Decentralization plays a vital role in the majority of projects and networks operating on the blockchain. In the case of Bitcoin, the validation of transactions is entrusted to nodes possessing computational power, rather than relying on a central authority. This process, known as mining, occurs in a proof of work (PoW) blockchain. Participants validate cryptocurrency transactions and are rewarded for their efforts.
The security of the PoW blockchain relies on the assumption that nodes will act honestly and share newly discovered blocks on the chain. However, it is impossible to guarantee the integrity of every node. Some nodes may choose not to publish newly found blocks in order to maximize their own rewards, a behavior referred to as selfish mining.
What Is Selfish Mining?
Selfish mining is a strategy employed by individual miners or a group of miners to deceitfully withhold newly discovered blocks on the blockchain in order to monopolize the rewards for validating blocks. In the context of Bitcoin, mining refers to the process of validating transactions on the network and receiving the block reward and transaction fees as compensation.
The act of selfish mining involves a miner keeping information about a newly found block hidden from the public chain. By accumulating more blocks privately than what is publicly known, selfish miners aim to gain a significant share of the block rewards.
If successful, selfish miners can manipulate the trajectory of the blockchain. Their main objective is to undermine the integrity of the public chain by generating a longer private chain that surpasses the main chain. By replacing the main chain with their private chain, they can control the blocks and the transactions within them, deviating from what should have been recorded in the legitimate chain.
How Does Selfish Mining Work?
To understand selfish mining, it is important to grasp the workings of blockchain mining. When a cryptocurrency transaction is initiated, it is combined with other transactions to form a block. This block is encrypted using a 64-digit hexadecimal number known as a hash. Miners compete with computational power to solve this hash, and the successful miner earns the right to validate the transactions within the block, add it to the public blockchain, and receive the associated reward.
In the case of selfish mining, a miner participates in the competition to solve the hash and gain the privilege of adding a block to the blockchain. However, instead of immediately publishing the newly mined block, a selfish miner chooses to hide it and continues mining subsequent blocks on top of it. The selfishly mined blocks are only revealed at a later point to maximize the rewards obtained from those blocks.
The mining process occurs concurrently rather than simultaneously. In large networks like Bitcoin, numerous transactions are processed simultaneously, and to expedite the process, they are grouped into blocks. Miners strive to be the fastest to solve the hash for a block, enabling them to be the ones who add it to the blockchain.
When a selfish miner mine and conceals a block, they do not keep it entirely secret. Instead, they do not add it to the distributed ledger, resulting in what is known as an "accidental fork." An accidental fork refers to a sequence of blocks that runs alongside but is not part of the main blockchain. However, in the case of selfish mining, this fork is not accidental but a deliberate strategy employed by the miner.
In the scenario of selfish mining, while other cryptocurrency miners continue to work on the public portion of the blockchain, selfish miners focus on building their fork, aiming to accumulate more blocks than the public chain. They do so in secrecy until they decide to publicize their fork.
At this stage, three possible outcomes can occur:
- If the public chain is longer than the selfish miner's fork, they lose, and the honest miners on the public chain receive their rewards.
- If the selfish miner's fork is longer than the public chain, they win, and the accidental fork created by the selfish miner is adopted as the valid chain. In a proof-of-work blockchain, the underlying assumption is that the longest chain is considered the valid chain. As a result, the "selfish" fork becomes part of the main chain, and duplicate blocks on the main chain are discarded, causing the miners who contributed to that chain to lose their rewards.
- If both the public chain and the selfish miner's fork are of equal length, a temporary state of uncertainty arises until one of the chains accumulates more blocks and becomes longer, determining the valid chain.
In order to carry out selfish mining effectively, a miner or group of miners typically need to control between five to ten percent of the total hash rate on the network. This level of computational power allows them to have a substantial influence on the mining process and increases their chances of successfully executing the selfish mining strategy.
To address the computational power required for mining in a proof-of-work blockchain, miners often form mining pools. These pools combine their computational resources to increase their collective chances of earning rewards.
Is Selfish Mining Dangerous?
A selfish mining attack can indeed result in the centralization of the network. In proof-of-work blockchains, nodes are programmed to adopt the longest chain as the valid version of the blockchain. Due to the risk of losing rewards, honest nodes are more likely to join the pool of selfish miners if the selfish chain appears longer at the time of publication. This gradual shift towards the selfish pool leads to the majority of mining power being concentrated within the selfish miners, resulting in a loss of decentralization on the network.
The centralization of mining on the Bitcoin network can also cause transaction delays. When a selfish pool becomes the majority, it has the ability to influence which transactions are added to the public chain. Selfish miners are more inclined to prioritize blocks with higher rewards, leading to a backlog of transactions and inefficiencies within the network.
Furthermore, selfish mining introduces a centralized environment that is conducive to malicious activities. This includes the possibility of carrying out double-spending attacks, as the task of validating transactions lies in the hands of dishonest nodes with significant mining power. The centralization of mining power increases the vulnerability of the network to manipulation and malicious actions.
Strategies for Combating Selfish Mining
To combat selfish mining on the Bitcoin network, various strategies have been proposed, each taking a different approach. These strategies aim to address the issue either by introducing changes to the network or by providing incentives to encourage honest behavior among nodes.
One proposed solution involves implementing a randomization technique, which is a backward-compatible change. Miners who come across multiple forks on the blockchain would be required to select which fork to continue working on at random. Additionally, miners would be obliged to publish information about all the discovered blocks and forks. By introducing a random selection process, where miners cannot continuously mine on a private chain, this strategy undermines the effectiveness of selfish mining.
Another strategy suggests including a timestamp on each block. This timestamp would contain information about when each block was mined. When a selfish miner privately mines a block and later adds it to the main chain with an outdated timestamp, it becomes distinguishable from the rest of the blocks and can be easily identified and discarded.
These proposed strategies aim to introduce mechanisms that disrupt the advantage gained by selfish miners and provide incentives for miners to act honestly, ultimately discouraging the centralization and negative consequences associated with selfish mining.
Selfish Mining Reduces Bitcoin's Value
Selfish mining attacks can harm the blockchain network, despite their economic attraction. They can result in transaction sluggishness and centralization, providing the ideal conditions for bad actors.
Several tactics, such as altering the protocol and rewarding honest nodes, have been suggested to counter selfish mining. In the end, it is in the miners' best interest to behave honestly and uphold the cryptocurrency's value proposition in order to be lucrative.