Many blockchain mining networks are victims of their success. Two current realities are causing blockchains to fail to deliver on their promises: 1) the continuing technological arms race driven in part by inherent competitive greed and 2) the rising energy cost associated with proof of work (PoW). Blockchains built upon the PoW consensus are becoming increasingly unequal and centralized in terms their hash rate. This concentration of mining power in fewer people is a violation of the essential requirement for distributed and decentralized blockchains.
Additionally, mining power increases can have a negative impact on the environment. This is what happened to the Chinese Bitcoin (BTC). The hash rate must also be distributed more evenly to ensure that blockchain and cryptocurrency have a long-term future. This will allow for the preservation of the key components of decentralization and distribution. This will require a new vision of the mining process and a restructuring of PoW system.
Re-centralization of mining has a negative impact
Before we can discuss the potential solutions, let's first acknowledge the scope of the problems. PoW was and remains essential to Bitcoin's longevity, success, and reliability. Most notably, PoW offers a solution to the well-known Byzantine Generals' Problem in the fields of mathematics and computer science, through an incentivization setup and ongoing resource commitment that makes it infeasible for a malicious party to interfere with honest consensus.
The key elements of solving the dilemma are distribution and decentralization. This allows parties to agree on a single strategy and avoids complete failure. It also eliminates the risk of corruption or unreliability. The consensus protocol cannot be used to solve this problem if it becomes too centralized or dominated by a few entities. A handful of powerful players have gained control of the blockchain infrastructure through the rise of large ASIC farms. This threatens its ability to remain decentralized and distributed, and ultimately trustless.
This is the "late-stage" issue in the PoW consensus. It arises from the way miners are incentivized by competition for the block reward. This race to the top, while essential for the game-theoretic network security structure, also causes serious problems. It creates the "cheating athlete problem", which is a term that describes how participants will cheat to win if the race reward is high. Imagine a group or athletes standing at the start line of a race. Each one wants to win the prize and get the fastest time.
While there is some luck involved in winning any race, the chances of winning increase with the speed of an athlete. Cheating is the act of gaining an advantage over other runners using technology or collusion so that the winner of each race does not seem sufficiently random to solve the Byzantine Generals Problem (i.e. distributed consensus via a sufficiently randomly distributed resource allocation).
Similar to how the PoW race drives the development of more energy-hungry machines, larger mining farms, it reduces the decentralization of the network and prevents the resource commitment from being used as a way of trustless verification. It can also increase the network's energy consumption, possibly to the point that it could negatively impact the environment.
Balance the protocol for mining blockchain networks
It is not the hash rate of a network that confers security, but how it is distributed that is the key to solving the cheating athlete problem. This is why one seeks to find a solution that makes re-distribution a fundamental feature in the protocol, rather than leaving it up to politics or centralized committees, no matter how well-intentioned.
You can balance your chances of winning "the Race" by giving an advantage to runners who are significantly quicker and a handicap to runners who are significantly slow. This can be done in a blockchain network through a peer to-peer, thermodynamic-like balance process that adjusts each miners' hashing difficulty smoothly and verifyably. This allows the network's equilibrium to be reached at the effective hash rate. It also avoids any excesses of centralization and mining power. The network can continue to operate independently with no third-party involvement.
There are many blockchain implementations currently in existence. Most of them have some economic or monetary value, and use an underlying technology to ensure security and efficiency. An algorithmic balancing protocol can help achieve the best balance between distribution and economic incentive. This will reduce monopolistic mining practices and keep the carbon footprint of the network low by reducing the incentivization of continuous power-ups through expensive technologies and the construction of large ASIC farms.
A greener, fairer, more secure future
Although the PoW consensus is facing significant challenges from the widespread mining centralization, they should not be seen as a threat to its future. PoW emerged as a revolutionary technology innovation. It solved a long-standing mathematical and computer science problem and opened the door to Bitcoin and other cryptocurrencies. If we ignore PoW's transformative power, there is a risk that we will not fully appreciate its potential.
These similarities can be seen in humanity's exploration of economic system. Capitalism is among the most innovative and progressive systems in human history. It has improved innovation, life expectancy, quality of life, and even longevity for billions. If left unchecked it can lead to unprecedented wealth and inequality, which could even bring us to the brink a climate catastrophe. Instead of abandoning it completely, societies try to balance its pros and cons. They want to create a form tempered capitalism where greed and monopolistic endeavors don't have complete control, so that a more responsible, functioning and fairer society can flourish. To some degree, societies have attempted to implement this system (with varying degrees of success) through wealth redistribution, such as taxation and anti-monopoly laws.
The PoW consensus, a groundbreaking invention, needs to be temperated to reduce the worst excesses and greed within the system. We have the opportunity and responsibility to bring the PoW consensus protocol closer to society's needs. This includes reducing monopolistic tendencies, and preventing crypto mining centralization. Instead of reinventing the wheel and abandoning PoW for risky alternatives, we need a better way to harness the power of the wheel to create a machine that connects the world.