A newly published CornellUniversity paper suggests that Bitcoin mining pools should eventually become smaller in size. Eyal comes to this conclusion because he believes pools are incentivized to attack each other through a block withholding attack, making it risky to allow any unidentified miners to contribute to pooled mining.
The paper, authored by Ittay Eyal and partly funded by the SWIFT Institute, examines the consequences of a block withholding attack in an environment with competing mining pools. In a block withholding attack, an individual miner makes it seem as if he is working for the pool by contributing hashing power in order to help the pool find a new block on the blockchain.
In reality, however, the individual miner is not supplying any calculations that are actually useful for the pool. But because it is impossible for the mining pool to tell the difference, the miner will still be rewarded for his work. As such, all other miners – the ones that did actually help find a new block – will have to share the reward with the dishonest miner, hence earning them less bitcoin.
The block withholding attack is not new, but it has long been believed that there