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Greedy Mining: Are you renting too much hashpower?

Posted by: rebphil in Articles June 9, 2014 6 Comments

My original intent was to write a simple piece about mining cryptocurrency with leased rigs.  Along the way, I uncovered some things that I felt were more important to communicate than how to find the best deal on a rig.

The same, seemingly endless, arms-race that the Bitcoin community has been living with is inevitable for altcoins too.  It is driven by two factors, greed and ASICs.  Greed comes first on the list because there are excess hash rates on many altcoins and at this time there aren’t any Scrypt ASICs to take the blame.

There is, however, a glut of mining hardware for lease at bargain basement pricing. This — along with a gross misunderstanding of how excess hash-rate and difficulty affect mining profitability —  is creating conflict, stress, havoc and lost profits on some altcoin networks.

I have conceived of a few ways to quantify excess hash-rate, taking the blocktime into account.    They involve examining the relevant blockchain to look for an unexpectedly large number of blocks that do not contain a single transaction that is unrelated to mining.  For example, too many blocks that contains a single mining block reward may be an indicator that there is more hashrate than is needed to support tranactions on that network.   The same is true for blocks that only contain pool, multi-pool and exchange related transactions that are all a direct result of mining.

Excess hashrate is an indicator of greedy mining and it hurts most miners on that network and benefits very few.  The fact is, it really costs everyone, even the greedy miners themselves.  Using some elementary mathematics, one can verify that they are earning less per hash as the hashrate climbs.  Satoshi built in protection from greedy mining and it is quite effective.

It is interesting that some in the Bitcoin community believe that an excessive hash rate is a good thing as it lowers the chances for 51% attacks.  I find this to be a somewhat weak, if valid, argument.  Obviously there is much room for debate, discussion and improvement

So, how might we determine how much hashing is needed to support transfers on a network and how much is excessive?  I would love to see some kind of service appear which offers up this kind data for a wide selection of coins.  The ratio of ‘greedy blocks’ versus required blocks would be a valuable metric to begin with.

Other articles by rebphil that you might enjoy. 
Dark Wallet     Alpha Test Introduction    Dark Lobby   Alpha 4 update
Learning Crypto     DHM Key exchange     Eliptical Curve DSA     Greedy Mining
CannaCoin     IRC tipbot wallet     CannaStore
Tips for Phil:
BTC: 1JcNZ48vhNATfa96dXw8CVGhggSE2X795W
LTC: LVzr5taTj5Y4zG8MvpSGbQAT92YXrqdnpu
DRK: XhoZYuH64bbfbvTErPSKRi9jzMJA4QNNaM

  • hybridsole

    Quick question: How does block time impact the calculation to determine greedy hashing? For instance, a coin with longer block times would have less blocks without transactions, whereas a coin with very short block times would have more blocks without transactions. Seems like this would need to be taken into account when comparing one blockchain versus another to determine excessive hash.

    • rebphil

      Very good point, yes, the blocktime is an important factor. There will be a certain number of empty blocks, I’m just curious what the variance is. If the number of empty blocks becomes significant, there is an issue somewhere. Coins with few legitimate transactions are not part of this discussion.

  • Patrick

    Phil, you wrote:

    “It is interesting that some in the Bitcoin community believe that an excessive hash rate is a good thing as it lowers the chances for 51% attacks. I find this to be a somewhat weak, if valid, argument.”

    You are right that it has less to do with excessive hashrates and more to do with better distributed hashrates. Efficiency of the network doesn’t increase with efficiency of the mining hardware.

    Security is improved when the Proof-of-work is distributed across more people, more evenly. This is definitely hard, if not impossible, to implement. Therefore, double spend will always be a potential threat, but there’s a number of important factors that can prevent double spending which have been implemented through things like KGW, Digishield, etc.

    I like the idea of multi-algorithm mining because it allows a broad range of devices to mine.

    I’m looking forward to seeing how scrypt ASICs change things, because things will be very different than when SHA256 ASICs came out for Bitcoin.

    • rebphil

      Another comment I received in a PM…. The “empty” blocks are good for the network because they bury previous transaction filled blocks with additional proof of work.

  • rebphil

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