Why Bitcoin Mining Needs Stratum V2
The Bitcoin mining is centralized, but how real is the risk of network censorship? And can a protocol called Stratum V2 save the industry?
This is an opinion editorial by Federico Rivi, author of the Bitcoin Train newsletters.
<figcaption><a rel="nofollow noopener" target="_blank" href="https://twitter.com/peterktodd/status/1622604123949436929?s=20&t=T-cCtgpVaj4BV0KotWxADA"><em>Quelle</em></a></figcaption>
</figure><p>Bitcoin-Mining für jedermann erreichbar: Haushaltsgeräte, tragbare Geräte wie Smartwatches und Datenbrillen, die alle mit speziellen Mikrochips schürfen können. Das ist die Zukunft, auf die viele Bitcoiner hoffen.
While such a scenario might not be that far removed from the reality that awaits us, we are still in Bitcoins today genesis Chapter and the reality is not yet what Antonopoulos predicted. In fact, mining is becoming centralized.
Last month, Foundry USA alone coordinated 34% of the hashrate. If we add Antpool, which accounts for 18.2% of the total hash rate, we have 52% of Bitcoin’s global computing power in the hands of just two mining pools.
The well-known Bitcoin developer Peter Todd recently pointed out the problem of this centralization:
“Bitcoin is dead.” “Mining is over.” “They will regulate bitcoin.” “Censorship will come.”
I can already hear you, but we should stay calm. To understand what the implications are – and what the solutions are – we need to step back and review the concept of “pool mining”.
This is what awaits you in this article
The evolution of pool mining
Would you rather receive $100,000 every five years or $20,000 once a year? The answer to this question from most explains the emergence of mining pools.
In the long run, the payout stays the same, what changes is the frequency with which the payment is received. In a highly competitive environment like mining, this is crucial. It can make or break the survival or bankruptcy of mining farms, which — regardless of how the Bitcoin price changes — must keep machines running by paying for electricity, as well as any loans needed to purchase hardware or other expenses were recorded.
A mining pool is a server, usually run by a company, that brings together mining farms and individual miners in different territories, pooling their computing resources and combining them as a product of a single team participating in the competition that is bitcoin mining. The high computational power coordinated by the pools allows, compared to the low chances of the individual miner, to win the proof-of-work contest more frequently and redistribute the reward to all its members in proportion to the computational power they have have provided.
Let’s take an example: running a mining farm that produces 0.025% of the global hash rate – an activity that today requires a multi-million dollar investment – allows the miner to mine one block of bitcoin for every 4,000Blockchain to write. Taking into account the average rate of one block produced every 10 minutes, this means one block reward is earned per month currently worth 6.25 bitcoin.
However, with the same computing power available, one can choose to join a mining pool that controls say 25% of the global hash rate. Statistically the pool will probably mine every fourth block, i.e. one every 40 minutes. The mining farm that has decided to join is compensated in proportion to the computing power provided, so it always yields the equivalent of one block per month, but is paid every 40 minutes on average (more often pools pay the rewards). once per day to reduce fees).
Joining a pool makes the future more predictable as the payouts, while not necessarily larger than solitaire mining, are more frequent. The first pool emerged in 2010 under the name Slush Pool, now known as Braiins Pool, and since then the model has evaporated.
As discussed above, much of the computing power of the network is now in the hands of the pools, which inevitably represent points of centralization.
So what is the current status of mining and what are the risks?
The Rise of Foundry USA
On February 15, 2021, Foundry USA pool coordinated 0.98% hash rate. Two years later, the number has risen to 34%. What happened in the meantime?
<figcaption><em>Quelle</em></figcaption>
</figure><p>Foundry ist ein in New York ansässiges Unternehmen, das sich vollständig im Besitz der Digital Currency Group (DCG), einem der weltweit größten „Crypto“-Investmentfonds, befindet. Zu den verschiedenen Aktivitäten von Foundry gehört der Mining, der von seinem Foundry USA Pool-Geschäft durchgeführt wird, das de facto zum Maßstab für institutionelle US-Miner geworden ist.
It’s no coincidence that Foundry’s growth has partially coincided with China’s May 2021 mining ban. As was widely reported at the time, many of the miners fleeing China flocked to Kazakhstan and the United States. One of the preferred destinations was Texas, which is now considered one of the cheapest areas in the world for mining, not least because of the friendly regulations.
In a recent interview Gabrielle Vernettia mining researcher and Stratum V2 developer, told Bitcoin Magazine that “most of the miners in Texas are under Foundry.”
There could then be another reason for the American pool’s ride: the massive investment in new ASICs at a time (the bull market between late 2020 and early 2021), in which many competitors could become more profit-taking focused. For example, in September 2020, Foundry signed a partnership with ASIC maker MicroBT to give its institutional miners priority access to new M30S ASICs.
It can take several months from the time an ASIC is bought to being operational, especially at times when no chips are available. So by the end of 2021, when the new hardware is operational, Foundry USA will gain a large share of the market. For example, it goes from 8.5% in October 2021 to 19% in January 2022.
What are the dangers of mining centralization?
Why is it a problem that Foundry USA coordinates 34% of the global hash rate? Because to this day, the computing power of the pool is provided by a large number of different mining farms that candidate blocks are built by the pool. It is the pool that decides which transactions to include in the block. This leads to a vulnerability that could lead to two problems: censorship of transactions or addresses and a 51% attack. The latter can have two purposes:
- Denial of Service: Deliberate mining of empty blocks that slows down the network by preventing transactions from being approved. With 34% computing power, that would probably be every third empty block.
- Double spend: cancellation of a transaction made by the attacker and sent via a blockchainfork placed in a recently approved block.
The threat is made possible by the current protocol used by miners and mining pools to communicate with each other: Stratum V1.
However, we know the solution and its name is Stratum V2 (see below). At the moment, Braiins Pool, Foundry USA itself and a team of independent open source developers working on it. Vernetti belongs to the latter group.
Is there any possibility that Foundry USA could start censoring certain transactions as part of a hypothetical US obligation?
“On a technical level, it could happen,” Vernetti said. “But how long? The longer the censorship lasts, the more time miners have to recognize this and shift their activities to other pools. This is because censorship implies the loss of commissions, so a miner has an economic incentive to switch to a pool that instead collects those commissions by avoiding censored transactions.”
The MARA pool precedent
A relevant precedent in this regard dates back to May 2021. Earlier this month, MARA Pool, controlled by Marathon, decided to only mine blocks with OFAC-compliant transactions, thereby censoring addresses blacklisted by the US Treasury Department . The revolt of the bitcoin community and the fact that no other miner followed suit led MARA Pool to turn around in less than a month. At the end of May, Marathon wrote in a press release that transactions would no longer be filtered.
The risk of censorship therefore seems minimal and in any case easy to remedy in a short time. So how likely is a 51% attack led by Foundry USA instead?
“The moment a denial of service attack was launched, i.e. mining empty blocks to slow down the transaction approval process, everything on the blockchain would be visible,” Vernetti said. “Then the miners would immediately redirect their hash rate to other pools. Because without transaction fees, every miner would receive less money for their work. The miners would have a direct incentive to provide the hash rate to another pool, a process that only takes a minute. If Foundry USA started mining empty blocks, I think they would lose half the hash rate they coordinate within an hour.”
“Perhaps a 51 percent attack targeting double spend is more concerning,” Vernetti continued. “On a technical level, one could try to double the output even with a lower hash rate, but again, what would be the reason? Although Foundry USA is considered a US-controlled institutional pool, it is still a company. Your economic interest is to make the network work as well as possible. Double spending would undermine Bitcoin’s status as an immutable network, and I imagine that could cause the price to crash immediately. The counter-incentive would be perhaps $1 trillion paid by the US to carry out such an attack.”
The solution: Stratum V2
The risk of censorship and the risk of a 51% attack by mining pools will be eliminated once a new communication protocol between miners and pools is widely used: Stratum V2.
The protocol allows each individual miner to build their own candidate block and remove that power from the pool. Therefore, the pool cannot exclude blacklisted transactions from a block, write empty blocks, or attempt double-spend transactions. Responsibility for writing the block is shifted from the hands of the pool to those of all of its miners.
Stratum V2 is already implemented by Braiins Pool and is regularly tested by Foundry USA itself, but the vast majority of the hash rate is still coordinated by pools using Stratum V1.
What are the incentives that will drive pools to adopt Stratum V2? What will make them voluntarily lose control of block building?
“The other two fundamental characteristics of the Stratum V2 protocol: security and performance,” Vernetti replied.
“Security: Unlike Stratum V1, Stratum V2 is an encrypted protocol. It does not allow hash rate hijacking attacks that are possible today. In these attacks, the hacker hampers communication between the miner and the mining pool, takes the proof of work that the miner creates and pretends to be the author of that proof, and instructs the pool to send him the reward. This cannot happen with Stratum V2 as the communication is encrypted and therefore the miner’s proof of work is not visible to the pool for external observers. This is the first incentive: with such security, the pool can attract more miners than those who do not offer this guarantee.
“Performance: The communication between miner and mining pool in Stratum V1 is human readable, it is in ASCII code. With Stratum V2, on the other hand, communication takes place entirely in binary code. This small factor increases performance as human readable to binary conversion time is saved, allowing more packets of information to be transmitted in a given time frame than in Stratum V1. This is important as being able to provide more proof of work can be crucial to winning the race to write the block. Improved performance is a competitive advantage.”
This is a guest post by Federico Rivi. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Source: Crypto News Deutsch
