21 May 2015

Bitcoin – The Miner’s Dilemma

Exploration of a block withholding attack among Bitcoin mining pools.

Behind the scenes, the security of blockchain systems is based on the operation of miners’ servers that actively participate in the protocol and share the control of the system in proportion to the computational power they offer. These servers often form coalitions called mining pools, an essential part of almost all blockchain-based ecosystems. They enable many small miners to operate at a reasonable business risk. However, they also pose a risk to the currency, as successful open pools have been able to grow dangerously big in the past. When a mining pool becomes too large, it comes to possess control of the system beyond its fair share, undermining the basic premise of decentralisation. Until now, there have been few forces to counteract this phenomenon.

The paper “Bitcoin: The miner’s dilemma – An analysis of Bitcoin as a novel distributed system” defines and analyses a game where pools use some of their participants to infiltrate other pools and perform such an attack. For two pools, the decision whether or not to attack is the miner’s dilemma, an instance of the iterative prisoner’s dilemma. If this balance breaks, the revenue of open pools might diminish, making them unattractive to participants.

by Ittay Eyal

  • Cornell University