Robert Warren: Do Mining Pools Actually Threaten Bitcoin? | SLP789

Stephan Livera (0:00)

Hi everyone, welcome back to Stephan Livera Podcast. Rejoining me on the show today is my friend Robert Warren. He is now actually head of comms over at Elektron Energy, but you might have previously known him for his work at Bitcoin Park as the head of research there. Robert, welcome back to the show.

Robert Warren (0:14)

It's a pleasure to be here, Stephan. So good to see you again.

Stephan Livera (0:17)

So Robert, I know you guys just put out a new report or a white paper called Profit Maximization and Protocol Risk. But I guess let's start on this idea around Bitcoin mining pools. We see you're very focused on the Bitcoin mining aspect. Do Bitcoin mining pools actually threaten the protocol?

Robert Warren (0:34)

It's a big question and to be as realistic as possible when trying to answer the question, the real question to ask is, how do Bitcoin mining pools centralize the protocol?

You can go back to the earliest days of Bitcoin mining and see exactly where it happens. If you go back to initially on the Bitcoin talk forums, user PuddinPop starts coming up with this idea of potentially pooling collective hash rate. Slush, as we know now, if we've done our history correctly, Slush, we know who starts Slush Pool is the individual who goes ahead and actually launches the first collaborative mining effort. What they say in the actual launch of that pool is, hey, the one trade-off is that you have to trust a centralized authority, me. But I've been playing with this for a few weeks. I don't plan to rob any of you guys, so let's see how this goes. Now, we all know where it goes.

That being said, yeah, it does create a certain kind of centralization. The question is not does it do it broad sweeps. The question is really how. So as far as pools are concerned, when you think in the traditional 51 percent attack, these malicious reorganizations that somebody might execute against Bitcoin, we don't actually have a history of that happening in Bitcoin. What we have are far more subtle ways of miners, pools, cashers attempting to maximize their profits through these small statistical advantages. So yes, there is some centralization that you get through Bitcoin mining pools. However, you only have centralization through the mechanism that they're able to do that, which today primarily is the control of templates. And templates allow you to centralize what would be the censorship risk of Bitcoin, not necessarily the risk of going ahead and immolating the network or causing it to fall into disrepairing chaos completely. That's not really what we are talking about. And I think that there's a bit of a misnomer, a bit of a misunderstanding in the broader community when we say centralization, because people hear it and they go, oh my goodness, it's against the exact ethos that Bitcoin is built to protect against. And yeah, that is the case, but it's built to protect against it. It's not built to stop any form of centralization from happening. So the question is how? And it's through this thing, this template, which is where the transactions go while they're being hashed on and who's delivering those transactions, those block header templates. And I think that's really a starting point for understanding what the nature of the risk is, because that is a risk to censorship.

The next thing we would have to have the conversation about is well, is that happening?

Stephan Livera (3:12)

Right. And of course, there are various people doing monitoring on things like this, like our friend 0xB10C, or I think he rebranded now to B10C. He's one of those guys doing monitoring, among many others, I'm sure, on these kinds of things. And I guess important to also kind of distinguish what exactly what power they have, right? Because just for people who are newer, a Bitcoin mining pool and Bitcoin miners in general, do not have the power to make you think a fake transaction is real, right? They can't, as long as you're running your own Bitcoin full node, they can't, the power or what they, what we need the miners for is to advance the chain, right? To make a new block and add it to the past, to the blockchain and in a valid way. Obviously, there's certain checks and things that the protocol runs, that the nodes run. It's important to understand that part. I guess people try to dig into exactly where, as you were touching on, what are the real risks? Maybe censorship of transactions or maybe a more subtle thing around, like in the case of a contentious soft fork, do they play somewhat of a kingmaker role?