A threat to the Bitcoin Blockchain
The Achilles heal of Bitcoin is the 51% attack.
The Bitcoin Blockchain is the shared ledger of all Bitcoin transactions. When you send Bitcoin what you are actually doing is updating your copy of the Blockchain with a new transaction and sharing your updated version with other computers on the Bitcoin network. Each computer reviews the new entries in the Blockchain for accuracy. As long as 51% of the copies of the Blockchain are legitimate, your copy will continue to be legitimate as long as your computer is not compromised.
The 51% attack
The Achilles heal of Bitcoin is the 51% attack. If nefarious Bitcoin miners control over 50% of the Blockchain they can in theory create an illegitimate copy of the Blockchain which will eventually be accepted as the real Blockchain by all the computers on the network. Most of us have thought that as more computers mine Bitcoins, this becomes harder to accomplish. However mining pools can threaten this balance. A mining pool is a collection of Bitcoin mining computers that act as one. When a computer joins a mining pool, the computer gives its computing power to the pool in exchange for a proportional amount of the Bitcoins mined by the entire pool. The administrators of the pool can basically control what Bitcoins are granted to each computer and details of the Blockchain copy on that computer.
ASIC computers have changed the game
Over the last six months ASIC computers have come on the market and have dominated the mining of Bitcoins. Right now a relatively low percentage of the computers mining for Bitcoins are ASIC and they control a usually large percentage of the computing power mining Bitcoins. Recently a mining pool has become so powerful that it threatens to control over 50% of the computing power mining for Bitcoins. If this does happen, the dreaded 51% attack can become a reality. At the time of this writing a mining pool called GHash.IO is controlling 42% of the Bitcoin mining network. Over the last 4 days this pool has gone from less than 38% of the mining capacity to 42% of the mining capacity.
What can be done to protect the Network?
The short answer is no one is really sure yet. The good news is that the best minds in Bitcoins are discussing the issue now on Reddit. Some of the most reliable miners are leaving GHash.IO for other pools to try and reduce the percentage of the network controlled by this dominate pool. Also, just because a mining pool can create a 51% attack does not mean that it is in the best interest of the pool to coordinate such an attack. In theory a 51% attack would cause a huge loss in confidence of Bitcoins, dropping the value and making their coins and computers less valuable. For now, I suggest everyone watch this chart closely, if it gets close to 50% consider moving at least some of your Bitcoins to Litecoins or Fiat.
