Someone here keeps posting that I'm confusing miners with mining pools, and that this is significant because a small miner can join a pool and then have an orphan rate that is shared with the whole pool.
I suspect you are probably referring to me, I do tend to stress the definition between miners and pools. Your description of my argument is accurate.
The first is that if the miner has joined a pool, they are no longer in control of the transactions they are mining. Even with GBT, the pool is a centralized source of power, and can always choose to implement something different, forcing the miner to either accept the change or switch pools.
More then seventy percent of the hashpower is currently in public pools, if we want there to be more decentralization we would want the pools to have more of this hashpower, since the other thirty percent is represented by companies like Bitfury, KNC, 21inc, which are the only type of mining operations that do not need to pool their hashpower in order to counter variance.
It is true that a pool is a centralized form of power, however when the hashpower is represented by 10-20 pools like it is today then that power is in effect distributed. I have even said that I think that the relationship between the pools and the miners are like a representative democracy, the important difference being to state democracies, is that the miners can switch pools in a matter of seconds, and there is a high degree of transparency. Furthermore the incentive mechanism acts upon the miners as well so that they will keep the best interests of the network in mind, after all this is the premise based on game theory that Bitcoin depends on for its continued operation. So in many ways this form of proof of work representative democracy is superior when compared to the state democracies of today, solving several of the key problems related to governance.
It is true that pools can act maliciously and it may take some time for the word to spread and miners to leave, this does happen though, the incentive mechanism works. Ghash is actually a great example of this, they approached fifty percent of the hashpower and acted maliciously, look at where they are now, they have less then one percent of the hashpower and their reputation has been ruined. I do not think that miners would presently allow any one pool to grow larger then thirty percent because of the advancements in our understanding of these dangers. This is important because of the introduction of pools, the new game theory dynamics of Bitcoin actually depends on it.
Since these pools will not grow above this size it does make the attack vector that you mention implausible, since other pools would not mine on top of such large blocks effectively blocking this attack, such an attack would also be very expensive and with everything considered irrational. Unless the majority of the hashpower was controlled by a singular malicious entity, that would be a form of dangerous mining centralization, however if that did happen it would in effect break Bitcoin, if that did happen some of the underlying concepts will have proven itself to be flawed. However the proof of work, game theory and incentive mechanism are all designed to prevent this from happening in the first place.
And if blocks are larger than you can process quickly, you spend much of your time mining a template that you haven't confirmed or chosen because you are still figuring out the block that you are mining on top of.
This news of the pools acting maliciously will most likely spread through media channels, we also have block explorers as well, which will also have connections to capable full nodes. I also think that these 10-30 pools will be able to play on a relatively even playing field for the most part in terms of connection, since they will all be capable of hosting full nodes in datacenters anywhere in the world. I used Slush as an example previously, I doubt that pools like Slush will not be able to compete with the other pools in terms of connection, not that I think that this would matter for the reasons I already explained, but for the sake of argument this is another point that does go against your theory.
The second, and bigger problem, is that miners on pools experience higher orphan rates than miners not on pools. This is because all of the miners inside the pool still have to communicate to the central server, and the central server still needs to communicate to all the connected miners every block, and this takes time. At a single giant datacenter, this isn't the case. Propagation within a datacenter is going to be single digit milliseconds at worst.
This would not happen for the reasons that I have already explained. Miners would not completely undermine the value proposition of Bitcoin by centralizing all hashpower in one pool. This could also not happen through this attack vector you mention because miners would not allow any one pool to grow to that large in the first place.
The relay network can move blocks around in something like 300ms on the current network. But the average stratum pool does not get the first block template to its miners for something closer to 5 seconds. A massive disparity, and one that means that mining on a pool is significantly slower than mining from the relay network.
I do not think it is accurate that solo mining is more profitable compared to pooled mining, as far as I understand it should be exactly the same not including the pool fee of course, though someone please correct me if I am wrong, I did look it up again and the results did seem to confirm this. These 5 seconds are not actually a big deal for the individual miners that are connected to the pool, this is why it is possible to do pooled mining with a very slow internet connection as long as it is reliable. Since actually solving this cryptographic puzzle is very rare for the individual miners, and their hashes during these five seconds still get counted by the pool, so for the individual miners this would not make any difference at all in terms of profit.
You cannot assume that large pools will be able to compete with large datacenters.
Large pools are obviously all already in datacentres or datacentre type structures. If I understand you correctly you think that BU would lead to the hashrate all becoming concentrated into one pool or that all pools will be concentrated into a single datacentre? This as I have already explained would not happen, and this is not an assumption. Bitcoin has proven this over the last six years, that the incentive mechanism works. This is the premise that Bitcoins very existence relies on, of course this premise could prove itself flawed, but until it does I would like this aspect of the experiment to run its course, if we did not believe in the validity of this presumption, I would question the interest we have in Bitcoin. The incentive mechanism acts upon the miners, it is the miners that have all of the power in this relationship, the pools serve the miners by acting as the representatives for the miners and as soon as they misbehave we can change our votes.
I think that we are all still in the process of discovering what the governance mechanism of Bitcoin is. This blocksize debate has brought it above the surface and we are going through somewhat of a political awakening at this time, I could even draw analogies to civil war and revolution. I think the ability to hard fork is important, it is the right to self determination. I can see that you do have the principles of decentralization and financial freedom at heart. I also would not want Bitcoin to become like paypall.
I suspect that the incentive mechanisms are acting on us in ways that we do not even understand yet. Some things are more clear then others however. I think that Bitcoin will change the world in profound ways, it will solve many problems, I suspect it will also introduce some new problems as well, and we might need to learn some of these things the hard way. Overall however I think that Bitcoin will do much more good compared to harm.
Thank you for your great constructive criticism, even though I might not agree, it is through this process that we can both reach a better understanding.
