[RFC-0022] PoW reward cap

peerchemist · March 22, 2021, 10:27am

peercoin/rfcs/blob/master/text/0022-pow-reward-cap/0022-pow-reward-cap.md

# Proof-of-Work reward cap

- Status: proposed
- Type: protocol adjustment
- Related components: 
- Start Date: 03-18-2021
- Discussion: 
- Supersedes: (fill me in with a link to RFC this supersedes - if applicable)
- Superseded by:
- Author: Peerchemist

## Summary

Peercoin PoW block reward is product of network Proof-of-Work difficulty: the higher the network difficulty, the lower the block reward. This mechanism is effectively "pegging" the issuance of Peercoins to the development of SHA256 ASIC miner hardware. Reasoning behind this decision is that it's expected that efficiency of SHA256 miners represents the level of advancement of general cryptocurrency industry, at least that is something that can be encoded into an algorithm. Miners will turn to Peercoin when profit is high, and drive up the PoW difficulty while reducing the block reward. Which is expected behavior, to have ever decreasing average block reward.
However, PoW miners have no loyalty, they will move on to mine whatever is most profitable at the moment. Sometime they will even speculate about future price appreciation of a specific asset and will dedicate time and energy to mine it at loss for a while. This can lead to extended periods of lower mining difficulty and relatively large PoW block rewards. It is easy to imagine some extremely unusual chain of event (black swan) which would result in extremely low PoW difficulty and thus abnormal PoW-based inflation.

It is justifiable to cap the Pow block reward at 50 Peercoin in order to shield the network from excessive inflation in case of unusually low PoW difficulty. 

## Conventions
- The key words "MUST", "MUST NOT", "REQUIRED", "SHALL", "SHALL NOT", "SHOULD", "SHOULD NOT", "RECOMMENDED", "MAY", and "OPTIONAL" in this document are to be interpreted as described in [RFC 2119](http://tools.ietf.org/html/rfc2119).

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qrpnxz · March 22, 2021, 5:12pm

I approve. I can sleep better at night knowing that PoW will not cause any more inflation than it currently is. I think it’s fair to say that PoW difficulty was expected to, for the most part, monotonically increase as more people mined and miners got more efficient.

We might consider ratcheting the reward in the future so that it can never increase.

Nagalim · March 23, 2021, 5:50am

Biggest technical concern i can think of is that game theory wise it will peg the difficulty at the level of maximum return given a mining cartel. Thats not a concern if the unmanipulated difficulty would be far from that point, but if its near there (like it is now) it might create some gaming opportunities around the discontinuity.