Blockchain and losing your money

The security of the Bitcoin protocol rests on the assumption that a majority of the miners are honest.

If a motivated corporation (or rogue government) with vast computing resources creates a mining pool that is more powerful than the rest of the miners, then this “dishonest” mining pool can revert the entire blockchain, or can create an entirely new blockchain.

This means that the bitcoins bought by the average punter and recorded in the old blockchain will disappear, as if they never existed. Bitcoin and blockchain are far from unforgeable. However, writing about the assumptions and weaknesses of blockchain is not fancy and provocative, and it will not attract readers and investors.

The threat by the dishonest mining pool is made even worse by the the Selfish mining attack https://www.cs.cornell.edu/~ie53/publications/btcProcFC.pdf

And this is not the only weakness of the blockchain idea.

Cryptographic algorithms have been broken. Look at the Enigma machine. Ask Mary, Queen of Scots. The Vigenère cipher was called 'the indecipherable cipher'; until it was deciphered.

Hash functions have been broken in the past. Look at MD5.

Bitcoin uses SHA-256 as its hash function. SHA-256 is based on sound design principles, but there is NO mathematical proof that SHA-256 can not be broken.

How will we hear if blockchain or Bitcoin is broken? We won’t.

The attacker will silently keep reverting longer and longer sections of the blockchain, and inserting its own transactions in the blockchain. Without any publicity. The money will start disappearing from the digital wallets of the Bitcoin investors. The investors will complain (to whom?), but won’t be able to prove anything.

We don't know when and if the above scenario will happen.

But, as the financial reward for breaking Bitcoin grows, so does the risk of it happening.