Is mining censorship a threat to Bitcoin? – Bitcoin Magazine
This is an opinion editorial by Zack Voell, a bitcoin mining and market researcher.
Bitcoin is designed to be a permissionless, censorship-resistant financial tool, and miners are supposed to be one of several groups that support this functionality. Nevertheless, attempts at transaction censorship from mining are becoming an increasingly important topic of discussion as the landscape of the mining industry has changed dramatically over the past two years. In fact, some mining teams have gone out of their way to design and launch products that censor certain transactions from being included in new blocks.
This article looks at the history of attempts at censorship 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 cautionary examples of attempted censorship of miners occurred in Q2 2021 by Marathon Digital Holdings, a publicly traded mining company with its own mining pool. In late March 2021, the company announced that it would launch the first North American-based “fully compliant” mining pool, specifically naming standards set by the Office of Foreign Asset Control (OFAC) in the press release that can be read on the SEC’s website here.
To be clear, this action was entirely voluntary by Marathon and not the result of an actual OFAC claim. In May, the pool began filtering the transactions that were mined. Less than a month later, it ended the experiment. Maybe a mix of misunderstanding the Bitcoin protocol and seeing the payouts dusted down after addresses linked to the Hydra market – a major Russian marketplace for dark web drugs – were the reasons for its termination. But no one seems to have forgotten this incident, as evidenced by an unknown entity redirecting the ofacpool.com link to Marathon’s website.
In 2020, a blockchain analytics firm 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 would maintain a blacklist of addresses to prevent processing transactions from them. Blockseer also had a patent-pending tool for filtering transactions, according to the company. Across Twitter and Bitcoin Talk, the wider Bitcoin community laughed, mocked and shamed this project for obvious reasons. A mining company called DMG later started using pool, and shortly after its hashrate merged with Marathon’s pool.
Is mining a threat to Bitcoin’s censorship-resistant ethos?
The Bitcoin protocol is designed to resist censorship attacks from the network and from outside. The core ethos of the entire Bitcoin experiment is to create a permissionless, uncensored financial tool for the world. But each part of the network—nodes, developers, exchanges, and even miners—represents different potential attack vectors whose exploits must be thwarted.
Mining attack vectors won’t just disappear, especially as the mining sector continues to grow with tens of billions of dollars invested and the hash rate continues to settle new records. Many of these potential weaknesses have been explained and discussed at length across many online forums, including the Bitcoin Wiki, Braiin’s mining blog, the Bitcoin Talk archives, and, of course, Twitter. And with the specter of miner extractable value (MEV) looming on Bitcoin’s horizon, the complexity of some attacks will surely increase as the mining revenue landscape also changes.
However, past and potential mining attacks have led to some misinformed thinking and analysis about the state of network censorship. Ari Paul, CIO of BlockTower Capital, right observed that most mining companies are regulated entities, not rogue, independent or more or less off-grid operations. But he later proposed that large-scale mining censorship is already happening, which is not the case, as industry members noted in response to Paul’s tweet, and evidenced by the fact that the industry is small and vigilant enough not to overlook mass censorship of the kind Paul suggested. And, as the previous section explained, many such attempts have publicly failed. Continued vigilance is important, but misrepresentations are counterproductive.
Individual censorship of one or a few mining companies is also far less problematic than complete network censorship. The difference here is not trivial. A couple of governments or a couple of mining pools, for example, conspiring to censor bitcoin transactions inhibits their own ability to claim maximum mining rewards, it does not limit, slow or stop the flow of transaction verification and propagation.
Beyond Bitcoin Censorship
Although Bitcoin represents over 95% of the total market capitalization of all proof-of-work cryptocurrencies, mining-related censorship issues are not exclusive to Bitcoin. And the other protocols that deal with censorship can inform how Bitcoin users, developers, and investors think about avoiding mining attacks themselves.
F2Pool, for example, is one of the largest bitcoin mining pools and has one of the largest Zcash mining pools. The latter pool has previously been monitored for transaction censoring-through exclusion from new blocks. An analyst has said this practice has been going on since April 2017, claiming that “shielded transactions” are “underrepresented” by “three orders of magnitude” in the pool.
And before the highly controversial switch away from proof of work, Ethereum miners also struggled with privacy-related censorship incidents as Ethermine, one of the largest miners, ended included transactions routed through the coin mixing service Tornado Cash. 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 of the mining censorship incidents in Bitcoin’s history have been promoted by new or anticipated regulation, which should signal regulation as one of the industry’s most watched attack vectors. And more regulation (which means possibly more censorship attempts) for the mining industry is coming as bureaucrats and elected officials alike pay more attention to bitcoin, its global adoption and concerns trolling about its energy use. Almost all miners expect more robust and probably (in many jurisdictions) more restrictive rules for miners. This makes the importance of protecting against mining-related attack vectors all the more important.
Marty Bent explained some plausible hypotheses surrounding new mining censorship in this edition of the Bitcoin newsletter. But even if Bitcoin is censored in one place, miners will still process transactions and continue hashing in another. Bitcoin is unstoppable no matter how many politicians or even other miners try to censor and prevent it.
This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
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