A new mining pool claiming that all transactions will be filtered for regulatory compliance sets a dangerous precedent of censorship, according to privacy coin advocate Riccardo Spagni.
Spagni is best known as the long-time lead maintainer of Monero, a leading privacy coin so effective that the IRS is spending $1 million in an attempt to make its transactions traceable.
“Regulators will undoubtedly see this as a great thing and will ‘encourage’ other mining pools to implement something similar,” Spagni said, adding, “It’s only a matter of time till most Bitcoin mining pools are forced to do this transaction filtering.”
Spagni highlighted a section of Blockseer’s Oct. 29 release noting that “blocks posted to the Bitcoin blockchain by Blockseer’s pool will only contain filtered transactions.”
Blockseer’s Bitcoin mining pool will use labeling data from Blockseer and Walletscore, as well as information from verified sources including the United States Office of Foreign Asset Control’s (OFAC) BTC address blacklist, according to the release.
Blockseer parent company DMG Blockchain Solutions said that over the past two years, it “has worked with various accounting and legal firms as technical experts to investigate and test data from various mining pools, as there is currently no requirement for private pools to meet any data or reporting standards.”
The regulated mining pool will be based in North America and will provide “the utmost level of transparency, auditability and corporate governance,” according to the release. Users will be required to pass strict know-your-customer (KYC) requirements.
Its goal is to create standards that assure users “that proper governance is in place for reliable data reported in a transparent way with third party independent verification.”
Fraud, theft, money laundering and other illegal dealings “will be filtered out of any block that this pool will post to the Bitcoin blockchain,” the company promised.
To do this, the company will use DMG’s existing crypto forensics tools—which includes Walletscore—to ensure that the Blockseer mining pool is “focused on being devoid of transactions from known nefarious wallets which use this medium in ways that continue to sully the reputation of cryptocurrencies, specifically Bitcoin, in the mainstream as well as to impede widespread adoption,” said DMG’s COO Sheldon Bennett, who led the firm’s forensic practice.
“We recognized early on the need for a mining pool that provided data that meets the needs of financial audits,” Bennett said. “However, it is not just public companies who need better transparency in pools, but any company or individual that sees the value in higher corporate governance through independent assurance of mining pool operations, fees and data.
He added: “Blockseer’s pool will be the first of its kind focused on governance, transparency and building Bitcoin blocks on the network, which are not primarily focused on transaction fees first but on sound transaction data and history.”
Money vs. punishment
Spagni suggested refocusing industry attention on p2pool, a decentralized mining pool, and Stratum v2, which can improve decentralization of the mining pools that control a significant percent of Bitcoin’s hash rate.
He added, “[m]ining is zero-sum so the KYC miners are at a competitive disadvantage.”
Spagni responded: “That’s true, but I think practically miners might be ‘obliged’ to use a compliant pool, and then they’ll have little choice even if it means they don’t get those extra fees.”
It’s not necessary to get every pool to comply with regulatory standards, Spagni said. “[Y]ou just need to punish miners themselves till the bulk (of large farms, not small-scale miners) are forced to mine on ‘compliant’ pools.”