Is Mining Censorship a Threat to Bitcoin? -Bitcoin Magazine
This is an opinion piece by Zack Voell, a researcher on bitcoin mining and markets.
Bitcoin is designed to be a permissionless and censorship-resistant financial tool, and miners are meant to be one of the many groups that support this feature. Yet attempts to censor transactions by the mining sector are becoming an increasingly important topic of discussion, as the landscape of the mining industry has changed dramatically over the past two years. Indeed, some mining teams have gone out of their way to design and release products that prevent certain transactions from being included in new blocks.
This article reviews the history of censorship attempts by certain players in the mining sector. It evaluates the successes or failures of these attempts and notes potential types of mining-related attacks for the future.
Bitcoin Mining Censorship Attempts
One of the most recent and cautious examples of attempted censorship of miners occurred in Q2 2021 by Marathon Digital Holdings, a publicly traded mining company with its own mining pool. At the end of March 2021, the company announced that it would launch the first “fully compliant” mining pool based in North America, specifically naming the standards set by the Office of Foreign Asset Control (OFAC) in its press release which may be read on the SEC website here.
To be clear, this action was entirely voluntary by Marathon and not the result of an actual requirement by OFAC. In May, the pool began filtering mined transactions. Less than a month later, he ended the experiment. Maybe a mix of misunderstanding the Bitcoin protocol and seeing its payouts sprinkled by addresses associated with the Hydra Market – a large Russian dark web drug market – were the reasons he quit. But some seem not to have forgotten this incident, as evidenced by an unknown entity redirecting the link ofacpool.com to the Marathon site.
In 2020, a blockchain analytics company called Blockseer launched a beta version of a similar OFAC-compliant mining pool that would require all miners to complete Know Your Customer (KYC) verification and maintain a list address blacklist to prevent transactions from being processed by them. Blockseer also had a patent-pending tool to filter transactions, according to the company. On Twitter and Bitcoin Talk, the wider Bitcoin community laughed, mocked, and shamed this project for obvious reasons. A mining company later called DMG started using the pool, and soon after merged its hash rate with Marathon’s pool.
Is Mining a Threat to Bitcoin’s Censorship-Resistant Ethos?
The Bitcoin protocol is designed to resist censorship attacks from inside and outside its network. The core philosophy of the entire Bitcoin experiment is to create a permissionless, uncensorable financial tool for the world. But each element of the network — nodes, developers, exchanges, and even miners — represents various potential attack vectors whose exploits must be foiled.
Mining attack vectors won’t just go away, especially as the mining industry continues to grow with tens of billions of dollars invested and the hash rate continues to set new records. Many of these potential weaknesses have been explained and discussed in detail on numerous online forums, including the Bitcoin Wiki, Braiins mining blog, Bitcoin Talk archives, and of course, Twitter. And with the specter of miner-extractable value (MEV) looming over Bitcoin’s horizon, the complexity of some attacks will surely increase as the mining revenue landscape also changes.
Previous and potential mining attacks, however, have led to misinformed thinking and analysis about the state of network censorship. Ari Paul, CIO at BlockTower Capital, correctly observed that most mining companies are regulated entities, not rogue, independent or more or less off-grid operations. But it later suggested that large-scale mining censorship is already happening, which it is not, as noted by industry members in response to Paul’s tweet, and evidenced by the fact that the industry is small and vigilant enough not to overlook massive censorship of the kind Paul suggested. And, as the previous section explained, many such attempts have publicly failed. Ongoing vigilance is important, but misrepresentation is counterproductive.
Additionally, individual censorship by one or a few mining entities is much less of a concern than full network censorship. The difference here is not trivial. A few governments or mining pools, for example, conspiring to censor bitcoin transactions inhibit their own ability to claim maximum mining rewards, this does not limit, slow down or stop the flow of transaction verification and propagation.
Beyond Bitcoin Censorship
Even though Bitcoin represents over 95% of the total market value of all proof-of-work cryptocurrencies, mining-related censorship issues are not exclusive to Bitcoin. And other protocols that deal with censorship could educate Bitcoin users, builders, and investors on ways to avoid mining attacks themselves.
F2Pool, for example, is one of the largest bitcoin mining pools and has one of the largest Zcash mining pools. This latter pool has already been monitored for transaction censorship by excluding new blocks. One analyst said the practice had continued since April 2017, saying “protected trades” were “underrepresented” by “three orders of magnitude” in the pool.
And before its highly controversial abandonment of proof-of-work, Ethereum miners have also been plagued with privacy-related censorship incidents like Ethermine, one of the biggest miners, arrested including transactions routed through the Tornado Cash coin mixing service. This service was targeted and sanctioned by the US Department of Justice earlier this year, as Bitcoin Magazine previously reported.
The need for vigilance
Most mining censorship incidents in Bitcoin’s history have been promoted by new or expected regulation, which should flag regulation as one of the industry’s most watched attack vectors. And more regulations (that is, maybe more censorship attempts) for the mining industry are coming as bureaucrats and elected officials pay more attention to bitcoin, its global adoption, and concerns regarding its energy consumption. Almost all miners expect stricter and probably (in many jurisdictions) more restrictive regulations for minors. This makes protection against mining-related attack vectors all the more important.
Marty Bent explained some plausible hypotheses around the new mining censorship in this edition of his Bitcoin newsletter. But even if Bitcoin is censored in one place, miners will still process transactions and keep hashing in another. Bitcoin is unstoppable no matter how many politicians or even other miners try to censor and hinder it.
This is a guest post by Zack Voell. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.