Is mining difficulty based on the wrong metric?

[Jet Cash]

At the moment mining difficulty is based on cumulative hash power. This seems to increase the cost of mining, and to squeeze out smaller miners. It doesn't do anything for the stability and acceptance of Bitcoin. I feel that a combination of market factors would be better. Some of the variables that I would suggest are

• The market value of one Bitcoin
• The size of the memory pool
• The average density of blocks generated
• The average cost of transactions

I appreciate that this could lead to a breach of the generation cap, and also a reduction in the block generation time, but I think those would be positive benefits, and would help Bitcoin to gain much wider acceptance.

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[ranochigo]

At the moment mining difficulty is based on cumulative hash power.

Its not. Its based on the blocktime.

The market value of one Bitcoin

The difficulty is decided by the nodes across the network, not by any single entity. It is impossible to decide which exchange's rate to follow. It is very easy to manipulate it.

The size of the memory pool

The size of memory pool is different for everyone and the size will hence differ across every single node across the network. If the difficulty adjustment is based on this, everyone would have to have the same rules for their mempool and would push those with low resources out.

The average density of blocks generated

Density of blocks generated? They are more likely due to varience and its rather hard for it to be adjusted based on it.

The average cost of transactions

Couldn't a miner just start including all the low fee transaction to manipulate the network and push the difficulty upwards. I really can't see how these could help small miners or Bitcoin.
I doubt it would ever work, given the risk of centralisation and the difficulty to determine the data accurately.

[DannyHamilton]

At the moment mining difficulty is based on cumulative hash power.

Only indirectly.  It is actually based on the amount of time that it takes to create 2,016 valid blocks.

This seems to increase the cost of mining,

The cost of mining is why bitcoin works.  Get rid of that, and you either make it cheap and easy to rewrite the history in the blockchain, or you make it impossible for decentralized nodes to reach consensus about what the blockchain contains.

Some of the variables that I would suggest are

• The market value of one Bitcoin

And how exactly would a decentralized node come to the exact same value for this as every other decentralized node in the entire world?

• The size of the memory pool

There is no such thing as "the memory pool".  Each node independently builds its own memory pool from the transactions and blocks that it has heard about and the retention rules that it maintains.

Again I ask...

And how exactly would a decentralized node come to the exact same value for this as every other decentralized node in the entire world?

• The average density of blocks generated

Allowing miners to pad blocks to manipulate density?  That doesn't sound like a good plan. You think difficulty is bad, this would be a disaster.

• The average cost of transactions

Allowing miners to pad transaction fees to manipulate "average cost"? That doesn't sound like a good plan. You think difficulty is bad, this would be a disaster.

I appreciate that this could lead to a breach of the generation cap, and also a reduction in the block generation time, but I think those would be positive benefits, and would help Bitcoin to gain much wider acceptance.

You can experiment with your ideas in an altcoin if you like.  If you're right, then it should quickly surpass Bitcoin and become the main cryptocurrency that everyone uses.  However, I'm not interested in having such sweeping and poorly thought out modifications to the consensus protocol that makes Bitcoin work.  I don't hink you'll see the global community rallying around any of these.

[Jet Cash]

Thanks for the replies.

I appreciate that mininmg difficulty is based on transaction generation time, but surely that is a function of hash power. As hash power increases, so the difficulty has to increase.

My comment on mem pool was an attempt to speed up block generation during periods of high activity.

The attempt to link it to the value of Bitcoin, was an attempt to introduce some price stability. One of the reasons for the low adoption of Bitcoin is the fact that it is highly speculative. There is almost certainly a better way to solve this, but I threw it into to mix to raise the issue.

I don't see how the cost of miming makes Bitcoin work. One of the reasons for its early adoption was the fact that mininmg was available to everybody. Now that mining requires such a large initial investment, and has high running costs, it is becoming centralised, and moving into the hands of a few large players. With Russia becoming interested in mining, one can see the possibility that most miming operations will be government run.

The block density factor was an attempt to avoid the mining of empty blocks, but maybe this is not possible, as any consideration could lead to stuffing blocks to overcome the restrictions.

[Jet Cash]

I'm grateful to you guys for putting up with me posting these threads, and for providing useful informed replies. I'm a great believer in Bitcoin, and I think it could have a great future, provided it can keep itself out of the control of the banking world. Also, I believe that an average 30 minute time to obtain 2 confirmations is far too long, especially as we seem tobe entering an era of potential forks. I'm surprised that this issue seems to be largely ignored. Until this is resolved, it will never be accepted in a world that is over cautious of virtual assets.

[ranochigo]

My comment on mem pool was an attempt to speed up block generation during periods of high activity.

Its the same as reducing the block intervals, sounds good but it doesn't work.

The attempt to link it to the value of Bitcoin, was an attempt to introduce some price stability. One of the reasons for the low adoption of Bitcoin is the fact that it is highly speculative. There is almost certainly a better way to solve this, but I threw it into to mix to raise the issue.

I can't think of any good ways to implement it. There's no reliable metric for any node to be able to gauge it and trying this out would destroy decentralisation completely since it would fall victim to market manipulation.

I don't see how the cost of miming makes Bitcoin work. One of the reasons for its early adoption was the fact that mininmg was available to everybody. Now that mining requires such a large initial investment, and has high running costs, it is becoming centralised, and moving into the hands of a few large players. With Russia becoming interested in mining, one can see the possibility that most miming operations will be government run.

Though it does become centralised, the whole point of proof of work is to have people do some sort of work in order to get Bitcoins. It simply isn't fair if the smaller miners would generate a good portion of profit if the people investing huge bucks into mining will earn similar amount. Besides that, how would difficulty help to reduce this gap? If you reduce the difficulty, the smaller miners will make more and so will the larger miner.
Yeah and its very hard to change the block reward on the fly. It doesn't make sense if you can change the frequency ever so often.

Also, I believe that an average 30 minute time to obtain 2 confirmations is far too long, especially as we seem tobe entering an era of potential forks. I'm surprised that this issue seems to be largely ignored. Until this is resolved, it will never be accepted in a world that is over cautious of virtual assets.

Its really a non issue. Most bank transfers are reversible, cost more and/or are way slower than Bitcoin.

[HeRetiK]

I appreciate that mininmg difficulty is based on transaction generation time, but surely that is a function of hash power. As hash power increases, so the difficulty has to increase.

The whole point of difficulty adjustments is to keep block intervals steady regardless of hashing power. It follows that it's the only meaningful metric to base difficulty on.

My comment on mem pool was an attempt to speed up block generation during periods of high activity.

The mem pool can get spammed, the way you saw the last few weeks. The whole point of block size limits and fixed block intervals is to keep blockchain size growth and the effects of network latency at a minimum.

The attempt to link it to the value of Bitcoin, was an attempt to introduce some price stability. One of the reasons for the low adoption of Bitcoin is the fact that it is highly speculative. There is almost certainly a better way to solve this, but I threw it into to mix to raise the issue.

Most Bitcoins have already been mined, the effect of newly mined coins on the Bitcoin price appears to be negligible or at the very least to lag very heavily behind.

I don't see how the cost of miming makes Bitcoin work. One of the reasons for its early adoption was the fact that mininmg was available to everybody. Now that mining requires such a large initial investment, and has high running costs, it is becoming centralised, and moving into the hands of a few large players. With Russia becoming interested in mining, one can see the possibility that most miming operations will be government run.

This has little to do with mining difficulty. The main reasons for this are 1) the usage of ASICs as opposed to consumer hardware, 2) economy of scales and 3) mining moving primarily to locations with cheap energy.

[Jet Cash]

Most Bitcoins have already been mined, the effect of newly mined coins on the Bitcoin price appears to be negligible or at the very least to lag very heavily behind.

It's the scarcity value combined with increased usage that affects the value. Which way is Bitcoin going to go in the future? Will it be a speculative commodity with increasing trading disadvantages, or will it become a global money exchange mechanism? Now is the time to consider the direction.

[HeRetiK]

Most Bitcoins have already been mined, the effect of newly mined coins on the Bitcoin price appears to be negligible or at the very least to lag very heavily behind.

It's the scarcity value combined with increased usage that affects the value. Which way is Bitcoin going to go in the future? Will it be a speculative commodity with increasing trading disadvantages, or will it become a global money exchange mechanism? Now is the time to consider the direction.

You can expect volatility to decrease with growing market cap due to the market being harder to move, but apart from that Bitcoin will always remain a speculative commodity. Even fiat currency exchange rates change over time, why would you expect Bitcoin to behave any differently?