[bitcoin-dev] We need to fix the block withholding attack

[Emin Gün Sirer]

There's quite a bit of confusion in this thread.

Peter is referring to block withholding attacks. Ittay Eyal (as sole
author -- I was not involved in this paper [1]) was the first
to analyze these attacks and to discover a fascinating, paradoxical
result. An attacker pool (A) can take a certain portion of its hashpower,
use it to mine on behalf of victim pool (B), furnish partial proofs of work
to B, but discard any full blocks it discovers. If A picks the amount of
attacking hashpower judiciously, it can make more money using this
attack, than it would if it were to use 100% of its hashpower for its own
mining. This last sentence should sound non-sensical to most of you,
at least, it did to me. Ittay did the math, and his paper can tell you
exactly how much of your hashpower you need to peel off and use
to attack another open pool, and you will come out ahead.

Chris Priest is confusing these attacks with selfish mining, and further,
his characterization of selfish mining is incorrect. Selfish Mining is
guaranteed to yield profits for any pool over 33% (as a result, Nick
Szabo has dubbed this the "34% attack") and it may pay off even
below that point if the attacker is well-positioned in the network;
or it may not, depending on the makeup of the rest of the pools
as well as the network characteristics (the more centralized
and bigger the other pools are, the less likely it is to pay off). There
was a lot of noise in the community when the SM paper came out,
so there are tons of incorrect response narrative out there. By now,
everyone who seems to be Bitcoin competent sees SM as a
concern, and Ethereum has already adopted our fix. I'd have hoped
that a poster to this list would be better informed than to repeat the
claim that "majority will protect Bitcoin" to refute a paper whose title
is "majority is not enough."

Back to Ittay's paradoxical discovery:

We have seen pool-block withholding attacks before; I believe Eligius
caught one case. I don't believe that any miners will deploy strong KYC
measures, and even if they did, I don't believe that these measures
will be effective, at least, as long as the attacker is somewhat savvy.
The problem with these attacks are that statistics favor the attackers.
Is someone really discarding the blocks they find, or are they just
unlucky? This is really hard to tell for small miners. Even with KYC,
one could break up one's servers, register them under different
people's names, and tunnel them through VPNs.

Keep in mind that when an open pool gets big, like GHash did and
two other pools did before them, the only thing at our disposal used
to be to yell at people about centralization until they left the big
pools and reformed into smaller groups. Not only was such yelling
kind of desperate looking, it wasn't incredibly effective, either.
We had no protocol mechanisms that put pressure on big pools to
stop signing up people. Ittay's discovery changed that: pools that
get to be very big by indiscriminately signing up miners are likely to
be infiltrated and their profitability will drop. And Peter's post is
evidence that this is, indeed, happening as predicted. This is a
good outcome, it puts pressure on the big pools to not grow.

Peter, you allude to a specific suggestion from Luke-Jr. Can you
please describe what it is?

Hope this is useful,
- egs

[1] https://www.cs.cornell.edu/~ie53/publications/btcPoolsSP15.pdf
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