Idena Proof-of-person blockchain to eliminate risks of mining pools

Mining pools are an anticipated challenge that Idena was bound to face. They can be formed in systems with any type of consensus. There are mining pools in PoS, PoW, and they usually lead to concentration of the voting power. The same tendency is inherent in the Proof-of-person consensus, regardless of the method used to identify unique people. For example, even in the case of a full KYC with video identification, there is no guarantee that people undergoing verification will not give their account to a third party immediately after the verification is completed. As a result, a pool of accounts controlled by one or several people can be formed.

After more than 700 transaction-related accounts were identified, representatives of the pool approached the Idena team asking to adjust the protocol. It is not in the interest of the pool owners to attack the network. They are interested in both their pool growth and the development of the entire network. They do a good job inviting new people into the Idena network and maintaining infrastructure with 500+ nodes. We need to take into account that for those people in the pool it’s often hard to maintain their own nodes and follow validation ceremonies. The pool owners educate and coach them. Some participants tried to leave the pool and run their own node to get higher rewards. But then many of them failed and returned to the pool.

We understand concerns of the Idena community members proposing to fork the network and slash the accounts included in the pool, since concentration of accounts in the hands of several people creates a threat of attack on the protocol and violates the principle of one person — one vote. However, this will solve the problem with a specific pool, but will not allow us to address the problem in the long term.

The Idena team would like to propose its vision of addressing the mining pools issue that will allow to avoid concentration of voting power in the network and at the same time to use pools’ strengths. Our position is that we should not fight the pool owners. We rather need to give them proper incentives for transparent allocation of their accounts on-chain and limit their voting rights (applicable for oracles as well). Mining rights will also be limited while keeping their mining rewards. We aim to keep the pools decoupled from the rest of the network for decision making processes but let them earn by bringing new people into the Idena network. Additionally, we need to develop seamless mining experience for non-tech users so that pool workers could be eventually converted into independent network participants.

Below are the steps to be taken.

Goals

To eliminate a possible mining/governance attack due to concentration of mining in pools.

To avoid a hard fork removing pool accounts from the network, as this does not solve the problem of pools in the long term.

Principles

1. It should be beneficial for a pool to transparently identify all its controlled accounts.

2. Accounts included in the pool (delegated accounts) should be excluded from the decision-making process, oracle voting, block confirmation keeping the pool’s rewards at the same level as if it were separate accounts.

Pool incentives offered

1. All rewards for each delegated account should be equal to those of the account if it were out of the pool.
2. A fund of rewards for pool owners should be established.
3. A progressive reward system for competing pools based on the size of the pool to be introduced. The larger the pool, the greater the reward for each identity in the pool. Thus, it is more profitable to have a pool of 600 identities than two pools of 300.
4. Only pools larger than 2% of the total network size will be able to compete for the pool owner reward fund. Smaller pools do not receive these rewards, but can use the rest of pool privileges.

Pool privileges

1. The pool address will automatically receive all validation and mining rewards for its delegated accounts (no need to keep multiple nodes).
2. The pool address will be able to terminate delegated accounts, create flips, issue invitations on behalf of delegated accounts.
3. The staked part of the rewards will automatically be locked in the pool’s stake wallet according to the number of accounts with the Newbie status in the pool (80% for Newbies, 20% for Verified/Human). The pool’s stake will automatically be distributed across its delegated accounts, at the end of each epoch.

Pool restrictions

1. Delegated accounts will not be able to mine. However, the pool address will be able to participate in mining and receive N times more rewards as if it were N separate nodes. When validating blocks, the pool vote will be counted as one vote and not by the number of accounts in the pool.
2. Delegated accounts will not be able to vote in the oracle voting. However, the pool address will be able to participate in the oracle voting as one vote. At the same time, it will receive a reward for work in proportion to the size of the pool.
3. Pool’s accounts will not be able to solve flips created by other accounts delegated to the same pool.

Benefits for independent accounts

Rewards per flip will be increased for all identities both for delegated and independent accounts. However, additional extra flips submission will be available only for independent accounts.

Idena mining pools roadmap

Phase 1

1. Entering/leaving the mining pool.

2. Enabling online mining status for pool address

3. Adjusting block rewards for pool addresses

4. Automatic distribution of validation rewards for pools

5. Allowing pool owners to terminate its delegated accounts

6. Adjusting mining penalty for pools

Phase 2

1. Introducing pool rewards fund

2. Enabling a pool to submit flips on behalf of its delegated accounts 3. Enabling a pool to issue invitations on behalf of its delegated accounts4. Prohibiting extra flips submission for pools

3. Enabling additional extra flips submission for identities out of pools (independent identities)

4. Changing flips distribution mechanism (no friendly flips for accounts included into a pool)

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We believe that the proposed approach will allow us to preserve the one person — one vote principle in the long term which is crucial for Idena. This solution is unique and cannot be implemented within other types of consensus. It allows to avoid the concentration of voting power in the network and at the same time use the strengths of mining pools. The suggested approach offers mining pools economic incentives to be transparent and useful for the network, it does not discriminate against independent network participants and gives them extra flip rewards, offers new participants a choice of running an independent account or delegate it to a pool, and encourages Idena developers to create a more convenient flow for new users.