Exclusive Mining of Blockchain Transactions
After creating a new blockchain transaction, the next step usually is to make miners aware of it by having it propagated through the blockchain’s peer-to-peer network. We study an unintended alternative to peer-to-peer propagation: Exclusive mining. Exclusive mining is a type of collusion between a transaction initiator and a single miner (or mining pool). The initiator sends transactions through a private channel directly to the miner instead of propagating them through the peer-to-peer network. Other blockchain users only become aware of these transactions once they have been included in a block by the miner. We identify three possible motivations for engaging in exclusive mining: (i) reducing transaction cost volatility (“confirmation as a service”), (ii) hiding unconfirmed transactions from the network to prevent frontrunning and (iii) camouflaging wealth transfers as transaction costs to evade taxes or launder money. We further outline why exclusive mining is difficult to prevent and introduce metrics which can be used to identify mining pools engaging in exclusive mining activity.
Keywords: Blockchain, Tax Evasion, Cryptocurrency, Money Laundering, Frontrunning
Strehle, E. & Ante, L. (2020) Exclusive Mining of Blockchain Transactions. In Scientific Reports 2020 – Conference proceedings of the Scientific Track of the Blockchain Autumn School 2020, (1), pp. 87-95. doi: 10.13140/RG.2.2.22494.05442
04 Sep 2020
Scientific Reports 2020 – Conference proceedings of the Scientific Track of the Blockchain Autumn School 2020