Whoa, this is actually kind of nuts
So this psuedo-cartel of US miners only processes "compliant" transactions, meaning that they use their hashrate to exclude transactions from countries on the US financial sanctions list
But they only have 8% hashrate, so what's the big deal?
So this psuedo-cartel of US miners only processes "compliant" transactions, meaning that they use their hashrate to exclude transactions from countries on the US financial sanctions list
But they only have 8% hashrate, so what's the big deal?
https://twitter.com/VICE/status/1349098920543182849
Well, that's all good and fine. That means 92% of Bitcoin hashrate should, in theory, process the remaining transactions, because it is economically profitable to do so. This mining cartel even says it themselves, they take a 0.35% hit to profits to provide this service
This doesn't sound so bad at all. Bitcoin works as intended, it might take a little longer to mine your transaction, but one of the non-US mining pools will include it, eventually.
What's the big deal?
What's the big deal?
Well, here's what's between the lines: wallets can be forced to use that mining pool, giving it a near-total monopoly on the transactional load from all US-based wallets, which US-based users can be forced to use (by law).
This is an excellent business move for the cartel!
This is an excellent business move for the cartel!
The cartel (representing 8% of mining pool) can get access to +40% of the transactional capacity of the network, all by leveraging a government-mandated monopoly to force US-based wallets to use US-based nodes and mining pools to mine their txns... Or suffer the consequences!
Over time, this means that the miners can actually grow a bit faster than their competitors since mining rewards are mostly zero-sum with electricity costs, because fees are variable they represent the better part of profit that miners earn.
They eventually get ~40% hashrate!
They eventually get ~40% hashrate!
To reach a majority hashrate and basically enact a shadow-ban on minority nodes, this cartel would need to get 51% of course, but with this method of cartelization forcing economic activity through minority miners via excessive regulation, many other countries would tag along.
That means 51% is not out of reach!
And with 51% secured, this mining cartel can effectively bankrupt all competition over time, and force them either into compliance, or out of business.
It would take time, but this is the endgame scenario of what is described in the story.
And with 51% secured, this mining cartel can effectively bankrupt all competition over time, and force them either into compliance, or out of business.
It would take time, but this is the endgame scenario of what is described in the story.
Make no mistake, this is an existential threat to the freedom that cryptocurrencies (like Bitcoin) provide. Small moves like this tip us ever closer to dystopic uses of this technology, and should be fought against every step of the way.
Don't let this one slip by unnoticed.
Don't let this one slip by unnoticed.
Thanks @La__Cuen for writing about this!
"transactional demand" not capacity
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