Does the NSA Control Bitcoin?

I was watching an excellent video by Matthew Kratter (of Trader University) analyzing developments in the crypto world. He was talking about SHA-256, the main Bitcoin proof of work algorithm. There is so much disinformation being spread about Bitcoin. Some of it is intentional and malicious, most of it is probably just ignorance - people repeating what they heard others say without understanding the issues. Some people claim that because SHA-256 was developed by the NSA, the NSA holds the master-key to Bitcoin and can take control and crash it any time they see fit.

SHA-256

NSA is the National Security Agency, one of America's intelligence agencies, part of the Department of Defense. SHA-256 is one variant of SHA-2 which was created by the NSA in 2001. SHA stands for Secure Hash Algorithm.

How SHA-256 works is beyond the scope of this article. Put simply, it's a method for encrypting data. You provide a piece of information as input, the SHA-256 algorithm changes it and produces output. (The output is the 'hash'.) It's a one-way process. The input can be of any length. The output will always be the same length - a 256-bit number (a combination of 256 ones and zeroes). The same input will always produce the same output. It's impossible to figure out the input from looking at the output. You can take the input and test it to see if it produces the same output. This is the basis of Bitcoin mining.

Double SHA-256

Bitcoin uses double SHA-256. You're given an input, an output is produced. You use that output as the new input and run it a second time. If it produces exactly the same output, you have successfully mined the next block on the chain (provided you did it faster than anyone else...). The miner submits the block to the blockchain, the user nodes check it, if it complies with the rules and requirements, they confirm it, the block is added to the chain, and the miner is rewarded with bitcoin (currently 6.25 bitcoin per block) plus transaction fees on all the transactions included on the block. This happens approximately once every ten minutes.

It's theoretically possible to mine bitcoin using pencil and paper, but it would take years to complete the calculations, and with a new block being mined every ten minutes that wouldn't be too competitive. That's why miners need massive computing power and use special circuit boards custom-built to solve the double SHA-256 hash puzzle. That's why there is so much fear and misunderstanding about electricity consumption - that will be the subject of another article. (All I will say for now is, the fear is unfounded. The oceans are not going to boil.)

Bitcoin Mining

Bitcoin mining is highly competitive. Today's successful miner may not be tomorrow's successful miner. New hardware comes on the market...the cost of power goes up...etc. That's why I'm a huge advocate of Bitcoin's proof of work model. The miners have to work for their rewards. Proof of stake rewards those who have the most money to stake. The rich get richer...

So - yes. SHA-256 was created by the NSA. It was released to the world. It isn't a secret. To claim that gives the NSA control over Bitcoin is ludicrous. It's like saying Islam controls algebra because they gave it to the world hundreds of years ago.

Matthew Kratter explains all this much better than I can: Does the NSA Control Bitcoin?