Recent Bitcoin block data shows that Bitcoin’s mining pools[1] BTC.com, AntPool and ConnectBTC, respectively mined about 25.7 percent, 16.1 percent and 0.2 percent of all new blocks over the past week. This makes for a combined hash rate of 42 percent; an all-time high for the Chinese mining giant’s mining pools.
Several[2] media[3] sources have since covered this news, reporting that this near-dominance is a major risk to the Bitcoin network.
How true are these claims?
51% Attacks
When mining bitcoin, new blocks are produced by mining computers[4]. Each miner on the network competes with its counterparts to produce blocks, and the only way for a miner to effectively do this is to input different hashing combinations until they uncover a valid one.
Once a correct combination is found, the mined block is added to a chain. If there is more than one chain — for example, because different miners found different blocks at the same time — the mining nodes will try to add the block to the one with the longest history.
However, this also means that if one entity controls more than half of the computational power on the network, it can select an older block within the chain and begin re-mining everything from there. This new chain can then overtake the original one, and all previous transactions will become invalid. In other words, if a single entity controls over half of all hash power on the network, this entity can undo transactions, and therefore poses a threat to the network’s immutability, one of Bitcoin’s core features. This entity can also refuse to accept blocks mined by others, ensuring the competition never receives a fair shake, or blacklist particular Bitcoin addresses.
