Can Terrorists Hack Bitcoin?

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Yes. Here’s how.

It’s called a 51% Attack and Alternative History Attack. If an attacking group controls greater than 50% of the blockchain network computing power, it’s possible to rewrite the ledger, in effect, creating an alternative history, hence the name. I should note that other forms of attack exist as well, but for the purpose of this post, we’ll discuss only the 51% and Alternative History Attacks.[i]

It’s been done before and it could happen again.

On August 14, 2010, a hacker exploited a hole in the code to create 184 billion bitcoin (BTC)[ii], which they sent to two addresses. This hack was identified, code was rewritten, and blockchain rebooted within just five hours, stranding the 184 billion bitcoin in cyberspace without the requisite 120 confirmations for inclusion into the blockchain. Satoshi and the early bitcoin development team took quick action. As a result of their efforts, they maintained the cap of 21 million and laid the foundation for future growth and global adoption.

(At least, that’s the official story. More on this later…)

While the good guys won in this case and the code is rewritten to prevent the inclusion of counterfeit bitcoin into the blockchain, Satoshi and crew proved that the combination attack works.[iii]

Motive: $4,000,000,000 “refund”

The bitcoin blockchain doesn’t do refunds. If you want a refund, the recipient of your transaction must trigger a separate transaction to return your money. However, if you’re a hacker with means, you could steal bitcoin a variety of ways. One of those ways is to rewrite the history of the blockchain.

On November 16, 2011, someone sent 500,000 BTC, worth $4.8 billion today, from this wallet 1M8s2S5bgAzSSzVTeL7zruvMPLvzSkEAuv. Let’s say they wanted their money back and conspired with a group of hackers to facilitate the heist. They would find the transaction in the blockchain, edit it to reflect the desired outcome, such as sending to a different wallet address, and use their combined computing power to out-hash the existing blockchain. Once the fraudulent blockchain becomes longer than the honest one, the honest and shorter chain is overwritten with the new alternative history — and the terrorists get their money.

Note: This is how Satoshi and crew rewrote the blockchain in 2010.[iv]

Admittedly, rolling back the blockchain is more complicated than, say, rolling back the odometer on your car. Doing so requires at least a majority share of network computing power. Nevertheless, the 2010 fix is evidence it can be done.

51% for the win! (Just like in politics…)

According to Blockchain.info, the top four miners already control 60.6% of the blockchain, 10.5% more than is necessary for a successful 51% Attack in a theoretical environment.[v] When the mining market inevitably consolidates, vulnerability will grow with it. Considering that Amazon alone powers roughly half of global cloud computing,[vi] providing support for companies like Netflix, Spotify, and the CIA, and that 70% of all internet traffic flows through Northern Virginia,[vii] it’s not just possible that >50% computing power will be in the hands of a few people — it’s already happened.

Bitcoin can be hacked tomorrow — just like Uber.

We don’t go a week without hearing about another hack of our personal information. Bitcoin is no different. The bottom line is that bitcoin is not the safe store of value that we hoped it would be. It too can be hacked — and next time, we may not be as lucky as we were in hacking the fix on August 14, 2010.

And in case you were wondering what 184 billion bitcoin would be worth today, it’s $1,748,000,000,000,000 — that’s $1.748 quadrillion.

Speaking of those 184 billion counterfeit bitcoin… What happened to them? To find out, read “Bitcoin’s Dirty Little Secret”.

Joe McHugh is a licensed (crypto) currency trader, political and economic analyst, and founder of Earth Loans, a tokenized asset fund of funds platform. Mr. McHugh holds no position in Bitcoin as of the date of this writing, only Bitcoin Cash.

Bitcoin Donations: 3FBhQxwvNXTVMkNtFCY3A7H8AfsrCndqjG

Bitcoin Cash Donations: 1JxBVpa3UiFpcZfAFwDbr5QoczkQrBGjMr

[i] https://en.bitcoin.it/wiki/Irreversible_Transactions
[ii] https://bitcointalk.org/index.php?topic=687488.0
[iii] https://bitcointalk.org/index.php?topic=822.0
[iv] https://bitcointalk.org/index.php?topic=822.0
[v] https://blockchain.info/pools
[vi] http://marketrealist.com/2015/11/can-aws-microsoft-reach-50-market-share-cloud/
[vii] http://www.nextgov.com/big-data/2016/01/70-percent-global-internet-traffic-goes-through-northern-virginia/124976/

Written by

Joe McHugh is an Independent candidate for President, Forex & crypto CTA; political-economic analyst, and founder of Earth Loans. LibertyStrikesBack.com

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