Pool Canibalization

Published by Mario Oettler on

Suppose that you own hashing equipment that gives you 30% of the total hash rate. We assume 1 BTC of the block reward. In this situation, you can expect a reward of 30% * 1 BTC = 0.3 BTC.

If you increase your hash rate by 1% of the current network hash rate, you can expect the following pay-off:

31/101 * 1 BTC = 30.69%*1 = 0.306930693BTC

So, your additional reward is 0.006930693 BTC

You could now distribute your additional hash rate among other pools instead of using it for yourself. The trick here is that you withhold every valid block you find in those pools. You can still hope for receiving pool rewards, as long as your cheating is statistically not significant. Your reward will be:

The pool hash rate will increase to 71%. You own 1% of it. Hence your gain from adding 1% hashing power to the pool will be:

1/71 * 0.7* 1 BTC = 0,009859155 BTC

This is more than the 0.00693 BTC you can expect from using the additional hashing power for yourself.