Bitcoin Mining Centralization Counteracted by Malicious Pools, Says Study

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Bitcoin Mining Centralization Counteracted by Malicious Pools, Says Study

Bitcoin mining centralization – the concentration of mining power in the hands of a small number of corporate entities – is considered by many people to be the single biggest problem facing the cryptocurrency today.

One of the biggest selling points of Bitcoin is, after all, the fact that it is a decentralized network that does not need to rely on users trusting large corporations, such as the ‘too big to fail’ banks which many would like to see replaced by cryptocurrency. Bitcoin’s mining centralization not only contradicts this decentralized ethos, but also potentially puts the network at risk of the dreaded ‘51% attack’, in which a single entity with control over a high enough proportion of the network’s hash rate could potential ‘double spend’ coins – effectively stealing money from other users.

A new academic paper, however, suggests that the network may have an in-built defence mechanism to protect itself against dangerous levels of mining centralization – just as long as enough miners act in a purely selfish and amoral way.

The study, called ‘When Mining Pools Run Dry‘ and conducted by Aron Laszka, Benjamin Johnson and Jens Grossklags, uses game theory to study the potential effects (and benefits) of DDoS attacks carried out by mining pools against their competitors. It finds that as the gap widens between a leading mining pool and its competitors, the financial incentive for smaller pools to switch their activities from mining to attacking the leading pool also rise:

“While attacks are generally harmful to the bitcoin ecosystem, they have positive effects in this context, as they prevent one pool from growing too large,” the report notes.

These finding may also have some corroboration from a previous study by the same authors which found that larger pools are indeed more likely to be subjected to attacks than smaller ones.

A final version of the paper will be presented during the Financial Cryptography and Data Security conference in Puerto Rico on 30th January, as part of the Workshop on Bitcoin Research.