Praxeological Analysis of PoW Policy Changes, Re: ASICBOOST
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On the $100M profit claim
=========================
First I'd like to confirm Gregory Maxwell's assertion that covert use of
ASICBOOST could result in $100 million USD per year profits.
profit = reward - costs.
Total reward is fixed at (12.5 block reward + 3 fees) * 6 per hour * 24 per day
* 365.25 days per year * $1150 USD per bitcoin ~= 1,000,000,000 or 1Billion USD
per year.
Miners normally compete against each other until there is only a very small,
practically zero profit. Lets say that 50% of the mining hashpower are
operating at profit = 0, and the other 50% are operating with > 0 profit due to
the 20% increased efficiency of the covert optimization.
How much profit is earned by the covert optimization operators?
Half of the operators would have a cost of ~$500,000,000.
Half would have a cost of ~0.8 * ~$500,000,000 = $400,000,000, leaving profit =
$100,000,000.
But does this make sense? What if 95% of hashing power miners used the more
efficient process, and 5% didn't. Would this still result in using a similar
formula, with $950M * 0.2 = $190M profits? I believe it would. Essentially, the
the 95% of the miners are colluding to not increase their capital & hashing
power enough to erase their profits. Hence an entity or multiple entities may
be colluding to decrease the security of ordering (double spend prevention) of
Bitcoin transactions.
Hence a claim that as much as $100M per year could be gained by using the
ASICBOOST Optimization is a valid claim.
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Miners and Money Owners have Different Motivations
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Money owners and miners have different motivations. Miners are currently
concerned about the 1-2 year ROI of their capital. In the long term, as ASIC
technology for Bitcoin matures, miners will have a longer term ROI concern. For
money owners: Short term money owners are looking to transfer their money in
the most efficient manner. Long term money owners are looking for a money they
expect will become more valuable in the future due to its ability to handle
more users with a higher money transfer efficiency than other competing
currencies.
$100M per year is a pretty good reason for a miner to want to delay Bitcoin
policy improvements that primarily benefit the money owner, yet have only
marginal utilitarian benefits for the miner, but evaporate their ability to
have such an income.
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Money Owner Perspective Analysis
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Money owners strive to have a have a PoW algorithm that does not give a subset
of the world an advantage by government interference. Such interference
threatens bitcoin's decentralized nature, and hence the users' ability to have
a money who's policies are dictated by themselves rather than a centralized
entity.
Changing the PoW algorithm in a way that makes existing ASIC miner capital
worthless... is undesirable because it creates new opportunities for first to
market optimizations to centralize mining. It also makes bitcoin's security
weaker because the uncertainty of the PoW algorithm de-incentivizes the effort
to invest in mining capital, which creates a larger threat for a future
malicious threat to perform the 51% attack. For the duration that a new PoW
algorithm is not fully optimized with the current latest ASIC manufacturing
techniques, and there remains undiscovered optimizations, the double spend
security is weaker.
Gregory Maxwell's proposal does not make existing mining capital worthless...
it only removes the advantage of using the patent encumbered optimization.
Existing capital, particularly the S9, remains being the most efficient capital
available for mining Bitcoin. Activating such a proposal will set a precedent
for mining equipment manufacturers and operators to expect that certain classes
of patented optimizations will only have a limited ROI timeframe before they
are made unavailable due to users changing the PoW policy. Miners may still
pursue optimizations that are not encumbered by patents without concern that
their optimization advantage will be disabled just for the purpose of
benefiting some other arbitrary set of miners.
Given that a money owner would not want Bitcoin's ability to transfer money
efficently be encumbered in the long term for the sake of miner's profits... in
the case where even a non-patent encumbered optimization conflicts with an
upgrade to Bitcoin for the money owners... then its a question of how much the
change increases bitcoin's money transfer efficiency, and how generous the
money owners are towards allowing the optimization-capital-invested miner. I
use the word "generous" because the policy users choose for the money supply is
entirely voluntary. No contract was made to continue using the same exact PoW
algorithm. The guiding reason to keep or change the PoW algorithm to increase
the money transfer efficiency of the money. Double spends, and the properties
of PoW that secure against double spends, are a large factor in determining
such efficiency.
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Impact of Changing the PoW Policy vs Covert ASICBOOST
========================================================
Miners currently using this optimization will lose 20% profits. Old and less
efficient mining equipment using the optimization might no longer be profitable
in mining Bitcoins. Miners using this optimization but using more costly energy
may also no longer be profitable in mining Bitcoins. Difficulty will decrease,
and miners not using the optimization will have greater profits and grow in
numbers. The difficulty decrease may make older equipment and higher cost
energy locations become profitable once again.
Long term impact on miners: As discussed in the money owner's perspective,
mainly this will reduce the motivation to perform the R&D, manufacturing, and
purchase of patent encumbered optimizations. Realizing that the users may also
at a future date disable an optimization in order to in some way make an
improvement to Bitcoin will also put a damper on advancing the development of
more efficient mining hardware, which is once again desirable to users as it
makes the transaction ordering more future proof.
This may also be a lesson to hardware manufacturers that they should not make
their chips extremely special purpose... that having some flexibility in the
algorithms the device can run may help make their hardware still have other
uses in the case that users decide to change the PoW policy. For example, it
may be wise for the manufacturer to support an operating mode where only the
nonce bit are permutated and no SHA256 operations are skipped due other
assumptions about the block header data.
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Praxeology Guy's Recommendation
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Make it a policy that patent encumbered PoW optimizations are
countered/prevented if possible while minimizing the disruption on the utility
and availability of optimized mining capital equipment. Owners of Bitcoin
should support and activate the proposed PoW policy change by Gregory Maxwell
as soon as possible to counter the ASICBOOST patent encumbrance... unless the
creators of the ASICBOOST patent transfer their IP to the public domain. SegWit
should not be delayed for the purpose of being generous to those who first
implement ASICBOOST in their mining operations. Future ASICs and mining
equipment should be made with the option to run without optimizations that make
assumptions about policy that is subject to change in a future soft fork.
Cheers,
Praxeology Guy
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