In its present state and with the manner that most Bitcoin users tend to use the platform, the chance for a widescale collusion of users to hack the Bitcoin network is possible but unlikely. The issue becomes more complex as the viability for Bitcoin as a standard payment becomes a greater possibility. Since Bitcoin functions on the fringe right now, it’s not likely to be the victim of collusion by its users.
Centralized and Decentralized Currency
Ultimately, if Bitcoin became a serious form of currency it would become subject to government regulation on a level seen with all electronic money. The illusory concept of money is not a new one. In our current financial system, there are not enough physical dollars and real, tangible assets to pay out if every customer attempted to withdraw their funds from their bank at the same time. A centralized currency like the U.S. dollar does not have the physical assets to back it up. A centralized currency makes it possible to essentially print more money on demand as it is needed.
Bitcoin is an example of decentralized currency. It essentially means that there is a finite number of Bitcoins that can never be increased. Currently, there is a maximum of 21 million Bitcoins that can be mined at any given time. Nobody actually controls the system, but there is a system of safeguards in place to prevent abuse. With no approval process necessary, anybody can participate in the mining process and reap the rewards of that process. It’s estimated that with 21 million Bitcoins, the last Bitcoin won’t get mined until the year 2140.
The Problem of Selfish Miners
One real possibility that could pose a threat to the integrity of the Bitcoin system involves the system of mining that is in place. Miners are individuals who maintain the public transaction log known as a blockchain. The system makes it profitable for miners to uphold the integrity of the system. One theory that has been proposed is the possibility of an attack that grows as the result of a few selfish miners who seek to receive a disproportionate share of revenue. The theory goes that otherwise law-abiding miners would then jump on the colluding bandwagon and tip the scales of justice until the Bitcoin currency is no longer decentralized.
The Problem of Constrained Money Supplies
Bitcoin’s key selling point asserts that there will never be more than 21 million Bitcoins in existence. While this is admirable and largely possible with a small system, the reality is that this sort of restriction can’t be enforced long term if the system is to continue expanding. In the current system, there are several nodes that are competing to win an award at any given time. When the node wins, it becomes part of the transaction history and the winner gets some money in their account. The system is designed to continually diminish the awards to cap the limit of wild Bitcoins at 21 million.
If a group (node) decides to stop enforcing the rules, then it’s possible that larger rewards could be issued. The system is designed to block these rewards, but this might not work as expected in a corrupted system. In the face of becoming a real monetary system that functions as a real currency, individual groups may face growing temptation to collude in order to obtain greater rewards. In a modern era of social media and lightning fast communications, it’s possible for collusion to occur. Essentially, this is selfish mining taken to the next level where the nodes that are intended to protect the system are actively devaluing it.
The Fork in the Road
The manner in which collusion could effectively change the system is more conniving and sinister than it first seems. In the current system, a group that decided to change the rules and attempt to award themselves more Bitcoins than allowed would find their higher rewards getting blocked from the network. As this continues, a new network of rogue nodes could develop and begin to recognize each other. The group could then continue to operate as a chasm in the Bitcoin network and establish themselves as the official Bitcoin network. If this were to occur, the Bitcoins from the original network would become worthless. This fork of the network could be destabilizing to the system, and it may result in the creation of what could be deemed as Bitcoin banks.
Remediation for Selfish Mining
While there is no current evidence to suggest that selfish mining poses an immediate threat to Bitcoin, it’s one of those theoretical possibilities that intellectuals in a think tank might consider when probing for security flaws. Bitcoin developers weigh the pros and cons of such scenarios and are able to adapt to changes within the system and how users operate. In a situation such as this, developers would simply put in a regulation to thwart selfish mining pools that crop up to a reasonable percentage of available resources. This would prevent the possibility of a small group of selfish miners from compromising the system