Miners’ Delegation Risk
After the birth of Bitcoin, a special industry emerged — mining. The nodes that complete nonce calculations and package blocks, called miners.
Every transaction we make on Bitcoin is recorded by these miners on the blockchain. Since miners have the right to keep ledgers, they naturally have a lot of influence on the Bitcoin system. This makes us worry. Can they have any impact on our assets, such as transferring them away, making them disappear, or not letting us trade? This is the miners’ delegation risk.
To analyze the miners’ delegation risk, it is necessary to go deep into the mining process and determine which miners can decide independently and which are set by protocols or algorithms.
Taking BTC and ETH as examples, during the packaging process, it is up to the miners to decide which transactions to select, which data to pack (such as timestamps, etc.), which nodes to broadcast to, and which nodes to receive broadcasts, while packaging rules, subsequent HASH, and nonce value calculated based on HASH, etc., are all agreed upon by the protocol. The latter can be verified by the system, and cannot be tampered by miners at will.
According to this process, without the private key, it is impossible for the miner to forge the transfer transaction and to transfer your money away. But miners can make your transactions not be packaged, or even add your address to the blacklist. As long as it is miners who package, they can ignore your transactions. In addition, if there is a sequence of transactions, the miners can rank your transaction in the back or designate other transactions in the front.
Because miners can selectively receive broadcasts, adding an address to the blacklist can be said to have not received the transaction. They can make it an excuse. And the person who is blacked out cannot find out any evidence of being blacklisted. So it is impossible to hold the miners accountable.
Of course, for an independent miner, he can do whatever he wants, as long as he agrees with the agreement. However, for miners who delegate to the mining pool, if the mining pool randomly adds an address to the blacklist, it should be subject to supervision or at least make some explanation. Because mining pools and miners are in a principal-agent relationship, there is no guarantee that the behavior is based on the interests of the miners and not the interests of the mining pool. For this topic, we will write a separate article to discuss the agency risk of the mining pool.
From the above description, the impact of miners on individuals is mainly two kinds of transactions: preemptive and excluded (blacklists, etc.) transactions. Neither of which will cause asset losses on BTC (of course, time loss is also a kind of loss). At the same time, considering that the impact of a single miner is small (except for the mining pool) and the miners who package are randomly generated, the above risks will decrease with the increase of nodes and the expansion of the system. But if the development of mining pools becomes more and more concentrated, it may be the opposite.
However, on ETH, as smart contracts can support more complex logic, especially in the field of DeFi, the importance and relevance of a transaction have greatly increased, which means that miners’ delegation risk increases.
Taking 312 as an example, in the case of a large-scale run on DeFi, the income-risk structure of preemptive transactions and excluded transactions becomes very important. At this time, there will be an “external incentive”. It is not the ETH generated by packaged transactions that incentivizes the miners, but the arbitrage value of various on-chain contracts. Under the most open assumptions (miners design their packaging strategies completely based on their total incentives), ETH may indeed have all kinds of confusion, and miners have become the biggest beneficiary of the DeFi arbitrage.
These confusions will affect the decentralized consensus of a public chain. Especially if the mining pools do so, the negative impact will double.
Of course, in the real world, miners and mining pools will be affected by various factors such as reputation, external supervision, community resistance, etc. Therefore, there are still a small number of miners who really dare to be so blatantly to get external incentives. However, the potential risk still exists, especially in mining pools. Because its principal-agent structure conforms to current laws, once the interests of the principal are harmed, it is likely to be accused according to the traditional law structure. It is a very costly matter.
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