Praxeological Analysis of PoW Policy Changes, Re: ASICBOOST

On the $100M profit claim

First I'd like to confirm Gregory Maxwell's assertion that covert use of 
ASICBOOST could result in $100 million USD per year profits.

profit = reward - costs.
Total reward is fixed at (12.5 block reward + 3 fees) * 6 per hour * 24 per day 
* 365.25 days per year * $1150 USD per bitcoin ~= 1,000,000,000 or 1Billion USD 
per year.

Miners normally compete against each other until there is only a very small, 
practically zero profit. Lets say that 50% of the mining hashpower are 
operating at profit = 0, and the other 50% are operating with > 0 profit due to 
the 20% increased efficiency of the covert optimization.

How much profit is earned by the covert optimization operators?

Half of the operators would have a cost of ~$500,000,000.
Half would have a cost of ~0.8 * ~$500,000,000 = $400,000,000, leaving profit = 

But does this make sense? What if 95% of hashing power miners used the more 
efficient process, and 5% didn't. Would this still result in using a similar 
formula, with $950M * 0.2 = $190M profits? I believe it would. Essentially, the 
the 95% of the miners are colluding to not increase their capital & hashing 
power enough to erase their profits. Hence an entity or multiple entities may 
be colluding to decrease the security of ordering (double spend prevention) of 
Bitcoin transactions.

Hence a claim that as much as $100M per year could be gained by using the 
ASICBOOST Optimization is a valid claim.

Miners and Money Owners have Different Motivations

Money owners and miners have different motivations. Miners are currently 
concerned about the 1-2 year ROI of their capital. In the long term, as ASIC 
technology for Bitcoin matures, miners will have a longer term ROI concern. For 
money owners: Short term money owners are looking to transfer their money in 
the most efficient manner. Long term money owners are looking for a money they 
expect will become more valuable in the future due to its ability to handle 
more users with a higher money transfer efficiency than other competing 

$100M per year is a pretty good reason for a miner to want to delay Bitcoin 
policy improvements that primarily benefit the money owner, yet have only 
marginal utilitarian benefits for the miner, but evaporate their ability to 
have such an income.

Money Owner Perspective Analysis

Money owners strive to have a have a PoW algorithm that does not give a subset 
of the world an advantage by government interference. Such interference 
threatens bitcoin's decentralized nature, and hence the users' ability to have 
a money who's policies are dictated by themselves rather than a centralized 

Changing the PoW algorithm in a way that makes existing ASIC miner capital 
worthless... is undesirable because it creates new opportunities for first to 
market optimizations to centralize mining. It also makes bitcoin's security 
weaker because the uncertainty of the PoW algorithm de-incentivizes the effort 
to invest in mining capital, which creates a larger threat for a future 
malicious threat to perform the 51% attack. For the duration that a new PoW 
algorithm is not fully optimized with the current latest ASIC manufacturing 
techniques, and there remains undiscovered optimizations, the double spend 
security is weaker.

Gregory Maxwell's proposal does not make existing mining capital worthless... 
it only removes the advantage of using the patent encumbered optimization. 
Existing capital, particularly the S9, remains being the most efficient capital 
available for mining Bitcoin. Activating such a proposal will set a precedent 
for mining equipment manufacturers and operators to expect that certain classes 
of patented optimizations will only have a limited ROI timeframe before they 
are made unavailable due to users changing the PoW policy. Miners may still 
pursue optimizations that are not encumbered by patents without concern that 
their optimization advantage will be disabled just for the purpose of 
benefiting some other arbitrary set of miners.

Given that a money owner would not want Bitcoin's ability to transfer money 
efficently be encumbered in the long term for the sake of miner's profits... in 
the case where even a non-patent encumbered optimization conflicts with an 
upgrade to Bitcoin for the money owners... then its a question of how much the 
change increases bitcoin's money transfer efficiency, and how generous the 
money owners are towards allowing the optimization-capital-invested miner. I 
use the word "generous" because the policy users choose for the money supply is 
entirely voluntary. No contract was made to continue using the same exact PoW 
algorithm. The guiding reason to keep or change the PoW algorithm to increase 
the money transfer efficiency of the money. Double spends, and the properties 
of PoW that secure against double spends, are a large factor in determining 
such efficiency.

Impact of Changing the PoW Policy vs Covert ASICBOOST

Miners currently using this optimization will lose 20% profits. Old and less 
efficient mining equipment using the optimization might no longer be profitable 
in mining Bitcoins. Miners using this optimization but using more costly energy 
may also no longer be profitable in mining Bitcoins. Difficulty will decrease, 
and miners not using the optimization will have greater profits and grow in 
numbers. The difficulty decrease may make older equipment and higher cost 
energy locations become profitable once again.

Long term impact on miners: As discussed in the money owner's perspective, 
mainly this will reduce the motivation to perform the R&D, manufacturing, and 
purchase of patent encumbered optimizations. Realizing that the users may also 
at a future date disable an optimization in order to in some way make an 
improvement to Bitcoin will also put a damper on advancing the development of 
more efficient mining hardware, which is once again desirable to users as it 
makes the transaction ordering more future proof.

This may also be a lesson to hardware manufacturers that they should not make 
their chips extremely special purpose... that having some flexibility in the 
algorithms the device can run may help make their hardware still have other 
uses in the case that users decide to change the PoW policy. For example, it 
may be wise for the manufacturer to support an operating mode where only the 
nonce bit are permutated and no SHA256 operations are skipped due other 
assumptions about the block header data.

Praxeology Guy's Recommendation

Make it a policy that patent encumbered PoW optimizations are 
countered/prevented if possible while minimizing the disruption on the utility 
and availability of optimized mining capital equipment. Owners of Bitcoin 
should support and activate the proposed PoW policy change by Gregory Maxwell 
as soon as possible to counter the ASICBOOST patent encumbrance... unless the 
creators of the ASICBOOST patent transfer their IP to the public domain. SegWit 
should not be delayed for the purpose of being generous to those who first 
implement ASICBOOST in their mining operations. Future ASICs and mining 
equipment should be made with the option to run without optimizations that make 
assumptions about policy that is subject to change in a future soft fork.

Praxeology Guy
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