Oddbean

Yeah the exponential diminishing of the block reward means that FPPS becomes an unviable reward sharing scheme (even within 8-12 years people are thinking). FPPS is great when block rewards are large, but if volatile tx fees become a sizeable portion of miner/pool revenue then PPLNS becomes the best pool payout system. FPPS works because the pool can anticipate future block rewards and average out the reward per share, but when future rewards become unpredictable then FPPS becomes unpredictable. PPLNS is great because it maximally reduces variance while maintaining a no-deficit policy for the pool: miners only get rewarded when the pool finds a block. Pools don’t need to anticipate rewards, they just share the reward with the miner after they receive the reward. FPPS is the major liquidity driver of mining pool centralization as all miners and pools want to reduce the variance of their hashrate with consistent guaranteed payouts. When the payout per share becomes volatile, then all miners and pools gain exposure to variance risk, and smaller pools can become more tenable for larger miners. Until then, everyone will be drinking the FPPS kool aid until the pools can no longer maintain those payouts.

Nice thinking. We need more of this. I did ask adam back about the long term incentives of bitcoin. And he said fees might be the incentives, but, "we have a long time to think about it". I think you are right about 8-12 years. The reward will be under 0.5 btc per block then. I wonder what will happen to all the hashing equipment in that time. It is wise to be thinking ahead.

Yeah in 8-12 years I think if price does not substantially increase so as to enable more miners to be profitable, and if fees remain similar to current day, then miners and pools are in for some trouble. Power law correlations are bullish for price, but also demonstrates how hashrate will grow proportionally, thereby impacting the variance for all miners and pools. Only the strongest most efficient miners with lowest energy costs will survive, or they need to diversify their strategies to generate revenue. They must maximally squeeze all value out of their hashrate and minimise their costs to stay profitable. I also imagine further consolidation by pubcos and other large private miners that are closer to the money printer than the plebs miners. The consolidation of hashrate and increasing regulatory scrutiny on Bitcoin does not bode well for censorship concerns. A substantial proportion of hashrate mining OFAC compliant blocks might doom Bitcoins censorship resistance, hence why innovation in this area is necessary. More smaller independent pools that are globally distributed and ideologically leaning towards a censorship resistant Bitcoin is the only solution. Pools are trusted third parties that can be pressured by the state, so the more of them that exist in diverse jurisdictions the better.

Pools would prefer to rid themselves of the regulatory risk of block templating… but not at the cost of reduced profitability for their customers. So they need some guarantees that miners will create good templates, or a way to penalize them if they don’t. The reality is SV2 still allows the pool an opportunity to veto templates from miners anyway. So if pressured by authorities, they could still censor enough to be “OFAC compliant”.

StratumV2 is better than stratumv1 for sure, but fundamentally the pool can always reject the block templates. I think it would be good to crowdsource block template generation, and Demand pool is pushing the boundary in that regard. Giving miners the responsibility means the state needs to go after more people to enforce censorship, which can make Bitcoin more censorship resistant. But still if the pool can reject the block template or withhold payment, they’re still trusted third parties. I don’t think this is a bad thing though. Big trustless pools open themselves up to block withholding attacks, but small trusted pools have less of an attack surface. More small trusted pools across more jurisdictions means miners have more choice, and means the state must attack more pools and miners if it tries to censor Bitcoin. Anything that we can do to make Bitcoin more resilient should be done.