Reply on Ghash

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A reader asked me over email recently:

Have you posted anything or had any thoughts on Ghash.IO situation?

Nothing on this. I think it's just early volatility in bitcoin space. Some company (CEX) got serious about making a private mining farm and made a whopping share. Others will follow soon.

The dirty little secret of the blockchain is that it's not secure until increasing the hashrate by even 1% is an enormous economic feat. Currently it's not impossibly expensive to build your own farm with significant share - therefore the network is not very theoretically secure. Even if every existing pool had no more than 10%, you can't be sure that some guy does not unleash enormous hashing power at once and reverts some transactions.

When more companies start building private farms (and they will, it's the only cost-efficient way to mine; individual miners will soon disappear), you'll see more even distribution of the hashrate, but most importantly, the growth of hashrate will get slower. Because the slower it grows, the more robust the proof-of-work chain is.

The biggest winners in this race have no reason to subvert the system. Their incentives align with keeping bitcoin strong.

@aosmith Their intent is irrelevant. The problem is the centralized decision over which transactions are confirmed. It is a single point of failure to be exploited by whomever can put them self in that central position.

@aalness I think it's very hard to divorce intent from risk. There are many single points of failure (pilot flying a commercial airline) that you don't worry about in your everyday because you understand intent is measured and managed. The blockchain is public. Any centralized and strong hash rate player trying to subvert the system will be noticed and the threat of a disastrous response is substantial to lower that risk.

@taariq Sure, you can probably count on a large mining pool operator to be a rational actor assuming they're in control.