The history, function and significance of Bitcoin mining pools

Preface

This article is an important topic about mining pool positioning discussed in the WeChat group. It was written based on the suggestions of the group owner and published on the Bite Jiang public account at the same time. Thank you for your attention.

Part 1: The History of Mining Pools

2012: The first year of mining pools

Although the mining pool Eligius appeared in June 2011, the total computing power of several mining pools at that time was less than 20% of the entire mining industry at its peak, and it was only in its infancy. The real mining pool entered the cryptocurrency circle in 2012, and by the end of the year, it had nearly half of the computing power. 2012 can be considered the first year of mining pools, just like 2013 was the first year of Bitcoin (the amazing 80-fold surge and a lot of media coverage made Bitcoin known to the public for the first time, and most people only learned about Bitcoin that year), 2014 was the first year of altcoins, and 2016 was the first year of blockchain.

In 2013, mining pool competition was fierce

The mining pool industry has developed rapidly this year, and the solo computing power outside the mining pool has been compressed to only about 10%. Of course, this is related to the rapid increase in the computing power of the entire network. The difficulty of mining has increased rapidly, and it is difficult to mine blocks by yourself without a mining pool. The development of the mining industry is an inevitable trend under the increase in computing power.

BTC Guild became the most well-known mining pool at the time. I had a USB mining machine bought from Taobao (Taobao had not banned the sale of mining machines at that time) and connected it to this mining pool to mine. There was a mode adapted for small computing power, and the user experience was really good. Later, the computing power decreased and it was closed in 2015 because it could not obtain a BitLicense.

http://www.8btc.com/pool-btc-guild-close-bitlicense

The rise of Chinese mining pools in 2014

In the first half of the year, Ghash.io rose rapidly, accounting for a much larger share than BTC Guild. Interestingly, the peak computing power of Ghash.io once exceeded 50% in a short period of time, which means that one of its mining pools does not need to cooperate with other mining pools to launch a 51 attack, which caused heated discussions and panic in the currency circle. Fortunately, the management of Ghash.io cooperated well and suspended the registration of new users in time, persuading its users to disperse to other mining pools instead of creating a shell to create a sub-pool. Later, when the computing power was lower, registration was opened, and it was promised that it would be closed again if it approached 50% again, but there was no chance. Because China's mining industry rose rapidly in the second half of the year.

On the one hand, Chinese miners are rising, and on the other hand, Chinese mining pools are rising. Considering the network speed, miners will give priority to mining pools in their own country, so the mining industry is integrated. The rise of Chinese miners has led to the rise of Chinese mining pools. This year, AntPool and BTCC were born and quickly entered the top five, and F2Pool, which was born as early as 2013, also successfully and firmly occupied the first place in computing power.

The overall situation in 2015 has been determined

The entire mining industry was basically determined this year. Small mining pools were gradually squeezed out, and the proportion of mining pools outside the top ten mining pools decreased from about 30% at the beginning of the year to less than 5%. Basically, a two-strong competition between F2Pool and AntPool was formed. At its peak, the combined computing power of the two mining pools could even reach half of the entire mining industry. Fortunately, the two mining pools did not have much overlap, otherwise it would have caused panic in the cryptocurrency circle about the 51 attack again.

Among the top five mining pools, four are from China. The high proportion of domestic mining pools has caused some people in the European and American cryptocurrency circles to worry. For example, when Mike Hearn, the developer of the large-block version Bitcoin XT, left the cryptocurrency circle after the failure of XT, he said that Bitcoin "failed". One of the important reasons was that China controlled the mining industry and then the Bitcoin system. In fact, "computing power mining + core development + trading platform" are separated and checked and balanced. As long as the mining industry does not try to control development and just makes good use of its own computing power block voting version activation rights, there will be no problem. Bitcoin will not fail, it is only itself that fails.
http://www.8btc.com/mike-hearn-loser

Mining industry stable in 2016

After entering 2016, the mining industry has been relatively stable without much change. The most obvious thing is that three new Chinese mining pools, HaoBTC, ViaBTC and BTC.com, were born. In addition, Other, which is the sum of other mining pools that are not in the top ten, entered the third place. It can be seen that the computing power is more dispersed at least in form. See the distribution of blocks mined by each mining pool in the past 7 days in the figure below.

Part 2: Functions of Mining Pools

2.1 Mining pools gather the computing power of miners

The most basic function of a mining pool is to gather the computing power of its user miners to mine together. With the help of the mining pool, the technical threshold for miners is very low. For example, I mined Zcash a few days ago. The threshold is so low in the mining pool that you will be surprised. Of course, the main test is to mine with a laptop, the computing power is very low, and the mined coins are thrown away immediately, and no zero coins are stored.

Mining in a mining pool only requires two simple steps. First, download the mining software (only a few MB) which is available on the navigation idgui.com; second, double-click to open the configured bat file to start mining. There is no need to download any zerocoin wallet or synchronize blocks, or even register with the mining pool, or run a full node wallet. As for the receiving address of the mined coins, it can be obtained from a third-party platform. The configuration parameters may have a technical threshold, but it can generally be understood by spending some time.

The emergence of mining pools has greatly reduced the technical threshold for miners. They only need to understand how to connect to the mining pool and submit the shares calculated by effective computing power to the mining pool. Miners do not need to care about what software and technology the mining pool uses, how to choose transaction packaging, how to construct packaging blocks, and how to publish to the Bitcoin network as soon as possible after successful packaging, etc.

2.2 Mining pools stabilize miners’ income

In the early days before mining pools, it was a matter of luck to pack blocks on a single machine. Either you would get 50 BTC plus a small fee for a successful packing, or you would get nothing. With the increase in the computing power of the entire network, it often takes weeks or even months to successfully mine a block. This is unacceptable to many miners. It is better to expect to get 50 BTC in 50 days than to expect to get 0.9 BTC every day for 50 days. Although the latter actually gets less, most miners will still choose the latter. Mining pools have the function of stabilizing miners' income.

As shown in the figure above, when miners interact with the mining pool, the mining pool gives miners new jobs with low difficulty, and then submits a share to the mining pool after each successful calculation. When the mining pool verifies that there is no problem with these shares, it receives and counts the number. When the block is successfully mined, the new coins are distributed according to the number of shares submitted by each miner and the proportion of the shares. When the mining pool mines coins, it will have coin income, thereby achieving a stable mining income for miners.

2.3 Mining pool representatives speak on behalf of miners

Miners are a very scattered group. Without a leader, they do not have much influence. Therefore, after gathering the computing power of miners and stabilizing their income, another basic function of mining pools is to speak on behalf of miners. Because miners and mining pools both belong to the mining industry, their interests are closely linked most of the time (there may be some small disputes over whether transaction fees should go to miners or mining pools). If the mining industry develops well, miners and mining pools will naturally profit. Therefore, mining pools are a bit like members of parliament elected by miners, who can speak on behalf of voters who support them.

Some people complain that mining pools hinder miners from speaking directly. For example, in the Hong Kong Roundtable Consensus, the top mining pools signed a consensus to not run other versions other than Core, which suppressed Classic, XT and other versions. In fact, don't worry too much, miners can switch mining pools. If you support Classic, F2Pool provides a sub-pool that runs Core but is marked as Classic. If you support BU, you can go to V Pool. If you support SW, go to BTCC.com Mining Pool. If you support 8MB, go to BW.com Mining Pool. Even if you support the Bitpay version of Bitcoin, you can go to Slush Mining Pool to vote by computing power.

Miners can express their stance by switching mining pools. For example, the computing power of the V pool supporting BU has dropped from more than 10% to the current 6.7%. If there is no PPS+, the fee rate may be even lower. This shows the miners' support for BU. Interestingly, the proportion of computing power of BTCC.com supporting SW has also decreased compared to before. Therefore, the real intention of miners at present is to wait and see, and not support BU or SW at first, to maintain the status quo. Smart mining pools will cater to the mentality of miners and not formally express their support for BU or SW. Therefore, the essence is still the miners voting.

Part 3: The significance of mining pools

3.1 Mining pool block voting decision version activated

Currently, Bitcoin upgrades generally follow the BIP9 upgrade specification, which means that it will only be activated if there is a threshold support ratio in 2016 blocks. For example, the activation threshold for the SW isolated verification soft fork is 95%.

For details, see: 9.6 Bite Jiang - Bitcoin Block Version Number Knowledge and Upgrade Specification BIP9

Blocks are usually packaged by mining pools, which means that mining pools have direct rights to activate versions. As long as a mining pool that can mine more than 5% of the blocks disagrees, it can veto the activation of SW and maintain the status quo. According to the block situation in the past 7 days in the above figure, there are as many as nine mining pools with this veto power, namely:

1. AntPool, 18.4% (undeclared)

2. F2Pool, FishPool 15% (undeclared)

3. BW.com, 9.6% (support 8MB)

4. BTCC, Guochi 8.6% (support SW)

5. BitFury, 7.8% (supporting SW)

6. ViaBTC, V-Pool 6.7% (supporting BU)

7. HaoBTC, Good Bitcoin 6% (unspoken)

8. SlushPool, 6% (mainly supports SW, with a small amount of BU and Classic)

9. BTC.com, 5.1% (uncommitted)

As long as one of the mining pools that can mine more than 5% of the blocks opposes, SegWit will not be activated. Some people may say that the 95% threshold is too high and impossible to reach. In fact, as shown in the figure above, the upgrade plan CSV of BIP68/112/113 was activated with 95% approval a few months ago. A truly good plan is one that can be activated with a high threshold under consensus. If more than 5% oppose, it means that the plan is still controversial and the time for activation is not yet ripe, so it is necessary to wait for further consensus.

The significance of the existence of mining pools is to help the entire cryptocurrency community keep a close eye on the barriers and not allow any scheme that does not have sufficient consensus to be activated. Note that it is only the right to activate the version, and it is best for mining pools not to directly participate in the development of specific development routes. Mining pools should directly pass versions that do not set activation thresholds, do not follow the BIP9 upgrade specification, or have too low activation thresholds. Versions that want to compete can be welcomed, but they must be fair and set high activation thresholds.

3.2 Mining pools have an obligation to popularize cryptocurrency knowledge to miners

Although miners do not need to understand all kinds of complex currency knowledge, the major mining pools have the obligation to explain in detail the reasons for their decision to the majority of miners and the entire currency community after making a voting decision, so as to obtain the computing power support of their own miners and attract miners who agree with them to switch their computing power.

For example, BTCC has chosen to fully support SW, while V Pool has chosen to fully support BU. Therefore, BTCC has the obligation to popularize the benefits of SW isolation soft fork to miners and the cryptocurrency community. It invited Core developers to Shanghai to give knowledge lectures and exchanges. See the live link:

http://www.huajiao.com/l/57368162
Similarly, since V Pool has chosen BU, it is also obliged to explain to miners and the cryptocurrency community the reasons and reasons for choosing BU. Hold more public knowledge lectures for the general public in the cryptocurrency community, instead of just internal gatherings and hiring some prolific writers to criticize Core, SW, and LN every day.

This obligation to "popularize cryptocurrency knowledge" is one of the important meanings of the existence of mining pools. Miners should respond more. For mining farms that actively popularize cryptocurrency knowledge and that they agree with, they should transfer some computing power to them, so as to encourage them to be more active in popularizing knowledge and canvass votes for the plans they support. The mining pool actively popularizes knowledge, and all miners and the entire cryptocurrency circle benefit. Don't stay in one mining pool out of habit. In fact, switching mining pools is very simple. The income gap between mining pools is generally small, which is less than the impact of random luck. Only when the computing power of miners switches between mining pools can it be better reflected that miners are voting, not mining pools.

3.3 Mining pools can act as temporary “police”

This is the reason for writing this article. The group owner of an important cryptocurrency WeChat group mentioned a "big" thing worth discussing: the bitcoins of a well-known person in the cryptocurrency circle were stolen. The hacker who stole the bitcoins was careless and did not pay enough handling fees, resulting in the transaction being in a 0-confirmation state for a long time and not being confirmed.

So the question is, which excavator manufacturer is the best?

Q: Can they initiate another normal transaction and let the mining pools help adopt it to replace the 0-confirmation stolen coin transaction? In fact, it is essentially a 0-confirmation double spend. First of all, I am 100% in favor of it. Because 0 confirmation means that it has not been written into the blockchain. It does not count as tampering with the blockchain data. 0 confirmation can be double-spent, which is why it is recommended to wait for at least 1 confirmation to accept Bitcoin.

Another concept related to this is RBF (Replace By Fee). Simply put, it allows transactions with higher fees to replace the current 0-confirmation transactions before 1 confirmation. The RBF function was first proposed by Satoshi Nakamoto. Recently, it has been implemented in Core v0.12.0 and later versions. Whether to support RBF is optional. However, the RBF function is rejected in Classic to improve the credibility of 0-confirmation transactions.

The hacker's transaction was not marked as supporting RBF. In fact, if it was marked as supporting, there would be no need to look for major mining pools. The stolen coins could be directly recovered using the RBF function before 1 confirmation.

The significance of the mining pool is similar to acting as a temporary "policeman". This caused a heated discussion in the group. I will quote and summarize it, but I will not mention it specifically for privacy protection:

Some people strongly support it, believing that this is a just "legal double spend". If the stolen coins with 0 confirmation can be recovered, it can promote the positive energy of the currency circle, give hope to the people who lost the coins, and increase the confidence of the coin holders. Not only 0 confirmation, but even when the amount of coins is huge, there are 1 or 2 confirmations. As long as the number of confirmations is not too many, these blocks can be isolated and replaced with normal transactions with signatures. Because usually there are isolated blocks every few days, see the link.
Some people strongly opposed it, saying: "Recovering the coins stolen by hackers is like recovering the mobile phone stolen by thieves. It is the police's job and has nothing to do with the mining pool." They also said: "It is a duty to keep accurate accounts. There is nothing new under the sun. Transaction disputes such as Bitcoin are civil disputes. Mining pools, as accountants, should stay away from the role of transaction arbitrators." It seems to make sense.
Some people are worried about the power level, saying: "Currently miners make too much money and have too much say, which is a potential crisis for Bitcoin." In other words, they are worried that if even the right to recover stolen coins is given to the mining pool, the power of the mining industry will be even greater, and it may even become the center of the currency circle.

I think mining pools can act as temporary “police”:

1. It is not a formal daily "police", but only recovers large thefts of 0 confirmations in special circumstances. Small thefts can be ignored, but large thefts do not happen too often. As for how much money is considered a large amount, it is recommended that it is greater than the current amount of new coins per block, that is, now it is considered a large amount if it is more than 12.5 BTC.

2. There is no need to make an "arbitration" judgment based on trust in people. The person who lost the coins has a private key, and he can sign to prove that he can sign a normal transaction to replace the stolen coins. That is, he has the private key of the original address to prove that the coins were indeed stolen, and there is no need to prove it based on human subjective judgment. If someone wants to make trouble, he cannot forge a theft incident to defraud coins because he does not have the private key of the original transfer address.

3. Transactions in 0 confirmation are transactions that have not yet been written into the blockchain. They have a lot of flexibility and will not tamper with existing blockchain data. They only decide which transactions will be written into the blockchain in the future. Of course, normal transactions are selected, not stolen transactions.

4. If the RBF function is fully activated, RBF can be used even without marking, and the stolen coins can be automatically recovered by individuals with 0 confirmation. The mining pool, as a temporary "policeman", only transforms some transactions without RBF marking into RBF transactions according to the situation, and does not give it too much power to change and interfere with normal transactions.

5. It can be regarded as a value-added service. For example, if a person has 100 BTC, he can negotiate with major mining pools that any spending transactions from this address should not be packaged and confirmed before communication and notification. Then, if a hacker steals the coins, no matter how much handling fee is paid, the stolen coin transaction will be locked at 0 confirmation for a long time. Then he has enough time to use his private key to resend a normal transaction, such as: 99.9 BTC is transferred to a safe new coin address, and 0.1 BTC is used as a handling fee to notify the mining pool that it can be packaged. Under the incentive of 0.1 BTC handling fee, the mining pool will replace the stolen coin transaction and package it. In this way, the 99.9 BTC can be recovered, and 0.1 BTC is rewarded to the packaging miner. In addition to being disadvantageous to hackers, it will be beneficial to everyone.

Signing the agreement that "any spending transaction from this address will not be packaged and confirmed before communication notification" can be used as a value-added service provided by the mining pool. This service is still an attractive "insurance" service for people who hold a large amount of coins, because they cannot 100% ensure that their coins will not be stolen.

In addition, consider a very extreme and unlikely situation. If the private key public key algorithm is cracked, the mining pool should unite and only pack empty blocks, only mine new coins, and not process any coin transactions. All transactions are 0 confirmation to avoid blockchain chaos. Wait for the entire currency circle to come up with a solution, such as updating the private key public key algorithm, and only pack transactions that have been 0 confirmations for a long time, such as ten days, and no RBF. Although the confirmation speed is slow, it will prevent the theft of coins and transition to the new private key public key algorithm system more safely, so as to perfectly solve the crisis of the private key public key algorithm being cracked.

In this sense, the mining pool does have some responsibility as a security "policeman". After fully exerting its potential, the security of the currency will be greatly improved from a psychological level. What is lost is the security of 0-confirmation transactions. And 0-confirmation transactions are not safe in the first place, and need to wait for 1 confirmation. Therefore, the existence of the mining pool at this level still has its value.

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