The Bitcoin cryptocurrency records its transactions in a public log called the blockchain. Its security rests critically on the distributed protocol that maintains the blockchain, run by participants called miners. Conventional wisdom asserts that the protocol is incentive-compatible and secure against colluding minority groups, i.e., it incentivizes miners to follow the protocol as prescribed.
We show that the Bitcoin protocol is not incentive-compatible. We present an attack with which colluding miners obtain a revenue larger than their fair share. This attack can have significant consequences for Bitcoin: Rational miners will prefer to join the selfish miners, and the colluding group will increase in size until it becomes a majority. At this point, the Bitcoin system ceases to be a decentralized currency.
Selfish mining is feasible for any group size of colluding miners. We propose a practical modification to the Bitcoin protocol that protects against selfish mining pools that command less than 1/4 of the resources. This threshold is lower than the wrongly assumed 1/2 bound, but better than the current reality where a group of any size can compromise the system.
The article suggests that miners who group together can earn more than their fair share, which means rational miners will eventually group together into a pool whose size is larger than half the network's computation power and control the currency. The method was termed "selfish mining" by the media.
This seems to be the first serious cryptographic exploit of the Bitcoin protocol.
Do you think this poses a real threat to the stability of the currency?