Stratum V2 Promises To Further Decentralize Bitcoin

At the core of bitcoin’s mission has been a curve towards decentralization on many layers. The word itself is loaded — and it has a lot of meanings. Decentralization has many different categories from technical to cultural — and different stakeholders from the developers of the Bitcoin Core team to the exchanges that power fiat on-ramps and off-ramps.

Yet one area where there is a lot of focus are the miners that secure the bitcoin network and its proof-of-work chain. Stratum V2 is an upgrade to the bitcoin mining stack that aims to help miners as small as hobbyists with a few bits of ASIC mining equipment to have a more flexible and censorship-resistant route to communicating with mining pools. It takes the ideas of BetterHash and implements a few more improvements on top and differences.

From mining pool concentration in China to how miners can choose different mining pools, the amount of decentralization present in miners is an important consideration for the security of bitcoin.

After all, if miners that aggregate together in terms of mining pools embrace new policies such as censoring certain blocks, the promise of having a trustless, censorship-resistant technology solution would give way to a new “regime before the fact� of centralized mining pool leaders, who might be forced one way or another, whether through personal incentives like greed or through pushes for country-by-country regulations, to make decisions that benefit them rather than the network in aggregate.

To resist against this force, Stratum V2 is being supported by Slush Pool, a mining pool with more than 1.2 million bitcoin mined since 2010 and the largest non-Chinese based bitcoin mining pool. Its open source protocol called Startum V1 is now used by most mining pools now. Braiins, the parent organization, also offers open source mining firmware, and so helps miners throughout the mining value chain.

Stratum V2 allows individual miners within a mining pool to choose their own blocks to mine rather than having to mine the one a pool proposes for them, while still benefiting from a more stable aggregation of mining rewards so they can defray volatility. Instead of the current paradigm of the pool offering a incomplete block template that an individual miner has to accept, now miners can optionally choose the blocks they want to mine and send it back up to the pool.

Stratum V2 also provides a bunch of different technical upgrades, from switching to JSON for communication to binary to make communication more seamless to reducing redundant communications between pools and individual miners, to cryptographic authentication that allows you to prevent man-in-the-middle attacks such as your ISP stealing your hash power.

In other words, Stratum V2, if adapted widely would be able to abstract away a key tradeoff for miners looking to join a mining pool between the surety of income flows, and the need to play by the underlying rules imposed by a pool.

This has more powerful implications than realized, if it was spread throughout the current system and there was equivalent uptake on Stratum v2 as there was with Stratum V1.

The idea is that instead of having large organizations with large slices of mining hash, you could bring the power down to individual-level mining units as the consensus group for proof-of-work algorithms — bringing decentralization all the way to individual hardware holders or physical farms, and preserving more of the censorship-resistant nature of the network. With less of a central third party to lean on, censorship resistance for the whole network becomes stronger.

Instead of thinking about hashing power aggregated into large mining pools, you can think about power distributed among individuals spread geographically — making it more difficult for any centralized organization or country to lean on the bitcoin system and force it one way or another.

People often talk about the mining pool centralization in China as one of the key issues surrounding bitcoin’s decentralization. Yet, here again, we are reminded of the varied arguments present within that single, seemingly simple word. Decentralization, but towards what? And who are the ones who inherit distributed power from a central base?

As with most examples with bitcoin, a cultural need to preserve the principles of the system and to create architecture that mitigates the creation of centralized guardrails has led to a technical solution — one that aims to use better standards in order to voluntarily move miners and mining pools towards a more even, decentralized and censorship-resistant consensus for bitcoin.