Topic: Paying to Reduce Mining Diffuclty? - page 2. (Read 2517 times)

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.

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 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.

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?