I posted this to /r/bitcoin yesterday but it got minimal comments. One uses suggested I try the mailing list so here it is:
The idea presented here could have the following benefits:
1. Improve mining decentralization
2. Reduce variance in mining profitability
3. Reduce or eliminate SPV mined blocks
4. Reduce or eliminate empty blocks, smoothing out resource usage
5. Reduce or eliminate the latency bottleneck on throughput
6. Make transaction stuffing by miners be either obvious or costly
7. Gives miners something to do while they wait for attractive transactions to appear
8. Can be easily done with a soft fork
#Basic idea:
Ideally, all miners would begin hashing the next block at exactly the same time. Miners with a head start are more profitable, and the techniques that help miners receive and validate blocks quickly create centralization pressure.
What if there was something that acted like the starting flag at a race, which could suddenly wave and cause all of the miners to simultaneously begin hashing the next block?
#Implementation:
Let a sync flag be a message consisting of:
1. Hash of the previous block.
2. Bitcoin address
3. Nonce
This tiny message could propagate through the network at maximum speed. If miners had to include the hash of this flag in the next block, then all miners wait for this flag, and when it suddenly spread through the network, all miners could simultaneously begin hashing the next block.
The sync flag should not be produced too quickly. You want to give everyone enough time to be ready to hash the next block. Let's say that the hash of the sync flag is a proof of work that is targeted for 2 minutes.
To fund this proof of work, the protocol is modified to demand that the block produced 10 blocks after the sync flag must allocate 25% of the block reward to the address published by the sync flag. In this way, sync flags are produced in 2 minutes, and blocks are produced in 8 minutes, with 10 minutes total.
#Explanation of reasons:
**Improve mining decentralization**
One factor driving centralization is the imperative miners have to achieve low latency in receiving and validating blocks. To achieve low latency, it helps a lot if you have expensive low-latency internet connections, curated network topologies, and large pools that have a plausible chance of finding consecutive blocks. If miners are expected (or forced) to validate a block prior to mining on top of it, the rational end game would be to outsource the validation step to a trusted third party specialist who can choose optimal locations on the globe to serve their (multiple?) mining pool clients. These are all less decentralized than the mining situation Satoshi and others imagined.
**Reduce variance in mining revenue**
Currently, there are about 144 opportunities per day for a pool or solo miner to see any revenue at all. With sync flags, that number doubles to 288. Sync flags are only worth 25% of what a block is worth, but this still represents a significant reduction in variance. This variance is one factor causing solo miners to group into pools, and large pools to be more attractive than small pools.
**Reduce or eliminate SPV mined blocks**
One way miners have sought to make full-block-transmission-and-validation-latency irrelevant has been through "SPV" mining or "Head-first" mining. There is some evidence that these techniques may be widely used, and that badgering the miners about it is an ineffective strategy to stop them.
In SPV mining, a miner would simply accept any block header that shows the correct proof of work. All other validation is entrusted to other miners. This practice is quite dangerous as the SPV miners can wander off on some invalid chain, taking SPV nodes with them. If this occurs during a soft fork, these blind miners can also fool unupgraded fully validating nodes into following them.
"Head-first" mining means that miners start hashing as soon as they receive the block header with the correct POW, but they simultaneously validate the block, and abandon it if is not valid. I consider this to be pretty safe, as it strictly limits the length of an invalid chain that can result from mining without validating. However, "Head-first" mining can plausibly generate 2 or 3 confirmations of an invalid block. It would be nice if such confirmations did not happen.
The sync flag technique is similar to head-first mining, but rather than hashing the next block while they wait for transmission and validation of the prior block, they hash the sync flag. Nodes can differentiate between sync flags and blocks, and can ignore sync flags when counting confirmations.
**Reduce or eliminate empty blocks, smoothing out resource usage**
Empty blocks are another consequence of SPV or Headfirst mining, because the miner cannot safely include any transactions in the block they are hashing until they have validated the prior block. By delaying the start of hashing the next block until after validation, miners would not have this reason to mine empty blocks.
**Reduce or eliminate the latency bottleneck on throughput**
Centralization pressure due to latency issues has been a major preoccupation over the last year. If latency mattered much less, it could represent a scalability improvement that could enable higher throughput.
**Make transaction stuffing by miners be either obvious or costly**
Currently, the entire block reward goes to the miner who mines it. One unfortunate consequence of this is that it does not cost the miner anything to covertly stuff the block with transactions. These transactions would pay fees and be indistinguishable from ordinary transactions, but the fees are paid by the miner and then immediately returned to the miner.
With sync flags, the miner must share these transaction fees with the address contained in the sync flag 10 blocks prior. This means that if the miner gives the transactions a normal looking fee, they will incur a cost that will be paid to the sync flag. If the miner wants to avoid this, they must give their stuffing transactions a zero fee, which provides evidence that they are stuffing.
Also, when miners stuff with transactions using a zero fee, they cannot manipulate the perception of how much fee it takes to get into a block.
Note that miners could still try to covertly stuff blocks that will pay a sync flag that they themselves created. if this is a big concern, it can be addressed by forcing blocks to pay multiple sync flags.
**Gives miners something to do while they wait for attractive transactions to appear**
I don't know whether this will actually happen. The presence of a suitable backlog of transactions would help prevent this dynamic from emerging. But if such idling behavior was the optima mining strategy, it could create a serious vulnerability. Idle hands are the devil's workshop as the saying goes, and idle miners represent a pool of inert hashpower that is available to rent for all kinds of destabilizing purposes. It would be better to put those miners to profitable work mining a sync flag while they wait.
Also, this creates a more efficient price discovery mechanism for transactions, because you allow transactions paying high fees time to arrive to the marketplace, rather than take whatever anyone is offering because all the "good" transactions got gobbled up in the prior block.
**Can be easily done with a soft fork**
Although a hard fork would be more efficient, sync flags could be easily implemented using a soft fork by introducing the following rule:
Every block must include a transaction which pays 25% of the block reward to the address given by the 10th previous sync flag, and commits to the hash of the 1st previous sync flag.
