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I read a couple of articles and watched some YouTube videos, but couldn't find a super convincing argument for why centralized mining pools are not a huge issue. I get that from a Game Theory perspective, a rational agent would be more incentivized to use computational power in an honest way rather than attacking the network (risking losing all of the wealth in the network). However, isn't it still possible that some economically irrational agent takes over the top 5 mining pools and control which blocks are being added to the chain (possibly double spend without getting caught)?

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First you need to consider what a mining pool is doing, if a pool has enough hash-rate it is likely for them to open multiple stratum servers (and full nodes) for the large amount of miners to connect to. So already they are in some sense by nature of bandwidth limitations encouraged to decentralize their own block submission. That means that every single stratum server and full node would need to become compromised for an attack to occur.

The other thing to keep in mind is that these pools are constantly dealing with actors going on and off the pool, this implies that if there was any corruption with the operation, every single miner who has logged on to the pool can easily switch and submit shares to a different pool. This could be at a moments notice, so any attack would be easily negated by people realizing there was an attack.

The other thing to note is that these pools are so large BECAUSE they are decentralized and not the other way around. Over time lots of different miners set up their own infrastructure and simply point it to the pools for which they consider are doing a diligent job hosting. It is presumable that if any were to become compromised they would lose hashrate QUICKLY and this loss of hashrate means loss of profitability for the pool maintainer, if we suppose that maintainer has a lot of ASICs they will be ultimately forced to capitulate into putting their hashpower on an alternate pool (and be forced to earn pooled rewards as opposed to solo blocks from maintaining the pool) or eventually selling their own hardware due to profitability decline from massive hashrate leaving their pool.

The game theoretics driving proof of work are very resilient and are unlikely to be cheated by any individuals in a truly decentralized organic network like Bitcoin.

Synopsis of my thoughts: It would be better if people decentralized /distributed their hash-rate amongst many more mining pools but as it currently stands the top pools are being picked for being good performers and good actors and are inherently decentralized on the inside otherwise they would not have so much hash-rate.

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    Thanks for the response! I still have some follow up questions though. 1. How the miners who logged in to the pool would notice if there was a corruption during the operation? Doesn't mining pool control which transactions are being added to the new block? 2. Can we still say it is possible to double spend on certain transaction if top 5 miners make secret plan? If so, is it possible to detect this?
    – xor
    Mar 22, 2023 at 20:19
  • I will answer in reverse order lol. Double spending is only possible on exchanges that are not auditing properly, there has never been a recorded double spend of a single UTXO on bitcoin that I know of, it is against the consensus rules. The mining pool controls which kinds of transactions to accept but does not (generally) actively monitor which specific transactions are flowing in and out, doing so without automation would be impossible and doing so with automation would look like this node is censoring transactions (so most would just stop using the node leading it to find less solutions).
    – Poseidon
    Mar 23, 2023 at 1:00
  • Miners may notice that they are not being properly paid by the pool in which case they will point to a new pool, this is actually quite common as pool maintenance is difficult and prone to greedy operations that arent audited by miners. I am sympathetic to this as I GPU mine and deal with pool related profitability issues directly, but that being said the only combat to it is for more people (like me) to spin up solo operations or alternative pools (as I am working on) but unfortunately I am not even a proponent of Bitcoin hashrate as I have not got 240v power yet.
    – Poseidon
    Mar 23, 2023 at 1:03
  • Once I do aquire a BTC ASIC I intend to point it at a pool with lower hashrate than the top 5, I have found that generally this leads to increased rewards when you have low hashrate compared to the network as the top pools need to feed the top hashrate miners. Low pools need to compete for lower hashrate miners and therefore "feed" them more equitably compared to large pools. This is all from personal experience and much of it is open to debate however it represents my feelings on the matter.
    – Poseidon
    Mar 23, 2023 at 1:05

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