Ben Kaiser from Princeton University and Mireya Jurado and Alex Ledger from Florida International University have written a paper titled ‘The Looming Threat of China: An Analysis of Chinese Influence on Bitcoin‘. The paper describes all the different ways China could manipulate and attack Bitcoin. One very interesting aspect of this is the Great Firewall of China, which observes and filters all Chinese internet traffic. Even without any sort of attack from China, the latency caused by the Great Firewall impacts the entire Bitcoin network, since 74% of all Bitcoin mining hash power is located in China.
Despite China banning fiat to Bitcoin trading, which caused the market share of Chinese yuan (CNY) trading to decline from well over 90% in 2016 to nearly 0% in 2018, Bitcoin mining hash rate in China has been steadily increasing from about 50% in 2015 to 74% currently. Over 80% of Bitcoin’s hash rate is within six major mining pools and five of these are controlled by organizations based in China.
According to the paper referenced, the Great Firewall of China doesn’t prevent outbound packets from reaching the global internet but it definitely slows them down via inducing packet loss. On the global internet, there is a rate of 0.2% packet loss, while that rate is 6.9% behind the Great Firewall of China. The lost packets must be re-requested and re-sent, increasing latency from 81 milliseconds for the global internet to 218 milliseconds behind the Great Firewall of China.
This significantly impacts Bitcoin block propagation. It takes on average 3.9 seconds for blocks on the same side of the Great Firewall of China to propagate between nodes but 17.4 seconds for blocks to propagate between nodes on different sides, a 450% slowdown.
This puts Chinese miners at a disadvantage since miners outside of the Great Firewall can broadcast a block much faster to the network and get the block reward, even if a miner inside of the Great Firewall technically found a block earlier.
This incentivized Chinese miners to mine empty blocks with SPV mining, increasing empty blocks from the global average of 1-2% to as high as 7% for Chinese miners. This is because empty blocks use less bandwidth and propagate quicker, taking away some of the disadvantage from being behind the Great Firewall. Unfortunately, empty blocks reduce the capacity of the network and can raise Bitcoin transaction fees. Fortunately, in BIP 152 in 2016, Bitcoin was updated so that all blocks, including empty blocks, propagate at nearly the same speed and empty blocks from China returned to the global average near 1%.
Chinese miners are still at a mining disadvantage to this day, and since 74% of hash rate is in China, this means the Great Firewall of China slows down confirmations on the entire Bitcoin network. There are additional threats posed by the Great Firewall that are speculated about in the paper, such as Bitcoin transaction censoring, but there is no evidence that China has been actively censoring the Bitcoin network.
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