The NSA now owns Bitcoin  

Posted by Big Gav in , ,

John Robb has an interesting theory that Bitcoin is now effectively owned by the NSA (which will no doubt make it an excellent tool for blackmailing a lot of the less-than-legal users of the cryptocurrency) - The NSA now owns Bitcoin.

While I find alternative currencies quite interesting, the whole basis of Bitcoin (converting electricity into virtual coins) seems completely wrong - I far prefer some of the long ago proposals for paper money that entitle the bearer to a fixed amount of electricity...

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).

Here's the new boss:

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