Lesson 13 of 20
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13. What is Selfish Mining? 

Selfish mining is a cryptocurrency mining strategy that involves fraud. What exactly it is and the implications of doing so will be outlined in today’s lesson. 

Selfish Mining – definition 

Selfish Mining is one method of cryptocurrency mining where a group of miners joins together to maximise their profits and gain control of the main blockchain. The group solves a cryptocurrency puzzle and opens a new block that it does not attach to the main blockchain. It creates a new fork that is designed to overtake the public blockchain. 

If the blockchain thus created overtakes the honest one, the latest blocks on the network are inserted into it. In effect, the fraudulent group’s fork overwrites the original blockchain and allows it to effectively steal digital assets from other users, altering the main blockchain. 

How it works

Selfish Mining was first discovered in 2013. This is thanks to two Cornell researchers – Emin  Gun Sirera and Ittay Eyal. To understand exactly what it is about, we need to go back to basics and recall the definition of mining. 

As you remember from previous lessons, to obtain bitcoins, miners have to solve difficult mathematical puzzles. The process depends on many factors-difficulty of the puzzle,  computing power consumption, price of electricity and internet access. Most cryptocurrencies rely on a proof-of-work mechanism that relies entirely on miners. When they solve a puzzle,  a new block is created on the blockchain. The miner who created it receives a transaction fee and the aforementioned reward. 

Selfish mining, or how to increase your revenue. Miners hide the newly created blocks and make them available on private networks or private chains. This practice accelerates the process of discovering a new block and minimises network latency issues and the cost of the whole operation. A forked blockchain is initially shorter than a public blockchain. Is this possible? As much as possible. The nodes of the network form different blocks. The creation of two at the same time is as feasible as possible. When both chains are published simultaneously and connected by the last block, the blockchain is forked

The private chain created in this way generates new blocks while hiding them. The entire process is repeated until the private blockchain reaches a block height greater than that of the public blockchain. The selfish miners then insert the newly created blocks into the public blockchain. In effect, the public, ‘honest’ blockchain joins the forked chain. The public chain mines the new blockchain, and the miners are rewarded with cryptocurrencies and newly adopted blocks

To further illustrate this to you, we will use an example. Selfish miners mined block  90,00,001. The node that added it to the blockchain did not send this information to the others. Unaware of what has occurred, the nodes in the public blockchain, add new blocks from block 1,000. We now have the situation that there are two blockchains associated with block 1,000. One public and one private. Meanwhile, the miners continue to dig on their private chain and add new blocks to it, and it keeps getting longer. When it gains an advantage over the public blockchain, it lets the public chain know that block 1,001 has been created. After analysis, the chain recognises that the selfish miners’ block was mined first and makes it the main chain, invalidating the one the ‘honest’ nodes were working on. As a  result, they receive no rewards and all their work goes into the pockets of the dishonest 

miners. The rewards for mining go into the greedy hands of the selfish miners because their chain has become the new public blockchain. 

Interesting fact: According to research by Sier and Eyal, miners practising the above method have a competitive advantage over honest miners. Their rewards are significantly higher,  even after considering wasted resources. 

Is selfish mining a threat? 

It is true that by creating a forked block, it is possible to alter the public blockchain and earn more than honest miners. However, there are many theories about the threat from Selfish  Mining. Let’s take a look. Craig Wright, who we all know, stated back in 2017 that selfish miners are unable to create more blocks than honest miners. By the same token, they are unlikely to win more awards. 

Jake Gober argues that if such a practice were really that profitable, it would be far more  popular. Hardly any miner in the crypto industry would be honest. In contrast, researcher  Zhaojie Wang proved that as of the end of 2021, there were no known cases of such a  precedent in the crypto world. 

Furthermore, combining a node’s computing power with other systems results in an increase in its hash rate. The corollary of such an action is that the cryptocurrency puzzle is more likely to be solved. Thinking logically, if the power of selfish miners grows, at some point it will be so large that it will start to control the blockchain. How? And remember the 51%  attack? Exactly. The PoW consensus mechanism requires the majority of nodes in the network, to be honest. Then the transaction is accepted and creates the next block.  However, if 51% of the publicly available hash rate comes from a private pool, it ignores transactions with small fees and stops many of them for no reason. This results in the centralization of blockchain and the original premise – decentralisation – is gone. Such fraud will result in a drastic decrease in the value of the cryptocurrency in question, and consistent in the rewards for the miners. We believe that they are not so stupid and prefer to act honestly. 

Summary 

Most networks need miners to validate blocks and transaction information. Without them, all the verification and validation would not be as easy and the network would not function. Of course, it is not only in this industry, as in many others too, there will be someone willing to go ‘easy’ to make more money. However, we believe in the integrity of the miners and their good intentions.

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