Bitcoin mining scene has been dominated by pools since 2011 as a result of the infamous
pooling pressure flaw which is a direct result of
winner-take-all approach to PoW, adopted by Satoshi Nakamoto, from the first beginning.
Although there are some arguable facts, Bitcoin's implementation of winner-take-all makes it a
fair gamble for miners, but fairness is not enough for gamblers to participate in the game because nobody can afford unlimited resources and time needed for a
guaranteed break-even/win status. It is why pools are necessary for bitcoin mining; they eliminate/hide the gambling nature of the original bitcoin mining scheme
almost completely, letting the industry to grow just like a normal business: tell me how much hash rate you got, so I would tell you how your business looks like in terms of costs and revenues
Many people, including myself, do not like pools, they are centralized entities that introduce a series of risk factors to the Bitcoin ecosystem compromising the most basic decentralization assumptions for the least, but the most serious consequence is what I call it
miner alienation. As a matter of fact miners are not just being abstracted from the gambling nature of mining, they are also abstracted from the whole network.
For a pooling scheme to do anything useful in terms of hiding the variance and risks, it needs to give a substantial difficulty leverage, hence a considerable number of blocks should be submitted to the pool operator/server (typically thousands per second for large pools) which makes it absolutely impossible to fetch/validate all of them as long as they are supposed to be conventional Bitcoin blocks. It is why they've adopted a top-down block generation method in which the Pool operator builds a block template then relays its header to its clients, i.e. miners, waiting for them to find a nonce; add a few tricks to this model, and you have Stratum the current de facto standard for pooling in PoW world.
Suddenly, there was left no reason for miners to be aware of the Bitcoin network, e.g. by running a full node, and, except for a few very large mining farms, overnight, bitcoin miners turned to zombies, alienated from the actual bitcoin protocol, unconsciously and exhaustively searching for a meaningless nonce that makes a meaningless 80 bytes long string look pretty enough to be claimed as a
share. Indisputably, this situation MUST change, but how?
Although I've been trying to find a way for fixing the situation with pools, it was just a while ago that I realized how ignorant I am about the economics of the subject, and it took not more than a few days for me to realize that I'm not an exception as there is no model available (well, AFAIK) to describe the economics behind PoW pooling business.
By economic model I mean a mathematical cost vs benefit analysis of pooling as a business. Many authors have shown interest in reward distribution mechanisms used by pools from a game theoretic point of view mainly for mitigating adversarial behaviors such as block/share withholding.
Although reward distribution model is an important topic and one can find interesting mathematical material here to play with, by no means it can be categorized as a mathematical model for the core pooling business as it doesn't cover the most important question:
What is the break-even threshold for the fee that pools charge?
I was even more surprised when after applying naive probability techniques and failing to approach anywhere close to the answer, I find out myself dealing with a
decades old problem in mathematics known as
the utility of gambling.
I'm wondering if there is any related previous work that I was not able to spot, it is why I started this thread, asking members to share any resources/thoughts about the question I bolded above.
Why and how is this important? Like it or not, pooling is an abnormal phenomenon for PoW and the pressure toward it is nothing less than
a flaw, a flaw that is a consequence of
winner-take-all approach that historically dominated PoW starting with Nakamoto and Bitcoin, nevertheless any reasonable advocate would agree that this should be addressed somehow.
There can be two different approaches to this problem:
1- Designing a
winners-take-share model of PoW,
Initially, I tried this approach a couple of years ago, and I believe my
PoCW proposal was a good start, but it needs a hard fork or a project for a brand-new coin, neither is my primary target now.
2- Improving/replacing Stratum and how miners of winner-take-all PoW coins, specially Bitcoin, deal with their variance nightmare.
It is the way to go, I believe, but a closer examination of the current projects is not encouraging for the least to say.
Stratum 2.0 project:
It is a total disappointment in spite of the hype and the advertisement. No fundamental redefinition of roles and a desperate attempt to give miners a right to
negotiate the block contents they are mining without any creative idea for justifying and realizing such an attempt and all of it wrapped in an ugly and complicated set of protocols.
P2Pool and decentralized pooling:
Not scalable! P2Pool utilizes a 20 to 1 leverage while it can't improve too much and a closer look reveals that you can't use this protocol recursively because of the reward distribution complexities involved.
I conclude that the true solution to
the pooling problem is the one which is not tried or even proposed yet, and all we can do is giving a general sketch of it:
1- It should be decentralized as much as possible and this property should improve through time instead of declining.
2- It should be an open and permission-less ecosystem, people should be able to join or leave deliberately while they can choose their role with minimum requirement.
3- Roles and relationships of the parties involved, miners, pool operators, and the network, should be redefined radically.
4- The costs and revenues of each party should be economically justifiable.
Taking features 2,3,and 4 into account, I think it is not that hard to understand the importance of an economic model for the future of pooling in Bitcoin and PoW coins generally.