By Kadan Stadelmann
When Bitcoin mining analyst and developer Mononaut noticed a large consolidation of Coinbase transactions while monitoring the Bitcoin blockchain, he dug deeper and found something that disturbed him.
A few Bitcoin miners had gained enough hashrate on the Bitcoin network to influence transaction selection, and more. This means the Bitcoin miners in question could effectively censor Bitcoin transactions just like a bank. The entire Bitcoin experiment could be rendered moot.
What’s more, these mining pools could be working together, as a single custodian holds the Coinbase addresses for mining pools accounting for 47 per cent of Bitcoin’s hashrate. That could possibly be a big deal. Coinbase addresses represent the ‘input’ of a generation transaction. While regular transactions use the ‘inputs’ section to refer to their parent transactions outputs, generation transactions lack parents, and create new coins from nothing. Mononaut attributes his findings to a potential mistake on the part of an entity to send the transactions all at one time.
The Miner Mag has found similar as Mononaut, noting that since April 2022 Coinbase payout addresses of block rewards by Antpool, Binance Pool, Ultimus Pool, BTC.com, 1THash, Poolin, EMCD Pool, Luxor, SECPool, and Braiins Pool go to the same output addresses in single transactions. One financing entity likely controls the Coinbase addresses, considering the block rewards are consolidated in single transactions to the same outputs.
The Singapore-based custodian in question, Cobo, receives 47 out of every 100 freshly mined Bitcoin. Although Cobo discloses its client exchanges and brokers, its “mining pools” client page is inaccessible, lending itself to the conspiracy theory rumor mill.
In and of itself, more than 50 per cent of mining pools using the same custodian isn’t too concerning; in particular, if they’re separate entities using the same custodian. As long as many different miners are selecting transactions independent of one another, Bitcoin’s mining ecosystem is healthy.
Those pools using Cobo, however, appear to be working in concert, undermining Bitcoin’s decentralisation. For instance, they are using the same block templates and selecting the same transactions. This is where problems arise.
Miners choose mining pools because they ensure miners earn stable rewards, an important thing for the business side of mining. Yet, with so much hashrate, they also accrue the power to conceivably censor transactions, as well.
When one pool operates with nearly 50 per cent of the network’s hash power, Bitcoin mining is no longer decentralised. Throughout all of Bitcoin’s history, mining pools have shown a propensity for centralisation. But, this is to the extreme.
An entirely new paradigm for mining
Bitcoiners argue that, if a pool censors transactions or attacks Bitcoin, miners will immediately switch to another pool. This is unlikely to be true. Mining pools are large, and in many cases international, businesses with contracts negotiated over the course of months.
They can’t simply make the switch to a new pool overnight, and there’s no guarantee the new pool wouldn’t be working in concert with the above-mentioned mines, anyway. Bitcoin mining has become an industrial operation. Decisions are made in suit-wearing boardrooms with bottom lines in mind. And they can sometimes take time.
The Bitcoin mining industry needs new entrants. Mining pools need to embody the ethos of Bitcoin, offering non-custodial mining services.
Miners can also gain more control over mining pools when it comes to important miner duties such as block template and transaction selection. These have been taken out of the hands of miners and placed into the hands of mining pools, which is not where they belong.
Placing decision-making power back into the hands of miners would make the Bitcoin network more resilient. The Bitcoin Community must innovate and put pressure on Bitcoin miners so that decentralisation, transparency, and miner autonomy remain. These core principles are vital to the interests of the Bitcoin network.
There are just a few pools controlling transactions as they go into the Bitcoin blockchain, yet many, many more individual miners than that. The fact that mining is centralised at the mining pool layer hurts Bitcoin’s censorship resistance.
The time is now to figure out if Bitcoin mining can be decentralised or are a handful of mining pools going to control mining for the rest of eternity.
Kadan Stadelmann is a blockchain developer, operations security expert and Komodo Platform’s chief technology officer. His experience ranges from working in operations security in the government sector and launching technology startups to application development and cryptography. Stadelmann started his journey in blockchain technology in 2011 and joined the Komodo team in 2016.
Note: The views and opinions expressed by the author in this article are solely those of the author and do not reflect the viewpoints and opinions of Deeptech Times
