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| == Proof of work change hard fork == | | == Proof of work change hard fork == |
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| Unexpectedly changing the proof of work algorithm has been suggested as a solution to ASIC manufacturing centralization (a lack of progress towards mining hardware commoditization). It is suggested that by changing the PoW existing hardware manufacturers will suffer great financial loss and this will "make room" for additional competition. In actuality, likely profits, attracts additional competition. By increasing the risk involved in making mining hardware, by showing that their R&D investments could be completely lost by a PoW change, competitors will be more discouraged to make the required investment. This document is an attempt to make these simple, and universal, economic truths clear in this particular application.
| | Changing the proof of work algorithm has been planned as a solution to ASIC mining centralization since as early as 2012 when Butterfly Labs first announced their intention to produce the first mining ASICs. |
| | | It is expected that by changing the PoW, the mining economy will be given a "restart" back to its original decentralised state, and the current centralised miner (Bitmain) will significant enough financial loss to deter future centralisation of the new algorithm. |
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| === Purpose of proof of work recap === | | === Purpose of proof of work recap === |
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| * The purpose of proof of work is to burn electricity in a way that is as efficient as humanly possible and easily verified.
| | The purpose of proof of work is to ensure that the next block is randomly determined from a large pool of entities, without any centralised authority nominating such entities. |
| * This shows how much cost was involved in presenting a set of transactions as valid. If that cost is high enough we can trust that the network was in agreement and that the cost of attempting an invalid transaction was also very high.
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| * Because “blocks of transactions are chained together we can be more confident in older blocks that have had additional investment in electricity burn on top of them.
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| === Problems we want to solve through an unexpected PoW change ===
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| * The goal is to accelerate mining hardware commoditization.
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| * By changing the PoW all existing investors in mining hardware would suffer financial loss.
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| * The more recent the investment the greater the loss because a recent investment would not have produced any income yet.
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| * For example if someone invested 10B in a new chip design, but had not sold a single chip, that entire investment would be lost with a PoW change.
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| * If someone invested 10B in in a chip design a year ago and had already earned 10B on that design, they would be at a break even.
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| === Problems solved through an unexpected PoW change ===
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| * Increase commoditization of ASIC hardware.
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| **Hard fail. Opposite effect - less competition is the obvious result.
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| * To increase the decentralization of mining. More miners spread out in more geographic locations owned and controlled by more individuals.
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| ** Hard fail. With less commoditization of ASICs, a greater ability for a bad actor to invest in ASICs and dominate the hash rate will not be decentralized.
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| * If the PoW was changed every month we *could* get less centralization, but at the cost of being completely open to attack by anyone willing to invest in the unprofitable business of specialty hardware.
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| === Long term counterproductive effects on ASIC manufacturing === | | === Problems solved through a PoW change === |
| * Companies that were about to invest in ASIC manufacturing would realize they would have suffered a greater loss than any other potential investment had they moved sooner.
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| ** 100% loss on a chip design is an unusually bad outcome.
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| * Anyone considering entrance into ASIC manufacturing would need to expect much higher profits than before to compensate for the risk that this would happen again.
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| * Anyone considering entrance into ASIC manufacturing would need to be more capitalized in order to be able to weather another proof of work change without being financially destroyed.
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| * Competition among ASIC manufacturing would be reduced - Mining hardware creation would be more centralized
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| * The rapid march towards commoditization, created by competition, would be slowed.
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| * Bitcoin would be more vulnerable to an attacker investing into ASIC hardware for the purpose of attacking the network.
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| === Short term counterproductive effects on bitcoin mining ===
| | * The goal is to restore mining decentralisation. |
| * The amount of electricity spent at the height of human efficiency would drop to 0%. This is the hash rate that matters. | | * By changing the PoW, Bitmain would suffer financial loss. |
| * All existing bitcoin miners would be poorer in proportion to the newness of their equipment. Miners running equipment near end of life would be affected the least. | | * Any competent and benevolent manufacturing competitors to Bitmain would not suffer financial loss. |
| * Supporters of bitcoin would need to mine using inefficient equipment. | | * Small miners would be able to mine the new algorithm using different hardware, likely at a higher network percentage than with Bitmain-issued hardware. |
| * An well funded attacker, such as a corrupt government, could dominate the network by making an investment in ASICs that a private company would consider to risky (unprofitable).
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Proof of work change hard fork
Changing the proof of work algorithm has been planned as a solution to ASIC mining centralization since as early as 2012 when Butterfly Labs first announced their intention to produce the first mining ASICs.
It is expected that by changing the PoW, the mining economy will be given a "restart" back to its original decentralised state, and the current centralised miner (Bitmain) will significant enough financial loss to deter future centralisation of the new algorithm.
Purpose of proof of work recap
The purpose of proof of work is to ensure that the next block is randomly determined from a large pool of entities, without any centralised authority nominating such entities.
Problems solved through a PoW change
- The goal is to restore mining decentralisation.
- By changing the PoW, Bitmain would suffer financial loss.
- Any competent and benevolent manufacturing competitors to Bitmain would not suffer financial loss.
- Small miners would be able to mine the new algorithm using different hardware, likely at a higher network percentage than with Bitmain-issued hardware.