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Is One Bitcoin Miner Controlling the Entire System?

• www.businessweek.com

One of the basic ideas behind Bitcoin is that it exists outside the control of any centralized power. That no longer seems necessarily true. GHash.IO, a particularly powerful organization of Bitcoin miners, turns out to have at times controlled more than half of all Bitcoin mining activity—a development that some think poses a new threat to the system.

The creation of new Bitcoins has increasingly become the preserve of sprawling groups known as mining pools. GHash.IO, the most successful of these pools, theoretically has enough power to cheat the system. The details are complicated, but it basically functions like this: The Bitcoin system works only if users guarantee that coins aren't spent twice. This requires a good deal of computational power, so the system rewards users who verify blocks of transactions by awarding them new Bitcoins. The process is known as mining. Just like miners looking for gold, Bitcoin verifiers don't know exactly where the rewards will be, but every once in a while, Bitcoin miners involved in verifying blocks of transactions will unlock a reward. They announce it, and everyone moves to the next block.

The supposed vulnerability comes when miners don't tell everyone else when they've completed work on one block. So-called selfish miners could theoretically keep their success a secret to get a head start on the next block. This could allow them to double-spend transactions, trading Bitcoins for dollars, erasing the record of the transaction and getting their Bitcoins back.

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