Is Bitcoin Mining Pool Censorship A Problem?

Censorship resistance is probably one of the characteristics that makes Bitcoin such a great tool. But miners have the power to change this. Bitcoin mining pool censorship, to be more precise, can be a problem. But how can this even happen, why, and how will it affect BTC?

Bitcoin Censorship Resistance in a Nutshell

To understand Bitcoin mining pool censorship, it is crucial to explore how some BTC mechanisms work.

Bitcoin Mining Pool Censorship
How is Bitcoin mining pool censorship even possible?

There are reasons why we refer to Bitcoin as a censorship-resistant tool to transact with:

  • Its P2P nature eliminates intermediaries – at least in theory
  • Nodes have “political” control; miners are economic actors mainly
  • Miners – mining pools – only confirm transactions; they do not authorize them
  • Miners have an economic incentive to pick up transactions from the mempool – transaction fees are part of the block reward
  • There are no repercussions for picking up any given transaction – or at least there should not be any
  • People transact behind a degree of anonymity – a public address is a pseudonym
  • In theory, no one should know what a transaction is for

If all this is true, why should we even worry about Bitcoin mining pool censorship resistance?

Bitcoin Features Work on a Spectrum

One of the crucial components to counteract Bitcoin mining pool censorship is anonymity. Bitcoin is not completely anonymous though. In fact, anonymity is not one of its strongest features.

Bitcoin Mining Pool Censorship Spectrum
Free as a bird? Even freedom exists on a spectrum. That bird is bound to its environment!

People transacting on the blockchain have their identities hidden behind pseudonyms – public addresses. To protect your identity further within the network, you should use a VPN and even mix your coins. Otherwise, analysts could get to you.

This should not come as a surprise to anyone. Furthermore, just as Bitcoin anonymity works on a spectrum, censorship resistance is not absolute either.

Blacklisted Public Addresses

At this point you can take a step back and explore another feature that makes Bitcoin great: the blockchain. That public transaction ledger allows you to follow the trajectory of every coin or fraction of a coin back to its origin.

This is part of what allows Bitcoin to be decentralized – decentralization is also on a spectrum if you were wondering. Anyone can check whether a person has the funds required to make a transaction.

Bitcoin Mining Pool Censorship Addresses
Who decides which addresses to blacklist and why?

That information allows nodes to broadcast a transaction. This also allows anyone to blacklist an address.

That is at the core of the fungibility issue in Bitcoin:

  • Not every coin is equal
  • Someone might pay more for one of the original coins that Satoshi mined for example
  • Similarly, someone might not be willing to use coins that went through Silk Road wallets
  • This also enables Bitcoin mining pool censorship
  • Mining pools only need to blacklist public addresses that they know belong to an actor they do not like
  • Once those addresses are flagged, the mining pool can decline the economic incentive and refuse to pick up a transaction involving that address, from the mempool

Why Would Bitcoin Mining Pools Succumb to Censorship?

The Blockseer mining pool allegedly has the capability to censor Bitcoin transactions. This pool could do this using the tools that we described above – conceptually.

Bitcoin miners follow economic incentives. Those incentives can also be exogenous!

But why would anyone do this? Simple, because they can, and there are always enough clients out there who would like to have this kind of power.

In other words, the economic incentive to proceed with Bitcoin mining pool censorship can be orders of magnitude greater to the profit these pools derive from transaction fees.

Who is Interested in Bitcoin Mining Pool Censorship?

So, who are these potential clients that are so interested in Bitcoin mining pool censorship? Any guardian of the financial status quo that realizes they cannot control Bitcoin:

  • Governments
  • Regulators
  • Financial institutions
  • International organizations
There is no such thing as a ‘good’ or a ‘bad’ Bitcoin transaction. Powerful actors might tell you otherwise because they want more power

If these actors can do the following, then Bitcoin would be in trouble:

  • Establish or coopt a mining pool like Blockseer
  • Flag all known addresses that they wish to censor
  • Gather enough mining power to mine a greater proportion of blocks

Is Censorship Resistance a Function of Decentralization?

These actors have the resources necessary, a blueprint, and a cooperative mining pool. Anyone who likes Bitcoin should be worried about these developments. But BTC is resilient enough to solve the issue.

We must rely on developers and nodes to fix this. Remember, Bitcoin mining pool censorship is possible only because powerful actors can centralize mining power.

This Coin.Dance diagram shows the hash rate share of the biggest mining pools. Blockseer is absent, but this can change

Nevertheless, the decision on the kind of software that is compatible with the network, which miners must adhere to in order to mine Bitcoin, is up to the nodes.

Censorship-Resistant Fix

There are already suggestions to upgrade Bitcoin to prevent address flagging and other activities that make mining pool censorship possible.

The network definitely has the capability to overcome this challenge. It also has enough time to pick the best solution and build a consensus around it.

You should keep an eye on these developments, but you must keep in mind that this threat is not imminent. Bitcoin mining pool censorship is not a widespread phenomenon yet.

Remember: Nodes have ‘political’ power, not miners. Developers can fix Bitcoin mining pool censorship vulnerabilities and nodes can achieve consensus to implement it

Should you Worry About Bitcoin Mining Pool Censorship?

There are enough mining pools out there that will pick the transactions that have the highest fees attached to them, regardless of their nature.

In the meantime, you can also mix your coins as well and add another layer of censorship protection to your funds. Most miners will pick these transactions up.  

As long as your funds are mixed, you are protecting yourself – to a degree – from other mining pools that might want to censor you. In the meantime, the network will find a fix. Bitcoin is too valuable, and its community is too invested in its principles to allow nefarious actors to coopt it.