user16: Yesterday I asked a question over at SuperUser, so that I could have my facts straight before asking this question.  The scenario sets the basis for this question.
Regarding bitcoin, what would happen to the Bitcoin system if a portion of the world had it's internet connection severed with the rest of the world.  In other words if, say, all outside communication was lost in the region of Armenia, would the Armenian Bitcoin users, who continue to use Bitcoin, ultimately create a forked block chain?
If so, what would happen to the blockchain when connection to the severed region of the world is restored, and the segregated network is resolved to the primary network?
I imagine the outcome would be similar to a 51% attack.  Is that correct?

user11915: A cut off in part of the network might also, indirectly cause one of the "guilds" to obtain %51. Community should also keep that in mind IMHO. i.e. if BTCGuild was suddenly completely disconnected for a time, and GHash.IO and itself both had 33% of the hashrate; GHash.IO would have %50 for the time period BTCGuild is disconnected.

user30267: First note that bitcoin nodes pass on blocks. So even if most machines in a country are cut off from the rest of the world it only takes one machine that can "see both sides" to keep the blocks flowing back and forth.
But what happens if an area is completely cut off from most of the world?
Miners on both sides of the cut will continue trying to find blocks. The probability of them finding them is determined by the current difficulty.
Assuming the "most of the world" side has most of the hashing power it will continue more or less as usual. 
The "armenia" side on the other hand will experiance a massive drop in block rate. If they have 1% of the hashing power (and I doubt they have even that) then they will experience a one hundred fold drop in block rate.
If the isolation goes on long enough then the "target" on the "Armenia" side will adjust to restore the normal block rate but this will take a long time. The "target" only readjusts after every 2016 blocks and it only readjusts by a factor of up to four each time. Say that when the split happens we are halfway between difficulty readjustments, if the "Armenia" has one percent of the hashing capacity then it will take about 100 weeks (~two years) to reach it's first difficulty adjustment. 
If and when connectivity is restored then any blocks mined on the "Armenia" side will be discarded as the chain from the "rest of world" side is much stronger. Transactions from the "Armenia" side may be re-included in new blocks if they are still valid.

user50843: I cannot add a comment because I have no reputation however I think it is important to note that this kind of attack has extreme consequences for the future of Bitcoin's adoption. If the goal is a future where a large percentage of the world's population are directly or indirectly participating in the Bitcoin network, such a disconnect from the globally acknowledged blockchain could be catastrophic.
There have been confirmed reports of internet connections being sabotaged by other states as well as by governments exerting control over their population. I disagree fundamentally with @Serith's comment in the context of a serious and long-running interruption between the global blockchain and the cut-off country's economic system:

It would be easy to counter any negative outcome because users of isolated network would know instantly about the problem from sudden drop of total network hash power, and would just need to avoid spending bitcoins until connection is restored.

Intermittent outages may be easy to resolve however to say that a population would just need to avoid spending Bitcoins ignores the case where in a potential future where Bitcoin is widely used, telling a population to simply stop spending would have vast social and political consequences. Such a case could very well result in severe unrest in the cut-off country, perhaps even turning violent.

user307: It wouldn't be a fork as both chains would only exists as the longest chain until the network was reconnected.  As soon as Armenia was reconnected to the internet every client would via block exchange determine there is a longer block and switch to that chain.  The orphaned chain would simply be discarded by all clients and eventually the entire network would be "re-unified" under the single longest chain.
In a situation like that it would be difficult but not impossible to pull off a double spend.  An attacker would need to have wallets in both sub-networks so coins could be spent in both sub-networks during the "isolation".   A precaution to take when isolated from "main internet" is to not process any transactions until the sub-networks have rejoined.  
For example a store could accept coins, and prepare orders but not ship them until rejoining the main network and ensuring no double-spend occurred.  If a double-spend had occurred the merchant would become aware once the larger network began processing the orphaned transactions and they were reported as invalid by the network.  If no double spend occurred those transactions would eventually be included in longest blockchain and become confirmed.
For those in the "main network" there is no risk from a double spend because their chain will remain longest and will survive while overwriting transactions from the smaller sub-network once the networks are rejoined.

user108: When bitcoin client downloads two conflicting blockchains, in other words when fork happened, it chooses the longer blockchain as valid, and the shorter becomes invalid and called "orphan blocks". "Length" is calculated as total combined difficulty of that chain, not number of blocks. Wiki: Block Chain
So in your scenario, Armenia most likely has less hashing power then the rest of world and it would produce shorter fork of blockchain, therefore it would be overrided after connection is restored.
51% attack implies coordinated effort from a small group of people with malicious intent, which is not the case according to your scenarion, therefore I wouldn't call 51% attack.
It would be easy to counter any negative outcome because users of isolated network would know instantly about the problem from sudden drop of total network hash power, and would just need to avoid spending bitcoins until connection is restored.

16: <p>Yesterday I asked a question <a href="https://superuser.com/questions/350126/if-a-major-telco-line-is-cut-to-a-region-of-the-world-is-the-internet-still-a">over at SuperUser</a>, so that I could have my facts straight before asking this question.  The scenario sets the basis for this question.</p>

<p>Regarding bitcoin, what would happen to the Bitcoin system if a portion of the world had it's internet connection severed with the rest of the world.  In other words if, say, all outside communication was lost in the <a href="http://www.guardian.co.uk/world/2011/apr/06/georgian-woman-cuts-web-access" rel="noreferrer">region of Armenia</a>, would the Armenian Bitcoin users, who continue to use Bitcoin, ultimately create a forked block chain?</p>

<p>If so, what would happen to the blockchain when connection to the severed region of the world is restored, and the segregated network is resolved to the primary network?</p>

<p>I imagine the outcome would be similar to a 51% attack.  Is that correct?</p>
 11915: <p>A cut off in part of the network might also, indirectly cause one of the "guilds" to obtain %51. Community should also keep that in mind IMHO. i.e. if BTCGuild was suddenly completely disconnected for a time, and GHash.IO and itself both had 33% of the hashrate; GHash.IO would have %50 for the time period BTCGuild is disconnected.</p>
 30267: <p>First note that bitcoin nodes pass on blocks. So even if most machines in a country are cut off from the rest of the world it only takes one machine that can "see both sides" to keep the blocks flowing back and forth.</p>

<p>But what happens if an area is completely cut off from most of the world?</p>

<p>Miners on both sides of the cut will continue trying to find blocks. The probability of them finding them is determined by the current difficulty.</p>

<p>Assuming the "most of the world" side has most of the hashing power it will continue more or less as usual. </p>

<p>The "armenia" side on the other hand will experiance a massive drop in block rate. If they have 1% of the hashing power (and I doubt they have even that) then they will experience a one hundred fold drop in block rate.</p>

<p>If the isolation goes on long enough then the "target" on the "Armenia" side will adjust to restore the normal block rate but this will take a long time. The "target" only readjusts after every 2016 blocks and it only readjusts by a factor of up to four each time. Say that when the split happens we are halfway between difficulty readjustments, if the "Armenia" has one percent of the hashing capacity then it will take about 100 weeks (~two years) to reach it's first difficulty adjustment. </p>

<p>If and when connectivity is restored then any blocks mined on the "Armenia" side will be discarded as the chain from the "rest of world" side is much stronger. Transactions from the "Armenia" side may be re-included in new blocks if they are still valid.</p>
 50843: <p>I cannot add a comment because I have no reputation however I think it is important to note that this kind of attack has extreme consequences for the future of Bitcoin's adoption. If the goal is a future where a large percentage of the world's population are directly or indirectly participating in the Bitcoin network, such a disconnect from the globally acknowledged blockchain could be catastrophic.</p>

<p>There have been confirmed reports of internet connections being sabotaged by other states as well as by governments exerting control over their population. I disagree fundamentally with @Serith's comment in the context of a serious and long-running interruption between the global blockchain and the cut-off country's economic system:</p>

<blockquote>
  <p>It would be easy to counter any negative outcome because users of isolated network would know instantly about the problem from sudden drop of total network hash power, and would just need to avoid spending bitcoins until connection is restored.</p>
</blockquote>

<p>Intermittent outages may be easy to resolve however to say that a population would just need to avoid spending Bitcoins ignores the case where in a potential future where Bitcoin is widely used, telling a population to simply stop spending would have vast social and political consequences. Such a case could very well result in severe unrest in the cut-off country, perhaps even turning violent.</p>
 307: <p>It wouldn't be a fork as both chains would only exists as the longest chain until the network was reconnected.  As soon as Armenia was reconnected to the internet every client would via block exchange determine there is a longer block and switch to that chain.  The orphaned chain would simply be discarded by all clients and eventually the entire network would be "re-unified" under the single longest chain.</p>

<p>In a situation like that it would be difficult but not impossible to pull off a double spend.  An attacker would need to have wallets in both sub-networks so coins could be spent in both sub-networks during the "isolation".   A precaution to take when isolated from "main internet" is to not process any transactions until the sub-networks have rejoined.  </p>

<p>For example a store could accept coins, and prepare orders but not ship them until rejoining the main network and ensuring no double-spend occurred.  If a double-spend had occurred the merchant would become aware once the larger network began processing the orphaned transactions and they were reported as invalid by the network.  If no double spend occurred those transactions would eventually be included in longest blockchain and become confirmed.</p>

<p>For those in the "main network" there is no risk from a double spend because their chain will remain longest and will survive while overwriting transactions from the smaller sub-network once the networks are rejoined.</p>
 108: <p>When bitcoin client downloads two conflicting blockchains, in other words when fork happened, it chooses the longer blockchain as valid, and the shorter becomes invalid and called "orphan blocks". "Length" is calculated as total combined difficulty of that chain, not number of blocks. <a href="https://en.bitcoin.it/wiki/Block_chain">Wiki: Block Chain</a></p>

<p>So in your scenario, Armenia most likely has less hashing power then the rest of world and it would produce shorter fork of blockchain, therefore it would be overrided after connection is restored.</p>

<p>51% attack implies coordinated effort from a small group of people with malicious intent, which is not the case according to your scenarion, therefore I wouldn't call 51% attack.</p>

<p>It would be easy to counter any negative outcome because users of isolated network would know instantly about the problem from sudden drop of total network hash power, and would just need to avoid spending bitcoins until connection is restored.</p>
