Blockchain mining networks are often victims of their success. The two contemporary realities that demarcate the mining landscape and prevent blockchains from delivering what they promise are 1) the ongoing technological arms race fueled by inherent greed for competition; and 2) the rising energy costs associated with proof-of-work (PoW) mining. Blockchains built on the PoW consensus are highly unequal in terms of their hash rate and are increasingly centralized. This concentration of mining power in fewer and fewer hands is an attack on the basic distribution and decentralization requirements that blockchains possess.
Additionally, the motivation to ramp up mining performance has a knock-on effect in terms of uncontrollable energy costs that have the potential to cause irreversible environmental damage, as was the crux of the Chinese Bitcoin (BTC) mining saga. To ensure a sustainable future for blockchain and cryptocurrencies, the hash rate needs to be distributed more equitably to ensure that the main components of distribution and decentralization remain intact. This requires a reinterpretation of the mining process as we know it and a restructuring of the PoW systems.
Related: Green Bitcoin: Impact and Importance of Energy Use for PoW
The adverse effects of the recentralization of mining
Before we unpack what such a solution can look like, it is worth highlighting the extent of the problems. The PoW consensus was and is essential to the continued popularity, success, and reliability of Bitcoin. Most importantly, PoW provides a solution to the well-known problem of Byzantine generals in the fields of math and computer science, through an incentive system and continuous resource commitment that makes it impossible for a malicious party to interfere in an honest consensus.
Distribution and decentralization remain key aspects in solving the dilemma in which the parties must agree on a single strategy to avoid total failure by allowing broad consensus on the “message” and removing the risk that it entails results from the corruption or unreliability of some of the parties involved. But the more centralized and dominated by a small number of entities a blockchain network becomes, the less the consensus protocol can act as a solution to this problem. The rise of massive ASIC farms enables a handful of powerful actors to exert control over the blockchain infrastructure, threatening their ability to remain distributed and decentralized – and ultimately trustworthy.
This late-stage PoW consensus problem arises from the way miners are incentivized by competing for the block reward. While this all-or-nothing race to the top is an integral part of the game theory structure for the security of the network, it also poses serious problems. In particular, it leads to the allegorical “cheating athlete problem,” which describes how when the reward for a race is worth a lot, participants do almost anything to win, including cheating. Imagine a group of athletes at the start line of the first of a series of races, each trying to be the first to cross the finish line and win a prize.
Winning every race is associated with a certain amount of luck (not only does the fastest triumph), but the chance of winning increases with the speed of the athlete. Cheating in this case is defined as gaining a significant advantage over the other runners through the use of technology and / or collusion so that the winner of each race is not random enough to provide a solution to the Byzantine generals’ problem (viz distributed consensus through a sufficiently randomly distributed resource commitment).
Similarly, the PoW race leads to the development of increasingly power hungry machines and larger mining farms, reducing the decentralization and distribution of the network, and preventing resource commitment from acting as a means of trustworthy verification. In addition, it increases the overall energy consumption of the network, possibly to the point where it could have a negative impact on the environment if not controlled.
Related: Measuring Success: Offsetting Crypto Carbon Emissions Required For Adoption?
Balancing the protocol for blockchain mining networks
In order to develop a solution to the cheating athlete problem, it is necessary to start with the realization that it is not the entire hash rate of a blockchain network that gives it security; rather, it’s how that hash rate is distributed. To this end, a solution is sought in which the redistribution of the hash rate is a fundamental feature of the protocol (rather than being left to politics or centralized committees – no matter how well intentioned).
It is possible to balance the chances of winning the “race” by assigning a handicap to the runners who are significantly faster and giving an advantage to the runners who are significantly slower. In a blockchain network, this can be implemented through a peer-to-peer, thermodynamically similar balancing process, which smoothly and verifiably adjusts the individual hashing difficulty for miners. This allows the network to move toward a balance in the effective hash rate and bypass the worst excesses of centralizing mining power in the network while continuing to operate autonomously with no trustworthy third party involvement.
There are currently very many implementations of blockchain technology, most of which have economic or monetary value and use an underlying technology that aims to ensure the security and efficiency of the network in the best possible way. However, an algorithmic balancing protocol that pushes the network closer to homogeneous distribution (though not completely – a completely “flat” network would have its own economic and security problems) can achieve the optimal balance between distribution and economic incentive. This can significantly reduce monopoly mining practices while minimizing the network’s carbon footprint by preventing the continuous increase in computing power from costly technologies and building large ASIC farms.
A greener, fairer and safer future
The problems arising from the widespread recentralization of mining that we see frequently today pose significant challenges to the PoW consensus, but should not mean the end of it. PoW emerged as a revolutionary technology innovation, solving a long-standing math and computational problem that paved the way for the success of Bitcoin and many other cryptocurrencies, while also promising an entirely new means of economic exchange. There is a danger that we will not fully utilize the transformative power of PoW if we put it aside too hastily.
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There are similarities here with human exploration of economic systems. Capitalism is one of the largest and most advanced systems ever developed in human history – it improves innovation, lifespan, opportunities and quality of life for billions of people. However, if left unchecked, it can lead to unprecedented prosperity and inequality, and possibly even bring us to the brink of climate catastrophe. Rather than abandon it entirely, societies usually try to weigh the pros and cons of this system – to create a form of moderate capitalism in which greed and monopoly aspirations cannot completely dominate, for a more responsible, functioning, fairer society to emerge and flourish . This is largely what societies have attempted (with varying degrees of success) in the form of wealth redistribution, for example through taxation, antimonopoly laws, etc.
Similarly, the PoW consensus is a revolutionary invention, but it needs to be tempered in order to contain the worst excesses of greed within the system. Together we have the opportunity – and the responsibility – to align the PoW consensus protocol more closely with the needs of society and its original purpose by reducing monopoly tendencies and preventing the recentralization of crypto mining. Simply put, rather than reinventing the wheel (abandoning PoW in favor of risky alternatives), what is needed is a way to use the wheel more effectively to build a machine that will connect and change the world.
This article does not provide investment advice or recommendations. Every step of investing and trading involves risk, and readers should do their research when making a decision.
The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.
Alexander Hobbs is Director of Science at Zenotta. Alexander is a Ph.D. has a degree in theoretical astrophysics and is the author of numerous scientific publications in the fields of supermassive black holes, galaxy formation and dark matter and has spoken at numerous international conferences and workshops. Before joining Zenotta, he was a postdoc at the Institute for Astronomy at ETH Zurich in Switzerland and at the Institute for Computational Science at the University of Zurich.