Sending Spies as Insurance Against Bitcoin Pool Mining Block Withholding Attacks

Theoretical studies show that a block withholding attack is a considerable weakness of pool mining in Proof-of-Work consensus networks. Several defense mechanisms against the attack have been proposed in the past with a novel approach of sending sensors suggested by Lee and Kim in 2019. In this work we extend their approach by including mutual attacks of multiple pools as well as a deposit system for miners forming a pool. In our analysis we show that block withholding attacks can be made economically irrational when miners joining a pool are required to provide deposits to participate which can be confiscated in case of malicious behavior. We investigate minimal thresholds and optimal deposit requirements for various scenarios and conclude that this defense mechanism is only successful, when collected deposits are not redistributed to the miners.