Six mining pools control 90% of Bitcoin’s blocks, sparking concerns over censorship, influence, and the need for decentralization.
The episode argues that Bitcoin’s real centralization risk sits at the pool layer: six–seven pools direct ~90% of block construction, turning most “miners” into hashers who outsource trust, payouts, and block templates via Stratum v1. This creates a choke point for cartel behavior (e.g., fee manipulation, filtering Lightning), regulatory coercion (OFAC-style censorship), and smoother adoption of contentious changes, especially when relay-policy shifts can be de-facto standardized by a few pools. The hosts distinguish hashing vs. mining, relay policy vs. consensus rules, and hard vs. soft forks, warning that the danger isn’t one dramatic break but precedent and process, changes pushed with limited rough consensus because centralization lowers the friction. The counterweight is re-decentralizing block construction: more node-running miners, home/SMB setups, waste-heat use cases, and business models less dependent on fiat financing that prioritizes scale over alignment with Bitcoin’s incentives.
Bitcoin’s durability depends on keeping changes hard and decision-making diffuse; concentrated pools invert that logic by making unilateral shifts easier and community signaling weaker. While today’s issues may seem incremental, the long-term risk is cumulative erosion of neutrality through small, precedent-setting moves. The remedy is agency: miners and users running nodes, diversifying pools/clients, experimenting with entrepreneurial energy reuse, and favoring incentives that reward profitability and independence over fiat-fueled growth. Decentralization isn’t aesthetic, it’s the mechanism that preserves Bitcoin’s security, censorship resistance, and social consensus.
0:00 - Brisket Inflation
2:30 - Mining Pools and Stratum V1 Explanation
5:49 - Trust Relationships and Hash Rate Distribution
7:49 - Mining's Security Function
11:21 - Pool Centralization Risks
13:38 - Cartel Scenarios and Hard Fork Dynamics
17:00 - Censorship vs. Invalidation Scenarios
20:50 - Government Pressure and Decentralization Benefits
24:30 - Consensus Rules: Hard Forks vs. Soft Forks
32:10 - Soft Fork Dynamics and Wipeout Risk
34:03 - Relay Policy vs. Consensus Rules
39:21 - Op Return Debate and Mining Pool Decision Making
46:05 - Developer vs. Miner Centralization Concerns
49:32 - Relay Policy Precedent Concerns
55:14 - Process Criticism and Community Feedback
59:33 - Mining Distribution Impact on Arguments
01:04:16 - Contentious Soft Fork Scenarios
01:11:25 - Game Theory and Economic Majorities
01:16:46 - Fiat Money's Impact on Mining Centralization
01:23:42 - Path to Decentralization
01:25:33 - Innovation and Home Mining Future
(00:05) Jimmy, thanks for doing this. Topic of the day is mining centralization. But before we get there, I want to quiz you. Just went down the street to Coopers. Got brisket. I want you to guess what the current price of brisket per pound is at Coopers. It's downtown prime location, Austin, which obviously Oh, yeah.
(00:36) Obviously, um, very popular around here. I'm going to guess 32.99. 3950. What? Yeah. Do Do you have any recollection? We've been going to Coopers for a long time around bit devs. Do you have any recollection of the earliest price you would have remembered at Coopers? Well, Cooper didn't open until like 5 years ago. No, it it it's been at least 2018.
(01:00) Okay. So, 7 years ago, something like that. Yeah. But, um I want to say like 22 299 was maybe like the earliest I can remember. The lowest I saw when I I started going there more frequently when I started Unchained, which would have been 2018, 1799. Yeah. I remember when I first moved to Austin, I went to uh Rudy's.
(01:30) I think it was like 629 or something. Yeah, this was 2012. It's just amazing. I I've triggered a number of people carrying the torch on SAFE's ribeye as an inflation index and I'm conditioned to the increase in prices and even at Coopers, I think I went and I saw it at 33 or $34. But there was something about that 3950. Yeah.
(01:57) And I know that I've seen it, you know, back in time at the same location. 17.99 more than 100%. Yeah. Just Well, you know, in Bitcoin terms, that's actually quite cheap now. like compared to that. I saw a tweet that you put out about something that you were looking to purchase, seeing that it was some amount more expensive and then realized that it was cheaper in Bitcoin terms.
(02:23) And it is it is true that that brisket is still cheaper in Bitcoin terms. Way cheaper. The dollar inflation still still hits. It does. Still hits. It does. Um, start paying attention, freaks. But um all right, on to the real topic of the day, mining centralization and and specifically we're going to get into pool mining pool centralization.
(02:48) Explain in your words the relationship between Bitcoin miners and mining pools just to set some context. Right. So the reason why pools exist in the first place is because you want variance reduction, right? Um if you have a tiny amount of hash rate um you have uh you know whatever hash rate you have divided by the global hash rate percentage chance of finding the next block.
(03:15) It's obviously not going to be very much. And instead of uh you know waiting for the one jackpot hit if you will, you can pull all of your resources and split it equally. That's what a mining pool is supposed to be. Um unfortunately the first design of mining pool stuff uh uses something called stratum v1 and this is where the mining pool tells everybody hey here's the block you have to mine including this output address that goes to the pool and will do the splitting up afterwards. Um and that means that the pool
(03:55) essentially acts as the block template constructor. And in fact for any member of the pool they don't have to run a node at all. They just have to take the template modify it in whatever way to uh roll the nons or whatever and just hash until they find the block right or find really what they do is they find shares and then submit those shares and if the uh pool if they find a block then it gets spread equally.
(04:28) That's the idea behind pools and that's how um it's more or less executed. Uh but you know, one of the things that makes it kind of bad is that the pool operator gets to decide what goes into each block. And that means that there's a centralized block production industrial complex, if you will. There's only maybe 15 pools that have something like 95% of the hash rate and uh that that are running stratum v1. Um I think brain brains pool they run stratum v2.
(05:05) Um, Ocean obviously runs DATM and then there's like CK solo pool and they they make it so that you can uh mine solo and decide on your um template yourself. Uh, and but they they take up I believe less than 5%. So 95% of hash rate essentially is controlled by like 16 pool operators. And we know that some of them have like economic, you know, interests in the other.
(05:38) So, it's probably more like 10 at the most, right? Like entities. Yeah. And so, you mentioned that like most Bitcoin miners, if they're working with a centralized pool, are not running their own node. They don't have to. No. Um, and that when they are performing work, say on-site where they're consuming power and running the Bitcoin hashing algorithm, they're basically their their primary communication channel is back through the pool.
(06:10) They they send the pool all of their work and then not only does their work go back through the pool and the pool does the accounting of how much work all the miners participating in their pool do but then the money goes directly to the pool. Mhm. And then they have to get paid out. Yeah. And the pools pay out the miners. Right.
(06:36) It's it's a big trust relationship honestly because every hasher, right? Like we shouldn't call these people that are participating in a pool not really running their own nodes or constructing blocks like any an actual minor. They're not really mining as much as they are hashing. The mining pools are mining because they're constructing their own blocks.
(06:55) Um but that's they they have to have um this big trust relationship because the pool does the payout, right? Um, and you know, they I I believe I I used to mine a long time ago and I I was like, "Okay, how do I even verify that this is the amount that I'm owed or like how do you even know?" Uh, cuz they need to figure out how many shares you submitted and so on.
(07:23) And basically, share is like something that doesn't quite meet the proof of work, but is very still very difficult that you can prove, hey, I did this much work. And so the pool pays based on that. Um that is uh it's kind of like it's a big trust relationship. It's a bit of a mess because of that. Yeah. And then also just for context before we discuss the consequences of centralization provide your view of the context of the function that the miners are providing to the aggregate network.
(07:55) Yeah. They're making it so that it's very hard to go backwards, right? The blockchain is adding blocks and not going backwards. In order to subvert any transaction that's included in a block, then you have you not only have to um do at least the equivalent amount of work proof of workwise um but if there are blocks on top of it, uh you you have to do the proof of work of all those blocks as well.
(08:31) So it ends up being um a a security measure to not quite finalize a transaction uh but make it very difficult to reverse it, right? Like nothing is ever final in theory. You could if if you had like uh you know if you were God for example, you can you can make like trans uh like blocks all the way going back to the Genesis blockchain uh Genesis block and just you know like uh wipe out everything uh at least according to the rules of the software.
(09:06) Um but you know that's uh but you get very good like assurance of finality based on proof of work rather than you know somebody's trust me bro asurances or something like that. Yeah. And two two I think it was two episodes ago, Pierre and I did a deep dive on the difficulty adjustment and difficulty target and we est or not we estimated but the the number that we were working on was that there was approximately 20 gawatts of power securing the Bitcoin network somewhere probably between 20 and 25 gawatt but that on average it would require 20 to 25 gawatts of power
(09:39) running probabilistically to solve the next block in 10 minutes and that in order to effectively undo history or undo potential transactions that were already settled, it would require that much power just, you know, it would be possible probabilistically for someone to do less work just based on luck, but on average it would be that much work, 10 minutes just to rewrite the past block.
(10:08) And then if you were talking about undoing two blocks to your point of nothing's technically final, but practically speaking, the more work that's being done, the more work is required to undo a previously valid transaction and that it's a principal function to ensuring transaction finality in the Bitcoin. Yeah. And it it makes it a lot harder like it everything else in sort of like the fiat world is based on okay well we're going to say this is final by convention or something like that.
(10:41) This actually requires energy and that um that sort of component is very unique uh and gives it sort of like a solidness that almost nothing else financial really has. Yeah. And that is something that I want to talk about as well. this this dynamic of and you drew the distinction between hashing versus mining, but that the participants that are actually doing the work, are the hashers or the miners, the mining pools themselves are not the ones that are actually consuming energy, but they're this principal point of centralization that hash rate is fairly well distributed, but then everything
(11:23) centralizes at the point of creating blocks or putting the set of transactions together that are going to be proposed say in the next block to the to the network as well as managing all the payouts. Mhm. Um and you talked a little bit about the number of pools that represent different percentages based on when I look at it.
(11:46) Foundry represents about 30%. Mhm. Ampool is 14%, but there's a number of other pools that are working off of the same templates as ampool. And when you add up what people believe those proxies to be, Boundary and Ampool are 55%. The top five are 70% and then the top six or seven are 90% of the network.
(12:15) What do you see as the principal risks of specifically mining pool centralization to the Bitcoin network? Well, if two few uh if you have block construction outsourced to only a few entities, then they can do cartel-like behavior. They can do all sorts of things, right? Like they can just say, for example, if it if if they had, I don't know, 95% or something like that, they could literally extort the network if they wanted to.
(12:50) They could just say, "Hey, if you want a transaction, you have to pay us $500 per transaction. We're not going to include anything else." And that that could be cartel-like behavior, right? And they could they could enforce it if they sort of agree with it. other problems with cartels and like defections and so on, but that's something that they could do.
(13:09) Um, and you know, not not only that, but uh, you know, they they can let in whatever transaction that they want and not what you know like what the rest of the network is trying to get in and so on. they couldn't I mean there if in any point of centralization you can sort of restrict things in ways that aren't um optimal for the network to grow and so on.
(13:46) So um say say those uh like five or six entities decide at some point we don't like lightning it's taking away a lot of our fees. So any lightning transaction we're just going to filter right. Uh and that's that's a scenario that could happen in which case like uh they're they're hoping that if people can't use lightning uh or open channels with lightning and so on then they then people have to come onchain which would increase the fees and increase their revenue something like that.
(14:17) There's a couple different scenarios there and let's talk about it on either side. Let's say there's a scenario where a cartel of miners got together and said there's going to be 22 million Mhm. Bitcoin. Mhm. What happens and why is that unrealistic? Yeah. Uh that that's unrealistic because that would require hard fork. So that but just walk through those dynamics. Right.
(14:42) Right. So say they want to do that. um then they would have to change their software in which case uh you know they I I I don't know what the emission schedule would be. If it's the same as Bitcoin up until a certain point then it'll stay more or less unchanged, right? Like uh until the point at which the emission schedule changes.
(15:01) So currently the emission schedule is 3.125 every 10 minutes. If they start saying, "Okay, instead of 3.125, we're going to make it five, right, for for right now." Then it would be an immediate hard fork, at which point they're not hashing Bitcoin anymore. They're hashing Bitcoin miner or whatever it is. And so there would be two versions of the blockchain. Mhm.
(15:26) And they would they would never come back together because they're it's a hard fork. It they're very very different. and uh and it would probably uh slow down the Bitcoin network quite a bit cuz a lot of hashing power effectively has left. But that means that um you know the difficulty adjustment after a month or two would probably you know make it so that you know transactions go through in a reasonable time again or more mining comes online like uh you know equipment that has been like mothballled somewhere maybe comes online and you get hash rate
(16:01) that way. Um but ultimately you just have two separate tokens, right? It would and it would be effectively the same. Mhm. as the 2017. Yeah. Yeah. You It would feel like an airdrop. Yeah. Every everyone has the same amount of Mhm. Bitcoin A and minor forked Bitcoin B. Mhm.
(16:29) And people that and then the market would determine which one they'd rather want to hold and then the hash rate would logically follow because of economic pressure eventually. Yeah. Yeah. Yeah. Um, so but then you also brought up the scenario of censorship. Mhm. And there might be one version of censorship in in terms of not validating Mhm. say Bitcoin from let's just say an OFAC sanctioned address. Yeah. That's that's a more salient one.
(17:00) Yeah. And there there's there's two different scenarios. There's ones where they just won't mine it. Mhm. And if enough of the cartel is together and agreed, the transaction just doesn't get mined. But then if there's a scenario where they hardcoded something into their software to say any bitcoin from this address is actually invalid. Mhm.
(17:28) Talk about the differences between those two different scenarios because like one would create a fork versus one would just basically try to card you off from the network. Yeah. Uh so if they if they just never mind the transactions that are from OFAC sanctions list then that wouldn't really affect the network that much other than for the person that has that address obviously.
(17:51) Um like blocks would still be valid to every node and so on. Um if you suddenly said you know transactions from this are uh this address are now invalid uh then someone as long as that such a transaction shows up on the network you would have an instant hard fork because the software that says this is invalid would would deny that block and the software that says it is valid would continue to you know build on it.
(18:27) Now that that would be weird because it in a in a sense I think that would be a soft work because it's a tightening of the rules. So in that case like uh the mining cartel would actually have the advantage in the sense that if they did that uh said okay transactions from these 17 addresses are invalid it would be a tightening of the rules and if they ever overtake uh you know the chain that had the a transaction from that address in it then all of the other um nodes that have built on it.
(19:05) You you have wipeout risk basically because if if the chain is longer with the miners then everybody else would have to take it. But it's not the reverse. It would be a soft work. So and I'm envisioning the although I even that I expect to be unlikely would be someone like the US government saying hey here's this set of lists that we deem to be enemies of the state. Mhm.
(19:32) Um, more than just filtering the transactions, if you if you were to mine these transactions, then you are going to be or if it's in your blockchain, then we're going to be liable. So said even if somebody else mined it, then you couldn't mine on top of it. If your software said any anything from this address is invalid. Mhm.
(19:57) that do you think that that's a a realistic scenario? I suppose it's possible and who knows what bureaucrats think of but I mean it it could it's a way to pressure a centralized entity and the thing is uh when a centralized entity exists then you can sort of choke it to your and bend it to your will which is sort of the scenario you're um more broadly describing and then maybe talk about or in a scenario where it exists today where say six or seven minor control 90% of the hash rate versus a more distributed Mhm. set of circumstances.
(20:44) Mhm. Why it would or why it would or would not be more likely to be successful if it were attempted. Yeah. So if if you do it with like six or seven miners, pretty easy, right? you go to them and like give them um you know whatever legal notice or whatever and their lawyers get involved and they stop mining or whatever.
(21:06) It it it's a lot more like that's a lot more likely to be successful than if you had like a thousand miners distributed all over the world. You have no idea where they are, who they are, why uh you know what equipment they use or where like how are you even going to serve them, right? like, okay, go um you're not allowed to do this or whatever.
(21:29) Um, and even if you you've deemed that they're enemies of the state or whatever, how how are you even going to find out where they are and all that? So, it becomes um sort of like that nightmare scenario that we talk about in Bitcoin. What happens if the government bans Bitcoin? Uh like yeah, what what what would happen? I I'm I'm not entirely sure, but I I think a lot of the mining would be outside of the jurisdiction that banned it.
(22:02) And uh and yeah, like it's a lot harder obviously when it's decentralized than when it's centralized. What are So then what about a scenario where it wasn't something as clearly obvious like increasing the fixed supply of from 21 million to to something greater and that creating a hard fork. some other change to the network that um maybe discuss like a scenario where it's a soft fork but not something that's like as overt cuz like in in the scenario where they change the the fixed supply that's obviously so core to the economic incentives of the network that the network splits in two and everyone
(22:51) that holds Bitcoin on either chain ultimately would decide very quickly what's valuable and what's not. But what are other potential scenarios that are maybe not as overt that you think about in terms of just the risks of changes to the rules? Yeah, a good question. Um, I think the one you laid out about like the OFAC list, maybe that one's too obvious.
(23:20) But, um, I I'm going to reverse sort of like the child porn thing that that's being discussed online about what happens with that. What What if the government says, "Okay, well, if it's in the blockchain, then it's illegal or something like that, and anyone who mines it is going to be deemed in possession or something.
(23:40) " Then you kind of have the reverse scenario where um every minor is going to avoid that like the plague and they might actually adopt like knots or something just so they can avoid that legal liability or something like that. Possibility it it seemingly gets into that scenario.
(24:06) Do you filter? Or if it was something like that, it would seem like it would potentially need to be hardcoded. And the only defense of that is hash rate distribution where it's not credible and if it's not credible, then it's less likely to be attempted. Mhm. Um but maybe also draw the distinction between because it is current to the debate and I don't want to go super deep into opera turn and have this just become a conversation about the oper filter but discuss the the difference between non-conensus or like maybe three vectors non- consensus rule like a relay policy
(24:49) a consensus rule that creates a hard fork versus a consensus rule that creates a software. We talked about one scenario that would create a software being more restrictive, but just like maybe talk about each one of those and how they're different in relation to each other and then where you know what might or might not be an area of greater or less risk.
(25:12) Yeah. So consensus rules there there's a bunch of them but uh the main ones that you know are like uh the fact that um you have a 21 million limit that's the result of the emission schedule which is having every four years right that and that's uh specific to the coinbased transaction there are specific rules about how the uh coinbased transaction needs to look and so on that have been encoded into bitcoin since the Um and there there's a lot of consensus rules including the block size limit and uh number of signature operations and things like that. Um there's you know uh
(25:54) like different op codes and what they do. Um a lot of them did nothing but they were changed so that it would be backwards compatible and so on. So there there's a whole bunch of things that every node checks for consensus validity and uh and it has to pass all of those for uh trans uh for a block to be considered valid and for a block to be considered valid every transaction within the block has to be considered valid as well.
(26:24) Uh and within each transaction every um you know op code and everything has to resolve a particular way otherwise it's considered invalid. And if you have an invalid transaction or you know invalid input signature or invalid anything basically the entire block is invalid. Um so that that's the consensus rule.
(26:48) Uh and if and if you tighten the consensus rules just a little bit that's called the soft work. And if you loosen the consensus rules, like with the block size increase in 2017, that would have been loosening because there was a consensus rule that said blocks have to be 1 megabyte and uh you know people particularly businesses that didn't really want to write all this SegWit code that oh you know let's just make it into two.
(27:15) But then that would have been a hard fork because every node that thinks that one megabyte is the limit is going to reject anything bigger than that. So that that's what a hard fork is. A soft fork would be like shrinking it, right? Cuz it's if it's 500,000 bytes, then that's still under a megabyte.
(27:40) So that and actually that was like a proposal for a long time because we weren't developing a feed market or whatever. So those those are two examples. And originally, if I'm just to use that as an example, originally there was not a cap or was there? There there wasn't. And then uh I I believe Satoshi put it in there as a way to um like uh prevent trolling cuz at the time like Bitcoin was just so cheap.
(28:03) So you could like potentially create these really really large blocks and like just kind of ruin Bitcoin with like a 4 GBTE block or something like that, right? Um and yeah, decided to put it in there as sort of like an anti-denial of service measure. And so and I think you know in my view that having on that point like having some fixed space not just on a denial service but it ensures that kind of in concert with the fixed supply that there's scarcity of black space which should ensure the integrity of the system to have a B market to actually pay Bitcoin miners
(28:51) after the 21 million. supply cap is exhausted or issuing schedule. But to hone in on the example of okay, there's a one megabyte block. In 2017, certain participants in the network, including miners, proposed a 2 megabyte block. In that scenario, everyone that was looking at the rules saying a block cannot be larger than 1 megabytes, would have instantly invalidated any block that was greater. Mhm.
(29:25) And that is what would call what's referred to as a hard fork, a split in the network. But in a scenario where someone using the other example you provided, said, "Hey, we're going to propose a set of rules that say everything it's only valid if it's over if it's under half a megabyte." If everybody else continues to mine one megabyte blocks, that would be invalid to the software.
(29:51) Mhm. But it's more restrict restrictive. So it doesn't immediately create a fork. It could create a fork. It could if you fig if you had somebody mind a 750,000 byte block then it would be valid on one and invalid on the other. That's where a fork happens.
(30:14) So just talk about some of those incentives in terms of likelihood because of you know it would seem that it's difficult to affect a hard fork because you'd immediately fork off the network but with a soft fork even there would generally need to be wide consensus because of the possibility that someone continues to mine on the old set of rules and what those consequences would be. Yeah.
(30:40) So in a in a hard fork um you know you just sort of go your separate ways right you never merge back or anything like that. Uh with a soft fork you have this weird possibility where uh one side has the advantage if they're ever longer than the other then the other side kind of has to take it. So the way way that works is that people running the old software um might have a transaction that's valid to them but is invalid to the new set of rules that would cause a fork.
(31:13) But if uh if at any time the new set of rules the length uh the total amount of work proof of work done on it is greater than the total amount of proof of work done on the other chain on the old chain then the old chain just takes the all the blocks of the new chain.
(31:36) Right? It it's what you call a wipeout where all the blocks uh that you constructed just go away. Right? Uh and th this is why whenever you have a software you want a big majority on the new side so that you don't get wipeouts like that. Uh which would be like from a user experience standpoint like a nightmare cuz you think you've um you know deposited some amount of Bitcoin to Kraken or something and then you know you find uh you know it gets it gets wiped out.
(32:12) It basically reverts back to the address that it was previously in. Doesn't you don't necessarily lose Bitcoin, but it could have significant consequences for anyone that's doing real commerce. Yeah. Yeah. It's it would just uh it would be a long you you would basically going be going backwards in the blockchain and then going up like another path and it it would be and th those scenarios like um I know the developers spend a lot of time like just trying to figure out what to do in those situations because they're uh rare but they're very very disruptive. So try to avoid them as much as we can. And then
(32:50) I I want to come back to the software idea in terms of a change of consensus rules, but then talk about it in relation to something like a relay policy that's outside of the consensus rules. Yeah. So relay policy is uh is really about the peer-to-peer network.
(33:16) And the way Satoshi designed it is that transactions go from node to node and whoever happens to be the minor, you know, they they construct the block based on these transactions that are sort of gossiped onto the network. Um, and what what I mean by gossip is everyone tells everybody about everything that they know.
(33:34) Now that if you do that for absolutely everything, then you kind of get um some bad scenarios. You get uh denial of service vector. So if you have enormous transactions right that are constantly coming in um and there are say like you know very low fees or something like that they can kind of take down your node because you're you know it's filling up your memory and so on and your meool.
(33:58) So you know relay policy tends to be different than the consensus rules and a little more restrictive because there are valid transactions but a lot of them like you don't know what they mean right like that well explain that valid based on consent the consensus rules but but you don't you so right now for example there's a version field in transaction uh there are I believe three versions that are allowed right now I think one Version one is what it began with.
(34:28) Version two is if you're using check sequence verify which I think was introduced like I don't know seven or eight years ago. I I forget exactly. And then version three is more recent. I think it's um something to do with menool policy but it's like some some there there are three versions that are valid or that are uh that are known right by everybody.
(34:53) Um version four could be valid at some point. I I like could mean something at some point, but it's still perfectly valid as a transaction, but if you don't know what it means, it's like, okay, this is probably a mistake. You just sort of like don't relay it. Um, even if it's a valid transaction.
(35:11) Um, there are lots of things like that, like uh there there's something called the taproot annex, and it's a field that's there so that you know upgrades can happen on the taproot script, for example. um but it's not supposed to be used. So the relay policy says okay if there is a tap routt annex we don't know what it means yet right so don't don't relay it right um in which case it doesn't get relayed uh but it's valid to put stuff into there and uh there have been transactions bind with a tap routt annex in it uh and lots of lots of little
(35:48) things like that where as a node you uh when you're relaying stuff you kind of want to know what the transaction means before you relay it. Uh and um yeah, if if it doesn't make sense to you, then like why waste the bandwidth and uploading uh you know, uploading it to other nodes and so on.
(36:08) So that that's kind of the idea of the relay policy is that you want to know about stuff, but there are things that are legal in the blockchain, but that you don't valid. Yeah. that that that are technically legal but isn't necessarily like something that you want.
(36:31) It's like um it's a lot like the distinction between legality and morality sometimes, right? Like where you know something is technically legal but it's like morally dubious, right? like um like you as a node sometimes you want to just like filter for those things cuz you you can have transactions with all kinds of stuff in it that uh that are technically legal but like that would you say legal you're talking about valid based on consensus rules right right so like having a te a transaction version that's four or greater right like there the versions are there so that you can hint to um you know the software, hey this is what's in it, but a lot of that hasn't
(37:15) been like invented yet, right? Like uh like version two didn't exist until until check sequence verify and it was there so that you know there would be a clear distinction between version one and version two. It's like version two there's a code path that says okay now you got to go check the sequence field and uh figure out the relative time lock for this uh for this transaction um and version one is like you you don't have to worry about the sequence field right so you you don't have to go through all
(37:44) of this logic that that's that was like um a flag or something like that and that that's very useful for the software and if it's sort of creating uh you it it's adding meaning to something that doesn't exist yet, then you know it's just kind of polluting the um the blockchain with like bad meaning if that makes sense, right? It's um how can I put this? It's kind of like a like a spelling error or something like that. That's that that's how I would consider it almost. And it's like okay yeah don't like it's either a mistake or
(38:26) somebody doing something malicious so it's not really worth relaying something like that and so and and I think that's one of the areas where when it comes to specifically the relay policy which is every node in the network is deciding what they want to relay and not and that there's a distinction between consensus valid transactions and a node deciding deciding you know and that being could be an individual or a business deciding what they they do and don't want to broadcast to every one of their peers that they're connected to
(39:06) based on all the transactions that they're seeing on some rules based when it comes to mining centralization and pool centralization specifically If in the scenario where say the sixth or seventh largest pool cuz what's what's currently being proposed without again getting too into the substance of the debate increasing the OP return limit. Mhm.
(39:33) Using the example of the day if the largest six or seven pools decide that this is something that they want. Mhm. Can they effectively force that onto the network? and and then what are the consequences of it? Yeah, I I I I think they kind of can, right? Like and that that's uh it's kind of the point that uh like Libre Relay was making is that as long as they get the transactions themselves, they can they can mine them.
(40:05) Uh and uh and Libre Relay is like a node that specifically connects to these miners and sends them the um large OP return transactions. uh and that and you know if they put it into a block then and it's u you know legal or valid then everyone else takes them and then that's it. Um the problem here is that because of minor centralization you have these known nodes that are constructing the block.
(40:41) So there aren't that many uh probably like 16 like I said nodes that if you reach probably any one of them or a good number of them then you're going to get that transaction mind like you know if it has enough fees and so on then uh then they put it into a block and everyone sort of has to follow it right that's that's the main um main thing that they could too. Uh but if you had a distributed um mining system, then you don't know where all the miners are and you're forced to rely on the P2P network to do the distribution. Now, it still doesn't take very much for these transactions to
(41:20) go out to everybody, right? If uh there's something called the percolation threshold. Um and that's based on like how many connections each node makes to other other nodes. uh but I think the average number of nodes are uh the number of uh connections that a node has is something like 10 in which case the percolation threshold I think is 10%.
(41:44) So if more than 10% of the network relays a particular type of transaction then it's going to be known by everybody pretty much uh and that that graph is pretty steep right around 10%. So it's like almost zero at like 9% and then like almost certain by like 12% something like that.
(42:10) So um that that's just how the math works out with network uh stuff and gossip protocols and stuff like that. Uh so you know and you know Peter Todd I think has figured out ways to connect Libre relay nodes to other Libre relay nodes to make sure that the percolation happens a lot more reliably. Um in which case I I think you need even less. So it'll get to a lot of stuff even with a small number.
(42:34) But the the the bigger thing is that each minor decides what to actually put in. And some of them may be economically motivated, right? Like this. This is sort of the argument that a lot of core people have been saying is that, oh, you know, if they can make five more cents, they'll totally do it. Well, I mean, that's not exactly taking in all the costs.
(43:00) Uh we were talking before the show about uh the cost to um a uh a knots minor, right? Like if you if you're running knots and mining, uh the risk that you have is that uh it takes longer for a previous block to get to you because you don't have those transactions in there yet, right? And this is what a lot of core devs are saying is like compact relay is broken.
(43:27) Well, compact relay depends on you having some of those transactions for the next block already in your me pool. And if you don't have them, then you have to now take time to go and get them. So, if a block has a bunch of transactions that you don't have in your memp pool, then it takes you longer, which means that say you have like a three 3se secondond delay, that's like half a percent of the entire um time that you could be mining, right? like uh like given like a 10-minute block, that's like half a percent of 10 minutes. So, uh you know, you you you'd
(44:00) be sort of like losing money. But like it's kind of a double-edged sword. It it also hurts the miner that mine that block because if the compact block relay is kind of broken for them then whenever they mine that block then there's orphan risk for them because in those you know in the extra time that it takes for the block to propagate then other miners might find the block in which case now you're in a race and you might you might lose.
(44:35) So there there's um the way I would describe that particular dynamic is it's uh it's what's called a costly punishment. I'm punishing myself as a way to punish you, right? Like and if you're not taking in some of this stuff, then I'm giving you a little bit of orphan risk, but I'm also giving myself a little bit of orphan risk.
(44:58) And it's like kind of a game of chicken almost, right? So, and that that's one thing as it relates to the relay policy. And part of what I I'm trying to frame is the distinction between the relay policy and consensus. And I want to come back to consensus to talk about some of the implications. One of my primary issues with the way that this specific change is being proposed is the recognition that functionally seven six or seven nodes in the network the large mining pools can determine what's best for the network.
(45:35) Yeah. Which if say you took that six or seven mining pools that represent 90% of the hash rate and you said there's a hundred mining pools and they all have 1% of the hash rate. And if 90% of 90 out of 100 rather than seven out of seven all decided that something was best, there'd be a greater assurance that there really was consensus over Well, it wouldn't be consensus, but like not not consensus rules, but a rough consensus of the relay policy.
(46:11) And that part of the way that I see Bitcoin's value is that it's purposebuilt to be difficult to change. Mhm. It should be difficult to change the relay policy. Mhm. Or at least what the consens the the rough consensus of the network is. It should be even harder to change consensus rules, which it is.
(46:36) But that be it basically the centralization creates a scenario where um and changing the the the relay policy could create a scenario where either just the six or seven largest blocks or sorry miners mining pools get to decide but then what precedent it sets for the future of how changes get made. And so I think like there's this scenario where hey if it's if it's six or seven mining pools that control 90%.
(47:13) Do they just have to functionally bring everyone along? Because if it was more distributed, someone might propose a change and if it wasn't adopted, it would create risk for all miners and then they would regravitate around there being a rough consensus and relay policy, which to me seems to be lost a lot in in this specific conversation is there actually value to the network of there being rough consensus and relay policy to reduce risk. Yeah.
(47:39) Uh I mean it it would of course be nice if uh you know every node behaved the same way or something like that cuz then it would uh it would make stuff like compact block relay much easier. Um but I I think more than um sort of like miners doing that. I think the bigger risk is actually um coders doing that, developers doing that, right? Where where they get to decide things for the network.
(48:04) miners for the most part, I think we we saw in 2017, they they just want to know what the rest of the network wants and then they kind of do it and make the most money they can within those within those limits. And you know, I I was I put out a tweet a while back. I think they would fold like cheap chairs if uh if there was any sort of like orphan risk or anything, right? Like for their business. They're they're all kind of fragile anyway.
(48:35) they they're almost all fiat businesses taking taking out way too many loans or issuing bonds or something like that and needing to pay stuff off. The the bigger risk I think is uh comes from the developers where if they get to set this relay policy against the wishes of a lot of plebs right a lot of users then can they do that with a software right a contentious one yeah and I think I think that that that's actually where I want to go before before we get there because I want to discuss that scenario specifically is I just want to talk about a scenario
(49:14) where say 90% of miners because in this scenario the developers they're just proposing Mhm. a new relay policy. Miners still have to run it. And and in this context, node runners, they might not want to relay transactions, but they're going to accept the transactions as valid. Mhm. And that the stakeholders most of consequence in this debate are miners.
(49:44) Because are they going to propagate the transactions and are they going to mine the transactions? And so the developers are just proposing a rule. But again, in that scenario where if there were 100 different miners each with 1% part of what I think about is would they even propose it because it would be harder to game theory Mhm.
(50:12) what a 100 interests might decide and they're more likely being 40% going one way, 60% going another. And it's creating Mhm. propagation issues in a in a real way because my understanding of that is if you've seen a transaction and you you store it but you don't pass it on, it's actually very quick. Mhm.
(50:31) If you see a valid block to validate it that the real issue is if if you've never seen the transaction and you don't have it stored somewhere on your node. Even if you haven't, then you have to go ask somebody. Yeah. Then you have to go ask somebody. And that's the scenario where there can be some delay. Yeah. Some delay.
(50:47) And and it's also what then will cause there to be gravitation around a rough consensus and relay policy because it's not in the interest really of any miners to have their blocks potentially be orphaned, right? Uh and that's that's the you know costly punishment aspect of it is that this like a lot of people are like oh you know it's completely useless to run knots or whatever.
(51:14) But if you're a minor that's running knots, if even if you're if it's a small amount, you're you're adding just a little bit of um orphan risk to the miners that are mining spam, right? So that that's but but is that true if they're in the minority versus if they're in the majority? Yeah, I mean you're still hurting them, right? Cuz even if you have 1% of the hash rate, you might still find something, right? Like uh that's that's always a risk.
(51:38) It even if it's a very tiny risk, it's it's still a risk. And you have but it's a risk to yourself, too, because it takes longer for your blocks to propagate. Right. Right. That's why I call it a costly punishment. You're punishing yourself, but you're also punishing everybody else that uh the minor that created that block.
(51:56) Which is why like you know the the sort of line that I've heard over and over again is, "Oh yeah, it's completely useless to run knots. What are you doing?" Right? Like you're you're not really changing anything. Well, actually, if you're even running like a little Bitax at home, right, you're mining and if you're, you know, doing it in a decentralized way or whatever, you're you're kind of at least making it a little bit more risky for a big minor to um include transactions that you haven't seen because they might get orphaned and that I mean, I don't think any of them really act until they
(52:31) actually are orphaned and probabilities are small enough where you know it might not happen for quite a while. But once it does, then they're going to be like, "Okay, we just lost like $4 million, right?" Like what what are we going to do? Because 400,000 or Yeah. What whatever the, you know, current block thing is.
(52:49) Uh yeah, 400,000. Like why why uh why take that risk? Let's just uh do that. Um so in a way it's uh I think game theoretically like useful um to sort of even punish yourself even a even if it's uh if there's like very little probability of succeeding uh like collectively it ends up actually starting to matter. Yeah.
(53:21) And I think you know coming back to what's I think of greatest consequence here is that or at least in my framing and thinking is that I wouldn't expect even in this scenario say the seven largest mining pools that represent 90%. To adopt a new version of Bitcoin core that they think would hurt the network.
(53:48) M their interest is align and I even wouldn't think that the Bitcoin core developers are proposing a rule that they think would harm the network. I you know my own opinion is I generally view that they think that it's in the best interest of the network. Where I still see a concern though is when there's a shockingly few number of people there's always like in my view there's always risks to change because there's an unknown there's an unknown of of what incentives are opened up and the fiat world is 200 times larger than the Bitcoin world. There's a lot of fiat incentives that are unpredictable
(54:22) and that so long as there's great distribution and decentralization in decision-m if there's overwhelming adoption of something that's proposed even as something which I think is discounted in terms of the relay policy because it's not a consensus rule. they those smaller number of actors might be making a decision that they think is in their own interest in the best interest of the network that actually could have unintended consequences and if there were more participants participating in that cons you know rough consensus even if something like a relay policy there
(54:59) there would be a greater insurance if it was overwhelming that it actually made sense. Now let's take it to another one of my concerns which which you raised is if this sets a precedent on the relay but then something similar happens with a contentious software. Mhm.
(55:26) So like if you could lay out you brought that scenario up. So so lay out something tangible and how that might play out. Yeah. So the um the thing that really bothers me about this particular op return thing I I don't think the change is all that big of a deal, we still have like the uh block size limit and stuff like that to limit spam. So ultimately it's going to get priced out by economic transactions in the end anyway.
(55:51) Um I mean maybe in between we suffer a little because blocks are a little bloated or something, but ultimately I think it's it's a problem that solves itself. So I I'm not too concerned about the actual change itself. What I am concerned about is the process, which currently is, hey, we're the developers and we're going to even though the there's a whole bunch of people in the community that don't like this change, we're going to go ahead with it anyway.
(56:24) And there have been several sort of like justifications for that. One is, hey, if you don't like it, just go run some other client. And then as soon as you start running another client, hey, that client is so stupid, you shouldn't you shouldn't run it, right? Like that's it's like kind of talking out both sides of their mouth.
(56:45) And that's that's to me like a very fiat political tactic of, hey, uh, if you don't like it, then don't do it. But not like that, right? Like it's it's just kind of closing off all doors because we're the technical experts. it's um which is you know basically how they push the vax among other things. Uh so I uh I don't like the tactics that are being used to do that and I I don't like that they basically push this change through um more or less forcefully without wi-i without really listening to community feedback which suggests to me that this may happen again. Right. And and just on that point which is if you say hey if you don't like it
(57:24) because that's the idea it's like hey developers are just posing code there's no auto updates Mhm. in Bitcoin certainly not in Bitcoin core so anybody who runs it would have to voluntarily be opting into it if you said something along the lines of hey if you don't like it you know run a different version of the software but at the same time you're thinking there's not a credible another version of the software, then you're not it's not a genuine Yeah.
(57:58) I mean, you're you're making a power play, right? Like that's and that's what I think the whole thing has felt like for pretty much everyone. Like it's like one of the things about a lot of coders is that they're not entirely socially aware and they think they're hiding their motivations when it's like crystal clear to everybody.
(58:16) Like they're they're forcing this change, right? like they they they think they're in the right and they think they know better than everybody else and they are basically making it so that it's going in whether you like it or not. Um and like that that kind of attitude is just like completely against the you know ethos of Bitcoin, right? Like it's it's supposed to be a community project. It's it's a it's a consensus system.
(58:41) you're supposed to, you know, listen to other people and stuff. And instead, what we're getting is, oh, everyone that disagrees is like just an influencer or whatever. Or, uh, you know, you guys are so stupid. It's it can still go in to blocks and so on. And, you know, it it the the attitude is is one that inevitably leads to some form of authoritarianism. And I think it might show up in a soft a contentious software.
(59:11) Okay, let's go there. But that made me think of one last question. Do do you think that if mining was more distributed Mhm. whether their calculus on changing the relay policy would be different? So if we had a lot of different um minors, I think their arguments would be very different.
(59:46) I I don't know if their um attitude necessarily would be or their um calculation around that would be cuz the the main arguments that they've been giving is well, you know, filters don't work. It it just gets into blocks anyway and and things of that nature. um that wouldn't be the case if you had lots of miners because the P2P network is where the blocks would be coming from and not these five or six players.
(1:00:14) And a lot of the assumptions or a lot of their arguments depend on these six, you know, largely centralized mining pool players, you know, staying that way forever, right? like cuz yeah, filters don't work when you have like six players that are creating all of the blocks in in the in the like sort of peer-to-peer um transmission sense. Uh there are other ways in which filters work which I won't get into but like the that those are the types of arguments that they're making is based on the current situation.
(1:00:47) I think it would I I I think it would be different kinds of arguments, but they would still be sort of digging in their heels on this. And where I'm where I was specifically going is just like their calculus as to whether or not or handicapping of whether the changes would be adopted by minors that if there were more of them and they were more distributed then they couldn't look at party A B CDE E F the six and say you know I'm not and I'm not suggesting that they you know went to discuss it with the mining pools but just even if
(1:01:20) you didn't if you could handicap what six or large mining pools might do verse there's a hundred and you don't know who they are and what if only 40% adopt versus if 60% didn't is this proposed change still a good proposed change whether that would change their calculus I mean I I I think they would if only 40% say of the miners like adopted it then your argument that it makes for a more accurate memp pool for fees would no longer apply, right? Because that depends on the m you running the same software as the miners and if only 40% of them are doing it, then you're only going to be accurate 40% of the time
(1:02:05) and there'd be propagation issues. Yeah. And that's that. So th those kinds of argue like the arguments again would be pretty different I think, but they seem pretty determined on this. And I I I've never seen the core devs quite like this before. And I've been I've been in this spa space for a very long time.
(1:02:30) Like the the way in which they they're so violently suppressing disscent, right, is just it's been absolutely shocking to me. just like yeah I I I saw core developers say you know the reason why we're so like all in on this is because we think we like you know the we've already taken a lot of the hits let's just go all the way or something like that which is like really you're just going to keep going because you you you're sort of in a in for a penny in for a pound fallacy like we've already fought for this long why why not just go all the way now right like I don't know it it just seems like
(1:03:05) a very Um it it the character of this particular fight is very different than anything else I've seen in Bitcoin before. Yeah. Well, and you've been a lot around Mhm. for a lot longer than I have. I was around for the 2017 Mhm. hard fork, but a lot of that was not being driven or at least the the the side that was hard forking was not being driven by quarter developers.
(1:03:40) they were on the conservative side and then tap routt was a very long process. There was there was you know I think criticisms around activation. Activation. Yeah. Um, but I at least from my seat there there was wide spread like I I don't I don't remember any individual voices of people that I knew that were like adamantly against something and and it might have been but just saying that like this this this does seem like a shift and one of the precedents that said which they've actively put out there is that if there's consensus this amongst our developers which
(1:04:25) in this sense there's Luke on one side and maybe one or two others but by and large there is consensus amongst core developers that they've basically said the precedent is if there's consensus amongst us then we have an obligation to do what we think is best regardless of the users of the network there's contentionm M play that out if it's a change the consensus rules because I'm I I would expect they would say that would be different but if there was consensus amongst core developers or contributors that some software made sense
(1:05:10) then like talk about it in relation specifically to mining centralization. If there's six or seven mining pools that control 90% of the hash rate and they agree can functionally core developers by writing code which again Mhm. users of the network have to adopt. No one's putting a gun to their head. Mhm.
(1:05:36) Is it a lot easier than it would seem to potentially in a more restrictive way? Mhm. But also restrictive is a a loose term of it opens up surface areas. Um it's from a transaction perspective it's restricted. Could is it more easily ch is it more easily possible to change the rules than it otherwise should be? Yeah.
(1:05:59) I I mean you're asking me to speculate on like what might happen should Well, I'm saying apply the same circumstance to a conversion software. Yeah. I I I'm I'm trying to think about it and I think it's kind of an open question right now. Can the developers and miners team up together and screw over the users? I don't know. It's possible.
(1:06:19) Um like well, let's just play through a scenario. Okay. There's a software proposal. The six mining pools that represent 90% of the hash rate Mhm. support it. Mhm. but a lot of users in the network and potentially some cohort of the 10% of the miners that don't support it. Mhm.
(1:06:45) Or assume that 10% don't what what plays out in that world. Yeah. So in that case I think it gets I say so assuming that the core devs are sort of aligned on this ch change and they go to the miners 90% of the miners agree with them and I don't want to say they go to the miners they put software out and the six largest mining pools take it okay take it um I think it comes down to the users right like uh and it's whether they they adopt it or And th this is where it gets kind of tricky because a lot of users trust the devs right now. Although
(1:07:23) I think some of that is breaking down. Um not too many of them trust the miners. I don't think that I think that 2017 more or less killed that. But there is a scenario in which something like that happens and then um I don't know like maybe there's an alternate implementation maybe it's not something like that and they uh they don't agree with it and at that point like maybe there's like two incompatible soft forks or something like that which ends up being a hard fork.
(1:08:05) But yeah, but there but but so like in that scenario, I mean there's two scenarios. A new version Mhm. of Bitcoin is put forward that has a software Mhm. And if there's 90% of miners that support and say 10% that do not and they mine an invalid transaction, it would create a hard fork. Mhm.
(1:08:35) Which one? Well, if they mine an invalid transaction, then it's still sort of uh they they'd be for they would invalidate that. But then like it can get overtaken. So this is where like the game theory gets a little bit complex. Uh cuz if you can get overtaken and wiped out at any time, you're going to want some protection against that.
(1:08:59) Now, traditionally, what forks have done is they purposefully make it so that it's going to no longer be a soft fork, but a hard fork, so that they can't get wiped out, right? Cuz you don't you don't want the chain to roll back a 100 blocks or something. So, um, Right. And when I said when I meant mine an invalid block, I meant like mine a block that would be invalid. Yeah.
(1:09:16) Yeah. But then you can get overtaken if it's longer, right? So, that that's the that's my point. So, there's there's a there's a real risk to the minority. So that said it it would but there there are things that the minority can do. Um so you can do sort of like an um incompatible softwork or something like that.
(1:09:32) I haven't thought through this yet but you could like like users of the software could write code that says hey anything that looks like that is not valid or something like yeah some something like that. So that the what what ends up with is like two soft works that are sort of mutually incompatible and like everything before just takes like the longer chain but like nothing wipes out the other something like that which would be a very weird scenario. I haven't really analyzed that particular one but that's something that that's a
(1:10:01) potential way in which uh the minority might deal with it. They might even just hard fork. I don't know like I I I think like like in my mind the most realistic scenario is and and and what concerns me about this precedent is that a contentious software meets all the same criteria and even if someone says that it would be different if it was a consensus rule is that if you could handicap what the six or seven largest mining pools would do.
(1:10:34) you if you set the precedent that if there's consensus amongst core developers Mhm. then you have an an obligation as a steward to push that change and the change would go through because the six or seven largest mining pools would if they fall I'm not I'm saying in the scenario that they do and then the minority like there's major risk to to hard forking and you know as users of the network you might not know right but there's a lot of risk associated with that and the most likely scenario is it's not going to create immediate catastrophic risk to Bitcoin. It's more
(1:11:11) of one of those things that's death by a thousand cuts and more realistically potentially by you know 10 cuts that cause some change that might not singularly distort incentives but if you add up a number of changes together there are too many moving parts though. So like the minors would not agree to do that if they saw the possibility that like there there could be a minority with like an economic majority or something.
(1:11:41) So what what would probably happen in a scenario like that before it gets to that would be some sort of futures market. Okay, there's this this part that uh wants to do that. If they ever hard fork then you get there would be a hard fork, right? But but like you can make a futures market that bets on that, right? and you can you can trade those and maybe deposit some Bitcoin and bet on it.
(1:12:07) this what happened with uh with like 2017 and so on and miners would look at that and say okay well here's here's this side and how much it's like you know say it's like 9010 but when they look at the price of the futures market it's like the other way it's like 2080 or something like that then they're going to be like well it makes no economic sense to go mine on this chain that the core devs are proposing we're going to have to go with this.
(1:12:33) So yeah, it's one thing if there's two different proposals. Like it's one thing in in 2017 where you knew like whatever was being proposed would result in a hard fork versus if you don't know whether someone would do something. Well, so that this is where like the game theory continues, right? Like because that possibility is there.
(1:12:50) Then somebody might propose something to consolidate the opposition in which case you have like two incompatible softworks or something and the software that has more hash rate in it kind of wins and or is not hash rate in it more economic um majority in it. Yeah, agree. In the scenario where there is a hard fork, then no, but like the minority at that at the point where they know that they're a minority is motivated then to create that scenario so that they can win, right? Cuz you you if you have 90% hash rate and 10% hash rate, you're going to lose. But if you can influence the 90%
(1:13:32) by creating the scenario, then that's what you're going to do because that's the only way you can win as a 10%. Right? And in my view, it's like the reality is that you're not like 10%. Uhhuh. Because you don't know what any other economic actors are going to do. Well, this why futures markets will probably pop up for that reason.
(1:13:50) And then like you you you just need a proposal and then once you have a rallying point, then people will be like, okay, well, let's let's start betting on this and and and so on. So, but then let me put it another way. There's never been a soft fork. I guess there's never been a contentious soft fork, but there's also never been when there has been a soft fork, there's never been a hard fork out of it. Yeah.
(1:14:14) You know, and so it's like it's it would be an unknown territory. Well, I mean, yeah, Bitcoin Cash was a hard fork off of it, but right, but that would that like the proposal was always increase the block size. Everyone knew that it was Yeah. Uh a hard fork. So I want to depart there and this kind of last segment that I want to talk about is one of the other consequences in this circumstance is that it's very much you know one I I don't one of my other problems is I I don't think that there was ever an open debate or interest in a debate. There was a decision made and didn't really matter what another
(1:14:52) side's perspective was there was a decision made. One of the most important constituencies in the discussion around the relay policy specifically the changes to it is the mining constituency and and they're largely absent from the debate. um save and accept.
(1:15:17) You can assume what Marathon does because they have their um slipstream and you can know what you know a pool like Luxor does cuz they're Luxor. But um the those are all the pools. Mhm. All of this seems to be in the disinterest of the miners themselves. that coming back to the very beginning which is the minors that are not participating directly in consensus are largely devoid of a of not just a voice they they don't have control of their hash rate at the end of the day someone else is making their decision and there there's always the idea that oh you can switch pools but functionally speaking what do you think the the consequences
(1:16:02) are of so few miners actually participating directly in consensus as well as in what versions of Bitcoin they run. That includes things like the relay policy that's set outside of consensus. Yeah, I the consequences are that it they're sort of mercenaries, right? Like hash rate for sale and um yeah, it's unfortunate because it would be better if they were all sort of individually making decisions and cared about the network. Um it's a little bit of a fiat artifact. A lot of these miners got into it because
(1:16:38) they um they happen to have I don't know some cheap energy and um you know contacts with the mining equipment manufacturers or something like that. Uh I I I think what will happen is that there will be more user level mining um to decentralize it a little more. Um it's already happening with stuff like Bitex.
(1:17:04) I obviously at a tiny tiny minuscule scale but more of that I think um is in the interest of a lot of users and once you get that then you don't have mining centralization anymore and like we we don't have to talk about all of the problems that they cause uh because there are so few people that make the decisions. It's not necessarily that they're bad people.
(1:17:35) It's just that you don't you want like the entire ethos of a decentralized system is that you know you don't have central controllers authoritarians and um unfortunately we have that in this and something that I I think um everybody wants is decentralized mining uh including all the devs and everybody on both sides I think which is why a lot of the mining um voice is like not really in this because both sides are claiming that um ultimately what they want will decentralize mining, right? It's kind of like two sides talking to each other and the miners are just, you know, like, "Hey guys, I mean,
(1:18:13) they're not because they're generally not part of the conversation." No, no, they're not. Uh and uh yeah, I mean, they've been cut off since 2017 from a lot of this stuff. It's it's kind of a very strange thing, but I mean, it is one thing that I also think about which because most of them, you know, uh small to midsize miners which I would say like small but they are a dedicated mining business not somebody you know running a bid axe or you know just home mining with a single like mining is their business but they're a small minor to someone that might be a midsize miner
(1:18:48) running 10 megawatts of power which is a lot of power there's nothing small about it but relative to the riots of the world small that They they might be aware that there's a debate about something changing as it relates to relay policy and that might have a certain consequence, but they have no idea the substance. Yeah.
(1:19:15) you know, and because they're removed from it via the pool, it's almost as if I don't want to say it's not their problem, but it's it's something that they don't realize that they need to have a more active participant or to be an more active participant in because it's their hash rate, you know. And then that leads to the question of I would wonder I doubt that Riot that has nearly probably a gigawatt of power online securing the Bitcoin network is is opinionated. Mhm.
(1:19:48) And then uh and then my question to you would be like there might be disinterest between a minor and a pool, but if the miners aren't really engaged, you know, the pool isn't seemingly, you know, incentivized to do something in the disinterest of their miners, but if they're not actively participating in consensus, how do they Yeah, I the problem actually comes back to fiat money because a lot of these uh hashers are fiat funded, right? Um and the way fiat um money works is that it makes big things grow bigger. So mining is a margin business. It's um you get the
(1:20:25) marginal energy that like uh the power plant can't sell to at higher rates and you get you get sort of like the leftovers. So there's a ceiling to the amount of energy that's available in any one location. So there's a natural limit to the scale that you can have in any one place because you're just getting the leftover energy from everywhere.
(1:20:51) Um but the way fiat money works is that they want to fund the bigger things and so you can almost always get money printed out of nothing as loans to grow bigger which is what a lot of these mining conglomerates have done. They've grown bigger.
(1:21:09) So I I suspect most of them like a lot of the big ones probably don't even make money on a lot of that stuff. They build it out just because they can get the Well, I I know Marathon mines Bitcoin at a loss just based on their financial statements, which doesn't make any sense. But well, but this is that's a fiat consequence, right? Like because they can get these loans, they they can sell their shares into the market or something and basically just keep um keep making it look like they're getting bigger. It's kind of a big Ponzi scheme in a in a sense, but that that's something that they can do and and that
(1:21:40) means that they don't have to care that much about all of the stuff that all all of the stuff that's going on in Bitcoin because it's not really a profit motive. If they were profit motivated, a lot of them should be on like ocean, right? Like you you don't have offband payments and stuff like that.
(1:22:00) Uh where if you're a hasher, you don't see any offband payments, right? like if I pay uh Anpool to get a transaction in uh like offband, right, with a credit card or something. I think via BTC used to have one of those. I don't know if they still do. Then like none of the hashers see that money, right? I mean, I think that in theory, some might some pools might say we we set this into the um fixed pay per share, however they do their calculations.
(1:22:29) point is it's a black box and and you don't know and that so many of them are addicted to the the fixed payout that that that's what they're there for. I just you know my my I guess my last question is what do you think causes it to change that gets more miners engaged and actively being direct participants in the network? I'm not and I'm not even saying you know every minor has to run their own node but and I'm not also saying actively participating in whatever the debate is in the day on Twitter but not just being uh reserved to the corner of the world that they're hashing and and actually
(1:23:15) being a more active participant in consensus. Do you think it like and I don't even know what the the parallel to a Mount Gaus scenario would be or it might just be maybe on on your line of thinking as there become fewer miners that are fiat-minded that that actually understand Bitcoin and the conversion of energy to Bitcoin versus energy to Bitcoin to fiat that that naturally brings along with it the incentives to to engage in consensus and to participate.
(1:23:42) Yeah. I mean, it's easier for a big company to go get loans than it is to like uh make more profit. If if these hashers were more focused on profit, then I think all all the problems solved themselves. I I I really believe that market forces would force them into a more decentralized and active participation in this whole thing.
(1:24:12) the the way they're doing things now is that they get a lot of uh their income from fiat money printing in some ways through loans and so on. So they don't have to care. And that's I in a sense like once the fiat system collapses, mining will be fixing itself. But of course that's going to for now, you know, it's functionally out of sight, out of mind.
(1:24:32) And and it's almost like, well, I don't have to worry about this cuz the pool's going to make the decision. But at a certain point people with large interests realize that you know a large financial interests realize that they have an actual stake an interest in informing what changes get made and why both as it might relate to a future uh software or something like a relay policy because the ent the economic incentive doesn't really exist just to defer because it can either be your in your purview and um in a and do something actively or not. And in the scenario where you're actually procuring all this energy and hashing, what's the benefit to not, you
(1:25:16) know, um so it might be a long, you know, death of fiat or it might be a quick death of fiat, but people I do agree with you that the figuring out the Bitcoin side of it and the cutting off of the fiat spot is likely a natural decentralizing force. And um that and Bitcoin are stepping up.
(1:25:38) I I think I like I I mean I run a Bitax at home, right? So in a sense I'm I'm mining at least a little bit. Uh even though it's like maybe five shares a day or something. You're on like 13 cents power. Yeah. And it's like but uh you know we we're we haven't really um optimized mining very much, right? Like yeah, you you can heat lots of things and produce other goods where even paying 13 cents per kilowatt hour like might make sense if you can use the waste like you do some other process where you can convert that to profit and then the little bit extra you can you can use for mining or
(1:26:16) something like that like that those scenarios are where entrepreneurs can come in and really like make a difference. But yeah, we kind of live in a fiat world where Bob Bernett told me that he's mining off of uh cow waste. So, you know, like that's there is innovation happening out there.
(1:26:39) I'm also going to have um Tyler Stevens on who's working on a lot of um not only home mining but specifically the capturing of heat. Yeah. Yeah. I think there's a lot of potential along those lines and maybe it becomes really more centralized as like more innovations come in in those things. Like if you can I don't know heat heat your water heater or something with uh with mining equipment, maybe that makes the economics work. I I don't I don't really know.
(1:27:08) Or I there's maybe some other technology that comes in that makes it so that you can generate energy at home. Maybe we can have like modular nuclear power plants at home and you don't need electricity lines and use all the excess energy for that. like, yeah, like the future is very difficult to um Well, yeah, I did I did see um I have bigger questions about like large amounts of solar on on the grid, but scenarios where people are putting solar panels on their house and there's restrictions on what they can put back into the grid and they have three times the amount of power that their home actually needs, it's essentially excess. So I I definitely
(1:27:47) see there's a there's a large surface area for innovation and that should help decentralize it. The reality of the scenario is today the level of centralization in my mind and I just want to see if you agree with this. It makes it easier to change Bitcoin when it otherwise should be harder on a relative perspective and that more miners will inevitably figure out that it's not in their own incentive to essentially outsource decisions about what rules are followed versus not. And that should hopefully drive
(1:28:24) decentralization as well, which will help make the network harder to change, but not just for its own sake, but to ensure that if changes are made, that there's overwhelming support. Yeah. Yeah. I I I I certainly hope so. It's It's weird, though. I I didn't think about it the way you just said it that a lot of the Bitcoin mining centralization is actually like energy centralization, energy production centralization and all of these um fiat things that sort of infect our industry. Yeah.
(1:28:58) Well, no one minor is going to solve it, but in the end everything's good for Bitcoin. Yeah. Hope so. Only only because people are not complacent. You know, you got to be high agency. So, well, thanks for the discussion. Appreciate you coming down to the Commons/Bitcoin Park and uh we'll do another one sometime soon. Sounds good. All right. Appreciate it, Jimmy. Yeah.
