The Impact of Block Withholding Attacks on Miners

Block Withholding Attack Explained

A block withholding attack occurs when an individual miner or group of miners withholds blocks they have mined instead of broadcasting them to the network participants. Rather than displaying the mined blocks, they secretly keep them and continue to mine.

When the hackers secretly hide the mined blocks, they can delay the transaction confirmations. That way, they can create a fork in the blockchain that will not be known to the other participants. With the secret fork they made, the hackers can indulge in frauds like double-spending and mining new blocks easily.

The motive behind the block withholding attack is to decrease the profitability of the mining pool. If this attack is sustained for longer intervals, it can even bankrupt a pay-per-share pool.

Moreover, since the other network participants may have mined blocks earlier, which are now unusable, they now have to decide which blockchain to work on. That, in turn, will cause temporary network disruption.

One type of block withholding attack is run when one of the miners discovers a block within a victim pool and prefers not to submit immediately to the pool operator and redirects all accessible mining capacity to the victim pool so that the victim pool contains a larger number of relative shares within the pool.

After waiting, the blocker then releases the previously discovered block. This is protected by employing unaware tasks such that the miner cannot distinguish between a complete solution and a share.

Mitigation of a Block Withholding attack is difficult due to the randomness of mining. Still, some techniques have been designed like different cryptographic commitment schemes with the use of hash functions. Such schemes usually stop the pool administrator from cheating on the whole pool and render it impossible for pool miners to tell apart a partial proof of work from a complete proof of work.

However, block withholding attacks are still challenging as hackers should have a large amount of network power to enhance the chances of their secret fork becoming valid and accepted by fellow miners.

How Does a Block Withholding Attack Work?

Mining is a complex technological process through which nodes in the blockchain network authenticate and verify transactions. Miners are rewarded with newly created tokens for their computational power. In a block withholding attack or selfish mining design, a cartel hides newly formed blocks from the main chain, revealing them at a future point in time.

Block withholding or selfish mining was initially identified by Cornell researchers Emin Gün Sirer and Ittay Eyal in a 2013 paper. They demonstrated that it was possible to gain more bitcoin by concealing newly mined blocks from the primary blockchain, forming a blockchain fork. In theory, the miners could deploy it to the network at the appropriate time and manipulate the blockchain.

In their paper of 2013, Sirer and Eyal showed that miners could maximize their total revenue share by concealing new blocks and offering them to systems in their private network. This technique accelerates the discovery process and smooths out infrastructure issues with mining, including network latency and electricity expenses.

In the beginning, the forked blockchain would be less in length than the public blockchain. The private chain mines blocks in its pool and conceals any newly discovered blocks. Miners repeat this process until the private blockchain extends to a height higher than the public blockchain’s height.

Selfish miners subsequently time the entry of their new blocks into the honest blockchain in such a manner that the public blockchain merges with the newly introduced chain. The public network mines the new blockchain, and the selfish miners are rewarded with cryptocurrency money and transaction fees for their now-accepted blocks.

Sirer and Eyal compared the resources wasted on both chains. They hypothesized that selfish miners or block withholding attackers had an advantage over public blockchain miners since their rewards were relatively higher after adjusting for wasted resources.

Impact of the Block Withholding Attack on Miners

Here are some potential impacts miners can suffer from block withholding attacks.

1. Reduced Mining Rewards for Honest Miners

Miners who genuinely solve puzzles, mine blocks, and broadcast them immediately can suffer reduced mining rewards as the hacker will manipulate confirmations to their favor. Thus, miners will suffer reduced mining rewards.

When attackers withhold blocks, they effectively decrease the total reward pool, which would normally be shared by all the miners. This results in the mining pool, particularly the smaller ones, experiencing a loss of their anticipated earnings.

For each miner or those involved in mining pools, this provides a system where profitability becomes uncertain. With miners losing their rewards constantly through malicious attacks, they might be hesitant to continue mining, reducing the involvement of the network.

2. Delayed Transactions

Block withholding attacks result in delayed confirmations of transactions and additions to new blocks to the blockchain. If a group of miners or hackers withholds blocks rather than showcasing them, transactions will be delayed. That may disrupt the entire blockchain functionality, preventing users from sending and receiving funds on the network.

Such instability could not only compromise the effectiveness of the network but also tarnish the credibility of the currency itself. In the case of high-capital or high-transaction networks, delays have extreme implications for the system’s overall credibility.

3. Increased Orphaned Blocks

When the blocks are withheld, delayed transaction confirmations occur, eventually creating a fork in the blockchain. Other miners who have already mined blocks will turn stale now, and all of those stale blocks will become orphaned blocks.

4. Poor Network Security

One primary effect of block withholding attacks is the degradation of the blockchain’s security. In a PoW, the longer the chain, the stronger it is since, for an attack to be successful, the attacker would need to have more computational power under his control.

When a group of miners withhold blocks from being displayed, they facilitate various frauds. For instance, hackers can misuse the blockchain by double-spending, mining new blocks without competition, etc. All of that affects network stability and reduces overall security.

5. Unreliability

When a group of miners withholds blocks and controls the blockchain network, it eventually leads to uncertainty and dissatisfaction among users as they can’t mine new blocks. Thus, the reliability of the entire blockchain will soon be lost.

6. Hindering the Mining Pool Model

Mining pools, where several miners pool their computing power to enhance the possibility of receiving rewards, are usually vulnerable to block withholding attacks.

When an attacker withholds blocks in a pool, the reward distribution becomes unfair, causing disputes and mistrust among participants. This can destroy the very essence of mining pools, which is to offer equitable rewards and improve the mining process.

7. Financial Consequences for Mining Pool Operators

Block withholding attacks have a direct effect on mining pool operators. They depend on having a transparent and equitable reward system to keep miners.

If a pool is constantly subjected to block withholding attacks, it can result in a decrease in pool participation, which consequently lowers the operator’s total revenue from pool fees. Moreover, the reputational loss due to such attacks can result in a loss of potential participants.

How to Mitigate Block Withholding Attacks?

Here are a few practical tips to mitigate block withholding attacks and avoid potential risks.

• Miners should join reputed, transparent, and decentralized mining pools. Hackers gang up and often target smaller mining pools for their block withholding attacks.
• Governments and mining authorities should employ huge penalties for miners engaging in such threats.
• Educating miners about the risks and impacts of block withholding attacks on miners and teaching best practices for secure mining can help reduce the possibility of such attacks and other associated threats.
• Attacks such as block withholding can be improved upon if it is easier for attackers to isolate a block from the network. By making the mining process more difficult (raising mining difficulty), it is harder for attackers to keep withholding blocks.
• Modifying the reward model to balance transaction fees and block rewards (such as by raising the ratio of transaction fees when block rewards are reduced) can diminish the incentive for withholding blocks. This could force attackers to be more constructive because transaction fees can motivate miners to broadcast blocks quickly.
• Continuously monitoring the mining activity throughout the network can facilitate the detection of abnormal behavior, like miners repeatedly withholding blocks. With more sophisticated network monitoring, it is feasible to identify strange trends or inconsistencies in block reporting and flag miners that can potentially be performing block withholding attacks.
• PoW networks can encourage miners to broadcast their blocks as soon as possible by offering rewards to those who systematically do so. Miners who broadcast blocks promptly and truthfully might be rewarded or given special treatment (e.g., increased likelihood of mining subsequent blocks or lower fees). In contrast, miners caught hoarding blocks might be penalized or excluded from the network.
• Favoring decentralization in mining pools and avoiding the concentration of mining power among a handful of players can help mitigate malicious block withholding attacks. Facilitate decentralized and distributed mining, perhaps by lowering the barriers to entry for small miners and promoting more diverse participation.
• Enabling miners to report fraudulent activity (e.g., block withholding) in a network can make the community responsible for stopping attacks. Introduce a reporting system or decentralized whistleblowing system to enable miners to report when they observe that an individual is withholding blocks.