Bitcoin Mining Pools will have less power with this upgrade

Are Bitcoin Mining Pools Too Powerful? they do Bitcoin too centralized? Stratum v2, an overhaul of Bitcoin mining, aims to put these questions to rest.

IN latest release of the open-source version of the Stratum v2 (SV2) protocol, the Stratum Reference Implementation (SRI), developers announced that they have completed “job negotiation,” an important feature for the broader Bitcoin industry because it gives mining pools less power over transaction selection.

Mining is a key component that makes Bitcoin tick. Miners around the world reap Bitcoin rewards in exchange for the computing power they use to secure the network. But even if anyone with the right hardware is free to mine, miners are likely to lose money if they go it alone. Miners usually sign up with what are known as “mining pools” to combine their resources and increase their chances of getting Bitcoin rewards.

Since 2018, Bitcoin developers have been working on SV2, which connects miners with mining pools in a more seamless way, making mining more efficient and secure. But “job negotiation”, which clicked into place with the last upgrade, is the most important part of it.

Stratum v1—which SV2 replaces—has its problems. “[In] aggregate mining, [the] the entire network is vulnerable to censorship, as mining pools are a single point of failure—a trusted third party,” pseudonymous Bitcoin programmer Pavlenex, who has worked with the SRI team, explained to Decrypt. “Regulators can force certain mining pools not to include certain transactions in a block for example”

This upgrade can stop that— at least once it is finally adopted by mining pools.

Censorship resistance?

Bitcoin’s raison d’être is to be money that no company or king can control. But centralization has a relentless tendency to creep into the picture.

Many Bitcoiners worry about mining pools as a centralizing force. As this chart shows, just two mining pools account for roughly 60 percent of the network:

Bitcoin mining pool distribution. Image: mempool.space.

When mining pools use the Stratum v1 protocol, whoever controls the mining pool has the power to stop certain transactions. Authorities can use mining pools as a chokepoint to stop transactions they don’t like, for example.

This is not an imaginary fear. Mining pools have been known for censor transactions over the years, even advertising this fact to please regulators.

But with SRI’s latest upgrade, the task of transaction selection is given to individual miners instead, making mining pools less of a target. What that means is that instead of going straight to Foundry USA and asking them to block certain transactions, a government (or other censoring entity) would have to individually go to all of the hundreds of miners that compose Foundry to make such a request.

“For the entire network, the ability for miners to choose transactions means that power returns from a handful of powerful entities back to thousands of individual miners,” Pavlenex said.

“A great responsibility”

But to be clear, SV2 has not been adopted by mining pools yet. SRI is still under development. Pavlenex noted that they are seeking “early adopters” to test the software as it stands today. “We would like to invite miners, pools and firmware developers to help us test out our latest update, provide feedback and directly influence the direction of our development,” he said.

Pavlenex believes mining pools will be eager to adopt the new SV2 protocol, not only for the efficiency gains, but because many of them will not have the responsibility of blocking transactions.

“[Pools are] will probably adopt SV2 because they don’t really want to be a central point of failure either. It’s a big responsibility and our latest update helps them get rid of that pressure and risk,” he said.