Relay Fallacy

The peer-to-peer network disseminates blocks and unconfirmed transactions. The protocol itself allows nodes to protect against denial of service. Consequently this communication requires no identity. This protection is how the network avoids the need for permission to participate.

However this protection comes at a cost in terms of announcement latency, and because of the advantage to proximity, lower latency translates into higher apparent hash power. Therefore miners compete for reduced latency. One way to reduce latency is pooling, another is to use a more efficient dissemination network. Given that pooling surrenders power to the operator, presumably the latter option is preferable.

One way to improve dissemination is to optimize the peer-to-peer network. The other is to join a distinct network, called a relay, that has lower latency due to elimination of denial-of-service protections, for example:

[T]he cmpctblock message format was designed to ensure it fits neatly into a UDP-FEC-based relay mechanism. The only difference is that we send it over UDP with FEC... This way, extra hops do not introduce more latency. Sadly, due to the nature of our FEC encoding, we cannot know if individual packets are a part of a legitimate, or any, block, and thus only enable this optimization between nodes run by the same group.

bitcoinfibre.org

The relay accepts communication from a set of miners, over the peer-to-peer or other protocol. The relay consists of a set of machines under the control of the relayer. It communicates the announcements within its internal network and eventually to the joined miners.

The important security observation is that communication within the relay is under the relayer's control. Due to the removal of denial-of-service protections central control is necessary to the scheme. The relayer can delay certain blocks based on miner, region, signal, non-payment, etc. A relayer sells reduced latency, and is therefore in the mining business. From a security standpoint it matters not if this service is offered for free. Miners may similarly offer grinders free reduced latency and variance.

Relays are aggregations of miners and miners are aggregations of grinders. The greater the hash power aggregation, the more profitable is the mine, as is the relay. One may consider that grinders are free to leave mines and miners are free to leave relays, and it is of course possible for a grinder to run his own mine and his own relay. But larger aggregations are more profitable, so leaving the largest relay or mine increases relative cost.

A theory holds that relays reduce pooling pressure. This is an error. Any pooling reduction caused by a relay does not disappear but is transferred to the relay as a pooling increase. Relay statistics are never presented alongside mining statistics, masking the power transfer. This leads people to believe that mining is less strongly-pooled than is the case. This may lead people to believe that mining is less strongly-pooled than is the case.