Bitcoin Mining Pools Will Have Less Power With This Upgrade

Are Bitcoin mining pools too powerful? Do they make Bitcoin too centralized? Stratum v2, an overhaul to Bitcoin mining, aims to make these questions moot.

In the latest release of the open source version of the  Stratum v2 (SV2) protocol, Stratum Reference Implementation (SRI), developers announced that they have completed “job negotiation,” an important feature for the wider Bitcoin industry because it gives mining pools less power over transaction selection.

Mining is a key component that makes Bitcoin tick. Miners around the world reap Bitcoin rewards in exchange for the computing power they use to secure the network. But even if anyone with the correct hardware is free to mine, miners will probably lose money if they go it alone. Miners generally sign up with what are known as “mining pools” to combine their resources and increase their chances of nabbing Bitcoin rewards.

Since 2018, Bitcoin developers have been working on SV2, which connects miners with mining pools in a more seamless fashion, making mining more efficient and secure. But “job negotiation,” which clicked into place with the most recent upgrade, is the most important part of it.

Stratum v1—which SV2 is replacing—has its issues. “[In] pooled mining, [the] entire network is prone to censorship, since mining pools are a single point of failure—a trusted third-party,” pseudonymous Bitcoin program manager Pavlenex, who’s been working with the SRI team, explained to Decrypt. “Regulators could force certain mining pools to not include certain transactions in a block for example”

This upgrade could stop that— at least once it’s finally adopted by mining pools.

Censorship resistance?

Bitcoin’s raison d’être is to be a money that no one company or king can control. But centralization has a relentless tendency to sneak into the picture.

Many Bitcoiners worry about mining pools as a centralizing force. As this chart shows, just two mining pools make up roughly 60 percent of the network:

Bitcoin mining pool distribution. Image: mempool.space.

When mining pools use the Stratum v1 protocol, whoever controls the mining pool has the power to stop certain transactions. Governments could use mining pools as a chokepoint to stop transactions they dislike, for example.

This isn’t an imaginative fear. Mining pools have been known to censor transactions over the years, even advertising this fact to make regulators happy.

But with SRI’s most recent upgrade, the task of transaction selection is given to individual miners instead, making mining pools less of a target. What that means is, instead of simply going straight to Foundry USA and telling them to block certain transactions, a government (or other censoring entity) would need to individually go to all of the hundreds of miners that compose Foundry to make such a request.

“For the entire network, the ability for miners to select transactions means that power goes back from a handful of powerful entities back to thousands of individual miners,” Pavlenex said.

“A big responsibility”

But, to be clear, SV2 hasn’t been adopted by mining pools just yet. SRI is still under development. Pavlenex noted that they’re seeking “early adopters” to test the software as it stands today. “We’d like to invite miners, pools and firmware makers to help us test out our latest update, provide feedback and directly influence the direction of our development,” he said.

Pavlenex thinks mining pools will be eager to adopt the new SV2 protocol, not only for the efficiency gains, but because many of them don’t want the responsibility of blocking transactions.

“[Pools are] likely to adopt SV2 because they don’t really want to be a central point of failure either. It’s a big responsibility, and our latest update helps them get rid of that pressure and risk,” he said.