After Bitcoin (BTC) mining pool operators decided to lower minimum transaction fees to 1/1 billionth of a BTC on July 15, knock-on effects are making them increasingly susceptible to a blockchain fork.
A senior developer pointed out the escalating risks involving compact block propagation times, which are a direct consequence of the fee reduction this summer. “They drove down fees just to hurt themselves,” he lamented.
For context on this new vulnerability and how pool operators have shot themselves in the foot—losing money to protect themselves from a chain fork in exchange for what they thought would become a ‘tiny increase in revenue’—it is important to understand the context of this vulnerability amid three major changes to Bitcoin since June.
Bitcoin rallies while transaction fees crash
Bitcoin (BTC) has dramatically changed in three ways this summer.
First, the number of BTC treasury companies emulating MicroStrategy (MSTR) doubled, earning the faddish “paper bitcoin summer” label on social media. Dozens of companies sold paper, i.e. shares of stock, to funnel Wall Street investment into spot BTC.
As a result of this demand, in addition to favorable policies from Donald Trump’ administration, the price of BTC has rallied. As the focus of the network turned from on-chain usage to off-chain accumulation, fewer investors have been transferring spot BTC to personal wallets.
Second, Bitcoin Core developers decided to relax storage limitations via a controversial OP_RETURN change. Kicking off the summer on June 9, lead developers of the most popular node software rolled out the red carpet for anyone looking to store media or commercial data on the blockchain.
This change was supposed to welcome masses of artists, collectors, companies, and data roll-ups. Instead, data storage has stagnated, and many blocks nowadays remain only partially full.
Read more: Bitcoin’s minimum transaction fee just got cut by 90%
Finally, node operators and mining pool operators decided to reduce the customary mempool transaction fee to 90% less than 1 satoshi/vByte.
Rather than welcome new users onto the network and grow the pie, this change caused transaction fees to continue their crash to multi-year lows.
This 90% fee reduction change is what has raised the risk of temporary chain forks for mining pool operators.
Compact block propagation
Senior developer Matt Corallo expressed concern about compact block propagation times amid this summer’s cratering fee environment.
Compact blocks are a standard way for mining pools to keep one another updated in real-time about the current chaintip and the next-most-likely block. For node operators like pools with high latency times, remote locations, or otherwise poor Internet connectivity, compact block propagation via data compression is a critical messaging tool to avoid the lengthy time it would otherwise require to propagate blocks with unabridged data.
Without knowledge of the current chaintip and the upcoming block via compact block messaging tools, mining pool operators can sit in limbo and have a de facto forked blockchain among their nodes until their internet connectivity allows a full download of all blocks, potentially losing revenue from a block that is eventually ‘orphaned’ because the miner was building on an out-of-date chaintip.
Indeed, many pools operate in remote locations, using stranded energy from exotic locations to power their mining rigs. “Pools sometimes are geographically diverse and may even fork themselves,” warned Corallo.
Low bitcoin fees ‘wreck compact blocks’
Senior developer Antoine Poinsot is now admitting that this summer’s fee reduction from 1/100 millionth to 1/1 billionth of 1 sat/vB has “wreck compact blocks.” Bitcoin Core developer Corallo agrees that elevated risks of a temporary fork due to propagation times will cost pool operators money to protect themselves.
Poinsot summarized the new vulnerability, noting how the fee reduction has increased pool operators’ mandatory compact data requirement 8,000% from less than 10 kilobytes to 800 kilobytes, “an absolutely insane number” for realistic block propagation time.
“This means compact blocks become completely ineffective at reducing average block propagation time,” he concluded, costing mining pool operators significant bandwidth costs and even the risk of holding a forked chain as they struggle to gain a real-time view of the network.