Bitcoin and the threat of pools

Bitcoin is as decentralized as its least decentralized gear. Pools constitute a weak link with ASIC manufacturers.

Miners and their pool

Miners are at the heart of the mechanics of bitcoin. They forge consensus with gigawatts of quantified energy: the “proof of work”.

Their industry is, in the eyes of energy companies, an important source of income. Being able to set up anywhere, miners often consume electricity that would otherwise be wasted. They are a financial crutch to accommodate the arrival of intermittent sources of electricity such as wind power and photovoltaics.

Best of all, miners can fade quickly during peak electricity demand. They can also fight against global warming by recycling methane from oil platforms too far from civilization for it to be profitable to exploit it.

This sums up the situation well:

Coming back to pools, remember that the job of a miner is to pass electrons through ASICs which hash with the SHA-256 algorithm. A miner generates hashes all day long and that’s it…

But there was a time when a minor also had to:

-Rotate a node to receive the blocks.
-Build the blocks yourself by selecting the transactions.
-Create the root of the Merkle tree of all these transactions.
-Hash to try to find a valid hash (“find a block of transactions”).

Faced with the proliferation of miners, they quickly grouped together in “pools”. The first was “slush pool” which today became Braiins.

These are cooperatives that allow miners to pool their computing power in order to smooth their income.

Since then, miners have been content to hash, leaving the responsibility of constructing blocks and selecting transactions to the pools.

One pool to control them all

Unfortunately, miners tend to cluster in a handful of pools to obtain the most regular payouts possible.

That said, a thousand pools wouldn’t be viable either. There is a limit. But the fact is that only two pools (Foundry USA and Antpool) today account for almost 55% of the hashrate.

Knowing that Antpool belonged to the manufacturer Bitmain before 2021 and that the fourth largest pool ViaBTC (11%) is also very close to the ASIC manufacturer.

In short, only a small handful of pools have the privilege of selecting transactions:

From this perspective, bitcoin – a supposedly uncensorable payment network – is at the mercy of regulatory capture.

It is much easier for OFAC to impose censorship of certain transactions on a handful of pools rather than on thousands of miners scattered around the world.

Not to mention that pools can even self-censor. This was recently the case for F2Pool. Our article on the subject: F2Pool caught red-handed.

Relying on pools to select transactions also means exposing yourself to fraud. Some of them do not hesitate to sell block space on the sly.

This was for example the case of the block 774628 which kicked off the fashion for “ordinals”. Notice that the transaction fee was only $200 while the blocks located right next to it brought in $5,000.

In other words, the pool in question potentially deprived its miners of $4,800. Opacity reigns. Miners have no way of knowing if their pool has paid them the full fee.

The FPPS system

This problem of opacity becomes a little thicker due to the operation of the pool payment system: FPPS (Full Pay Per Share). Almost all pools use this system which is advantageous for miners. The latter see their work as being paid whatever happens.

If a pool is unlucky and finds fewer blocks than expected, the miner still receives what was agreed in advance. Miners then benefit from very stable cash flows. But there are downsides.

The first is that we recently discovered collusion between pools who are now using a common pool to smooth their own revenues. This is not very reassuring for the decentralization of the network. Our article on the subject: A pool cartel revealed.

The second disadvantage is that FPPS pools make a low estimate of the transaction fees they agree to pay. They adjust the shot after the fact and generally keep the surplus. But do they really pay back 100% of the money?…

This is a real question, especially since the ordinal listing trend brought in a whopping 557 bitcoins in transaction fees last year. And how many bitcoins on the sly?

These costs are becoming less and less trivial. Their share of miners’ income is currently only 2% to 4%, but it doubles after each halving.

The issues raised here can be addressed at least in part thanks to the second version of Stratum V2 which is the protocol by which miners communicate with pools.

Stratum V2

The main feature of Stratum V2 is to give miners the privilege of selecting transactions.

Other nice features are encryption of miner/pool communications and reduced bandwidth consumption. On the one hand by encoding messages in binary and on the other hand by eliminating redundant messages. We can read about :

“Stratum V1’s human-readable JSON-RPC protocol makes messages 2-3 times heavier than necessary. Stratum V2’s binary encodings minimize message sizes, speeding up communications between miners and pools. »

Furthermore, Stratum V1 is not suitable for large installations with hundreds or thousands of machines that each communicate directly with a pool. This results in unnecessary waste of significant quantities of energy.

When you put it all together, Stratum V2 reduces the average message size from about 100 bytes (unencrypted) to 48 bytes (encrypted).

Another advantage: the removal of empty blocks. Their existence is due to the fact that Stratum V1 does not allow the hash of the previous block to be sent to miners. The pools therefore send an empty block of transactions to communicate it quickly.

For what ? Because this hash is the only data absolutely necessary for the miner to start hashing. Receiving it before the transaction block provides the ability to hash for a few extra seconds. Blocks are sometimes found in this time frame. This results in empty blocks.

The pools only have to communicate the hash of the last block since with Stratum V2, it is the miners who are responsible for building the blocks. The hash is sent via a dedicated and optimized 32-byte message.

Ocean pool leads the charge

Luke Dashjr resurrected his closed Eligius pool in 2017 with funding from Jack Dorsey.

“OCEAN solves a problem for bitcoiners that I think we all feel: the greater centralization of pools which could compromise a number of attributes of bitcoin that we hold dear”said Jack Dorsey, co-founder of Twitter and CEO of Block.

To do this, Ocean will install Stratum V2 later this year. Miners will then be able to build their own blocks with the transactions they have chosen.

Another specificity aligned with the ethos of bitcoin, Ocean is NO KYC (Know your customer). Everything is legal as long as the pool does not have custody of the bitcoins.

Miners are paid directly through the coinbase transaction. Here for example is the fifth block mined by Ocean, the block 824915.

In this way, the miner is certain to receive 100% of the transaction fees, which is not necessarily the case with the FPPS system which is opaque.

Another advantage of the Ocean pool: the filtering of “registrations” of ordinals and other BRCs:

The co-founder of the pool (@GrassFedBitcoin) is convinced that the inscriptions should be considered as a ddos ​​attack. His opinion is that it is risky to think that the BRC-20 casino and other ordinals will disappear by itself.

“I understand that we cannot really define spam and therefore eliminate it from the blockchain.

But I also don’t think that, in any other context, anyone would tolerate miners being paid to outright exclude transactions.

With the exception of one, that of literally taking the most profitable trades, of course. But if these are of a strange nature that takes advantage of an obvious vulnerability to store data contrary to the intended use case (as inherited from design choices over the years) of the blockchain’s bitcoin, then I think if miners can include them, it becomes as controversial as taking government money to exclude “naughty” transactions.

Ultimately, pro-spammers ignore the fact that bitcoin will collapse if we don’t force miners to actively reject the money they can make by attacking the network.

Not everything magically fits together due to basic economics. »

Pools, along with ASIC manufacturers, have always been the weak point of network decentralization. The arrival of a pool like Ocean is without context good news.

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