How a State can hack Bitcoin

Photo by UX Gun on Unsplash

Introducing attack vectors for Bitcoin

  • the mathematical aspect of the protocol, ie the Mathematical Factor Vector (MFV)
  • the Human Factor Vector (HFV)
TLDW: love is a hard to control human factor!

Attack Scheme

You can be sure of succeeding in your attacks if you only attack places that are undefended.

Sun Tzu, Art of War

Interesting human weaknesses of Bitcoin

  • 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

  • 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.

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.
  • 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.

Another interesting possible attack

Countermeasures

Though the enemy is stronger in numbers, we may prevent him from fighting.

Sun Tzu, Art of War

  • 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.

Conclusion

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I do crypto my own way

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FX Thoorens

FX Thoorens

I do crypto my own way

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