Does bitcoin have a vulnerability to manipulation by a centralized actor? The answer is a well-established “Yes” – whether in 51% attack, null block attack(1,2), less than 51% attack in a world with firewalls(3), or a sponsored denial of service attack on the bitcoin network(4). Critical features of bitcoin that facilitate an attack are (1) concentration of computing power in China, (2) reliance on economic interests to dissuade attackers, and (3) an increasing mismatch between the value of Bitcoin as a speculative asset and economics of mining.
The network is significantly more concentrated than advertised. The most extensive analysis, from the University of Cambridge, suggests China alone controls 65% of bitcoin mining(5), a remarkable outcome for a country in which bitcoin ownership is officially banned(6). A recent power outage in China’s Xinjiang province managed to reduce the Bitcoin hash rate by roughly 20-33%(7), reinforcing this outsized influence. It is unclear the role China’s Communist Party (CCP) plays in the control of bitcoin mining capacity, but we understand the line between private and public blurs uncomfortably in China. For Xinjiang, the center of Uighur controversies, it would be surprising that an industry consuming between 5-15% of total electricity production was not closely “monitored.” In Iran, state-licensed bitcoin miners are required to sell their bitcoin to the Iranian government which is now using it to obtain much-needed US dollars(8). Similar behavior is observed in North Korea(9). Currently, there is an economic incentive for China and these nations to support bitcoin mining as a source of hard currency. But what happens if priorities change? For example, might China find it valuable to distract the United States with financial disruption while it moves against Taiwan?
With 900 bitcoin mined per day, China’s expected annual bitcoin revenue is only $12 billion. With local costs in yuan and margins north of 50%, the total annual cost of a sustained bitcoin attack would be less than $7 billion.
China, with more extensive resources than Iran or North Korea, can afford to adversely affect the Bitcoin network. Could the US be harmed by an attack on bitcoin? It appears likely. While the majority of mining occurs in China, the largest holder of bitcoin appears to be the United States(10). An attack on bitcoin could adversely affect a growing number of US households and corporations and possibly cause disruption in the US financial system. An attack on traditional financial markets would likely cause larger losses; however, this would be quickly exposed as an act of aggression and would require putting far more money at risk. The bitcoin attack could easily be claimed as an act of benevolence – facilitating China’s transition to a carbon-neutral economy by killing the environmentally damaging asset(11)… or targeting corruption, money laundering, and crime(12). Whether true or not is irrelevant. The action can be justified in a manner that other avenues of attack cannot. In summary, “Yes, China could weaponize bitcoin against the United States.” I look forward to my opponent’s fact-based response.