Debating the implications of largest mining pools rolling back transactions to sanctioned addresses and its effect on network consensus

Consensus
#1

old.reddit.com/r/btc/comments/17x6rnb/til_the_two_largest_btc_mining_farms_in_the_world/

Critics Alarmed as 2 Major Mining Pools Dominate Over 50% of Bitcoin Hashrate

Control Over Bitcoin’s Hashrate Is a Nuanced Topic

Currently, Antpool leads with a 30% share of Bitcoin’s total hashrate, closely followed by Foundry USA, which holds 26%. Together, these pools exert a 56% influence over the network’s 468 exahash per second (EH/s) hashrate.

“The [two] largest bitcoin mining pools, together controlling over 50% of hashrate for over [one] year now, are regulatory-compliant and require all miners to comply with KYC,” Blec said. “The government has clear identification, visibility [and] control over more than 50% of Bitcoin’s miners (by hashrate).” The researcher added.

So basically the question here is, what are the possible implications of two biggest mining pools colluding to roll back several blocks in order to be regulatory compliant?

Is this something that will become an issue, or maybe game theory and greed will solve these in some way?

What are your thoughts on this topic?

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#2

Addendum:

Apparently while Foundry USA (26% hashrate) is based in USA, AntPool (30% hashrate) is based in Singapore. I just checked.

https://www.antpool.com/protocal/copyRight1

7.4 Any and all disputes, claims or other matters arising from or relating to the use of Services provided by ANTPOOL shall be governed by the applicable laws of Singapore.

However, in AntPool Terms of service, we have:

III. User’s Qualification

3.1 You hereby represent and warrant to us as follows, which representations and warranties will be deemed repeated each time you use the Services:

(3) your use of the Services provided by us does not violate or conflict with any law applicable to you, and/or any contractual restriction binding on or affecting you or any of your assets you use when accessing the Services provided by us; you are not subject to any economic sanctions programs administered or enforced by any relevant country or government or international authority, including but not limited to: the US Department of the Treasury’s Office of Foreign Assets Control, the US Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury, the Hong Kong Monetary Authority or the Monetary Authority of Singapore; and

#3

Not necessarily a direct reply, however some thoughts:

  • This is one of the reasons POW is superior to POS: somewhat harder for governments to force miners to shut down as these are physical operations, rather than POS where exchanges are some of the largest holders and a simple cease and desist letter or otherwise can physically force/compel an exchange to obey a government, even if overseas (exchanges hold global funds which can be used for POS, so only a letter to HQ can shut it all, but with miners, these are physical locations across nations (even if the same entity), making it more challenging).
  • Honest miners/nodes will see the reorg and can choose to ignore it, keeping a working chain. However, this will lead to a split and will very likely cause issues. However, the mitigant to this is that miners wouldn’t necessary want to collude or obey government orders that easily as in doing so, the value of their coins and block rewards/tx fees could be significantly impacted (split or not).
  • These are pools, not individual mining operations. Miners, that disagree, can switch over to a new pool fairly quickly, if they disagree with the operations occurring. This likely would add another roadblock, or at least bump, to attempt a reorg.

----I have to run, have other thoughts as well and probably refinements for the above, but just some very brief thoughts above

#4

Hello there, finally made an account here. :slight_smile:

I have started a list to see how much hashrate is actual KYCed but I haven’t gotten far yet. Will report back when I gathered more information. Meanwhile if anyone has any source of a pools KYC policies please provide them to me.

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#5

Welcome to BCH Research!

2 Likes
#6

Some thoughts;

it has happened many times in the past where 51% is reached. That doesn’t mean anything bad in and of itself. In the past it sometimes was even a single pool! Nothing ever happened, though.

Remember that the 51% is about a sustained attack. It is about that hashpower being capable of throwing the other 49% off the chain if they wanted to. They can fork and become the longest chain, in other words. This is a very expensive attack and it doesn’t really give you much. The eCash chain showed that people and exchanges can simply black-list that chain if they want to.
So, don’t go wild thinking that getting 51% is the end of the world.

Second, I’m confused about the basic accusation in the title.

A pool selects the transactions, not the people that run the mining hardware. Yet the people that run the mining hardware are KYCed. So the KYC-ing is rather irrelevant to the selection of omission of transactions.
Moreover, practically all mining pools that ever existed (of sufficient size) were companies that pay their taxes. Which means that governments have always been able to force them via court orders to filter transactions. Nothing new there either.

Not entirely following the scare here…

#7

There are no accusations whatsoever in the title.

This topic is intended to ask questions and find out the precise implications of the presented facts and state of affairs.

It’s not really about reaching 51%. This matter is slightly different.

This time >51% of fully regulatory-controlled hashrate has been reached. So it’s not about just reaching 51% and direct harm of some malicious entities having majority, it’s about governments being able to enforce control - like sanctions.

This is not any kind of “the world is ending” post. Please read into my commentary, where I say “Is this something that will become an issue, or maybe game theory and greed will solve these in some way?”.

Basically, the problem may solve itself by, for example, miners moving to different non-KYCed pools. But there may be different outcomes and finding these other possible outcomes is the intention of this post.

#8

Sure, there is no absolute direct control over the miners. One simply going through KYC process does not mean that one is going to listen to any direct orders other than what the KYC process enforces.

I think it’s more about government pressuring the pools and then the pools pressuring the miners to comply with their guidelines because otherwise they won’t do business with them.

Of course, a miner can always switch his pool. But will he switch? Or will he stay and comply with the request of the pool owner? This is also a valid question about both overall implications and responses of the participants of the “game”.

#9

The first part, government pressuring the pools, has from close to day one been an issue.

The second part is irrelevant here. The KYC part is irrelevant to force anything since the KYC-ed parties made no decisions in the first place.

So, don’t over complicate things. Look at bitcointalk forums from 10 years ago and learn what people said back then, the same is true today. Because the only differences are irrelevant to the mining design.

In short;

  • pools that start censoring is not relevant as there are simply other miners that will include the transactions.
  • pools that refuse to build on top of certain blocks that contain such transactions will very likely see push back from the bigger mining industry and either stop doing that or themselves get all their blocks rejected. (some game theory here, don’t remember which).
  • A pool that has 51% and starts actively splitting the chain will cause them to lose miners. Won’t be all at first, but likely enough to stop having > 50 %
    The longer term is projected by practically everyone that they will get their business decimated.

I’m just giving my recollection of this setup, not going to discuss it. Please find the bitcointalk forums or archives for details.

#10

I don’t think it is that easy to dismiss. Regulatory power doesn’t have to be overt. The blocksize war should tell us that they can let things simmer for a long time until all pawns are in place.

With the US having theoretically control of:
+51% of pools
+51% of miners
One of the biggest Exchanges: Coinbase
One of the biggest Coin stacks with Microstrategy

They can easily make it seem like the majority support their decisions to censor.

It was already tried once, but had way too little support.

They don’t need to destroy the chain, they just need to force everyone of mixers and into KYCed exchanges. You can still have your gains and your coins, just KYC and give us your tx information and pay us a tax.

#11

Update on the topic. Somebody did a very detailed analysis:

Six OFAC-sanctioned transactions missing

A pool from Asia is the first to comply with US sanctions?

(…)

Conclusion

This post discusses six Bitcoin transactions spending from OFAC-sanctioned addresses that the miningpool-observer tool detected as missing from blocks. The two transactions missing from the ViaBTC and Foundry USA pool blocks are false-positives and not filtered. The four OFAC-sanctioned transactions missing from the F2Pool blocks are likely filtered. This raises the question of why F2Pool, a pool with origins in Asia, is the first pool to filter transactions based on US OFAC sanctions.

Of course, the miners are still not rolling blocks backward in order to remove sanctioned addresses, but it would appear that it’s possible basic filtering has already started.

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#12

cofounder of f2pool:

image

1 Like
#13
#14

This is actually starting to look bad.

Let’s see if they really go through with it.

I have no idea what the hell was in the miners’ brains when they made the decision to “escape” to USA from China. Out of the frying pan, into the fire, lol.

#15

then why not give priority to protocol level privacy if chain is more fungible then problem like this will not occur in the first place

#16

Has been discussed 1000 times. Already solved via CashFusion.

:white_check_mark:

#17

what is the status of solution like p2pool for BCH looks like centralized mining is an attack vector

#18

At the protocol level, Bitcoin mining is fully anonymous. People forget that writing pool tags to coinbase message and/or always mining to a same address is pool’s good will. You know how every now and then people like to raise FUD about the “Other” pool in mining stats, as if it’s just 1 miner or pool. The “other” is really an aggregate of all anon miners, and if major pools decided to disappear, mining stats could all look like: “99% Other”.

Mining pools have a right to censor whatever they want, it just means that the censored TXs will take longer to be mined because some other, non-censoring, pool would have to mine it.
With UTXO architecture it’s much harder to effectively censor since people can just make new addresses not on the list faster than they can be added to an updated list. It’s a whack-a-mole game for any censor.

Now, even if they could censor their own TXs, the TXs would still get through. To actually censor the network would require a cartel to maintain a perpetual 51% attack on the network to enforce an ever-growing blacklist. Smaller miners could then pick a pool outside the USA. Regulators could then try to coerce them via KYC/AML: when you cash out to pay your bills, they bully you to prove source of funds, you show payout from a non-regulated pool, they start censoring your fiat transactions.

What could USA-based miners do? Keep 2 stashes, you use some % hashrate to mine with KYC pools, you use the other % to mine anon and use the payouts for P2P payments, etc.
If blacklists grow too big, then opportunity costs of not mining those TXs will keep increasing until miners start leaving for less adversarial jurisdictions. I hear South America is a heaven for miners.

2 Likes
#19

Technically, it exists but is not a mature solution.

I personally would love to see more research in tools to help decentralize mining, the biggest issue I personally have is that there is no deep domain knowledge devs can tap into in order to understand our customers and actually innovate by solving problems they may not even realize can be solved better than today.

Positive point is that actually solving these things could be very valuable to a lot of miners and as such there is an incentive for the market to fill that void. It will likely happen in due time.

1 Like
#20

how about starting with network level p2p encrypted connection like noise protocol and dandelion++

then we can improve p2pool research & development or something even better

EDIT: didn’t BTC XMR DASH FIRO already went in that direction

similar to bip324 and we can get some research data about p2pool from monero development and Neptune.cash development