How Faithful is Bitcoin?

Alyssa Blackburn, a data scientist at Rice University and Baylor College of Medicine in Houston, has spent several years working as a digital detective with her trusted lab assistant, Hail Mary, a shiny black computer with orange accents. She has been collecting and analyzing leaked information from the Bitcoin blockchain, an immutable public ledger that records all transactions made since the cryptocurrency’s launch in January 2009.

Bitcoin represents a techno-utopian dream. Satoshi Nakamoto, the pseudonymous inventor of Bitcoin, proposes that instead of the world running on centralized financial institutions, it would run on an egalitarian, mathematically based electronic money system that is distributed through a network of computers. The system would be “trustless”-that is, it would not rely on a trusted party, such as a bank or government, to arbitrate transactions. Instead, as Satoshi Nakamoto wrote in his 2008 white paper, the system would be based on “cryptographic proofs rather than trust. Or, as the T-shirt proclaims, “We trust the code.”

As it turns out, the reality is complicated. The price volatility is enough to induce a bend in Bitcoin, and the system is environmentally destructive because the computing network uses so much power.

Ms. Blackburn says her project is ignorant of both the pros and cons of bitcoin. Her goal is to penetrate the fence of anonymity and track the flow of transactions from day one to study how the world’s largest crypto economy emerged.

Satoshi Nakamoto has described this currency as anonymous. For bitcoin transactions (buying, selling, sending, receiving, etc.), users use pseudonyms or addresses – alphanumeric cloaks that hide their true identities. In 2011, WikiLeaks announced that it would accept donations through Bitcoin, an apparent vote of confidence in the anonymity. But over time, the study found data leaks; identity protection wasn’t so impeccable after all.

“One by one, information leaks erode once-impregnable blocks, carving out a new landscape of socioeconomic data,” Ms. Blackburn and her co-authors report in their new paper.

Ms. Blackburn aggregated multiple leaks, consolidating many bitcoin addresses into a handful that appear to represent many miners. She pieced together a directory of proxies and concluded that during the first two years, 64 key individuals – some of whom were the community’s “founders,” as the researchers call them – mined most of the bitcoins that existed at the time.

“They discovered how concentrated the early bitcoin mining and use was, and it was a scientific discovery,” said Eric Budish, an economist at the University of Chicago. Dr. Budish, who has worked in this area, received a two-hour video preview with the authors. Once he understood what they were doing, he thought, “Wow, that’s pretty cool detective work,” he says. Referring to these early key players, Dr. Budish suggested the paper be titled “Bitcoin 64.

Computer scientist Jaron Lanier, an early reader of the paper, called the investigation’s ambition and social impact “important and meaningful.”” The nerd in me is interested in math,” said Mr. Lanier, who is based in Berkeley, Calif.” The technology used to extract the information is interesting.”

He notes that a demonstration of blockchain leaks will surprise some people, while others will not.” The thing is not sealed,” Mr. Lanier said. He added, “I don’t think that’s the end of the story. I think there will be further innovation to extract information from these types of systems.”

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One of Ms. Blackburn’s strategies is simple perseverance. “I kick it until it breaks,” she said. She recalled how the principal investigator, Erez Lieberman Aiden, an applied mathematician, computer scientist and geneticist at Baylor College of Medicine and Rice University, described her approach.

More precisely, Ms. Blackburn developed hacks for a time period of particular interest: from the beginning of cryptocurrencies until Bitcoin achieved parity with the U.S. dollar in February 2011, which coincided with the creation of the Bitcoin-based black market, Silk Road. She exploited human failures such as insecure user behavior; she took advantage of the inherent operational characteristics of Bitcoin software; she deployed established techniques to connect pseudonymous addresses; and she developed new techniques.

Ms. Blackburn is particularly interested in miners, agents who verify transactions by participating in elaborate computational contests – similar to a guessing game in which random numbers are guessed and checked against a target to find a lucky number. 

When a miner wins, they receive bitcoin revenue.

The 64 key miners that appear to be small or large numbers depend on one’s proximity to the cryptocurrency’s undercurrent. Scholars question whether Bitcoin is really a decentralized currency. From Dr. Lieberman-Aiden’s perspective, the population surveyed is “even more concentrated than it seems.” 

While the analysis shows the number of large players at 64 over two years, the effective size of the group at any given moment is only five or six, according to the researchers’ modeling. And in many cases, only one or two individuals hold the bulk of the mining rights.


As Ms. Blackburn describes it, few people “wear the crown” and function as arbiters of the network – “which is not the spirit of decentralized trustless cryptocurrencies,” she says.

 

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