Bitcoin Mining-Pool implements censorship for BTC transactions & why this could be the beginning of a dangerous development

The introduction of a new “censored” Bitcoin Mining Pool has caused concern among some Bitcoiners. They believe that it could be a harbinger of future developments.

Is Bitcoin soon threatened with censorship by regulatory authorities? And why should it be bad at all to exclude so-called “bad actors” from the network?

In this article we will take a closer look at the latest developments in the Bitcoin Mining scene and search for answers to the above questions.

First BTC Mining Pool tests censorship on Bitcoin

The BlockSeer block chain analysis platform has launched the private beta version of a new Crypto Cash that censors transactions from blacklisted BTC wallets.

The pool will use the BlockSeer and Walletscore identification data alongside other verified sources, such as the United States Office of Foreign Assets Control (OFAC) blacklist for crypto, to identify BTC transactions it does not wish to process. The pool also requires that all Miner Know-Your-Customer (KYC) protocols be passed through. The COO of DMG, Sheldon Bennett, explained:

The Pool is focused on not receiving transactions from known nefarious wallets that use this medium in a way that continues to tarnish the reputation of crypto currencies, particularly Bitcoin, in the mainstream and hinder widespread adoption.

Why such developments are a “slippery development

The former main developer of Monero, Riccardo Spagni (@fluffypony), noted on Twitter that this could be the beginning of a slippery development. He speculated that transaction censorship of Bitcoin mining pools could spread due to regulatory pressure. He stated that this was a cause for concern. Regulators who look at this and think it is a good idea ‘for extreme cases such as the OFAC cryptolist’ to take such action could make censorship of Bitcoin enforceable.

Spagni suggested instead that more data protection at Bitcoin would prevent this and added

Things like p2pool & Stratum v2 make it practically unenforceable and I prefer to rely on them rather than on hope & prayer.

P2pool is a decentralized Bitcoin mining pool founded in 2011. The Stratum V2 draft by Braiins is a complete revision that implements BetterHash. BetterHash is a secondary protocol that allows the components of the mining pool to decide on the composition of the block they will mine, rather than pools having control over what transactions are included in each block. This should make pool censorship impossible. According to Braiin’s co-founder Jan Capek, the draft still needs to be formally reviewed. However, it will receive grants from Square Crypto for further development.

Wallet Scrutiny’s website founder, Leo Wandersleb, commented that this “slippery development” of censorship will lead to softfork, where pools that follow this approach will refuse to “build on blocks that do not use their filters”.

This slippery slope will lead to a soft for where pools following this approach will reject to build on blocks that don’t use their filters. Let them have their US coin.

– Leo WalletScrutiny Wandersleb (@LeoWandersleb) November 11, 2020

Is Bitcoin soon threatened with nationwide censorship?

In August 2019 Bitcoiner Eric Voskuil already predicted that state pools with loss will become mines to censor, while black market pools will charge black market fees.

Although opinions differ on whether such censorship of transactions is enforceable without the support of the majority of Bitcoin miners, some people are concerned about these developments.

However, Ari Paul, CIO of BlockTower, noted that even if only one Bitcoin Miner did not comply, there was still the possibility of adding blacklisted transactions to it. He added, however:

There is a problem, though – the 99% (or 51%) could choose to orphan any block with a blacklisted address, but that requires collusion.

Erik Voorhees, on the other hand, believes that the time will come when censorship of transactions poses a serious threat to Bitcoin:

This is not an imminent problem, but it will come. Now is the time to prepare for it.