AntonyMint.

I come from a more technical background, but I do believe I understand the economic implications of the Bitcoin technology and I do also clearly see the point you are trying to make with your attack.

I do however believe that your attack is not viable in the long run...or rather, it's negligible.

There are, I think, two possible scenarios of how the cartel could withhold the transactions from the rest of the network, and a hybrid approach using both depending on whether the transaction is internal to the cartel network or not.


1) The cartel wallet would only connect to nodes that use the same wallet. The only part of this segregated cartel part of the network that would connect to the complete Bitcoin network would be the mining servers. They would be configured to farm all attractive transactions, while not forwarding any to the rest of the network, effectively keeping the transactions from their cartel nodes for themselves.

I suppose this is a rather unrealistic scenario on the technical front, as only a single ill-behaved node in the cartel section of the network sending transactions to a single member of the non-cartel part of the network would propagate most of the transactions from the cartel network onto the non-cartel network before being mined. A few of these nodes - and I don't doubt someone in the Bitcoin community would make it happen - and the networks would effectively be joined again. So let's move on.


2) I would assume that the scenario you have in mind would involve a custom cartel wallet, that directly sends the transactions to one or several cartel mining servers. At the same time, the cartel mining servers would exchange transactions. In this case, the only connection that allows the cartel part of the network to siphon revenue of the non-cartel part of the network are the mining servers of the cartel, and they are effectively the only part of the cartel network that is actually operating as Bitcoin nodes.

Effectively, this would stop the cartel wallet software from enabling transactions to the rest of the network. In this case, I would argue that the cartel would basically implement an off-chain payment system, which additionally records transactions on the blockchain with a delay. This comes down to nothing but blockchain bloat.


The real issue with your attack is, though, that, as long as any one node of the cartel network is running the Bitcoin protocol on some level, the transactions can be funneled back into the non-cartel network quite easily. As soon as the cartel tries to control its own part of the network to an extent where the nodes are no longer part of the Bitcoin network, they will de facto implement their own payment network with their own hybrid Bitcoin/cartel wallet. Personally, I would then consider the fees to be cartel fees, not Bitcoin fees. As they will also require proportionally more hashing power to verify their own transactions, their take from the Bitcoin network would not really create an imbalance in my view.

The question then is, at what point do you still consider fees attached to such a transaction as revenue of the Bitcoin network. Basically, on a basic level, what you are saying is that somebody who makes additional profit (in any way) can use those profits to increase their share of the mining power in the network. This is already possible nowadays, in much simpler ways than through your attack scenario.

Basically, your attack falls apart the moment other factors than just the revenue from mining play a role. As Bitcoin miners are likely to find other applications, such as heating, or - as mentioned by posters before - can be paid by some other company to keep mining while prioritizing their transactions, they will generate extra revenue, too, which, in turn, they can also use to increase their share of the mining power in the network. In fact, every big mining player will strive to diversify his income streams. I would even say that a lot of big mining operations will not solely be mining businesses anymore. For many, it might not even be their main activity.

In the end, the imbalance created by your attack will just play a small role in the overall economic balance of the mining market and will just be one extra revenue stream next to many others. The mining part of business might become secondary and the profits derived thereof might no longer be relevant to the economic balance of the market, which will be dominated by the same economic forces as the more traditional markets. The only consequence of such an attack would be to starve off businesses based solely on mining - something I think is a natural development even without your attack scenario.

In the end, I can come up with many technical ways to reduce the impact of your attack, but in a way you are right. I don't think it's realistic to remove this attack vector completely without modifying the core Bitcoin protocol. I do however believe it will simply not matter enough and the implications will be significantly less drastic than you imagine.