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Analyzing China's Influence on Bitcoin at CESC

Analyzing China's Influence on Bitcoin

Ben Kaiser, Princeton

Why did we pursue this research?

  • There's been a lot of discussion and fear about China's involvement with Bitcoin. We wanted to provide more rigor to the discussion.
  • Note: will refer to "China" often—primarily referring to a small number of policymaking groups in China who have the power to affect Bitcoin policy.

Why care about China as a threat?

  • China challenges Bitcoin's fundamental security
    • Assumption: no party can amass too much power over the consensus process.
    • But China has a powerful position in the mining ecosystem through hardware, mining power, and mining pools.
    • Assumption: miners follow rational economic incentives
    • But China has expressed high-level political goals that can easily supercede economics

Political goals and incentives in China

  • There are political goals in conflict with Bitcoin
    • Censorship and surveillance
      • Controlling online speech
      • Tracking spending habits (in large part through WeChat payments)
    • Economic protectionism
      • Capital controls
      • Consolidated regulatory authority
        • Used to be three separate authorities that oversaw banking, securities regulation, finance etc.
        • Now just one organization
  • It has overt political goals that would lead it exert control over Bitcoin
    • Single-party, single-ideology rule
      • Repression of dissenting ideas
    • Assertive foreign policy
      • Leading global technology
      • Soft-power influence campaigns

China's capabilities to affect Bitcoin

  • Capability to control mining
    • At least 25% of all hash power is in China
    • 74% of all mining pool power is orchestrated in China
    • ASIC manufacturing dominated by China (70-80%)
      • Backdoors? Not really a major threat; would be a major hit to business reputation
      • More likely, these manufacturers would be directed to quietly produce more mining hardware for China itself, and increase China's control over Bitcoin
  • Capability for unrestrained regulation
    • Consolidation of authority (Xi Jinping becoming president for life)
    • Decimation of exchange sector
      • Over 90% of Bitcoin exchanges were in CNY up until the exchange ban was implemented in China
    • Manipulation of mining power
      • For years, Chinese government offered incentives to miners to operate in China
        • Discounted prices on land, energy prices, and other tax breaks
        • This fueled the steady growth of the Chinese mining sector
        • China has recently announced news to reverse course and scale down Bitcoin mining incentives
    • In short, China has an ability and readiness to manipulate the Bitcoin ecosystem through regulation
  • Capability to control Internet traffic
    • Cross-border traffic (Great Firewall)
      • Packet inspection, injection, and tampering
      • Active probing of endpoints
      • Slowdown
        • Has been done with foreign news services and with Tor
    • Domestic traffic
      • Wide surveillance and censorship by ISPs on behalf of the Chinese government
    • Effect on Bitcoin throughput:
      • Empty % of Bitcoin blocks
        • 2015-2016, Chinese mining pools began mining some empty blocks (around 3-7% of their blocks)
          • Antpool was producing as much as 12% empty blocks per day
        • Why?
          • Full block propagation cross-border (across the Great Firewall) slowed 450%, relative to internally to the Great Firewall
          • Assuming the majority of hash power was not within the Great Firewall, miners outside the great Firewall had a large advantage in connectivity
          • Empty blocks give miners within China a larger advantage
        • Compact block relay allowed miners to send smaller sketches of blocks (~15KB), which made propagation speed independent of block size, and negated this perverse incentive
      • Even though this was most likely unintentional, it gives an example of how traffic slowing can be used to affect Bitcoin significantly

What attacks could China actually do to Bitcoin?

  • Censorship attacks
    • E.g., punitive forking, feather forking
  • Deanonymization
    • E.g., traffic monitoring, compelled unmasking
  • Destabilization
    • Introduce lots of forks, or perform a large double spend
    • E.g., balance attack
      • Partition the Bitcoin network between miners inside China and outside China
      • Then issue conflicting transactions to the group outside of China
      • See which fork takes off outside
      • Then recombine domestic hashpower with the outside fork, thereby executing the double spend
  • Disrupt competing miners
    • Block withholding
      • E.g., Selfish mining

Summary

  • China is a motivated, capable, and credible threat to Bitcoin
  • The goal of this research is not to vilify China or claim that this is likely
  • We hope that a clear threat model informs mitigation research
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