Swimming with fishes and sharks: beneath the surface of queue-based ethereum mining pools

Cryptocurrency mining can be said to be the modern alchemy, involving as it does the transmutation of electricity into digital gold. The goal of mining is to guess the solution to a cryptographic puzzle, the difficulty of which is determined by the network, and thence to win the block reward and transaction fees. Because the return on solo mining has a very high variance, miners band together to create so-called mining pools. These aggregate the power of several individual miners, and, by distributing the accumulated rewards according to some scheme, ensure a more predictable return for participants. In this paper we formulate a model of the dynamics of a queue- based reward distribution scheme in a popular Ethereum mining pool and develop a corresponding simulation. We show that the underlying mechanism disadvantages miners with above-average hash rates. We then consider two-miner scenarios and show how large miners may perform attacks to increase their profits at the expense of other participants of the mining pool. The outcomes of our analysis show the queue-based reward scheme is vulnerable to manipulation in its current implementation