[Bitcoin-development] BlockPow: A Practical Proposal to prevent mining pools AND reduce payoff variance:

[Sergio Lerner <sergiolerner@certimix.com>]

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I propose a setting that prevent mining pools AND reduce payoff variance
which requires two changes: increasing the block-rate and changing the
Bitcoin PoW (but still allowing current Bitcoin ASICs to work (as far as
I know)). The block rate must be increased at least 20 times and block
must still be near full (e.g. there must be at least 20 more
transactions/second than there is today)

BlockPow is kind of PoW that only practically prevents mining pools for
certain cryptocurrency settings based on concepts similar to parmacoin,
but in a much simple degree. The idea is that if miners try to join a
pool, then they incur in overhead of transmitting information and earn
less than working solo. Let b (the payload) contain a full block. b must
contain all the transactions and the header, and not only the
transaction hashes. b should not hide anything. Let h be the block
header (which contains the previous block hash and the Merkle tree root
of the transactions). Let d be the difficulty. hash-block-length(b)
returns the number of blocks processed by the hash function when fed
with the block b. The target is divided by hash-block-length(b) so that
the difficulty does not depend on the length of the block. Some other
function can be used to encourage nodes to add more or less transactions.

Def: Basic BlockPoW concept

For each r in the nonce-range: if H ( H( r || b ) || h || r) ) < 2^-d/
hash-block-length(b) then return r

return null

The header (h) is appended to the hashed message to allow SPV clients to
verify the PoW without requiring the full block to be downloaded. Peers
can send only (x,r,h) to SPV nodes, where x = H( r || b ), so they can
verify the PoW. The verification procedure is obvious, and is skipped
here. r is inserted at the beginning of the message to prevent pool
administrators from keeping a secret mid-state of the hash function
secret in order to prevent block stealing and also to force the miner to
know b in the inner mining loop.

So now mining requires the knowledge of the block b to be mined, and b
must be received at each block-chain epoch. This could create an
incentive not to include any transaction and use an almost empty b,
because that way the bandwidth requirements is decreased. But this
incentive should not exists normally, since by including transactions
the solo miner gets an additional revenue from fees, which is lost if
the block is empty. Anyway, to prevent this possible incentive we can
append to b a subset of previous blocks (e.g 100 blocks). The block
subset to include could be derived from a peudo-random function seeded
by the previous block hash. Then a node would still need to download
part or all the block-chain in order to mine.

Now if the miner wants to be a dumb node and take part of a pool, then
the current working unsolved block (the template) must be sent each time
from the pool admin to each miner. If the pool admin hosts 1000 miners,
then to serve them with fresh block templates he needs 1000 times more
bandwidth that the miners, making this much more expensive. If miners
create another network topology to distribute templates, they are
incurring in the same overhead as being actively part of the
cryptocurrency network, so they gain nothing.

For example, in a block-chain with a 5 seconds block-rate, such as in
NimbleCoin <http://nimbleCoin.org>, each block can be as large as 200
Kbytes (100 tps are allowed). A miner will require the block template to
be ready as fast as possible, say before 3 seconds, so as not to loose
more than 60% of the times the transaction fees present in the block
template. This means that a pool admin serving 1000 clients must have a
upload bandwidth of at least 60 Mbytes/sec, and load balance servers,
because all miners will demand the block template at the same time and
will compete for it.

The same miner, working solo, will not loose the 60% of block fees. If
block fees are 10% of block reward, then solo miners earn 6% more than
pool miners. Also, having a block rate of 5 seconds allows solo miners
to receive payments more often and so it reduces the payment variance.

This method to discourage mining pools only work as long as time is
takes to transmit a block is comparable to the block interval time, e.g.
20%. This seems not to be a problem since if the cryptocurrency becomes
popular, then we can expect blocks to be near full, while if is is not,
then nobody will care about mining pools.

For this method to work for Bitcoin, Bitcoin should reduce the block
rate to at least 1 minute, and keep blocks of at least 10 Mbytes. Or go
the NimbleCoin way, and reduce the block interval to 5 seconds. The sole
reduction of the block rate from 10 minutes to 5 seconds would reduce
notably the mining reward variance, which is the main reason miners
don't mine solo.

BitcoinBlockPow

The basic BlockPoW is incompatible with Bitcoin ASICs as is but it can
be made partially compatible with some tweaks: The value b is replaced
by a a a subset or an integrity check of the block.

Using a subset:

First the hashMerkleRoot and hashPrevBlock fields are replaced by the
fields: ChildBlock (32 bytes) and ScatteredBlockBytes (32 bytes).
ChildBlock is the hash of a message with stores the old hashMerkleRoot
and hashPrevBlock. ScatteredBlockBytes is a pseudo-random subset of
bytes taken from the block template being mined. The seed for the
pseudo-random function that selects the subset is  the hashMerkleRoot
plus the block time. When a miner scans all the 32bit nonce space, then
a new hashMerkleRoot must be created to increase the extra-nonce field
or the time must be updated. When this happens, a new subset of
pseudo-random 32 block bytes must be collected. If the miner only stores
10% of the block template (e.g. 100 Kbytes instead of 1 Mbyte), then the
probability he can build the ScatteredBlockBytes by brute-forcing the
seed is 10^-32. If the miner performs 100 GH/sec, then the 32-bit nonce
will overflow every 20 msec and the miner could request the
ScatteredBlockBytes from the pool admin using a bandwidth of 1 Kbyte/s.
A pool hosting 6 PH/sec (such as Eligious, which has 8%) would need to
stream more than 60 Mb/s of ScatteredBlockBytes fields. A mining pool
having 50% would need to stream 500 Mb/s, which is quite challenging. So
miners will download the block normally, and become active part of the
network.

Using an integrity check:

ScatteredBlockBytes  is replaced by a field BlockHash defined as H(
full-block-with-zero-nonce ). Obviously the header must be at the
beginning of the block to force the re-hash.

Best regards,
 Sergio.


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