Introduction

A Block Withholding (BWH) attack is a malicious behavior targeting mining pools. In such an attack, malicious miners within the pool deliberately withhold full blocks when found and only submit regular proof-of-work shares. As a result, attackers retain almost all their expected mining income while causing the mining pool to lose potential block rewards. Block withholding attacks do not modify blockchain data but disrupt mining pool revenues and damage trust and cooperation among miners.
This document provides an in-depth, multi-faceted analysis of how BWH attacks affect miners, covering income loss, mining efficiency, pool management, trust relationships, overall network health, and other dimensions.

Impact on Income and Profit Loss

Block withholding attacks directly reduce the block output of the victim mining pool, thereby affecting miners' earnings. This financial impact can be analyzed at two levels: individual miners and the mining pool as a whole.

1. Impact on Individual Honest Miners

When a mining pool suffers from a BWH attack, honest miners receive fewer rewards because the pool generates fewer blocks. The pool appears "unlucky" and experiences longer intervals without successfully mining a block. In proportional or PPLNS (Pay-Per-Last-N-Shares) distribution schemes, malicious miners still collect share-based payouts without contributing full blocks, effectively diluting the rewards of honest miners.
For example, in a Bitcoin mining pool, if an attacker withholds 1 full block out of every 1000 shares found, their personal income is reduced by only about 0.1%, but the pool loses the reward of one entire block. Thus, the fruits of honest miners' labor are partially seized, significantly reducing their earnings and profitability.

2. Impact on the Mining Pool as a Whole

At the pool level, every withheld block directly results in the loss of a mining reward (e.g., 6.25 BTC plus transaction fees in Bitcoin). This is a major financial blow, especially if the attacker controls a non-negligible proportion of the pool's total hash rate.
In Pay-Per-Share (PPS) models, the pool operator pays miners based on submitted shares regardless of actual block production. Therefore, withheld blocks cause direct financial losses to the operator. In proportional/PPLNS models, rewards are only distributed if blocks are actually mined; attackers freeload by collecting a share of honest miners’ earnings without contributing full blocks.

The table below summarizes how financial losses manifest under different payout schemes:

3. Impact on Attackers' Revenue

Interestingly, attackers might slightly increase their overall income.
If attackers simultaneously run their own mining pools or mine normally elsewhere, weakening competitors improves their share of global block production. Research shows that a large pool attacking another large pool can slightly increase its total earnings.
For example, if two pools each hold 25% of the network’s total hash rate, and one allocates 4% of the total network hash rate for attacking the other, the attacker’s total earnings might increase by around 1.87%, while honest miners in the attacked pool could lose about 10.2% of their earnings.

Chart:
When two pools (A and B) each have 25% network share, and A attacks B through block withholding:

• Blue Line: Attacker’s revenue change (peaks around +1.87% at ~4% attack rate).

• Red Line: Victim pool’s miner revenue drops (~-10.2%).

• Green Line: Other uninvolved miners benefit slightly due to temporarily reduced network effective hash rate.

Thus, while the attacker’s direct gain is limited, the victim suffers substantial losses, making block withholding more of a damage-dealing tactic rather than a highly profitable strategy.

Impact on Mining Difficulty and Efficiency

Block withholding attacks also impact mining difficulty indicators and overall mining efficiency:

1. Hashrate Waste

BWH attacks cause significant waste of computational power: attackers find valid blocks but refuse to publish them, resulting in tremendous amounts of wasted electricity and hash power without contributing to blockchain growth.
Thus, the efficiency of unit hash rate contributions to the network decreases. If a substantial portion of total network hash power is wasted through withholding, the actual computational effort needed to generate each block increases, leading to higher energy consumption for maintaining the network at a steady block rate.

2. Short-Term Fluctuations in Mining Difficulty

Block withholding slows down actual block production speed because part of the mining capacity does not result in valid blocks.
Before the next difficulty adjustment, honest miners may notice that blocks are being found less frequently, meaning the difficulty temporarily becomes too high relative to the effective hashing power. However, honest miners’ share of block rewards improves slightly because the attacker's contribution is wasted.
Over time, when the network detects prolonged slow block production, it will adjust mining difficulty downward to restore the normal block interval.
Thus, if withholding attacks persist, the network will recalibrate to a lower difficulty level, reflecting the drop in effective mining power. From an honest miner’s perspective, there’s a temporary difficulty increase during the attack period, followed by a lowering of mining difficulty afterward.

When attacks stop, however, the decreased difficulty can cause the block rate to temporarily accelerate until difficulty rises again to new equilibrium levels. Frequent attacks and stoppages cause volatility in block intervals and mining difficulty, undermining network stability and predictability.

3. Decrease in Network Security Margin

While block withholding attacks do not pose the same direct threats as 51% attacks, they effectively reduce the actual effective hash rate securing the blockchain.
Each withheld block could have added to the cumulative work securing the blockchain but was instead wasted. Over the long term, massive cumulative withholding means that for a given level of energy input, the network's security accumulation is lower than it should be.
In essence, block withholding attacks make the network pay the cost of mining without reaping full security benefits, reducing the overall efficiency of Proof-of-Work consensus.

Impact on Mining Pool Operations and Management

Block withholding attacks introduce significant operational and security challenges for mining pools:

1. Damage to Pool Reputation and Payout Pressure

When a mining pool experiences consistent bad luck in finding blocks, its reputation suffers.
If withholding attacks go undetected, the pool’s block production remains persistently lower than expected, causing miners to suspect poor management or internal issues and possibly migrate to other pools.
This is especially critical for smaller pools, where a few missing blocks can cause panic and miner attrition.

In PPS payout models, withheld blocks cause direct losses to pool operators, as they must pay miners for their shares even without corresponding block rewards. Over time, if undetected, this could lead to financial insolvency.

2. Malicious Miner Detection

To counter hidden attacks, pool operators need to deploy statistical monitoring and behavior analysis tools.
They can monitor each miner’s submitted shares and expected block-finding probability over time.
If a miner submits a large number of shares but never submits full blocks despite statistical expectations, they may be flagged as suspicious.
However, this detection is difficult because withholding behavior resembles natural bad luck.
Attackers can also split their hashing power across multiple accounts ("sybil mining") to avoid suspicion, making purely statistical detection less effective.

3. Admission Restrictions and Trust Mechanisms

Some pools respond by tightening membership criteria, requiring KYC (Know Your Customer) identity verification, deposits, or stricter onboarding to prevent infiltration by competitors.
Others propose punitive mechanisms: penalizing all miners' rewards slightly if block withholding is detected, thus encouraging collective oversight.
However, this risks unfairly punishing innocent miners and can be controversial.

Another defensive measure is reward structure adjustment:

• Increasing bonuses for miners who submit full blocks.

• Reducing the pure share-based payment proportion.

Alternatively, the "Oblivious Shares" proposal suggests that miners should submit proofs without knowing whether they found a full block — preventing selective withholding. However, implementing such solutions would require major protocol changes (e.g., hard forks), which are difficult to deploy.

4. Increased Management Complexity and Costs

In general, block withholding attacks force pools to balance openness and security.
While mining pools seek to grow by admitting more miners, they must also defend against hidden threats — increasing operational complexity and overheads.
Large pools may afford advanced detection systems, but smaller pools often lack resources, making them more vulnerable.

Impact on Trust and Cooperation Relationships

Block withholding attacks severely damage trust between miners and pools, as well as among pools themselves:

1. Trust Between Miners and Pools

Mining pools traditionally operate based on mutual cooperation and fair reward sharing.
Miners contribute hashing power, and pools distribute rewards based on their contributions.
However, block withholding reveals that even when everyone follows the nominal rules, some internal actors might act selfishly at the expense of others.
This creates mistrust among miners:

• Are there internal saboteurs?

• Is the pool operator capable of detecting and preventing malicious behavior?

If a pool fails to explain consistent bad luck or to implement effective countermeasures, honest miners may lose confidence and leave.
On the other hand, pool operators may also become overly suspicious of all members, leading to intrusive verification procedures that further erode community trust.

2. Trust Between Pools

Ideally, different mining pools compete but do not actively sabotage each other.
However, block withholding introduces strategic hostility between pools.
Large pools may infiltrate and attack smaller or rival pools to weaken competitors, disrupting the spirit of healthy competition.

The lack of trust discourages information sharing and collaborative efforts such as improving mining protocols (e.g., Stratum V2) or coordinating responses to 51% attacks.
Without strong industry solidarity, the mining ecosystem becomes fragmented and vulnerable.

Game theory analysis shows that if there are no external punishments or regulations, mutual block withholding can become a Nash equilibrium: even though it hurts everyone, rational actors might still choose to attack rather than risk unilateral loss.

Thus, block withholding can drive mining pools from a cooperative environment into a destructive arms race, harming the entire mining sector.

3. Impact on the Miner Community

Generalized mistrust also hurts the broader mining community:

• Miners become less willing to share knowledge or support new pool initiatives.

• New protocols or improvements requiring miner consensus face greater resistance.

• Small or medium-sized miners may prefer to join only the largest pools, believing they offer better protection against hidden attacks.

This reinforces "winner-take-all" dynamics, where large pools grow larger at the expense of decentralization — against the original spirit of blockchain networks.

Impact on Overall Network Health and Security

From a macro perspective, while block withholding does not directly compromise blockchain transaction integrity like a 51% attack, its cumulative effects still pose risks:

1. Centralization and Loss of Decentralization

Block withholding exacerbates mining centralization.
Small pools are more vulnerable to such attacks and may struggle to survive, whereas large pools can absorb attacks better or even perpetrate them against competitors.
Thus, the strong grow stronger, leading to hashrate concentration in the hands of a few major players.
Such concentration weakens the network’s resistance to 51% attacks and undermines the decentralization principles foundational to cryptocurrencies.

2. Decreased Network Efficiency and Stability

As previously discussed, withholding attacks waste hashing power, resulting in higher energy consumption per valid block.
Block intervals become more erratic due to fluctuating effective hash rates.
Although Bitcoin's difficulty adjustment mechanism eventually restores equilibrium, short-term instability undermines predictability for miners and users.

Frequent block withholding could discourage miners from continued participation, especially if profitability becomes unpredictable, leading to further hashrate declines and a weaker security profile for the blockchain.

3. Protocol and Community Response

The existence of BWH attacks exposes incentive flaws in Proof-of-Work consensus — situations where rational miners have an incentive to harm the network for personal gain.
This has triggered discussions about protocol upgrades or redesigns:

• Concepts like "Oblivious Shares."

• Penalty mechanisms for malicious behavior.

• Structural changes to mining rewards.

However, implementing such solutions often requires fundamental changes to mining protocols, which are difficult, controversial, and slow to deploy.

Thus, for the foreseeable future, block withholding remains a latent threat requiring vigilance from miners, pool operators, and developers.

4. Energy Wastage and Environmental Concerns

Since Proof-of-Work mining already consumes massive energy, block withholding worsens environmental criticisms by wasting electricity without contributing to blockchain security.
This inefficiency could fuel regulatory scrutiny and bolster arguments against Bitcoin and other PoW-based cryptocurrencies.

5. Hidden and Cumulative Risks

Block withholding is an internal, stealthy threat — not immediately catastrophic, but gradually eroding network robustness.
It weakens the alignment between individual miners’ incentives and the collective good of the network.
Due to its stealthy nature, prolonged block withholding may go unnoticed, causing unnoticed losses and vulnerabilities until significant damage accumulates.

Other Important Impacts and Considerations

Besides the primary effects discussed above, block withholding attacks bring several additional noteworthy consequences:

1. Asymmetrical Impact on Pools of Different Sizes

Block withholding disproportionately harms smaller mining pools:

• Smaller pools have lower block-finding frequencies, so even a single withheld block can severely impact their revenue.

• They often lack advanced detection and security mechanisms, making them easy targets.

By contrast, large pools are more resilient:

• A single missing block represents a smaller percentage of their total earnings.

• They can afford sophisticated defenses and detection systems.

Furthermore, large pools can use block withholding attacks as a competitive weapon to further suppress smaller pools, accelerating mining centralization.

2. Asymmetrical Impact on Individual Miners

• Large-scale miners often operate their own private pools or participate in top-tier pools, protecting themselves from hidden attacks.

• Small-scale or hobbyist miners, who rely on public pools for stable income, are most vulnerable to reduced earnings caused by BWH attacks.

Thus, block withholding increases mining risks and uncertainties for small participants, pushing them out of the market and further concentrating mining power among a few large players.

3. Attackers’ Motivations and Risks

The two primary motivations for attackers are:

• Economic gain: weaken competitors to relatively increase their own share of rewards.

• Strategic suppression: force rival pools into financial trouble or loss of reputation.

However, attackers also face risks:

• They sacrifice some of their own income when withholding blocks.

• Attacks may fail if poorly executed, leading to net losses.

• If discovered and exposed (even if difficult), attackers risk reputational damage.

Current analyses show that attackers only achieve meaningful profit under specific conditions (e.g., large attacking pool, significant relative hash rate).
In most real-world scenarios, block withholding attacks yield limited or even negative returns, which partially explains why large-scale attacks are rare today.

4. Energy Waste and Environmental Impact

Block withholding exacerbates the energy consumption criticisms already facing Proof-of-Work mining.
It increases the network’s electricity usage without increasing blockchain security — wasted computational work is simply discarded.

As energy efficiency and climate impact become increasingly critical public issues, any factor that worsens mining inefficiency invites greater regulatory and social scrutiny.

5. Potential for Compound Attacks

Block withholding could be combined with other attack strategies for greater damage.
Examples include:

• Selfish Mining + Block Withholding ("Selfholding"): combining the two to maximize attacker profits while suppressing competitors.

• Block Double Submission Attacks: secretly selling withheld blocks back to the victim pool.

Although such hybrid attacks are mostly theoretical today, they demonstrate how internal and external threats could intertwine in future mining competition.

The mining community must remain alert to evolving attack combinations that exploit trust vulnerabilities.

Conclusion

In summary, block withholding attacks — although stealthy and not immediately catastrophic — have extensive negative impacts on the cryptocurrency mining ecosystem:

• For individual miners and mining pools, they cause direct income loss and unfair reward dilution.

• For the mining process, they waste computational resources and destabilize mining difficulty.

• For pool management, they increase operational complexity and force stricter membership controls.

• For community trust, they erode confidence among miners and pools alike, harming the cooperative spirit.

• For network health, they accelerate mining centralization, worsen energy inefficiency, and decrease the blockchain's effective security.

• For environmental concerns, they further damage Bitcoin's reputation as an energy-intensive system.

Although real-world instances of large-scale block withholding attacks are currently rare (mainly because profits are limited), the mere existence of this vulnerability reveals incentive flaws in current Proof-of-Work systems.

Mitigation strategies must involve a combination of:

• Better internal security practices at mining pools.

• Community-driven cooperation and transparency.

• Potential protocol-level upgrades to eliminate or reduce the incentive for such attacks.

Ultimately, only multi-pronged efforts combining technical, organizational, and ethical solutions can minimize the negative impacts of block withholding and ensure the long-term health and prosperity of cryptocurrency networks.

References

1. Eyal, I., & Sirer, E. G. (2014). Majority Is Not Enough: Bitcoin Mining Is Vulnerable. Financial Cryptography and Data Security.
   (Describes mining pool block withholding attacks and their profitability conditions.)

2. Rosenfeld, M. (2011). Analysis of Bitcoin Pooled Mining Reward Systems. Bitcoil.
   (First description of block withholding, also known as block hiding attack.)

3. Dave Hudson (2014). Pool Wars.
   (Personal blog post simulating mutual block withholding and quantifying gains and losses.)

4. Tencent Cloud Developer Community (2022). Potential Incentives in Bitcoin Mining (in Chinese).
   (Discusses mining pool competition and hidden attack strategies.)

5. Bitcoin Optech (2020). Block withholding.
   (A technical brief discussing block withholding attacks and potential mitigations.)

6. Yang Qi et al. (2023). Evolutionary Stable Strategies in Blockchain Mining Games. Applied Sciences.
   (Evolutionary game analysis on mining pools' strategy changes under different punishment mechanisms.)

7. Chen Hao et al. (2022). "A Miner Behavior-Based Defense Method Against Block Withholding Attacks." (Conference paper, link not publicly available)
   (Proposes penalty-based defense strategies.)

8. Odaily Planet Daily (2022). Exploring the Future of Bitcoin Mining: Will Mining Pools Become a Problem? (in Chinese).
   (Discussion on risks of mining pool dominance and decentralization threats.)

9. Bitcoin StackExchange (2013). How is block withholding a threat to mining pools?.
   (Community discussion about real-world impacts and motivations behind block withholding.)