough proportion of the global share of bitcoins to create a snowball effect.
"Rational miners will prefer to join the selfish miners," the researchers warn, "and the colluding group will increase in size until it becomes a majority. At this point, the Bitcoin system ceases to be a decentralized currency."
Fortunately, bitcoin's protocol can be changed, and the researchers have suggested that a limit be introduced, capping mining pools to no more than 25 per cent of the total number of nodes on the network.
Bitcoin top-players are still digesting the report.
Image: Flickr (btckeychain)