An interesting way that the distributed network of Bitcoin limits government censorship. An interesting backlash of such conduct is these mining pools are made up of a lot of regular folks running mining equipment in their homes (I did this originally researching Bitcoin which I started using it to pay for Tor servers overseas), and they can change mining pools and influence their behavior. Consequently, it all depends on your electricity rates, but at the very least it’s a way to convert electricity dollars into Bitcoin without using a regulated exchange that reports you and your Bitcoin addresses, though you’d have to check the pool to see if they have KYC or AML policies based on the country they reside in. Also, there is technology being worked on to be added to Bitcoin to afford more privacy and limit the government tracking addresses in this manner. You could also sneakily use exchanges to convert the Bitcoin into other cryptocurrencies and then back into Bitcoin again later breaking that tracking, or use a mixing service where a bunch of people put in Bitcoin that gets scrambled together and sent back out breaking tracking. There are severe limitations to how they track addresses and attribute ownership to Bitcoin, and of course fees apply when transacting.
By Aaron van Wirdum
The news got buried in part due to Trump’s inauguration and subsequent rumblings of a Strategic Bitcoin Reserve (SBR), but developer b10c recently published research showing that F2Pool — a mining pool representing ~11% of hash power on the Bitcoin network — is censoring OFAC-sanctioned transactions… again.
In case you don’t know what this means: the US Department of the Treasury’s Office of Foreign Asset Control (OFAC) maintains a list of sanctioned entities, including a number of Bitcoin addresses; it’s illegal to do business with these entities under US law. It’s actually unclear if this means miners cannot include transactions to and from these addresses in blocks they produce — but F2Pool appears to be rather safe than sorry.
Now, as long as it’s just F2Pool applying this policy, this is not really an issue. Some transactions will be delayed by about ten minutes or so, once in a while, but that’s about it.
If more pools start doing it, the delays will get longer and more frequent — but still not terrible. Not even if it’s a majority of pools.
The real issue will arise if a majority of mining pools not only censors transactions, but also refuses to build on top of blocks that do include these transactions. If this were to happen, these transactions wouldn’t confirm at all anymore… not for as long as these mining pools remain a majority. Bitcoin would no longer be censorship-resistant.
I can’t really fault F2Pool for adopting their policy. Although I would much prefer it if no mining pools censor, we unfortunately live in a world where even open source software developers may face prison time for enabling users to transact freely.
Rather than flirting with an SBR, it would be great if the new Trump administration first just stopped such state attacks on Bitcoin.
This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.