In a post on the Bitcoin development mailing list today, Blockstream CTO and long-time Bitcoin Core contributor Greg Maxwell laid out the case that an unnamed Bitcoin mining hardware manufacturer is using a flaw in Bitcoin's proof-of-work implementation to gain an efficiency advantage of up to 30 percent over other miners.

Moreover, this could explain why Segregated Witness (SegWit), the Bitcoin protocol upgrade proposed by the Bitcoin Core development team, is blocked by some miners. Many therefore suspect the hardware manufacturer in question is Bitmain, whose CEO Jihan Wu is a staunch opponent of SegWit.

A source familiar with the matter has confirmed to Bitcoin Magazine that this is indeed the case; though that source prefers to remain anonymous.

ASICBOOST

ASICBOOST is a patented technology developed by former CoinTerra CTO Timo Hanke and RSK Chief Scientist Sergio Damián Lerner. It takes advantage of what Maxwell described as a "vulnerability" in Bitcoin's proof of work system, by utilizing what the ASICBOOST inventors describe as "an ingenious new way to process work items". With ASICBOOST, specialized ASIC mining-chips can be up to thirty percent more efficient.

Maxwell writes that an ASIC mining device from a "major manufacturer" has been reverse engineered, which revealed that it contains undisclosed, covert use of ASICBOOST functionality. This could, Maxwell estimates, lead to as much as $100 million in increased revenue per year for a mining cartel controlling 50 percent of the network hashrate.

In addition to leading to enormous profits, the ASICBOOST technique can also have detrimental effects on the bitcoin mining ecosystem as a whole, Maxwell explained:

"This could have a phenomenal centralizing effect by pushing mining out of profitability for all other participants, and the income from secretly using this optimization could be abused to significantly distort the Bitcoin ecosystem in order to preserve the advantage."

Bitmain

Maxwell did not mention a specific hardware manufacturer in his email himself, but a source has confirmed to Bitcoin Magazine that Bitmain is the entity in question. And with only a handful of ASIC producers active on the market today, there really aren't many candidates.

Bitmain may also hold the patent for ASICBOOST in China, but the details of the seemingly related patent are not clear at the time of publication. According to BitGo CTO Ben Davenport , the patent is related to ASICBOOST.

Perhaps even more importantly, the incompatibility of the covert use of ASICBOOST with Segregated Witness seems to be a giveaway. According to Maxwell, the covert method of mining with ASICBOOST is no longer possible if Segregated Witness activates on the Bitcoin network. Over the past six months, Bitmain has been one of the only staunch opponents of Segregated Witness in the Bitcoin ecosystem.

As noted by Maxwell:

"An incompatibility would go a long way to explain some of the more inexplicable behavior from some parties in the mining ecosystem so I began looking for supporting evidence"

The use of ASICBOOST could also explain why Bitmain's main pool, AntPool, mined blocks roughly 100KB smaller than other mining pools of a comparative size during the month of February.

An unnamed source familiar with the matter told Bitcoin Magazine that the technique is easier to pull off when empty or nearly-empty blocks are mined.

Additionally, Maxwell's post claims that the best methods of covertly implementing ASICBOOST are "significantly incompatible with virtually any method of extending Bitcoin's transaction capabilities", with extension blocks as a notable exception. Recently, Bitmain CEO Jihan Wu tweeted support for a new scaling proposal based on this exact concept. Former BTCC COO Samson Mow even said Bitmain funded the extension blocks proposal, though Wu denied that to be the case.

Solutions

ASICBOOST has been discussed on the Bitcoin development mailing list before. As patents are state-enforced, some Bitcoin developers, like Bitcoin Core developer Peter Todd, are concerned it could skew competition by non-market factors. Others, however, argued that an optimization in hardware should not be punished by a protocol change, and at that point no consensus over a solution was found.

Now, in his post to the mailing list, Maxwell proposes two solutions to counter at least the covert use of ASICBOOST. The first is, indeed, activation of Segregated Witness by flag day activation: miners can be "forced" to signal support for Segregated Witness through a User Activated Soft Fork (UASF) starting at a specific point in time. The second option is described as a WTXID commitment, which simply makes the covert method of ASICBOOST impossible even without activation of Segregated Witness.

Bitcoin Magazine reached out to Bitmain for comment on this story but had received no response at the time of publication.

Aaron van Wirdum contributed to this article.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.