On April 5, Bitcoin Core developer Greg Maxwell introduced the possibility of inhibiting a covert attack on the Bitcoin proof of work (PoW) function using a method called AsicBoost.
To the bitcoin-dev mailing list, Maxwell stated that the exploitation of the flaw of Bitcoin’s PoW function through a covert usage of AsicBoost could lead to a $100 million annual revenue for miners.
“Exploitation of this vulnerability could result in payoff of as much as $100 million USD per year at the time this was written (Assuming at 50% hash-power miner was gaining a 30% power advantage and that mining was otherwise at profit equilibrium). This could have a phenomenal centralizing effect by pushing mining out of profitability for all other participants, and the income from secretly using this optimization could be abused to significantly distort the Bitcoin ecosystem in order to preserve the advantage,” Maxwell wrote.Although the majority of the community alleged Bitmain and its bitcoin mining pool Antpool for using AsicBoost covertly to increase their revenues, no conclusive evidence has been found so far to prove the allegation. The community suspected Bitmain of using AsicBoost to increase their revenues due to the company’s patent on the technology in China. More importantly, Bitmain admitted using AsicBoost on the bitcoin testnet. In its official statement, Bitmain ultimately denied utilizing AsicBoost on the bitcoin mainnet.
Most members of the bitcoin community failed to understand the magnitude of increase in profit margins with AsicBoost covertly active. Maxwell wrote that the covert utilization of AsicBoost provides miners a 20 to 30 percent power advantage. Bitcoin and security expert Andreas Antonopoulos explained that the 20 percent advantage does not translate to a 20 percent increase in revenues. Rather, it leads to a staggering 2,000 percent increase in annual revenue for miners using the technology.
Profit Margins
At the Silicon Valley bitcoin meetup on April 11, Antonopoulos emphasized that mining centers across the world, even those that are located in mountainous regions in China that provide cold climate to reduce heating of mining facilities and cheap electricity, are constrained by electricity.
“First of all, most data centers that run [bitcoin] mining are not constrained by how many mining rakes they can buy or rack, they’re constrained by how much power they can feed into the building, that is always the constraint. And as soon as they have more power, they can easily buy all of the chips and rack and immediately get to a 100 percent of all of the power,” saidAntonopoulos.
Thus, if miners and mining center operations can find a way to decrease electricity consumption, they can utilize more mining racks and technologies to mine bitcoin.
“If you reduce consumption by 20 percent, that means you can install 20 percent more miners which means 20 percent more hashing power. That doesn’t mean a 20 percent increase in profits. Because profit margins are less than one percent,” he added.
He noted that profit margins in bitcoin mining are substantially small that even a slight advantage could allow some miners to move a huge step in front of the competition. In bitcoin mining, if a miner bring in $1 million in revenue, due to the low profit margin, at the end of the year, it can generate around $10,000 at best. However, with a method like AsicBoost in place, a miner can increase the profit margin by around 2000 percent.
“If you reduce the cost of electricity by 20 percent, you earn a million dollars in mining, you spend $750,000 in electricity. And your profit just went from $10,000 to $190,000, by a factor of 19 or 20. This is a huge advantage. If AsicBoost is really happening, it will allow one miner to completely dominate the market and knock all of their competitors out of the market,” Antonopoulos explained.
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