Minority Mining Pools Threaten to Collude Against Contentious Ethereum Update

Ethereum miners have formed a cartel of sorts to thwart the implementation of a now contentious proposal – one they say cuts into their bottom line unfairly.

Eight Ethereum mining pools amounting to around 30% of the network’s hash power have cast their support behind tiny mining pool Flexpool’s stance against Ethereum Improvement Proposal (EIP) 1559.

The small pool – which only mined 10 blocks among 48 miners in December – is now calling on Ethereum miners to jump ship from major mining pools that support the update such as Sparkpool (24% network hash power) and F2Pool (11%).

“Don’t be a slave to your mining pool. Blacklist pools that support robbing their miners just so that they can inflate the price of [ETH] for rich speculators,” a Flexpool blog post reads. 

Since the blog post was published on Jan. 14, some 400 miners have joined Flexpool, CEO Alexander Sadovskyi told CoinDesk in a Telegram message.

First proposed in April 2019 by Vitalik Buterin, EIP 1559 flips the traditional mining payment scheme on its head by burning most of the transaction fees typically given to miners in a bid to address transaction fee volatility and improve the blockchain’s woeful user interface. (Here’s a short description from Ethereum developer Tim Beiko). 

One blockchain analyst went as far to call EIP 1559  “the biggest change to any blockchain post-release.”

And although the update has not been officially accepted for mainnet, the EIP has received strong support among developers and could be forked into the Ethereum codebase sometime after the Berlin hard fork. That hard fork is roughly queued for February or March.

It’s understandable why Ethereum miners would want EIP 1559 to never be implemented, or at the very least delayed. 

Miners have been a big winner from an uptick of on-chain activity sparked by the emergence of decentralized finance (DeFi). Indeed, mining profitability is reaching near three-year highs as on-chain congestion pushed transaction fees to record highs in 2020, according to data collected by BitInfoCharts.

Not only this, but Ethereum mining is an industrial-scale business. 

Firms such as China-based Linzhi have begun rolling out new ASIC Ethereum miners developed over the last few years. A simple protocol change would force miners toward lesser-known Ethash coins – a potential waste of R&D money. Not to mention other Ethash coins are “really unprofitable,” Sadovskyi said on Telegram.

Paired with ether (ETH) breaking its all-time high on Tuesday, it's easy to see why miners are fighting tooth and nail to keep the printing press running as is.

Only time will tell if bigger mining pools react to the collusion campaign sparked by Flexpool. The three largest mining pools – BitFly, F2Pool and Sparkpool – are either anti-EIP 1559 or neutral, according to CoinDesk inquiries.

BitFly has long been against the proposal. It reaffirmed its stance in a tweet saying the EIP may put “Ethereum's future at risk.”

After publication of this article, F2Pool co-founder Chun Wang told CoinDesk in a message that the pool will support EIP 1559 and "is not going to be neutral." F2Pool Financial Director Da Liang earlier told CoinDesk the that the pool was "neutral at this stage and not ready to announce anything officially." The pool also operates an Eth 2.0 staking service, Stakefish.

It also seems as if dominant Ethereum mining pool SparkPool is walking back its prior stance on the EIP. In June, SparkPool CEO Xin Xu told CoinDesk that a “better fee model design is needed” and that the pool had been “supportive of EIP 1559 for a long time.”

That may not be the case as SparkPool Telegram admin "CZ" said no SparkPool employee had given a public stance on the subject. He added: “Obviously, mining pool (sic) always oppose 1559.” The pool’s official Twitter chat also promoted an article against the EIP on Jan. 20. 

SparkPool has yet to respond to requests for comment.

Dissenting Ethereum miners need at least 51% of the network’s hash power to nix implementation of EIP 1559.

Here – in the extremely unlikely scenario – a dominant anti-EIP 1559 mining cartel would be able to censor blocks that use features of EIP 1559. Any blocks conforming to the new rule set with EIP 1559 would be stopped from being processed.

Beiko, the unofficial project manager for EIP 1559, told CoinDesk it's unlikely to come to that point, particularly because of how early EIP 1559 is in its development.

“It’s worth noting how ‘early’ 1559 is in the deployment process,” Beiko told CoinDesk in an email. “Yes, it’s been worked on for a while (mostly because of how big of a change it is and how much R&D there was to do), but it’s still not scheduled for any mainnet upgrade.”

Beiko added the EIP could be skipped for multiple reasons going forward including consensus issues among Ethereum Core Developers. 

“I’m obviously biased here, where I think shipping as is is probably the best path forward, but this is ultimately not my call. The best the people working on 1559 can do is make a compelling case for it to the community,”  Beiko said.

Sadovskyi told CoinDesk he expects Ethereum developers to make some concessions to miners given the public backlash fomenting in the mining community. He said it's unlikely Ethereum developers totally disregard miners as “Ethereum devs care about their reputation.”

“The response from eth dev team, non-miner community has been very dismissive, often hostile,” Charles Spears, VP of Strategy at Ethereum mining firm American BitPower, told CoinDesk in a Telegram message.

“There is a narrative that miners are making tons of money and yes, times are great right now. But GPU miners really took it on the chin for a couple years there, which we feel goes unnoticed,” he said.

On the other hand, miners serve the Ethereum network and not the other way around. The thinking goes that there will always be a mining market as long as it's profitable. Moreover, Ethereum mining has always had an uncertain shelf life as Eth 2.0’s proof-of-stake (PoS) consensus mechanism does away with it all together.

A recent lesson in decentralized governance also indicates where this struggle could go: Programmatic Proof-of-Work (ProgPoW).

That failed campaign was a multi-year attempt to update Ethereum’s mining algorithm from Ethash to the newer ProgPoW. It failed to reach consensus among developers multiple times, despite many in the mining businesses best efforts. It left large parts of the Ethereum ecosystem antagonized which may in some part be fueling sentiment around EIP 1559.

So, what power do miners have? Not much, unless they want to attack the Ethereum network itself, Ethereum developer Micah Zoltu wrote in a Jan. 20 blog post.

“Any censorship attack by miners against the interest of users will almost certainly result in the core developers taking very aggressive action against miners,” he explained in the blog post. “The most likely retaliation that the core devs could execute would be a rush to launch Proof of Stake, which would completely remove all miners/mining from Ethereum.”

So maybe we do get Eth 2.0 a bit faster than expected?

Probably not, Beiko said, as following through on colluding against the update would bare large costs for mining parties.

“It is easy for [miners] to signal they are against the change, and much costlier for them to actually follow through on things like forming cartels,”

Update (Jan. 22 17:45 UTC): Corrected description of 51% censorship attack. Also updated F2Pool's public stance on EIP 1559.