This is an opinion editorial by Zack Voell, a bitcoin mining and markets researcher.
Bitcoin is designed to be a permissionless and censorship-resistant financial tool, and miners are supposed to be one of several groups that support this functionality. However, attempts to censor transactions by mining are becoming an increasingly important topic of discussion as the landscape of the mining industry has changed dramatically in the past two years. In fact, some mining teams have gone out of their way to design and release products that censor certain transactions from being included in new blocks.
This article analyzes the history of censorship attempts by certain actors in the mining sector. It evaluates the successes or failures of these attempts and points to the potential types of mining-related attacks for the future.
Bitcoin mining censorship attempts
One of the most recent and cautious examples of miner censorship attempts occurred in the second quarter of 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 “fully compliant” group of mines based in North America, specifically naming the standards set by the Office of Foreign Assets Control (OFAC) in its statement press release which can be read on the SEC website here.
To be clear, this action was entirely voluntary on Marathon’s part and not the result of an actual OFAC requirement. In May, the group began filtering the transactions it mined. Less than a month later, the experiment ended. Maybe a mix of misunderstanding the Bitcoin protocol and seeing their payments dusty for addresses associated with the Hydra market, a large Russian dark web drug market, were the reasons for leaving him. But some seem not 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 company called Blockseer launched a beta version of an OFAC-like mining pool that would require all miners to complete KYC and maintain a blacklist of ‘addresses to prevent them from processing transactions. Blockseer also had a patent-pending tool for filtering transactions, according to the company. On Twitter and Bitcoin Talk, the wider Bitcoin community laughed, mocked and shamed this project for obvious reasons. Later a mining company was named DMG started using the pool, and soon after merged its hash rate with the Marathon pool.
Is mining a threat to Bitcoin’s censorship-resistant ethos?
The Bitcoin protocol is designed to withstand censorship attacks from within its network and from outside. The core ethos of the entire Bitcoin experiment is to create a permissionless, uncensored financial tool for the world. But every part of the network—nodes, developers, exchanges, and even miners—represent several potential attack vectors whose exploits must be thwarted.
Mining attack vectors will not simply disappear, especially as the mining sector continues to grow with tens of billions of dollars invested and the hash rate continues to be set. new record highs. Many of these potential weaknesses have been explained and discussed extensively in many online forums, including the Bitcoin Wiki, the Braiins 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 is sure to increase as the mining revenue landscape changes as well.
Previous and potential mining attacks, however, have led to ill-informed reflection and analysis on the state of network censorship. Ari Paul, CIO of BlockTower Capital, correctly observed that most mining companies are regulated entities, not rogue operations, independent or more or less off the grid. But he later suggested that censorship of large-scale mining is already happening, which is not the case, as pointed out by industry members in response to Paul’s tweet, and evidenced by the fact that the industry is sufficiently small and vigilant not to overlook the massive censorship of this type. Paul suggested. And, as explained in the previous section, many such attempts have publicly failed. Continued vigilance is important, but misrepresentations are counterproductive.
Individual censorship by one or a few mining entities, moreover, is much less of a concern than complete censorship of the network. The difference here is not trivial. A couple of governments or a couple of mining groups, for example, conspiring to censor bitcoin transactions inhibits their own ability to claim the maximum mining rewards, it does not limit, slow or stop the flow of transaction verification and propagation.
Beyond Bitcoin Censorship
Although Bitcoin represents more than 95% of the total market value of all proof-of-work cryptocurrencies, mining-related censorship concerns are not unique to Bitcoin. And the other protocols that deal with censorship could inform the ways in which Bitcoin users, builders, 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 mines. The latter group has previously been observed for transaction censoring by excluding new blocks. One analyst has said this practice has continued since April 2017, stating that “protected transactions” are “underrepresented” by “three orders of magnitude” overall.
And before its highly controversial proof-of-work switch, Ethereum miners also struggled with privacy-related censorship incidents as Ethermine, one of the largest miners, stopped 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 previously reported by Bitcoin Magazine.
The need for surveillance
Most mining censorship incidents in Bitcoin history have been promoted by new or expected regulation, which should signal regulation as one of the industry’s most watched attack vectors. And more regulations (that is, possibly more attempts at censorship) for the mining industry are coming as bureaucrats and elected officials pay more attention to bitcoin, its global adoption and concerns about its energy use . Almost all miners expect stronger and probably (in many jurisdictions) more restrictive regulations for miners. This makes the importance of protecting against mining-related attack vectors even more important.
Marty Bent explained some plausible hypotheticals about the new mining censorship in this edition of his Bitcoin newsletter. But even if Bitcoin is censored on one site, miners will still process transactions and continue hashing on another. Bitcoin is unstoppable no matter how many politicians or even other miners try to censor it and stop it.
This is a guest post by Zack Voell. The opinions expressed are entirely my own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
