Fermat’s Mining Cap

What you need to know about it and what is does

The thought behind Fermat’s mining cap is actually quite easy to understand, if you know how centralized Bitcoin’s mining has become. In the beginning of Bitcoin mining everyone who wanted to support the Bitcoin network was able to mine with their personal computer. The network was actually distributed. But over the last years it appears thats the mining is occupied by big mining farms in China. The reason for this is the high difficulty of the mining process. Only high end machines are able to mine Bitcoins in profitable way. For the average John Doe it is nearly impossible to mine any Bitcoins. The high difficulty doesn’t only lead to a centralization of mining power but also to a very high consumption of energy. Up to 95% of the overal mining costs are electricity costs

To keep mining Bitcoins profitable miners have started a race a long time ago. “Better, faster, cheaper” is the motto. And this lead inevitably to a centralization of the whole Bitcoin network. It is still distributed to a level, but it keeps centralizing even more over time when the difficulty rises even further.

Inventions by the bright minded

The bright minds of the Fermat Project are aware of this problem and try to prevent a centralization of the Fermat Network. The goal is to decentralize the mining of IoP tokens to a point where it is possible to mine with high end Laptops or very low end servers. This is for one done by controlling the number of miners with Mining Licenses. The key to mining IoPs is to do something valuable for the network and the community. By doing this you can earn a Mining License. In the future the question to who is able to mine will be decided democratically by the people behind the network themselves. But still, the problem of mining races is not banned. So, how does Fermat solve this problem?

The Mining Cap and its consequences

Some bright mind came up with the idea that the centralization of mining power could be prevented by capping the maximum amount of IoP tokens that could be mined in one window by one miner. To not arbitrarily choose some kind of number, there has been implemented an easy mathmatical function. The miners should be able to mine a maximum amount of tokens dependend on the overall mining avergae of the network.

Mining Average x Mining Cap Factor = Mining Cap

Until recently the Mining Cap Factor has been set at 3. This meant that the Mining Average was multiplied by 3, three times the average, what eventually gave you the maximum amount of IoP tokens you were able to mine during the window. Once you reach the maximum, the blockchain notices this and blocks you for the rest of the mining window.

In essence, this makes a mining race inprofitable. It doesn’t matter, if your computing power is out of the ordinary, you will still mine only three times more than average Joe mines in the network. By applying this Mining Cap Fermat also gives low end miners the possibility to mine at all. While high end gear users can only mine a specific amount of IoP tokens, it is more likely for the other miners to be more succesful in solving the riddles of the blockchain.

More decentralized and fair

So, as you can see, Fermat’s Mining Cap makes mining fairer for the small miners and even encourages low level mining by discouraging mining races. It came to the recognition of Fermat Developers that the Mining Cap with factor 3 might still be too high for the small miners. Powerful miners are often not only scratching the Mining Cap at the end of the window but reaching the mining cap in less then a couple of days, while smaller miners (most of the network) is not even able to reach the Mining Average. This is why the Mining Cap Factor has been lowered to 2. I would like to visiualize the conseqences with an example.

Example: Numbers game

Let’s say, we have 200 Mining licenses and therefore 200 single miners (maybe potted in groups). 10% (20 miners) of these miners are very powerful and reach the Mining cap (36 IoP tokens) during the window. The other 180 miners are at the same time not able to reach the Mining Cap during the window. 75% (135 miners) are not even able to reach the Mining average of 12 IoP tokens. By setting the Mining Cap Factor to 2 there appears change in the distribution of IoP tokens.

The powerful miners are now only able to mine up to 24 IoPs during the window, this is 12 IoPs less than before. In consequence there are now 240 IoP tokens (20 miners x 12 IoPs = 240) that can be mined more easily by the not so powerful miners. If we assume that the IoPs will be earned evenly by the 135 miners that didn’t reach the average, we can say that they will now mine ~2 IoP tokens more than before and might even be able to reach the Mining Average without having more costs or using much more energy. On the other hand we can see that the powerful miners will also use less energy and ressources for mining.

Conclusion

To sum up the above, a Mining Cap implemented in the Blockchain is able to prevent a centralization of mining and network power and therefore reduces the amount of ressources used to keep the network runnig.

If you are interested to learn more about Fermat, visit the homepage fermat.org.