And not just superficially so, but fundamentally, at the core protocol level. All other cryptocurrencies and schemes based on the same Bitcoin idea, including Litecoin, Namecoin, and any of the other few dozen Bitcoin-inspired currencies, are broken as well. Our work shows x11 mining bitcoin accounts this assertion is wrong.
We show that, at the moment, any group of nodes employing our attack will succeed in earning an income above their fair share. Those of you who want a precise and full explanation of the attack can cut straight to the research paper, though it may be a bit terse and dry. The key idea behind Bitcoin’s success is a decentralized protocol for maintaining a global ledger, called a blockchain. The blockchain records transactions between Bitcoin addresses, tracking the movement of every Bitcoin as it changes hands. This tracking ensures that no one can double-spend a coin, as the ledger makes it all too apparent whether a user sent out more Bitcoins from his account than he earned. This protocol works through a process called mining. In essence, the ledger is organized into a single, ordered sequence of blocks, each of which records a set of transactions.
Each block contains a crypto-puzzle, a computationally difficult challenge akin to a CAPTCHA. Miners organize themselves into a loosely-organized, distributed network, and they all concurrently try to add a new block to the ledger. Of course, this process is not free, as the process of solving these crypto-puzzles consumes power and requires cooling. For the currency to be viable, the miners need to be compensated for their efforts. Bitcoin miners are compensated through two mechanisms: they collect the transaction fees from the transactions recorded in the new block they contributed to the block chain, and they also collect a lump sum fee. This lump sum fee creates new Bitcoins, according to a time-varying formula.
The nice thing about having crypto-puzzles that are so difficult is that it is not practical for an attacker to modify the ledger. Someone who wants to, say, buy something from a Bitcoin merchant, get the goods shipped, and then later change that block to erase the transfer of money to the merchant, faces a very difficult task: they need to find alternative solutions to cryptopuzzles for that block and every subsequent block. Miners today organize themselves into groups known as pools. A pool will typically consist of a set of cooperating nodes that share their revenues whenever they find blocks. Mining pools are kind of like the shared tip jar at a restaurant: on occasion, a miner will hit the potluck, discover a good solution to a cryptopuzzle, and rake in some revenues, kind of like a waiter who lands a big table that runs a large tab.