Historically, no valuable economic system has ever operated entirely outside of the legal system.
Written by: Craig Wright
Compiled by: Luffy, Foresight News
Regarding Bitcoin and the law, a standard narrative prevails: Bitcoin aims to operate outside of government, replacing institutional trust with mathematical trust. It is permissionless, open to anyone, and without central authority control. The system's security relies on the cost of attack itself. Law is optional, external, and something Bitcoin inherently attempts to circumvent.
This narrative is flawed, yet not entirely wrong; it does contain some elements. But as a description of how Bitcoin actually operates in real-world transactions, it's a fairy tale. And it is this fairy tale that distorts the understanding of blockchain security among economists, regulators, and even the crypto industry itself.
Economics version
The most rigorous version of this narrative comes from economics, not cypherpunk forums. Its core argument is concise: in a permissionless system without the rule of law, the only thing that can prevent double spend attack is the cost of assembling enough computing power to surpass the honest chain. Security is a cost issue: the network must continuously invest sufficient resources to make attacks unprofitable. If the value that can be stolen exceeds the cost of the attack, the system is insecure.
This is a true conclusion, and its mathematical calculations are correct under the given assumptions. However, it leads to a disturbing corollary: securing large transactions on a proof-of-work blockchain requires a massive and continuous consumption of resources proportional to the value of the risk. If you want to complete a billion-dollar transaction, the network must consume enough electricity and hardware to make a billion-dollar attack unprofitable. This is costly, seemingly wasteful, and resembles a fundamental economic limit.
But please note this crucial premise: in the absence of the rule of law. The entire conclusion rests on the assumption that the attacker exists in a legal vacuum, is anonymous, untraceable, and bears no consequences beyond the direct cost of the attack itself. This is not a trivial simplification, but a core assumption. In the real world, this assumption is inconsistent with reality for all economically meaningful Bitcoin transactions.
Who is mining Bitcoin?
The story of anonymous miners digging in basements ended years ago. Bitcoin mining is now an industrialized activity, organized and operated through mining pools. The pools are responsible for coordinating block production, obtaining block rewards, and distributing profits to participants who provide computing power according to contract rules.
As of March 2026, the top five mining pools controlled over 70% of Bitcoin's hashrate. The two largest pools, Foundry USA and AntPool, together accounted for nearly half of the total. These are not clandestine entities: Foundry USA is a subsidiary of Digital Currency Group; MARA Pool is operated by Nasdaq-listed MARA Holdings, whose latest annual report discloses 400,000 mining rigs, 53 EH/s of hashrate, and over $4 billion in Bitcoin reserves. These are legitimate companies with names, addresses, stock tickers, auditors, banking relationships, and legal counsel.
The coordination layer of Bitcoin mining (the entity actually responsible for block production and reward distribution) is highly concentrated in a few jurisdictions. Mining pools associated with the United States account for approximately 42% of the hashrate, those associated with China account for approximately 41%, and Singapore, Japan, the Czech Republic, and Slovenia make up the majority of the remainder. Mining pools whose hashrate cannot be identified through Coinbase tags, company documents, or publicly disclosed operators account for less than 2%.
This is not a picture of something outside the law, but an oligopolistic industry: a small number of identifiable entities operating within law-bound jurisdictions. When economists model Bitcoin attackers as anonymous, lawless entities, they are not describing a real industry, but a hypothetical one that was abandoned by the industry a decade ago.
What is a real attack like?
A double spend attack on Bitcoin is not an abstract concept; the process is as follows: An attacker sends Bitcoin to a counterparty (e.g., to an exchange for USD) while secretly mining an alternative blockchain that does not contain that transaction. If the attacker's secret blockchain is longer than the public blockchain, it will replace the original blockchain, and the original transaction will disappear. The attacker gets the USD while retaining the Bitcoin.
For such an attack to reach a considerable scale, the attacker would need to control the vast majority of computing power over a long period. In today's networks, this means controlling over 400 EH/s. This is impossible for an individual; the only feasible attack path is through the mining pool layer: either a single large mining pool deviates from honest mining, or multiple mining pools collude.
Now, the question is: what will happen to that mining pool after the attack?
The attacker (a well-known publicly traded company or a reputable mining pool brand) has just defrauded an exchange. The double-spending victim knew they had been scammed, and the blockchain records show which mining pool built the attack chain (clearly identifiable by the Coinbase tag). The defrauded exchange has legal counsel, insurance, and regulatory relationships, and the mining pool itself relies on these exchanges to convert mining revenue into fiat currency.
The attackers are not anonymous, the victims are not helpless, and the system connecting them is not above the law.
Law enforcement participation constraints
Standard economics is only half right. For small transactions, like a $5 coffee or a $20 online purchase, nobody will sue; the legal costs outweigh the losses. Hiring a lawyer is more expensive than coffee. In this range, law is indeed irrelevant; protocol-level security is everything, and a purely economic model applies.
However, the irrelevance of the law is inversely proportional to the transaction amount. A $5 million double-spending transaction targeting an identifiable mining pool, accompanied by asset freezes and exchange balance seizures, is a completely different matter: this is wire fraud, computer fraud, a case that prosecutors would handle, insurance companies would pursue compensation, and exchanges would cooperate.
The real issue isn't whether there are laws governing double-spending—of course there are. The real issue is whether anyone is willing to use the law. Not for small amounts, but for large amounts. There exists a threshold, which can be called a constraint on law enforcement participation: below this threshold, the legal costs exceed the expected recovery amount; above this threshold, legal action is worth initiating.
Recent law enforcement actions in the crypto industry roughly provide this threshold: Binance paid $4.3 billion to settle with the Department of Justice, FinCEN, and OFAC; BitMEX settled for $100 million.
These are compliance violations, not double spend attack. Intentional double-spending not only incurs civil liability but can also lead to imprisonment and criminal charges involving asset forfeiture.
The conclusion is straightforward: the "no-law" model applies to small transactions; it does not apply to large transactions. The dividing line is not in the billions of dollars range, but in the millions of dollars range, depending on the jurisdiction, the capabilities of the victim organization, and the identifiability of the attacker. For attacks dominated by mining pools, the identifiability is close to 100%.
Why did the coordinated attack fail?
Even disregarding the law, mining pool attacks have a structural weakness overlooked by the standard model: mining pools rely on other people's machines.
Mining pool operators coordinate block production, but a significant portion of the actual computing power comes from external contributors: companies and individuals who connect their machines to the pool in exchange for a share of the rewards. These contributors can leave at any time; they join the pool to make money. If the pool's revenue declines, they will switch to competitors.
Covert double spend attack reduce yield quality: mining pools shift their computing power from honest mining to secret chains, and if this fails, they gain nothing. Contributors will see lower yields, greater volatility, and more invalid blocks. They don't need to know an attack is happening; they'll simply leave if they see the pool performing worse than others.
Once the attack is detected or suspected, a new wave of exodus will occur. Those who remain will face the risk of being linked to fraud, their hardware may be flagged, their exchange accounts may be audited, and their custody contracts may be affected. For companies with hundreds of millions of dollars worth of dedicated mining rigs, the rational choice after a mining pool is publicly implicated in an attack is to immediately withdraw and distance itself.
Another often overlooked point is that if the attack fails (and the honest chain remains longer), the attacker will lose all the investment in building the secret chain. Honest miners don't need to do anything special; they simply continue mining. The longest chain rule of the Nakamoto protocol automatically applies: if the honest mining power exceeds the attacker's, the attacking chain will be isolated; the protocol itself is an exclusion mechanism. Honest miners don't form alliances or defend themselves; they're just doing their normal work. On the contrary, the attacker must engage in abnormal behavior and maintain it continuously, while their alliance constantly bleeds.
The result is that the computing power attacking a mining pool is not fixed, but continuously diminishes during the attack. A simple simulation shows that a mining pool initially accounting for 31% of the network's computing power may lose the vast majority of externally contributed computing power within hours after the profit distortion becomes observable, ultimately leaving only the pool's own computing power. For most mining pools, this represents only a small fraction of the total computing power. An attack that appears feasible in name only becomes infeasible as contributors flee.
Capital Issues
The standard model completely ignores a deeper problem: capital specificity.
Bitcoin mining hardware ASICs are not general-purpose devices. A Bitcoin ASIC does only one thing: calculate the SHA-256 hash. It cannot mine Ethereum, act as a web server, or run machine learning. Once excluded from profitable mining, the hardware is worthless—just scrap metal with a power cord.
Large mining pool operators hold billions of dollars in ASICs, hosting contracts, power agreements, and Bitcoin reserves. MARA Holdings alone disclosed that its ASIC miners and Bitcoin assets total over $5 billion. Foundry USA aggregates the computing power of dozens of companies, each with substantial capital exposure. A successful double-spending operation can yield tens of millions of dollars in profit, but the capital risks associated with identification, sanctions, and exclusion are in the billions of dollars.
This is no longer a matter of traffic costs, but rather a matter of existing costs. Attackers are not risking a few days' worth of mining revenue, but the entire value of capital production that has no substitute. This fundamentally changes economics.
In the standard model, security requires continuous investment that is proportional to the value of risk; in reality, the security of identifiable, capital-intensive mining pool operators is underpinned by the threat of permanent capital annihilation.
Ironically, the original economic critique itself acknowledges that the deterrent effect of existing costs, if it exists, would be extremely powerful. It simply argues that proof-of-work lacks this deterrent because attack power can be rented, deployed, and discarded. This was roughly true in 2012, but it will be far from true in 2026. Mining is already a capital-intensive industry, with fixed infrastructure, long-term electricity contracts, and hardware that cannot be repurposed. Existing costs are real; it's just that the economic model hasn't caught up.
Two mechanisms, one system
What we get is not a rejection of the economic model, but rather its localized application. Bitcoin does not have only one security mechanism, but two operating simultaneously:
- For small transactions: pure protocol security is effective. Individual transactions are too small to warrant legal action; the system relies on the cost of aggregated attack power to ensure security. This mechanism is effective, conforms to the standard model description, and supports high throughput. Millions of small payments can run entirely at the protocol layer, with very low security costs per transaction.
- For large transactions: legal and organizational mechanisms take over. An attacker's gains are no longer solely determined by protocol costs, but are also significantly offset by legal sanctions, exchange freezes, monetization frictions, reputational damage, capital devaluation, and the self-destruction of the attack alliance due to contributor withdrawal. Under this mechanism, the pure traffic cost model overestimates attack gains because it ignores all the consequences an identifiable attacker will face after the on-chain action ends.
The two mechanisms are not in conflict but rather complementary: the protocol layer handles traffic, while the legal layer handles value. Together, they create a security environment far more robust than any single mechanism.
True Revelation
The deeper conclusion is not about Bitcoin, but about how we view technology and institutions.
The cypherpunk narrative views law and protocol as alternatives, an either-or choice, and the significance of Bitcoin lies in choosing the protocol. Economic criticism accepts this framework, then questions whether the protocol can function alone. Both sides are trapped in the same flawed binary opposition.
In reality, agreements and laws are complementary:
- The protocol provides underlying features such as transaction ordering, immutability, censorship resistance, and cost-based protection against arbitrary attacks.
- The law provides the upper levels: identity, accountability, sanctions, recourse, and heavy penalties to deter heavyweight attackers.
No single layer is sufficient; only when they are combined can they cover the entire scenario.
This is not surprising. Historically, no valuable economic system has ever operated entirely outside the legal framework. This includes banking, securities, insurance, telecommunications, and even the internet itself, which was once touted as being independent of government. The question has never been whether the law would enter Bitcoin, but when and through what channels. The answer is: the law is already deeply embedded, through the very structure of the mining industry.
Miners don't need to be forced to comply with regulations. Driven by the simple economic logic of mining pools, specialization, and scaling, they have proactively moved towards a state that can be identified by regulators. The forces that make mining efficient (risk-sharing in mining pools, ASIC capital investment, and monetization relationships with exchanges) are also the forces that make mining legally identifiable.
Bitcoin's security doesn't depend on existing outside the law, but rather on being embedded within it. Protocols handle minor issues, while the law handles major ones. The mining industry structure serves as the bridge connecting the two. This structure isn't imposed by regulation, but rather evolved naturally from the economics of mining itself. This is also the core misjudgment of Bitcoin's security by standard economics criticism.
