Bitcoin mining is centralized, how real is the risk of network censorship, and could a protocol called Stratum V2 save the industry?
This is an editorial by Federico Rivi, author of the Bitcoin Train newsletter.
Consumer electronics, wearable devices such as smartwatches and smartglasses can all be mined with special microchips. This is the future that many Bitcoin enthusiasts want.
Such a scenario may not be too far from the reality that awaits us, but today we are still stuck with Bitcoin. Genesis , and reality is still not as Antonopoulos predicted. In fact, mining is centralized.
Foundry USA last month Adjusted 34% of hashrate aloneIf you add .Antpool, its shares are 18.2% of total hashrate52% of Bitcoin’s global computing power is in the hands of just two mining pools.
It was recently noted Bitcoin developer Peter Todd who pointed out this centralization problem.
“Bitcoin is dead” “Mining is over” “They will regulate Bitcoin” “Censorship is coming”
I can hear you already, but please stay calm. To understand the implications and solutions, we need to take a step back and review the concept of “pool mining”.
Evolution of pool mining
$100,000 once every five years, or $20,000 once a year? Most answers to this question describe the emergence of mining pools.
In the long run, your payouts will be the same, but what will change is how often you receive them. In a competitive environment like mining, this is very important. It can determine the survival or bankruptcy of mining farms that must pay their electricity bills to keep their machines running regardless of changes in the price of Bitcoin.
A mining pool is a server, usually run by a company, that connects mining farms with individual miners in different regions, pools their computing resources, and combines them as a single team product to produce bitcoin. Participate in a competition that is mining. High computing power coordinated by the pool to win proof-of-work competitions more often compared to the small chances of individual miners, redistributing rewards to all members in proportion to computing It becomes possible to power they provided.
Let’s take an example: If you run a mining farm that produces 0.025% of the global hash rate, miners will be able to write 1 block of the Bitcoin blockchain every 4,000 probabilistically. Considering the average rate of 1 block generated every 10 minutes, this means he earns a reward of 1 block per month, currently worth 6.25 Bitcoins.
However, if you have the same computing power available, you may choose to join a mining pool that controls, say, 25% of the global hash rate. Statistically, the pool may mine 1 block every 4, or 1 block every 40 minutes. A mining farm that decides to join will be rewarded in proportion to the computing power it provides, so it will always bring in the equivalent of 1 block per month, but on average 1 block every 40 minutes. times (more commonly, the pool pays the reward). once a day to keep costs down).
Joining a pool is not necessarily higher than solo mining, but the payouts are more frequent, which makes the future more predictable. The first pool was born in 2010 under the name He Slush Pool and is now known as He Slush Pool. Brainspooland since then the population of models has been declining.
As mentioned earlier, much of the network’s computing power is inevitably in the hands of pools that make up centralized points.
So what is the current state of mining and what are the risks?
Rise of Foundry USA
February 15, 2021, Foundry USA Pool 0.98% of adjusted hashrateTwo years later, this figure has risen to 34%. what happened in the meantime?
foundry Digital Currency Group (DCG), one of the largest “crypto” investment funds in the world. Mining is among the foundry’s various activities. It is run by Foundry USA pool business and has become the de facto benchmark for US institutional miners.
Growth of Foundry China mining ban in May 2021As was widely reported at the time, many of the miners fleeing China flocked not only to the United States but also to Kazakhstan. One of my favorite destinations is texasespecially because of its friendly regulations, is currently considered one of the most lucrative regions in the world for mining.
In a recent interview, Gabriele VernettiMining researcher and Stratum V2 developer told Bitcoin Magazine:
In that case, there may be another reason behind America’s pool ride. It made significant investments in new ASICs at a time when many of its competitors could be profit-taking focused (the late 2020/early 2021 bull market). For example, Foundry in September 2020 signed Our partnership with ASIC manufacturer MicroBT provides priority access to new products. M30S Make ASIC a miner for that institution.
It can take several months from purchasing an ASIC to putting it into production. Especially if chips are not available. As such, when the new hardware is ready to go live at the end of 2021, Foundry USA will have a large share of the market. It will rise from 8.5% in October 2021 to 19% in January 2022.for example.
What are the dangers of mining centralization?
Why does it matter that Foundry USA is throttling 34% of the global hash rate? candidate block Built by the pool. It is the pool that determines which transactions are included in the block. This creates vulnerabilities that lead him to two problems: transaction or address censorship and the 51% attack. The latter has her two purposes:
- Denial of Service: Deliberately mining empty blocks to prevent transaction confirmation and slow down the network. At 34% computing power, this is probably every third empty block.
- Double Spend: Cancellation of a transaction made by an attacker and placed in a recently confirmed block via a blockchain fork.
This threat is made possible by Stratum V1, the current protocol used by miners and mining pools to communicate with each other.
However, we know what the solution is and its name is Stratum V2 (detailed below).Currently, Brainins Pool, Foundry USA itself, and independent open source developer It is working. The latter group includes his Vernetti.
Could Foundry USA begin censoring certain transactions under a hypothetical US obligation?
“On a technical level, it can happen,” Vernetti said. “But how long? The longer the censorship lasts, the longer it will take for miners to notice this and start shifting their activity to other pools. By avoiding transactions, they have a financial incentive to move to pools that collect fees instead.”
MARA pool precedent
The precedent in this regard dates back to May 2021. MARA Pool, a pool managed by Marathon, announced earlier this month that he will only mine blocks with OFAC-compliant transactions, censoring addresses that have been blacklisted by the U.S. Treasury Department. The Bitcoin community uprising and the fact that there were no other miners that followed, MARA pool turned him around in less than a month. At the end of May Marathon wrote: press release Avoid filtering transactions.
Therefore, the danger of censorship seems to be minimal, and in any case it can be easily resolved in a short time. So what are the odds of a 51% attack led by Foundry USA instead?
“The moment a denial-of-service attack, or an attack that mines empty blocks to slow down the transaction approval process, is launched, everything becomes visible on the blockchain,” said Vernetti. “Shortly after that, miners redirect their hashrate to other pools, because without transaction fees, each miner would receive less money for their work. It will have a direct incentive to give to another pool, this operation will only take a minute, and if Foundry USA starts mining empty blocks, in my opinion there will be a hash that will adjust within an hour You’re going to lose half the rate.”
“I’m probably more worried about the 51% attack for double spending,” continues Vernetti. “On a technical level, you can try to double your spending even with a lower hash rate, but what is the reason? Foundry USA is seen as a US controlled pool of institutions. is true, but it’s still a business, and its economic interest is to make the network work as well as possible.Double spending undermines Bitcoin’s position as an immutable network, and its price will soon collapse. The perhaps $1 trillion paid by the United States to carry out such an attack would provide a counterincentive.”
Solution: Stratum V2
The risks of censorship and 51% attacks by mining pools are eliminated when Stratum V2, a new communication protocol between miners and pools, becomes widely used.
This protocol allows individual miners to build their own candidate blocks and remove this privilege from the pool. Therefore, the pool cannot block blacklisted transactions, write empty blocks, or attempt double-spending transactions. Responsibility for writing blocks is moved from the hands of the pool to the hands of all miners.
Stratum V2 has already been implemented by Braiins Pool and is regularly tested by Foundry USA itself, but the majority of hash rates are throttled by pools using Stratum V1.
What are the incentives that will lead pools to adopt Stratum V2? What will lead them to voluntarily choose to lose control of block construction?
“The other two fundamental characteristics of the Stratum V2 protocol are security and performance,” Vernetti replied.
“Security: Stratum V2, unlike Stratum V1, is an encrypted protocol. It does not allow hash rate hijacking attacks that are currently possible. In these attacks, hackers disrupt communication between miners and mining pools. , takes the proofs of work miners have created, pretends to be the creator of those proofs, and tells the pool to send the rewards.This does not happen in Stratum V2.Communication is encrypted. Because the proof of work that the miners provide to the pool is invisible to outside observers, this is the first incentive: such security allows the pool to have more miners than those that do not provide this guarantee. can attract
“Performance: Communication between miners and mining pools in Stratum V1 is human readable and ASCII code. In Stratum V2, communication is fully binary code. Human-readable character-to-binary conversion time This small factor boosts performance because it saves you more information packets and allows you to send more packets of information in a given time frame than Stratum V1. performance gains is a competitive advantage.”
This is a guest post by Federico Rivi. Opinions expressed are entirely his own and do not necessarily reflect those of his BTC Inc or Bitcoin Magazine.