Bitcoin Forum

Today all miners get the same payout and produce the same level of effort.   What if a miner was willing to work for only 12.5 BTC reward?  Could you reduce the difficulty by 50% without affecting the economic incentive to mine?   Lets assume that the difficulty would still adjust so that on average 1 block was produced every 10 minutes.

Someone mining for half the fee would effectively double their probability of finding the block which would mean that on average they would see the same rate of return as someone mining for the full fee at twice the difficulty.

What would be the financial incentive to mine at the higher difficulty vs the lower difficulty?   From what I can tell, those who own a significant number of BTC and feel the network is secure enough could benefit from a lower inflation rate.   While those who don't own BTC would benefit from a higher inflation rate that transfers them more money.  Where this balancing point is depends upon what percent of the hashing power you own vs the number of BTC you own.   If you own 0.001% of the hashing power, but 0.002% of the money supply you are better off mining at the lower reward rate than the higher reward rate because your holdings would see less devaluation via inflation on average.

The consequence of this approach is that 51% attack can be achieved with just 25% of the hashing power that would be available at the full mining reward, *assuming* there was no profit motive.    Now considering that we already have organizations with 25% of the hashing power... what does this mean?    I would submit that these organizations could have achieved 51% of the hashing power if they wanted to already, but market forces compel them to decentralize their hashing power and take pro-active efforts to avoid hitting even 40% because if they ever did achieve 51% then they would undermine the value of the bitcoins they are so heavily invested in mining.    If we reduced the 51% 'attack threshold' to 25% then hashing power among honest individuals would probably decentralize at 15-20% rather than risk any one party getting to 25%.

There is another factor here and that is if all miners opted to mine for 50% of the fee, you would have the same difficulty as you have today.   The only thing you will have done is reduced the profit from mining and thus the resources committed to it.  Of course, this is all complicated by factoring the added value-per-mined-bitcoin as a result of the lower inflation rate.

In my prior thread on reducing the mining difficulty toward 0 it was submitted that you needed to have significant proof of work to prevent creating fraudulent  chains and that if the proof of work were too low then anyone could spoof a chain.  I would submit that once you get above a certain threshold, the profits from an attempted spoof would be far less than the profits from mining.  I also submitted that a 51% attack by a non-profit seeking organization is an entirely different threat model and that even with today's level of hashing power would be insufficient.  In the event of a 51% attack by a non-profit-seeking organization (such as a government) an alternative means of choosing which nodes to extend the chain could be adopted which would prevent Denial of Service attacks.

There is a sweet spot in hashing difficulty that causes profit seeking individuals to mine rather than scam, and beyond which provides decreasing economic utility.  Finding a way to allow market forces to establish this in a decentralized manner would have great benefits to everyone using the crypto-currency as well as for the environment.  Economic resources that are currently being dedicated to providing too much security could be reallocated to somewhere more productive.

Thoughts?

I don't understand what you're talking about. If everyone switched off half their equipment, they would all still make the same amount of money, 25BTC per block, and the difficulty would be 1/2 what it is now. The problem is there would be no way to coordinate everything. A miner who cheats would get 2x as many blocks.

The block reward is going to drop to 12.5, and then 6.75, then 3.375, etc over time anyway. It's already dropped from 50 to 25.

The point is that not everyone would switch off at the same time.  Furthermore, those who accept a lower fee only have to do half the work, so they are 2x as likely to win the block.   No need to coordinate anything, each player could choose which is better for them: reduced inflation or increased mining payout.    Those with large holdings and small hash power would want reduced inflation.   Everyone else would want increased mining payout.

I don't understand. If you set blocks to 12.5 a piece and halved the difficulty, blocks would be solved twice as fast and the bitcoin generation rate would remain essentially unchanged. There would be no reduction in inflation.

Additionally, even if inflation actually is reduced by your plan, who cares? More than half of all the bitcoins that were ever in existence have been created, and a portion of those have been and will be lost due to data destruction. And the creation of bitcoins is constant, so people know exactly what the supply will be like in the future and price this into their value. Plus bitcoin creation will basically slow to a trickle by 2017 or 2021. Even if all 21 million bitcoins were suddenly mined today, supply of bitcoins would less than double we'd expect bitcoins to remain above $50. I guess that's something, but this is spread out across many years and inflation of the Bitcoin money supply will soon be less than any other fiat currency.

There would be 'two' difficulty levels, one exactly half of the other.   The highest difficulty level would adjust until the block generation rate was every 10 minutes regardless of the mining reward.

If you accepted half of award, you would be able to submit a block at the 50% difficulty level.   If everyone moved to half the block reward then you would still get 1 block every 10 minutes at what ever difficultly level exists based upon competition of miners for 12.5 vs 25.


The point of this discussion isn't for bitcoin per-say but for the theory of crypto-currency rewards with an eye toward adding value to chains.    If the market can adjust the amount of effort put into mining based upon the need for security rather than some arbitrary 'fixed price' level of security then you could balance the investment in hashing power against other kinds of investment because there is no algorithm paying insane amounts of money for every block produced. 

There is no point in doing that, everything would be exactly the same - miners would make as much money and the same amount of hashing would be done.

The rate of block production would be the same, every 10 minutes, but some percent of the miners are working for 'half pay'  and thus there would be less mined.   These miners work for half pay because they make more money via reduced devaluation of their current holdings due to inflation.   This is 'intangible' but still real.   Everything else being 'equal' the total hash power would be the same and all you would do is change the distribution of wealth... except... the miners working for half-fees are undermining the profits of those working at higher fees because the lower-fee miners have an alternative means of making money indirectly (reduced inflation) that is not available to the higher fee miners.   In fact, if you own enough Bitcoin and have a small enough hashing power, you would make more money by mining for 'free' than mining in a pool or solo.   

Lets work this math out:   Lets assume I own $1 Million in BTC and the money supply is $1 Billion in BTC growing at 10% per year.   This means that in one year (all else being equal), I have lost $100,000 in inflation paid to miners.  If I want to prevent this loss I would have to invest in 0.1% of the hashing power of the network so that my earnings from mining offset my losses due to inflation.   

Now if I had the option of only investing 0.05% of the hashing power to earn enough BTC to offset inflation, then I am still maintaining my position and have profited in the process by having to purchase less hashing power!    The network would also have a slightly lower hash rate even thought he  BTC/difficulty yield would be unchanged.

Conclusion:  those who own more BTC than hashing power can 'vote' on the level of hash security they want by specifying the mining reward they want relative to the difficulty.   At some point, those who hold a large number of BTC would be self-motivated to mine for 0 reward and still secure the network.   The alternative is to debase all of their holdings to pay for unnecessary security. 

Mining doesn't work this way.

Everyone involved with bitcoin mining would like to make more bitcoin with less hash power. If all the Miners agreed at once to cut their mining in half, then the difficulty would go down by half.  However, that's never going to happen, because anyone who doesn't agree would have 1 + X reward where X is the portion of miners agreeing (i.e. if 90% agree, X = 0.9)

Anyway, it's the miners, not the holders of bitcoin who get to vote on inflation.

I always thought a random sized block reward would be interesting, but I don't see any point in it.

A miner and holder could be the same person.    If I owned 10% of the BTC ever mined I would mine for 50% of the reward assuming my difficulty target was half of what everyone else was doing.   I would win half as much twice as often, but every time I won the inflation rate would be 50% less, but the average block rate would still be 6/hr.     Even if I only had 0.1% of the hashing power, I would be better off mining for 50% reward at 50% difficulty than mining at full reward because my 'mining vote' counts 2x as much as someone mining for 2x the fees. 

This thread doesn't make sense. There are too many misconceptions and illogical math at work.

Explain what is illogical here:

This. Not sure if the OP failed elementary school math or was just drunk.

Bitcoin @ full difficulty = block worth 25 BTC every 10 minutes.  144 blocks per day.   25*144= 3,600 BTC of inflation a day.
Bitcoin @ 50% difficulty = block worth 12.50 BTC every 5 minutes.  288 blocks per day.  12.50 * 288 = 3,600 BTC of inflation a day.

I am not the one failing math here, but you all are misunderstanding what is going on.

No matter what the difficulty is adjusted such that on average all miners (regardless of their difficulty) only produce 1 block every 10 minutes.    Thus the network will have an 'average difficulty' that is somewhere between 50% and 100% based upon the percentage of miners mining for half fees.   

Given an identical block production rate, those blocks that have a lower reward (and difficulty) result in less inflation.

Difficulty is what keeps the time between blocks at 10 minutes per block for given hashrate.  Right now if Bitcoin network had the same hashrate but half the difficulty the time between blocks would be 5 minutes not 10.


For a given hashrate you can't halve the difficulty and have the time between blocks remain that same.  To think that shows a complete lack of understand of how bitcoin mining works.

Difficulty is merely an artificial value to match the frequency that hashes are found to the desired timeframe between when blocks are found.

The result of allowing some miners to cut the difficulty in 'half' if the 'half' the reward is paid and assuming nothing else changed, would be for the total difficulty in the network to go up.  In effect, those mining at half fees get counted as having 2x the hashing power they really have.

Thus... the 'average of all miners' would equal today's hash rate and the block production rate would still be one every 10 minutes.  Thus, if implemented and 50% of the miners went to 50% fees then the total network difficulty would go up by 33% with the full miners needing 1.33 todays difficulty and the half miners needing .666 of todays difficulty.   End result, block production is the SAME.  

*edit* my percentages are not quite right... fixed it.

Yeah difficulty doesn't work that way.  It is hard to understand what you are trying to accomplish but when you just start making up new meanings for words like "difficulty" it is hard to take is seriously.

If difficulty is cut in half without an equal reduction in hashpower, it will be twice as easy to find a block and thus in the long run blocks will be found twice as fast.  If in any interval twice as many blocks are found then the average time between blocks has to be reduced in half.

Definition of difficulty:   the threshold below which you must find a hash.  The lower the hash, the lower the chances of finding it, the longer (on average) it takes to find it.

The problem here is that there are THREE variables changing at the same time and you are having a hard time thinking about how all 3 interact.   I can assure you I know how difficulty works and am not an idiot, so stop trying to take the short cut and assume I am nuts and start thinking through how these THREE variables interact.  The variables are:  1. reference difficulty   2. reward  3. hashes/sec.

1) If mining difficulty were cut in half and hash-power stayed the same, blocks would be found twice as fast.  The network would notice this and double the difficulty such that 50% of the hashing power equals 100% of todays hashing power and thus maintain the 6 blocks an hour invariant.   No matter what the network can adjust reference difficulty to maintain an average block rate of 6 / hr.

2) Given the reference difficulty, miners have two choices:  mine at the reference difficulty and receive 100% of the reward or mine at half the reference difficulty and receive 50% of the reward.   Either way, the network is paying the same BTC/hash for hashing power.

The result is that the more people that choose to mine at 50% reward the higher the reference difficulty would get.   Like I posted earlier, if 50% of the miners adopted the 50% fee for 50% difficulty then you would see the reference difficulty go up by 33%.


 

Yes, exactly.  Everything would stay exactly the same.  There would be no change. Everything would be exactly the same. Same amount of bitcoins going to the same people, and everyone would be doing the same amount of hashing.

Think about it this way

reward = hashrate/difficulty.  

That means that if you cut the difficulty by 1/2, and you cut the hashrate by 1/2, the reward stays the same.

Just like how 8 = 80/10 and also 8 = 40/5.

The hashrate can't be cut in half because there is no way to get everyone to agree to cut half their hash power.

stupid thread.

yeah, why is it still going? ???

Bytemaster, I sense your frustration - I think i get it (although quite possibly, i don't).

I think you are suggesting simultaneously offering two difficulty thresholds at the same time, high and low.

High = 25 BTC reward per block.
Low = 12.5 BTC reward per block.

The network adjusts the difficulty of each threshold to reflect the proportion of hashpower mining at each threshold, such that the COMBINED block find rate remains at 1 per 10 mins.

In this scenario I suspect most people would ignore the inflation incentive you refer to and simply mine whichever difficulty is most profitable at any given point in time, because any disproportionate difference between difficulty thresholds would produce a greater profit incentive to switch difficulty than any long term benefit of lower/higher inflation.

I also suspect that in reality most miners would simply mine at both levels simultaneously, submitting any valid blocks on discovery, regardless of whether they meet the high or low threshold, because at the point of having found a block which meets the low difficulty threshold, the chances of making money are greater if it is submitted than if it is thrown away in the hunt for a more valuable block.  This means all network hashpower is always dedicated to both levels (rather than a 50% low, 50% high model).

All this would eventually lead to a necessary stabilisation point at which low difficulty blocks can be found on average say 15 mins apart, and high difficulty blocks at 30 mins apart, in which case the end result of 30 mins mining would remain at 3 blocks (one every 10 mins on avg), and the net coin inflation would be 50 as opposed to the current 75.

It's an interesting idea, and the effect on inflation would be real, however I don't think the reality would deliver the split mining model you propose, instead the mad scramble for MORE bitcoin would simply continue with people going all out to get whatever they can, and probably grumbling about the lower overall ROI along the way.

SuperT,
  You are starting to get it, but lets clarify a few small details:

1) There is one difficulty adjustment and the difficulty ratio between high & low difficulties is always 50% so no arbitrage.
2) The miner commits to the difficulty level when they create the coinbase trx, so they can't mine both levels at the same time.

  Given these two clarifications perhaps the rest of the idea will sink in.