A new Trail of Bits research report examines unintended centralities in distributed ledgers

Blockchains can help push the boundaries of current technology in useful ways. However, to make good risk decisions involving exciting and innovative technologies, people need demonstrable facts that are arrived at through reproducible methods and open data.

We believe the risks inherent in blockchains and cryptocurrencies have been poorly described and are often ignored—or even mocked—by those seeking to cash in on this decade’s gold rush.

In response to recent market turmoil and plummeting prices, proponents of cryptocurrency point to the technology’s fundamentals as sound. Are they?

• Read the report
• Listen to the Trail of Bits podcast episode about this report

Over the past year, Trail of Bits was engaged by the Defense Advanced Research Projects Agency (DARPA) to examine the fundamental properties of blockchains and the cybersecurity risks associated with them. DARPA wanted to understand those security assumptions and determine to what degree blockchains are actually decentralized.

To answer DARPA’s question, Trail of Bits researchers performed analyses and meta-analyses of prior academic work and of real-world findings that had never before been aggregated, updating prior research with new data in some cases. They also did novel work, building new tools and pursuing original research.

The resulting report is a 30-thousand-foot view of what’s currently known about blockchain technology. Whether these findings affect financial markets is out of the scope of the report: our work at Trail of Bits is entirely about understanding and mitigating security risk.

The report also contains links to the substantial supporting and analytical materials. Our findings are reproducible, and our research is open-source and freely distributable. So you can dig in for yourself.

Key findings

• Blockchain immutability can be broken not by exploiting cryptographic vulnerabilities, but instead by subverting the properties of a blockchain’s implementations, networking, and consensus protocols. We show that a subset of participants can garner undue, centralized control over the entire system:
  • While the encryption used within cryptocurrencies is for all intents and purposes secure, it does not guarantee security, as touted by proponents.
  • Bitcoin traffic is unencrypted; any third party on the network route between nodes (e.g., internet service providers, Wi-Fi access point operators, or governments) can observe and choose to drop any messages they wish.
  • Tor is now the largest network provider in Bitcoin; just about 55% of Bitcoin nodes were addressable only via Tor (as of March 2022). A malicious Tor exit node can modify or drop traffic.
• More than one in five Bitcoin nodes are running an old version of the Bitcoin core client that is known to be vulnerable.
• The number of entities sufficient to disrupt a blockchain is relatively low: four for Bitcoin, two for Ethereum, and less than a dozen for most proof-of-stake networks.
• When nodes have an out-of-date or incorrect view of the network, this lowers the percentage of the hashrate necessary to execute a standard 51% attack. During the first half of 2021, the actual cost of a 51% attack on Bitcoin was closer to 49% of the hashrate—and this can be lowered substantially through network delays.
• For a blockchain to be optimally distributed, there must be a so-called Sybil cost. There is currently no known way to implement Sybil costs in a permissionless blockchain like Bitcoin or Ethereum without employing a centralized trusted third party (TTP). Until a mechanism for enforcing Sybil costs without a TTP is discovered, it will be almost impossible for permissionless blockchains to achieve satisfactory decentralization.

Novel research within the report

• Analysis of the Bitcoin consensus network and network topology
• Updated analysis of the effect of software delays on the hashrate required to exploit blockchains (we did not devise the theory, but we applied it to the latest data)
• Calculation of the Nakamoto coefficient for proof-of-stake blockchains (once again, the theory was already known, but we applied it to the latest data)
• Analysis of software centrality
• Analysis of Ethereum smart contract similarity
• Analysis of mining pool protocols, software, and authentication
• Combining the survey of sources (both academic and anecdotal) that support our thesis that there is a lack of decentralization in blockchains

The research to which this blog post refers was conducted by Trail of Bits based upon work supported by DARPA under Contract No. HR001120C0084 (Distribution Statement A, Approved for Public Release: Distribution Unlimited). Any opinions, findings and conclusions or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the United States Government or DARPA.