For days now, Bitcoin community have been stirred by an unusual occurence. Cryptocurrency and Bitcoin mining pool GHash.IO controlled almost 51 percent of worldwide computational power to create Bitcoin by the end of last week. It triggered major Bitcoin sell-offs and criticism toward the company.

For days now, Bitcoin community have been stirred by an unusual occurence. Cryptocurrency and Bitcoin mining pool GHash.IO controlled almost 51 percent of worldwide computational power to create Bitcoin by the end of last week. It triggered major Bitcoin sell-offs and criticism toward the company.

Bitcoin

The Power Of 51 Percent

Bitcoin main attractiveness is that unlike conventional currencies, it is uncentralized. If currencies are commonly regulated by a governing agency and its creation is limited by government decree, then Bitcoin creation is perfectly spread amongst people all over the world who mine the currency. Bitcoin peer-to-peer store of value secures it from the possibility of an entity manipulates it and takes unfair advantage.

Then suddenly, the news spread that GHash mining power is creeping up pass 50 percent and reached 51 percent treshold on June 13. Bitcoin developer Peter Todd wrote in reddit that he sold half of his Bitcoins, pointed out that GHash.IO shows that the economic incentives behind Bitcoin are probably very flawed. Since then, Bitcoin prices has been going down, with many claimed this event could be an 'armageddon' or 'threat'.

Concerns centered at the possibility that 51% control will enable an entity to harm the currency, such as reverse and block transaction confirmations, double-spend, etc. Similar threat have occured against litecoin on May, when litecoin mining pool Coinotron neared 51% of the network hashing power. Coindesk mentioned that individual miners then withdrew from the pool, prevented Coinotron to actually pass 51% mark.

The Goodwill And The Mining Pool

Peter Todd proposed to eliminate pools and provide mining payouts for individual miners with small hashing power. However, it might not be necessary. Industrial Bitcoin mining facility, BitFury, have withdrew 1.5 petahash of its hashing power from GHash.IO soon after the news panic-inducing news out, and countinue to do so for the next days.

Then yesterday, a statement was released by GHash.IO. The number one Bitcoin mining pool worlwide stated that they will prevent the accumulation of 51% hashing power in Bitcoin network. They admitted that reaching 51% of all hashing power is serious threat to the bitcoin community. They also mentioned a string of measures to be implemented in order to put some distance between GHash and 51% treshold.

Apparently, the plan succeeded. A quick peek at hashrate distribution amongst Bitcoin mining pool in blockchain.info reveals that in the last four days. GHash.io power have dropped into 32%, and shared the big three with Discus Fish at 15% and BTC Guild at 12%.

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What next? Like Peter Todd said, the case highlights a flaw on Bitcoin system that won't be easily erased. With Bitcoin mining relies on a number mining pools, similar incidents will likely occur again. As the pie above shows, the majority of Bitcoin mining power is wielded by only a few entities, especially the big three. The only solution is...trusting in the mining pools' goodwill not to harm the cryptocurrency. We don't think that there are any mining pool that will purposefully destruct its business, something that will certainly happen when the 51% mark is being ignored. Thus, bitcoin community has nothing to worry. Gavin Andresen from Bitcoin Foundation also said that it is extremely unlikely from an economically rational mining pool– blockchain history would make it obvious that they were mis-using their power, and I’m certain either technical or social solutions would be found to punish the bad behavior. Or is it? If you have an opinion on this matter don't hesitate to write on the space below.