Why wouldn't a state level actor be able to centralize Bitcoin?

Question

I was reading this question:

What can an attacker with 51% of hash power do?

According to that, the 3 "powers" obtained through controlling 51% or more would be:

Reverse transactions that he sends while he's in control

Prevent some or all transactions from gaining any confirmations

Prevent some or all other generators from getting any generations

These look a lot to me like centralized currency, minus the creation part, which can probably be worked around through non-blockchain means, anyway.

I think that a state level actor could definitely achieve this, but in this question:

What are some potential scenarios that a state actor can harm bitcoin if they control more than 51% of the hashing power?

Someone replies that it's not possible:

A 51% attack on Bitcoin may be theoretically possible, but it is definitely not feasible. Andreas Antonopoulos addressed this question and answers it better than I could. Here's a video of this Q&A: https://youtu.be/yWTQgmCuiCw?t=8

To me the answer seems quite arrogant (a state level entity investing billions in a covert operations and not involving black ops à la https://xkcd.com/538/ is just silly).

So my questions would be:

• assuming not a purely financial gain (this would be about control, ergo politics)
• what could prevent such an attack (especially if pin-point targeted violence from the attacking state level actor is an option)
• and how can Bitcoin protect itself (Andreas Antonopoulos says that the attacker would be kicked out... how would that happen in practice?), assuming there are defense mechanisms possible?

Answer 1

It can be argued that most aspects of bitcoin network like mining, wallets, exchanges are already controlled by centralized actors. US mining operations and big companies like Coinbase / Blockchain.com have disproportionately large influence over bitcoin.

The important distinction here is that it may not be in the best economic interest of such centralized actors to attack the network or take overt control of the network. Here are few examples:

51% Mining attack

• A double spend can be done by reversing bitcoin spent on exchange for money gain. However, if this is done consistently exchanges can spot this and increase number of confirmations to 6 or more which is very difficult to attack even with 51% hash rate control. Also network could hard fork reversing the double spend
• Empty blocks can be mined effectively DDOSing the network. This could lead to a price fall which could be leveraged by shorting bitcoin

In both the above cases you are mining the block of a network which you are attacking. So the price of bitcoin you mined also falls down negatively effecting you. You could just get more richer by just mining bitcoin and selling it at higher price by working in favor of the network

Social and Financial Control

Governments can exercise social and financial and regulatory measures that may lead to soft or hard destruction. Some of these can be:

• Covert multi-government effort conduct several propaganda campaigns to sway public opinion that the Bitcoin is either a massive scam or somehow bad
• Mandating onchain KYC / taxation of each transaction
• Financial institutions dump large amount of bitcoin effectively reducing price and creating panic
• Making it illegal to hold bitcoin and other legal measures

While these may work to dissuade mainstream user, other forks of bitcoin will be spawned. Users will switch to such forks / privacy coins that maybe more difficult to track. Flip side is government may get even less information of crypto economic activity than what is currently getting

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So in summary, lots of activity in bitcoin maybe in control of centralized actors. However, it would be in the best economic interest of such state actors to covertly / indirectly control it instead of attacking the network

Answer 2

An attacker can perfectly choose to lose come money in an attack against other miners or wallet holders.

You've forgotten a VERY important point: the attacker with lot of money has MORE time to support losses. It would be sufficient from the attacker to just bring someone out of the market. The attacker with enouhg mining power can accept to sacrifice a few percents of their assets to attack every one else, and can still recover that loss at the same time by just mining more coins.

For the attacker it makes sense, and it is exactly like what happens in real businesses: they accept to pay for advertizing, i.e. loose some money initially, in order to gain much more profits later.

So the concept that "no one would accept to loosing its own money" is just wrong. There are lots of reasons why this is in fact a good strategy, which works once you are already very rich and already equiped to be powerful (and already able to mint your own replacement currency).

Answer 3

assuming not a purely financial gain (this would be about control, ergo politics)

Assuming that the value of coins will drop if the attack persists for long enough, then a majority attacker will incur a continuous and ongoing cost to attack (censor) the network. To maintain an attack indefinitely, the attacker would need to keep burning money (in the form of electricity costs), forever. This is part of the economic game theory that helps keep miners 'honest': it is presumedly very expensive to misbehave!

If they ever stop attacking, the network could resume operation, though obviously a prolonged attack could damage faith in the network's operational guarantees (and this may be the goal of a politically motivated attacker).

If money is truly no concern, then the economic incentives that govern the game theory of bitcoin mining will of no concern, so then it just becomes a rather pragmatic consideration of "can any one jurisdiction actually acquire a majority of mining hardware, and energy"?

what could prevent such an attack (especially if pin-point targeted violence is an option)

Since you mentioned targeted violence, its worth pointing out that destroying the attacker's mining equipment would stop the attack. Likewise, destroying the honest miner's equipment will benefit an attacker. If a nation state decided to attack bitcoin, then a coordinated takedown of competing hashpower centres may well be a part of their strategy.

On manufacturing: given the competitive nature of bitcoin mining, and the relatively few high-tech computer chip foundries that currently exist, it might be expected that the world would notice if any one nation-state/etc decided to buy out the entire production capacity of new ASIC miners. Which is to say: it would be tough to organize such a plan covertly, so perhaps proactive prevention is more attainable than reactive prevention.

and how can Bitcoin protect itself (Andreas Antonopoulos says that the attacker would be kicked out... how would that happen in practice?), assuming there are defense mechanisms possible?

I think Andreas is technically incorrect here: there is no way to know which blocks are created by an attacker, so there is no way to selectively ban some specific entity's blocks. Even if you somehow figure out that a certain block was created by an attacker, what guarantee will you have of also discerning the attacker's next block? What happens if you have false positives? Etc.

He mentions that bitcoin users could "rework the protocol around them", but switching to a different hashing algorithm would effectively mean creating a new network, so it's easily arguable that the bitcoin network itself would die in this situation. Further, such a situation would require a messy social consensus to enact, which is exactly the sort of coordination mechanism the bitcoin network seeks to avoid. For example, what if multiple different groups decide to each create their own 'new, gov-proof bitcoin network'? It is extremely unclear how such a situation would play out.