Debunking the Empty Block Attack
It’s amazing how much effort critics expend on ways in which Bitcoin could not work. Few people ask about the vulnerabilities of USD for instance, which has a far greater impact globally yet in order to FUD Bitcoin, the same “concerns” are brought up again and again as if they were novel to “warn” people away from Bitcoin. The latest salvo against Bitcoin is the idea of the empty block attack, something made popular by Michael in his debate with Pomp.

To be clear, I already wrote about mining centralization scenarios, which covers the empty block attack 3 years ago. But as we’ve seen with Bitcoin critics, their forte seems to be in bringing up concerns that were addressed long ago as if they’re new during each bull cycle. Honestly, I’m pretty sick of the FUD and having to explain the same things over and over again, but given that there’s a good number of new people coming into the space, I’m going to refute the specific attack in this article.

What is the Empty Block Attack?

The empty block attack is one where a majority of mining power would be directed at mining only empty blocks and rejecting non-empty blocks. These miners would essentially execute a soft-fork where all non-empty blocks would be rejected. Given that they have a majority of hashing power on the network, so the thinking goes, they will eventually get the longer chain even if other miners were to mine non-empty blocks. If only empty blocks are being mined, all activity on the network would stop and so, the thinking goes, Bitcoin would be killed.

Who would execute such an attack? The usual villain in this scenario is China, who apparently has a majority of hashing power within its borders. The thinking goes that they would seize control of the hash power one way or the other and execute this attack on the network.

This is not a bad first-order approximation of what would happen, but the problem with this scenario is that the Bitcoin critics don’t believe that there would be any resistance whatsoever. This is about as naive as thinking that a nuclear strike on a populated city wouldn’t provoke some sort of response.

So let’s take a look at some of the countermeasures that the Bitcoin network can perform. There are two scenarios for an empty block attack: direct and indirect. The direct one is acquiring 51% of the mining equipment and executing the attack. The indirect one is compelling pools to only mine empty blocks. Let’s take the more realistic second scenario first.

Pool-based Majority is a Non-starter

Most mining power is gathered into pools and each pool operator competes with other pool operators for the business of mining equipment owners. If China were to somehow be able to take control of pools and execute this attack, most mining equipment owners would simply leave. Why? Because the pool mining empty blocks will generate less revenue than a pool mining normal blocks. Currently, the block subsidy is 6.25 BTC and fees are around 0.75 BTC. Using a pool outside of China (such as Slushpool) would give them 11% more revenue. In other words, they would have to give up 11% of revenue in a thin-margin business, a non-starter.

The pools would thus have to subsidize the mining equipment owners by at least 11%. But if they are being subsidized, equipment owners will know that they’re part of an empty-block attack, in which case there will be a significant premium for their loyalty. The pool would have to give them much more than the 11% revenue they’re losing.

The pool also has no easy way to compensate these miners with BTC with empty blocks, which don’t allow transfer of BTC. The pool, by executing an empty block attack, is essentially hoping to obsolete the very businesses that these mining equipment owners created. The premium given to these mining equipment owners would have to cover not just the opportunity cost of mining in an empty block pool but the value that they place on their entire businesses. In other words, it’s not going to be cheap. They’re going to have to spend at least the amount of money that covers the value of all these businesses and probably significantly more than that.

Direct Mining Equipment Acquisition is Really Hard

The other scenario is direct acquisition of the mining equipment. This, again, is not a cheap scenario. There are two ways a government can get their hands on mining equipment, either seizing it or producing it themselves.

How would a government go about seizing the mining equipment? One major feature of mining equipment is that they are portable and it’s well known that this equipment is moved in bulk all the time to chase the cheapest sources of electricity. How would the government even know where they are? They would have to require registration and movement of the mining equipment and require a vast bureaucracy just to keep track.

In addition, there’s the problem of seizing such valuable property from their owners without arousing suspicion. This is very difficult as the mining equipment is extremely valuable, especially in an empty vs. normal block war. As we’ll see, equipment that’s mining normal blocks in the minority will get a significant amount of fees. Thus, in such a war, every mining equipment owner will want to sell their equipment abroad and smuggle it out as quickly as possible.

Thus, the operation can’t just be a slow and steady seizure of one mining facility after another. They all have to be seized at once and with significant force. Anyone that has even a hint of what’s coming will get their equipment out of the country as quickly as possible. Even something like a prelude, like having to register mining equipment with the government would likely cause a mass exodus of all but the most unprofitable pieces of mining equipment. Thus, this operation requires a lot of man-power, lots of secrecy and lots of coordination, probably requiring the military and a lot of violence.

How about buying the equipment from the market? A huge government buyer is going to add a significant demand to the mining equipment market. As prices go up, so do profit margins bringing a lot more manufacturers into the market. Such a government would thus have to outrun the natural market dynamics of supply increasing with demand and gather not just the majority of world-wide mining equipment at one particular moment in time, but forever going forward. If at any time they stop having the majority of the hash power for any significant amount of time, their empty block attack is lost.

How about manufacturing the equipment themselves? Manufacturing it themselves would be similarly hard as they would have to compete along the entire supply chain of parts that are needed to manufacture such equipment. They would increase the profit of these parts, making it more profitable and creating more supply, ultimately creating more mining equipment manufacturers that will compete with them. In other words, they would have to outrun the free market process for equipment manufacture and that will not only require a lot of money, but a lot of technical and business competence which governments typically don’t have.

What happens if a Country has Majority Hash Rate

But let’s leave aside this concern and give the Bitcoin critics the advantage here. Suppose a country somehow manages to get 51% of the mining hash power, whether through manufacturing it themselves,buying or seizing it on the market. What would happen then?

They would start the empty block attack to halt the entire network. What would the rest of the network do? They would likely be upset that only empty blocks are being mined and would see normal blocks get wiped out. The rest of the network would rightfully see the empty blocks as an attack on the network, identify it as such and not accept such blocks.

This is very easy on any full node implementation. There’s an RPC command called “invalidateblock” which essentially says “do not accept this block or any block that builds on top of it”. The entire branch that the nation-state attacker worked so hard to create can be invalidated by any node with that single command. This would have to be done by each individual node, but given that there’s literally no transactions being processed on the empty block chain, node operators would be incentivized to run it.

For the minority of the hash power that’s getting their blocks overridden by the empty blocks, they would clearly want to run “invalidateblock” as otherwise they would make no money. From a game-theory perspective, a large portion of the network is economically incentivized to enter a new minority consensus. In other words, a decentralized subset will form against the clearly centralized majority because of economic incentives.

Empty vs. Normal Chain War

At this point, Bitcoin would fork: one empty blockchain and one normal blockchain. The normal one would have transactions but less hashing power, so would run slower. The empty one would have no transactions but more hashing power so would run faster. They would be separate chains and every economically significant node would follow the normal blockchain as it’s the only one that’s actually processing transactions.

Not only that, but because of the backlog of transactions due to reduced hashing power, fees would go up making mining on this chain significantly more profitable. As a result, there will be economic incentive for more hashing power to come on the minority side. This may include new equipment being manufactured, old equipment coming online and even defections (stolen or smuggled) from the majority side.

In the meantime, the majority side would have to keep a majority through the new equipment manufacture, old equipment usage and defections on the minority side to continue their attack. If at any point the normal blockchain has more proof-of-work than the empty one, the empty blockchain would be wiped out and the attack essentially thwarted.

But even if the normal blockchain has less hashing power, it will chug along happily while the empty blockchain will continue adding blocks uselessly. No one will be able to buy or sell on the empty chain as there’s no way to send to or receive from any exchange. Such a chain will not affect what everyone else will consider the real Bitcoin and few are going to pay it much attention.

Conclusion

Given all of these realities, a nation-state would have to weigh out these scenarios and determine if it’s worth it. Even with unlimited money, which they don’t have, and majority control of new mining equipment manufacturing world-wide, which is highly unlikely, the probability of failure, that of a decentralized minority forming, is really high. Make no mistake, a failure of this magnitude would be a massive black eye to their reputation and prestige at home and abroad. This is the sort of humiliation that government officials avoid at all costs.

That said, I personally would welcome such an attack as I think it would be great for Bitcoin. Not only would we test ourselves against a nation-state enemy, but an authoritarian government that does this is likely to legitimatize Bitcoin significantly to its enemies and after Bitcoin wins, to themselves.
['Jimmy Song']
['Blockchain', 'Technology', 'Bitcoin Mining', 'Bitcoin', 'Game Theory']