How a State can hack Bitcoin
If I were a state, I would follow this tutorial
Introducing attack vectors for Bitcoin
I have been around cryptocurrencies for quite a bit now. Please don’t take it wrongly. I am still convinced that Bitcoin is the most rock-solid technology able to resist censorship and handle several trillions of dollars of value.
However, I feel the crypto-community in general and the Bitcoin community, in particular, now have this sense of invincibility that is not adjusted to the technology: a somewhat weak human creation. Sure, mathematics is strong and, in a sense, not even human. But you would be blind to reducing Bitcoin strength to mathematics. A good part of Bitcoin is a human factor, ie all the individual and social interactions continuously generated around bitcoin and contribute to security. Essentially, the most deterministic individual human factor that one of the most brilliant minds of modern history, Satoshi Nakamoto, used to lay down the Bitcoin technical infrastructure is greed!
By aligning greed with mathematical security, Nakamoto found the Graal to solve the Byzantine Problem: Enough generals are convinced they will maximize their earnings if they collaborate for the victory.
From this initial consideration, I define two vectors for attacking Bitcoin:
- the mathematical aspect of the protocol, ie the Mathematical Factor Vector (MFV)
- the Human Factor Vector (HFV)
Side note, I love a not-so-well-known excellent movie featuring French actor Jean-Paul Belmondo, ‘Hold-up’, where the hero, who has robbed a bank with a perfect plan, is seriously scared by only one risk.
I hate the human factor!
So while we all agree the mathematical protocol of Bitcoin is a fantastic piece of human genius playing very well with the human factor so far, we have worked out around a lot of MFV weaknesses that can potentially be the base of various attacks and countermeasures. Still, we have never really looked into HFV weaknesses and even less thought about potential HFV attacks.
This article defines the first attack scheme based on the Human Factor Vector that a state or a group of states can run. In the last chapter, I will also provide a list of countermeasures. However, I believe they are not easy to put in place.
As a general rule of thumb, if the state can convince the people that they can earn more money with him than without him, people, miners, exchanges will give up the Bitcoin security and let the state manage their bitcoin for them.
You can be sure of succeeding in your attacks if you only attack places that are undefended.
Sun Tzu, Art of War
Instead of proposing to put a lot of hash power and buy enough hardware, I propose to put a lot of effort into using the greed to misalign with bitcoin security by leveraging existing technical-human weaknesses.
Interesting human weaknesses of Bitcoin
I am interested in the human understanding of technical aspects, in the same way one defidefinesne temperature and windchill. For the same temperature, people feel less cold because of other aspects (wind) they don’t understand.
- Bitcoin is ‘slow’. Defining the speedchill of Bitcoin is interesting. It is fast if you have an unsecured approach, a lot slower if you wait for a 3-block confirmation, and put your bitcoin on a hardware wallet that is neither easy nor fast to manipulate. Nobody (including me) has the complete ‘secured approach’ because otherwise, it would be ‘too slow’.
- Bitcoin is ‘illegal’ money. Defining the lawfulness of technology in general and Bitcoin, in particular, is fascinating. Human society is packed with rituals and processes that give the feeling of lawfulness. If you go to the church and the priest says the proper sentences and accomplishes the correct liturgy, you feel comfortable. Otherwise, you may feel a different degree of illegality (yes I am looking at you Luke Dashjr!). If you buy a car at a shiny store and see the seller presenting a lot of certifications about the engine and its environmental aspects, you feel the vehicle is more legal to use. If you are a company looking for technology, you are most interested in certification so you feel this is solid, of good quality, and legal. Also related, for some people, Twitter seems more legit than Facebook or Parler or the opposite. On the same line, the wrong estimation of ecological cost (using ‘too much energy’) can lead people to think Bitcoin is somewhat illegal. Note I believe many people are confused between good and legal, hence the idea of using the word lawfulness.
- Bitcoin is ‘secure’. This is not a weakness, but the securechill of people using Bitcoin can be socially-engineered to perform the attack. For instance, people think if held by an exchange or a bank and covered with insurance, their Bitcoin is more secured than if they have the Bitcoin on-chain ownership through their wallet.
- Bitcoin is ‘expensive’. If you want to move a small amount of bitcoin, the fees are proportionally too high, making Bitcoin feel expensive. Layer 2, like Lightning Network, reduces this cost, but opening an LN channel remains a costly action.
How the states can use those weaknesses
States can thus combine both named weaknesses to twist people’s greed, deviating it from its original direction. Let’s summary the greed-security relationship in the Byzantine General model.
- Before Bitcoin, a group of generals cannot agree because one cannot make any assumptions about their motivations. The best theoretical and practical algorithm could reduce to a maximum of 1/3 of generals that are not reliable. If there are more, the system falls apart
- With Bitcoin, the brilliant Satoshi Nakamoto reduced the problem to one plan: money distribution and found a way to align motivations: reward creation for the generals working for the system. Based on this assumption of greed, this idea increased the security enough to the 51% attack level, ie more than 1/2 of generals should be unreliable to destroy the trust in the Bitcoin system.
Now let’s go to the long-awaited attack description
The following process defines the social-engineered attack:
- State legalizes Bitcoin
- State proposes a certified secure, legal, and improved platform for handling Bitcoin. Secure because the value is guaranteed by the state through insurances, for example, legal because it complies with the state law, namely KYC/AMLFT framework, improved because it is fastest than all on-chain wallets.
In these first steps, the state is reusing the false understanding of security (securechill) by proposing a state-certified (lawfulness) security, thus pushing people to give up on-chain Bitcoin thinking it is more secure. It works conversely, convincing new people to use Bitcoin and can give the appearance of Bitcoin adoption. It will also be instant (speedchill) and without fees (expensiveness).
The proposed access is essentially a state-owned layer 2, think of it as a Chivo wallet. A state can combine it with a communication campaign explaining that self custody wallets are dangerous, numerous hacks have been evidenced in the past. In practice, people send their bitcoin to the state and the state is crediting their layer 2 wallets with bonds, called bitcoin.
- The state distributes licenses for a legal entity to operate Bitcoin. In the license text, the legal entity is obliged to use the state-owned layer 2. In practice, all hot wallets are hosted by the state. People can deposit and withdraw Layer 2 bitcoin for free, and on-chain bitcoin after paying a KYC/AMLFT linked processing fee. This layer 2 can look very similar to Visa/Mastercard Network. It can even be delegated to them.
- The state will allow independent mining through a license, provided the reward of blocks is sent to layer 2.
The state will provide most people with improved bitcoin experienced technology. This aspect can be increased by FUD (Fear, Uncertainty, and Doubt). For instance, halving events, price crashes, ecological factors, or illegal use of Bitcoin can be used by the state to increase securechill, and lawfulness of their layer 2.
One last point. I mentioned the Chivo wallet to give an idea of how it can be presented. I am not implying this is currently a strategy El Salvador used to hack Bitcoin. However, think about it: If the president changes or changes in the subtle relationship between the population and the president, the government of El Salvador could reuse the same technology with a few changes easy to push, to grab all the people bitcoins…
Another interesting possible attack
Instead of attacking Bitcoin, the state could first perform this attack on a challenger. For instance, providing an efficient state-owned layer 2 to ETH could attract many new people, increasing the price while making Ethereum very efficient as a payment system. This attack could convince many bitcoiners to beg for the state to do the same for Bitcoin, while attacking bitcoin directly, could make those bitcoiners less cooperative. That would be an exciting twist of the greed factor of Bitcoin!
Though the enemy is stronger in numbers, we may prevent him from fighting.
Sun Tzu, Art of War
For Bitcoin to survive this attack, the technology stack around the protocol should be ‘socially competitive’, that is to say, answer all the previously defined socially understanding of Bitcoin. I see several solutions:
- Education should give the correct understanding of secure, fast, or lawful use of Bitcoin. For instance, one must understand that keeping your keys is more secure than handling them to the state.
- Alternative and efficient layer(s) 2. As I see it, layer 2 is necessary for the proper use of bitcoin. The lightning network still suffers from several shortcomings that prevent it from being a scalable and reliable layer 2 competing with a state governed layer 2 in the coming years. Liquid sidechains can be an intermediary solution. Maybe we should be ready for alternative locally centralized layer 2. But we can for instance imagine layer 2 on a per city, or per community base. But it should not be too contradictory with the next point.
- Move away from significant layer 2 companies. Now, exchanges are acting as layer 2 on their own and are the main risks in the attack scheme. You can also find an interesting list of weak actors for this attack at https://bitcointreasuries.net/
- Use bitcoin or cryptocurrencies widely and do not stay in perpetual holding status. If a lot of sats are spent, more people are using bitcoin, and thus the dispersion of coins will prevent a state from efficiently gathering all the circulating bitcoins. While holding Bitcoin is also a great thing, I believe that a good balance between holding and dispersion in the current expansion phase is a crucial countermeasure.
This article presented an attack scheme that a state can perform in order to control bitcoin. While this is hypothetical, I believe that the list of bitcoin weaknesses related to the human factor is actual and needs to be addressed quickly.
Thanks to Yorick de Mombynes for his help in shaping this article. EDIT: Some rewrite using Grammarly.
What do you think? I am interested in your take. Do you agree with this possible attack? Could you come up with other attack schemes or countermeasures?