It’s the little things
We do a lot of innovating at Mochimo. Sometimes, I forget to mention things because on the whole they seem small compared to the exceptional things we’ve solved with the Mochimo block chain and cryptocurrency network. Here’s an example of one of those many “little” things that combine to make Mochimo awesome.
Why our reward changes every block instead of “halving” every N blocks.
In legacy cryptocurrency systems like Bitcoin, the creators envisioned a time when no more block rewards would be created. They would periodically cut the mining reward in half but expect the mining fees selected by the end user to incentivize the miners to continue to work. In the ideal case, the number of transactions would also rise, and the value of the coin would rise. Those two things together would combine to keep the Proof-of-Work strong enough to protect the network.
It seems like it could work, so a lot of us just shrugged and accepted it in the early years of cryptocurrency. For me, though, some nagging suspicion about this wouldn’t leave me alone, and on deeper inspection I think an entirely different scenario emerges. Stay with me for a moment and see if you agree:
The idea that everyone will keep happily mining after sudden contractions in block reward is a flawed premise; it is dependent on the presumption that value will continue to increase, and mining participation will not be negatively impacted. It further assumes that adoption would be so ubiquitous that the mining fee economy would grow with sufficient rapidity to replace the block reward-based economy. These assumptions ask us to believe that no harm will befall the mining community, and that somehow the transaction fees will rise enough to replace the lost block reward revenue and keep the economy healthy.
I’m going to go ahead and call bullshit on that — no way does it play out as planned.
What really happens is that the mining fee economy never emerges, and the number of miners drops dramatically. The reason no mining fee economy emerges is that the second-layer transaction processing economies form above the transaction layer; as adoption increases, the number of on-chain transactions actually decline, rather than increase. This happens for the simple reason that legacy systems like Bitcoin and Ethereum are already at their limits. It cannot scale to higher transactions per second (TPS), meaning higher total transaction volume doesn’t occur, meaning mining fees are not there to close the gap. Second-layer services will move to fill that gap, and the fee economy will not be enough.
Next comes the mining carnage caused by halvings. I think we can all agree that margins in crypto mining are already very thin. Now let’s ask ourselves: In what other industry do we see the value that a company gets for its work product literally cut in half from one moment to the next? That’s what happens to the mining community during a halving. Suddenly 50% of your net profit disappears. That’s not a sustainable model when mining fees are a single-digit percentage of the mining reward. Each successive halving further constricts competition, ensuring that only the wealthiest organizations with immediate access to cutting edge hardware can survive. Those are the miners who produce the hardware and for whom margins are already strongest. Does this seem familiar? That’s because it’s already happening (looking at you, Bitmain).
Hey, speaking of Bitmain: Are we all going to keep ignoring the fact that one company controls more than half of the hashing power of the world’s #1 “decentralized” network? Is that… Is that just a thing we’re doing?
Anyway.
So, the network becomes centralized, and eventually there’s a de facto superpower sitting in the middle of the system, performing ALL of the hashing work. Other miners try to start up to compete, but the central authority refuses to recognize them as valid, ignoring their work by refusing to talk to them or simply outhashing them. What you’ve got then are shards of network forks bouncing off the central superpower and into oblivion. In this way hash rate finally consolidates, mining consolidates, and decentralization evaporates entirely. The decentralized digital currency experiment fails, and there’s a tyrant dressed in its carcass controlling your money. How long would YOU leave your money in that system?
Not long, I imagine.
Yes. It’s all very dramatic. But seriously, no mining fee economy is going to save us from that eventuality. If you are paying attention, you’ll see that we’re most of the way there to this ugly result already.
Okay, I promised to help you understand one of the design choices we made at Mochimo, and there you have it. After Mochimo reaches its peak reward, there’s an 18-year period during which each successive block reward is slightly less than the one before. There’s no sudden halving, but a continuous downward curve that allows competition to remain alive and adjust slowly. With Mochimo, as you know, our TPS can scale well beyond what the legacy systems can do, so the need for Zippidy-Zappedy second layer networks doesn’t exist.
It is reasonable with the Mochimo network to expect mining fees to sustain us. And more reasonable than you think, because we did something even MORE important, and arguably even more subtle with our mining fees that will ensure a robust post-emission economy. I’m excited to tell you about that, but I think I’ll save it for the next article. — MZ (6/29/19)
Matt is the lead software and systems architect of the Mochimo Project, and brings over ten years of experience in crypto-related projects to the team. Over the past ten years, Matt has also worked as a senior technology consultant to multiple Fortune 500 companies, including Verizon, Comcast, Juniper, Cisco, CDW, and many others.
