Can China And Russia Launch A 51% Bitcoin Attack?

An interesting video was published by the Wall Street Journal last week, speaking of the growing interest in the US for Bitcoin mining operations. It was entitled: U.S. vs China: The Battle for Bitcoin Mining Supremacy.

Although we over here in Europe don’t really realize it, there is growing anger between the US and China, both over the handling of the pandemic and the trade war. The Trump administration did not really help smooth things over and more and more Americans are openly angry with the Chinese.

The same is true in the Middle Kingdom as well.

This is more due to the propaganda inserted into Chinese evening news rather than anything else, as Chinese youngsters are fans of social media and celebrities just as much as their peers.

Verge attack

Remarkably, the Wall Street Journal’s video coincided with an overview by the Financial Times of the e-Yuan or the Digital Yuan, the crypto coin that the Chinese government intends to roll out.

Also, earlier this week, the small cryptocurrency XVG (Verge) suffered an apparent 51% attack which was only successful for a few hours or so. But even in that short timespan, the hackers were able to change the order and install a massive 560,000+ block reorganization.

A 51% attack is when a group of miners, or a single miner with more than 50% of the mining power takes over control of the network and can then change the blockchain. You can read here more about 51% attacks.

As investigative journalist Hasu noted, Verge experienced:

The deepest ever reorganistion in any PoW blockchain. An attacker has replaced 200 days worth of transactions with empty blocks, so thousands of balances have simply evaporated.

Back in 2019, Vertcoin was attacked in a similar manner. Now of course given the size of those coins and their market cap, you wouldn’t need a building full of hackers to do it. For Bitcoin, it would be a different matter.

All those stories combined made me wonder. Many have always claimed that there is no point in launching a 51% Bitcoin attack as the only thing you could do is double-spend.

Furthermore, if you try to return the network to your private state, the price of Bitcoin would probably drop and thus it makes no sense. But I just wonder what if that would be your point?

Could China and Russia bring down the western economy at a certain point with a 51% Bitcoin attack, where they take control of the blockchain of Bitcoin and can thus, hypothetically, dump the price?

Hear me out before you say no.

Economic attack

By now, most agree that an economic attack is far less costly than an actual attack. This is the reason why rogue states like North Korean and Iran have hackers who do their bidding. Iran has famously hacked the Sands Casinos in Las Vegas and North Korea hacked Sony when it tried to launch an unflattering movie about their great leader.

Instead of sending soldiers, you just send hackers. Less costly for you, far more costly for your victim.

E-Yuan

Fast forward five years from now.

It’s 2025.

Many US companies, fearing an inflating dollar (which a Biden administration will have used to keep the US economy as the biggest in the world), will have invested part of their portfolio into Bitcoin by then. Perhaps a few percentage points.

That is a substantial part of the economy and a sum able to start a stock market crash if the floor would fall out from underneath it.

China will have launched its E-Yuan or Digital Yuan and with that be able to spy on its own citizens. Given that Beijing is in full control of its own currency in digital form, you will not be able to know how much they’ve spent and how much they have.

Although it is to be assumed that some of the mining power will have already moved from China to the US, a lot will still remain in China, and in combination with Russian mining operations (the Kremlin is also able to control mines in Kazakhstan), they could reach a bit more than 51% if needed, paying the miners as many E-Yuan or Russian rubles as they want.

In April 2020, China has 65% of hash power, the US 7%, Russia 6% and Kazakhstan another 6%. Even if 15% would by that time have moved from China to the US, this would still hypothetically leave the Communist states with more than 51%.

At that point, China and Russia, which have the same political interest (namely to crumble the US economy which heightens their own status), could take over the Bitcoin blockchain and, at least for a while, mine a whole lot of blocks for themselves.

Causing collapse

If they then dump the mined Bitcoins on the market and replace the public blockchain with their own private blockchain, the price of Bitcoin would crumble. Depending on how much of Fortune 500 companies assets are at that moment invested in Bitcoin, this could reverberate in a crash of the US stock markets.

In Jack Ryan, Shadow Recruit, the book by Tom Clancy, such a scenario (by Russia) is exactly described. In his screenplay. There, the villain, a Russian oligarch:

Will dump all of his inventory onto the market at the same time, causing the American Dollar to collapse. It would hurt China too because of their Dollar holdings, but the goal is to trigger a new Great Depression in the USA.

Replace the American dollar by Bitcoin and multiply the value of Bitcoin’s current market capitalization by 10, now think of the possibilities.

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