Exclusive Mining of Blockchain Transactions

BRL Working Paper Series No. 13

14 Pages Posted: 22 Oct 2020

See all articles by Elias Strehle

Elias Strehle

Blockchain Research Lab

Lennart Ante

Blockchain Research Lab

Date Written: September 4, 2020

Abstract

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

Suggested Citation

Strehle, Elias and Ante, Lennart, Exclusive Mining of Blockchain Transactions (September 4, 2020). BRL Working Paper Series No. 13, Available at SSRN: https://ssrn.com/abstract=3686529 or http://dx.doi.org/10.2139/ssrn.3686529

Elias Strehle (Contact Author)

Blockchain Research Lab ( email )

Colonnaden 72
Hamburg, 22303
Germany

Lennart Ante

Blockchain Research Lab ( email )

Colonnaden 72
Hamburg, 22303
Germany

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