j"1LAnZuoQdcKCkpDBKQMCgziGMoPC4VQUckMÆ<div class="post">The difficulty for generating bitcoins is periodically adjusted using a method<br/>that has worked well this far. However, I am afraid there are plausible<br/>scenarios where the current method would misbehave quite spectacularly.<br/><br/>One scenario goes like this:<br/><br/>1) As bitcoins become more known, competition among minters continues to<br/> increase, with corresponding increases in difficulty. The increased<br/> difficulty will eventually make bitcoin minting clearly unprofitable for<br/> those who do not have access to good energy prices and cheap access to an<br/> energy-efficient HW/SW combination.<br/><br/>2) Some bitcoin users may continue to mint bitcoins even though it is not<br/> profitable for them. This could be due to ideology, the fun factor, or<br/> just ignorance. But it is quite plausible that the vast majority of<br/> bitcoins will be minted by those who profit from it. Let's say that 99% of<br/> all bitcoins are eventually minted by for-profit-minters.<br/><br/>3) The competition among for-profit-minters will drive profit margins down, to<br/> the point where it is profitable to continue minting, but barely so. Let's<br/> say that the typical profit margin during one difficulty adjustment period<br/> (2016 blocks) is 10%.<br/><br/>4) Since bitcoin minting is a decentralized uncoordinated process, we can<br/> expect random fluctuations in bitcoin minting activity. This does not<br/> affect the difficulty during a specific 2016-block period, so the minting<br/> activity can e.g. increase by 20% during a period without making minting<br/> unprofitable within that period.<br/><br/>Given the above assumptions, we now have a disaster at hand at the next<br/>difficulty adjustment. As bitcoin production was 20% more than target,<br/>difficulty is adjusted upwards by 20%. But the profit margin was only 10%, so<br/>for-profit-minters would now lose money if they continued minting. They will<br/>therefore stop minting, and as they make up 99% of the minting capacity,<br/>generating the next 2016 blocks will take 100 times longer than normal.<br/>Everything that depends on block generation will slow to a crawl, and this<br/>slowness will persist for a very long time, since the next 2016 blocks will<br/>take 100 times longer to generate (almost 4 years rather than two weeks).<br/><br/>Now, if this was to happen, I guess a new client could be released that resets<br/>the difficulty to some sensible number and started using a better algorithm<br/>for difficulty adjustment. But it would be much better to do it proactively<br/>before it becomes a problem (perhaps with a predetermined "flag day"<br/>activating the new algorithm at a certain time in the future, giving the new<br/>client a chance to propagate).<br/><br/>A simple(?) modification of the algorithm would be to apply the adjustment<br/>after a certain amount of time rather than at a certain block number. The<br/>switch could still be synced to take effect for the next block, so time<br/>synchronization between clients would not need to be super exact to have the<br/>vast majority of them agree on when the new difficulty is to be applied.<br/><br/>Also, the difficulty adjustment should probably take into account the<br/>adjustments of the number of bitcoins minted per event (now 50, halved every 4<br/>years). Halving the number of bitcoins generated each time is equivalent to<br/>doubling the difficulty as far as profitability is concerned, and such a<br/>drastical drop in profitability is unnecessary if it can be avoided easily.<br/>I'm not sure if the current adjustment algorithm already takes that into<br/>account somehow, but I couldn't see any obvious adjustment for it in the<br/>source code.<br/></div> text/html
https://whatsonchain.com/tx/dd085b97f49d280198f4e593abb6d404c3e42e8bf88dd32ca2334694cc4fe8a3