Trading Alert: Tense days ahead for Bitcoin

Yesterday, we wrote about the worrying aspects of the fact that GHash.IO, a Bitcoin mining pool, had temporarily reached 51% of mining power. This is a phenomenon that could have potentially disastrous consequences, including the possibility to double-spend coins and reverse transactions.

The Bitcoin community has been cagey about GHash.IO’s rise above the 51% mark, which is understandable given the kind of reputational damage double-spending could inflict on Bitcoin. GHash.IO reached 51% of mining power and stayed above this level on June 12, going down to around 31% today (estimate based on Blockchain data). The company, however, didn’t respond to the fears of the community until yesterday.

In a statement addressed to Ars Technica, GHash.IO wrote:

Rapid growth of GHash.IO mining pool, seen over the past few months, has been driven by our determination to offer innovative solutions within the Bitcoin ecosystem combined with significant investment in resource. Our investment, participation and highly motivated staff confirm it is our intention to help protect and grow the broad acceptance of Bitcoin and categorically in no way harm or damage it. We never have and never will participate in any 51% attack or double spend against Bitcoin. Still, we are against temporary solutions, which could repel a 51% threat.

(…)

We also recognize however that a long term preventative solution to the threat of a 51% attack does have to be found, the current situation we find ourselves in (essentially being punished for our success) is damaging not only to us, but to the growth and acceptance of Bitcoin long term, which is something we are all striving for.

To that effect we are in the process of arranging contact to the leading mining pools and Bitcoin Foundation to propose a ‘round table’ meeting of the key players with the aim of discussing and negotiating collectively ways to address the decentralisation of mining as an industry.

The statement doesn’t do much in a way of alleviating the fears of another move to 51%. GHash.IO is not inclined to limit its mining pool, so the threat of centralization is still here in the short term. On the other hand, the intent to set up a “round table” is indicative of a possibility of a long-term solution.

The key takeaway here is that no short-term solution has been implemented. There is a possibility of a long-term fix but this might still be months away. It is still best to closely monitor the centralization of mining power and be particularly cautious when any mining pool gets above 40%. 

For now, let’s take a look at the charts.

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