Bitcoin claims that one of its benefits as an alternative currency is its decentralized structure where no entity, public or private can gain control over it. Recent findings from a Cornell University research team suggest this claim may no longer be true. It found that a mining pool operated by GHash was able to supply a majority of the computing power needed to mine Bitcoins for sustained periods of time.
GHash operates a site at www.ghash.io that allows users to sign up for accounts using nothing more than an email address, password, username and security question. It serves as the mining site while holdings can be traded on the sister exchange site, www.cex.io. GHash users have the option of mining from the cloud or supplying their own hardware to the mining pool.
Although the management behind these sites is anonymous, the terms of service state that they are governed by the laws of the U.K. Any transactions involving fiat currency require compliance with Know Your Customer regulations where the user must first provide copies of government IDs and proof of residency like a recent utility bill.
The ability of GHash to contribute a majority of mining power for sustained periods of time effectively circumvents the decentralized structure of Bitcoin. Majority controllers can spend the same coins more than once and inhibit transactions from other mining pools.
This news could not have come at a worse time for Bitcoin proponents. The shutdown of the Mt. Gox exchange dealt a blow to the currency’s credibility after it announced that 850,000 Bitcoins, valued at over $470 million at the time, were missing last February. GHash’s ability to control a majority of Bitcoin mining only makes the situation worse.
Optimists will say these are the growing pains of a new currency and that these problems can be worked out. They will also point to the fact that many mainstream vendors are accepting Bitcoins as a form of payment.
Maybe so, but those who held Bitcoins on Mt. Gox won’t be consoled by such claims. Those who mine or hold Bitcoins in the future should also be wary, not only of the majority power of companies of GHash, but other companies who hold such power and use it maliciously, something that GHash has so far not done. There may be no limit to what you can make with Bitcoins, but there is also no guarantee your holdings will be around the next day either.
Edited by Maurice Nagle
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