In the beginning, bitcoin was not egalitarian or decentralized … and that’s a problem

By analyzing the blockchain, the researchers found that the bitcoin network was very centralized in the beginning. And unfortunately, this has detrimental consequences for the anonymity of today’s users.

For bitcoin enthusiasts, times are tough. Prices are plummeting and we don’t know when this hellish spiral will stop, shattering once and for all the famous argument that this cryptocurrency is a “store of value” to counter fiat currency inflation. The opposite is currently observed. Hello chaos.

But interestingly, these uncertain times of bitcoins are not new. They have always been there. A group of multidisciplinary researchers examined the first 30 months of this currency’s existence, since its launch on 1uh March 2009 at the time of its dollar parity on September 2, 2011. The latter date roughly corresponds to the arrival of the Silk Road drug market, the first true use case of bitcoin. In its beginnings,

A frequent risk of attacks at 51%

Researchers have broken down the blockchain into its smaller transactions and what they have discovered seriously undermines the myths of decentralization and anonymity that are generally associated with bitcoin. Therefore, by carrying out transactional analyzes and aggregations, they found that during all this initial period, only 64 people were involved in mining. “It’s a thousand times less than what we imagined until now”, the researchers point out in their report. And it often happened that more than half of the computing power was in the hands of a single person, who could – therefore – take control of the entire network.

Another discovery: in this period the distribution of bitcoins was perfectly in line with Pareto’s law, a mathematical tool that allows to model the distribution of wealth in traditional economies. The only difference is that this distribution was much more concentrated in the bitcoin network than in a traditional economy. The bitcoin system has not only created no particular revolution in the way wealth is distributed among people, it has also accentuated it in a particularly unequal way.

A small group of selfless founders

Faced with the facts, it seems that in this period the postulates of decentralization and “trustless” functioning (no need for trust between the members of the network) were not respected. In other words, if bitcoin did not fail during its first 30 months, it is not thanks to its intrinsic cryptographic qualities, but thanks to the goodwill of users. These most privileged people objectively had a 51% chance to carry out attacks, but they didn’t. “Bitcoin’s initial success was built on cooperation between a small group of selfless founders”conclude the researchers.

Finally, the researchers’ calculations show that almost any bitcoin in circulation can be linked to one of the 64 base miners in less than six transactions. Also in this case it is a consequence of this hypercentralization of these first months. The concern is that it’s not great for ensuring anonymity. “If the police came, for example to determine the identity of the top 64 agents, they could de-anonymize almost all bitcoin addresses by going back no more than 6 transactions “, the researchers say. Finally, the world of bitcoins is very small, one could almost say cramped.

Source:

New York Times

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