Author: Eric Voskuil 2019-10-20 05:03:09
Published on: 2019-10-20T05:03:09+00:00
Lucas, a bitcoin developer, proposed a trustless contract that guarantees minimum profitability for a mining operation. The problem statement is about miners investing in new equipment but losing money if the hash rate increases too much or the price paid for a hash goes down. Lucas suggested a hash-price insurance contract where an insurer negotiates a contract with the miner implemented as a Bitcoin transaction. The contract includes a deposit from the insurer and a premium payment by the miner, and it has three OR'ed conditions for paying it. After the expiry date, the insurer can spend it; both parties can spend it at any time by mutual agreement, or the miner can spend it before the expiry by providing a pre-image that produces a hash within certain difficulty constraints.The proposed contract's main idea is to guarantee a minimum profitability of the mining operation. If hashing becomes cheap enough, it becomes profitable to spend resources finding a suitable pre-image, rather than mining Bitcoin. Both parties can reach an agreement that doesn't require spending these resources, and the miner can still mine Bitcoin and compensate for the lower-than-expected reward with part of the insurance deposit. If the price doesn't go down enough, the miner mines Bitcoin, and the insurer gets his deposit back. However, implementation issues could be challenging since we cannot do arithmetic comparison with long integers >32bit in the script. The difficulty requirement needs to be hacky, and we can use the hashes of one or more pre-images with a given short length, and the miner has to provide the exact pre-images. The pre-images are chosen by the insurer, and we would need a "honesty" deposit or other mechanism to punish the insurer if he chooses a hash that doesn't correspond to any short-length pre-image. New opcodes might be necessary. Eric commented on Lucas's proposal and questioned the assumption inherent in the problem statement. He set aside variance discount, proximity premium, and questions of relative efficiency. He argued that if any miner is profitable, it is the miner with the new equipment, and if he is not, hash rate will drop until he is. This drop is most likely to be precipitated by older equipment going offline. The assumption of increasing hash rate implies an expectation of increasing return on investment. There are certainly speculative errors, but a loss on new equipment implies *all miners* are operating at a loss, which is not a sustainable situation.
Updated on: 2023-06-13T21:57:54.042669+00:00