This bitcoin mining pool threatens to betray the project’s core principles

A new bitcoin mining pool, launched in beta by analytics platform Blockseer, will refuse to process transactions that involve certain blacklisted wallet addresses, in a bid to ensure it does not inadvertently facilitate criminal activity.

The pool will use Blockseer and Walletscore forensics data, as well as the United States OFAC blacklist for crypto, to filter out any transactions considered “nefarious” from blocks posted by the group.

According to DMG, parent company of Blockseer, all contributors to the new bitcoin mining pool are also required to pass Know Your Customer (KYC) protocols, thereby preserving the “utmost level of transparency, auditability and corporate governance.”

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“We recognized early on the need for a mining pool that provided data that meets the needs of financial audits. Blockseer’s pool brings a new compliance-focused standard to the industry, not only in the data the pool provides to its users, but also in the Bitcoin blocks it mines on the network,” explained Sheldon Bennett, COO at DMG.

“The pool is focused on being devoid of transactions from known nefarious wallets which use this medium in ways that continue to sully the reputation of cryptocurrencies.”

Bitcoin mining pools

When Bitcoin was in its infancy, mining difficulty was relatively low, such that an individual with a powerful computer could successfully turn a profit. In other words, the value of the cryptocurrency reward was greater than the cost of electricity expended (and any other overheads).

However, as difficulty rose (a reflection of increased competition on the network), individual miners were squeezed from the market, paving the way for bitcoin mining pools that aggregate the compute resources of a vast number of individuals.

Any proceeds generated when a mining pool mines a block successfully are then divided up between participants, commensurate with the horsepower contributed by each.

The idea of a mining pool able to censor “nefarious” transactions may seem like an unqualified positive, but some quarters of the Bitcoin community fear the Blockseer mining pool could set a precedent that undermines the core ethos of the project.

Bitcoin is founded on the notion that financial transactions should be both decentralized (i.e. detached from intermediaries such as central banks) and entirely private. However, allowing a centralized entity - in this case, the Blockseer mining pool - to adopt the role of transaction arbiter acts to water down these core tenets.

The power to select which transactions are processed and which are not is also essentially the power to select who is able to participate in the Bitcoin network, which is designed to be entirely open and anonymous.

Others have suggested that the ability to censor certain transactions might also give regulators the impetus to make further demands that eat into the advantages of the censorship-resistant bitcoin payments system.

According to Erik Voorhees, CEO of trading platform ShapeShift, “this is not an imminent problem, but it is coming. Now is the time to prepare for it.”