Bitcoin has a flaw. It's always been there.
Satochi Nakamoto (the nom de guerre of the mind behind Bitcoin) designed this flaw into the software because of one false assumption. What was that assumption? He believed that it was possible to build an open and free economic system built purely on simple self-interest (selfishness). Lots of people make this mistake (famously, Greenspan believed that selfish decision making would prevent the banking crisis of 2008).
It's not, obviously. Eventually, selfishness will lead one group to rig, cheat, control, etc. the system so they can get better returns. That's exactly what happened. Here's the flaw they exploited.
When a single entity ("a single miner" or "a mining pool") controls over 50% of the transaction processing it can control the entire system. This means they can "see" every transaction, spend the same coins more than once, and deny transactions they don't approve of.
That's finally happened. According to analysis from Cornell researchers, a mining pool called GHash has now reached 51% for large stretches of time (effective "ownership" is likely much less).
Who is Ghash? No clue. Obviously, this is bad thing for an "open and decentralized" currency.
However, the ability of anyone to pull this off does make the next step inevitable. If Ghash isn't already an NSA , it most likely will be the NSA. From the NSA's perspective, Bitcoin is a wet dream. How so?
- A threat that can be "pwned" by throwing lots of computer hardware at it? That is what the NSA specializes in.
- The NSA is a place where a $1 billion program to thwart "terrorist" financing can be justified in an instant. Simply, they can outspend everyone else and buy the best talent to design the mining hardware they use.
- The hack pays for itself as it grows (it earns bitcoins from mining). One competitive advantage an NSA mining pool has? It can afford to give nearly all of the money it earns for other miners in its pool back to them.
PS: Any economic system that doesn't use enlightened self-interest is doomed to failure.
PPS: Bitcoin's boiler rooms trying to pump it up to make a buck, hate this post.
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