DEFINITION of 'Selfish Mining'

Selfish mining is a strategy for mining bitcoin in which groups of miners collude to increase their revenue. Bitcoin was invented to decentralize production and distribution of money. But selfish mining can result in centralization of bitcoin mining operations. 

BREAKING DOWN 'Selfish Mining'

Selfish mining was first proposed by Cornell researchers Emin Gün Sirer and Ittay Eyal in a 2013 paper. They proved that miners can earn more bitcoins by hiding newly-generated blocks from the main blockchain and creating a separate fork. 

Bitcoin mining relies on miners who solve cryptographically complex puzzles to generate coins. Income from the activity varies because the process is dependent on several factors, from the difficulty of puzzles being solved to electricity costs to the quality of Internet connections. The bitcoin protocol is configured to reward miners in proportion to their mining output. This ensures that even if miners organize themselves into large pools, the rewards are still dependent on coins produced by individual miners in the public blockchain. 

But the above scenario assumes that miners will make their newly-generated blocks available on bitcoin’s public blockchain. In their 2013 paper, Sirer and Eyal showed that miners can increase their share of overall revenue by hiding new blocks and making them available to systems within their private network. This practice speeds up the discovery process and irons out infrastructure problems related to mining, such as network latency and electricity costs. 

Undermines Bitcoin's Decentralized Nature

Initially, the forked blockchain will be shorter than the public blockchain. However, selfish miners can strategically time their display of new blocks such that honest miners from the public blockchain abandon their own chain and join the private chain. Subsequently, the private chain mines new blocks within its pool and hides the newly-generate blocks.

In the meanwhile, the public blockchain continues mining new blocks. The process is repeated until the private blockchain is greater the public one. Now the private chain reveals its blocks again, and miners from the public chain abandon their blocks to join the private chain because it is more lucrative. Sirer and Eyal analyzed resources wasted for both chains and determined that selfish miners possessed a competitive advantage over a miner on the public blockchain because their rewards are comparatively greater due to less wastage. 

“Once a selfish mining pool reaches the threshold (of a public blockchain), rational miners will preferentially join selfish miners to reap the higher revenues as compared to other pools,” the researchers write. According to them, the scenario may result in a situation where the selfish mining chain becomes a majority of the public blockchain. This will collapse bitcoin’s decentralized nature and a selfish pool manager will control the system. 

Zero-Sum Game for Bitcoin's Future

To a certain extent, bitcoin mining is already centralized with China, a country that is responsible for mining two-thirds of all bitcoins mined in existence. This has led to discussions within the cryptocurrency ecosystem about the perils of selfish mining and centralization of bitcoin production. But economists have argued against the effects of selfish mining and consider it a zero-sum game for bitcoin’s future.

For example, Bloq economist Paul Sztorc says that if all miners copy the selfish mining strategy, then “you end up right back where you were before.” According to him, miners will stop selfish mining after they realize that “they’ve only harmed themselves.” Sirer himself has discounted the threat of Chinese miners taking over bitcoin production. “It’s not the case that all Chinese miners are part of the same enterprise or are colluding,” he told Washington Post. 

There is also research concerning the topic. In a 2014 paper, Boston University PhD candidate Ethan Heilman proposed Freshness Preferred, a defense mechanism against selfish mining. Under that scheme, selfish miners would be penalized and their profitability would be reduced by using unforgeable timestamps to penalize miners who withhold blocks.

  1. Mining Pool

    A mining pool is a joint group of cryptocurrency miners who combine ...
  2. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network ...
  3. Proof of Stake (PoS)

    Proof of Stake (PoS) concept states that a person can mine or ...
  4. Casper

    Casper is a proof-of-stake cryptocurrency protocol designed for ...
  5. Litecoin Mining

    Litecoin mining is the processing of a block of transactions ...
  6. Bitcoin Core

    Bitcoin Core is software that includes a wallet, and helps keep ...
Related Articles
  1. Tech

    Bitcoin Cash Miners Took a Loss on Purpose

    When bitcoin cash became substantially more difficult to mine, it saw its profitability decrease. And yet, some miners continued to focus on it. Why?
  2. Tech

    Bitcoin Miners No Longer Turning a Profit Creating Cryptocurrency

    Falling bitcoin prices, a surge in competition among miners and lower transaction fees have cut into miners' revenues.
  3. Tech

    How the Bitcoin Hard Fork In November Might Affect Miners

    The bitcoin mining community is divided about the prospect of a hard fork this month.
  4. Tech

    What Is Bitcoin Unlimited?

    And why is there now more than one type of bitcoin?
  5. Tech

    High Bitcoin Prices Boost Profits For Miners In China

    China's miners can still profit despite a recent drop in bitcoin prices and a government crackdown.
  6. Tech

    Which Countries Benefit From China's Crackdown On Bitcoin Mining?

    Three countries are poised to benefit from China's efforts to drive bitcoin miners from its shores.
  7. Tech

    Do Bitcoin Mining Energy Costs Influence Its Price?

    Given that energy costs account for 90% to 95% of bitcoin production costs, what influence do they exert on its prices?
  8. Tech

    Only 20 Percent Of Total Bitcoins Remain To Be Mined

    As of this past weekend, 80 percent of all bitcoins have been mined. What happens to bitcoin's price?
  9. Tech

    How Do Cryptocurrency Mining Pools Work?

    Here's how cryptocurrency mining pools work.
  10. Tech

    How Do You Mine Ethereum?

    Mining for ethereum is a profitable, essential, and oftentimes confusing process. Here's the basics of how to do it.
  1. What is the metals and mining sector?

    Learn about the mining sector and the many ways that mining companies profit from the location and extraction of minerals ... Read Answer >>
  2. What main factors affect share prices in the metals and mining sector?

    Discover the primary factors that influence share prices of companies in the metals and mining sector and how companies can ... Read Answer >>
  3. Which emerging markets should an investor consider for exposure to the metals and ...

    Discover the world's top emerging market countries for investing in the metals and mining sector and what mined resources ... Read Answer >>
  4. What kind of risk exposure does an investor face when investing in the metals and ...

    Examine risks related to companies involved in the exploration and extraction of precious and base metals. These include ... Read Answer >>
  5. What other sectors are most similar to oil & gas drilling?

    Learn about sectors with companies that face similar challenges and rewards as the oil and gas drilling sectors. One example ... Read Answer >>
  6. Why do Bitcoins have value?

    Performing with transactional anonymity, Bitcoin has value as a private digital currency, investment tool and social networking ... Read Answer >>
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center