That is not clear as long as the pools are differentiated (for example by geography/latency, support, value added features). They have to compete but they are providing a service and can charge for it. f2pool charges 4% for PPS. Presumably they have some (imperfect) defenses against pool hoppers that to make that margin profitable. AntPool charges 2.5% for PPS and likewise must be able to cover losses. AntPool offers PPLNS which isn't susceptible to hopping at all, but obviously shifts some variance to miners.

I agree variance favors large pools to a point (and I said so in my previous post). At some point though, possibly as little as 1% of total hash rate (where blocks are found essentially every month), the variance isn't necessarily significant to operations, and things like geographic diversity may dominate. At, say, 0.01% it would be catastrophic so this certainly puts a lower limit on pool size without some other form of centralization (sharing rewards between pools, which could include sybils).

At some much smaller fraction (e.g. <0.00001%) solo mining becomes a lottery with a low ticket cost and variance might be desired or irrelevant.

But any margin they charge can be beat by a pool that has less variance and thus doesn't have to account for the risk in their margins.

As to whether other (economic and marketing) factors such as geographical distance or jurisdiction could defend higher margins, I have not analyzed the pool market (distinguished from the in-band economics) but one would think that a Sybil attack could put servers in multiple locations. This wouldn't impact the advantage of having them share risk by sharing block rewards, unless there was Coasian jurisdictional obstruction to doing so (which they could probably subvert any way).

I don't know where the inflection point occurs where increasing hashrate share as it pertains to variance risk becomes over weighed by other factors in terms of relative profitability and marketing, but it looks unlikely to be as low as 1% which already somewhat centralized (51 pools maximum can do a 51% attack). Perhaps I should endeavor to attempt some mathematical model. And it appears unlikely that we can optimize away all of the latency costs, so that is another factor giving higher profitability to higher hashrate, with 1% share no where near diminishing returns on that vector in isolation. It is a complex model perhaps ... would need to spend more time thinking about it. Is anyone doing research in this area?

I'd be very surprised if we don't have 10 controlling entities (perhaps hidden) of pools that can do a 51% attack, especially as we scale up transaction volume to Visa scale.


I suppose you're thinking of 21 Inc's plan for zombie miners?

Somewhat. I'm simply thinking that a large number of smaller miners (whether of the variety envisioned by 21 Inc or otherwise) has an advantage because none of them particularly care about variance or actually prefer it, both for lottery reasons and because in general increased variance is a good way to reduce effective transaction costs.

I know right?  If you're going to start referring to Bitcoin as "Cripplecoin"r/buttcoin is over ==> there.

Coz someone linked a post earlier in this thread ...

For pools that normally mine full blocks as well as uncommon empty blocks, the empty blocks are the work the pool sends every block change.
They are of the opinion that because Luke-jr's eloipool is shit slow at handling block changes, they should send out empty work first and then full work soon after it.
Obviously the empty work is mined for a small % of the average block change length so it would also mean that the miners finding block with the empty work would be a smaller % of all the blocks found by the pools that do this.

As I've explained in the empty blocks thread, when comparing eligius with it's empty block change work and my pool https://kano.is/ with our full block change work, my pool beats eligius on average sending out block change work.
During normal times when the relay is working and there isn't a massive spam test running, my pools beats eloipool >90% of the time with block changes.

Uber bad:

the problem with the latter approach is that you are going to kill new user growth as well as adversely affect existing user experience.  as solex said earlier, even $0.14 is too much.

it would be better to eliminate the block cap and eliminate the spammers ability to effect the users at_all.  this would allow new user growth to square the value of the network according to Metcalfe's Law.  

furthermore, the resulting user growth should inc tx's and inc merchants ALL of which should jack the price way high.  then, we all might be able to afford a full node.

by lifting the cap, the spammers no longer have a well defined block cap target and attacks would become dramatically more expensive.  also, gmax taught us that with minfee fine tuning on the part of the miners, they have the ability to defend themselves and the network from bloated 0confs sets which can help control memory overloads.  even full nodes have the capacity to do this if they want.  

furthermore, it gets core dev out of the business of picking winners and losers; a position they should want to give up for the good of Bitcoin and to minimize the pressure and spotlight.  let the miners and users work out the fee market.

wouldn't it be enough to just ask Luke how much verification he does?

yes solex.  i think this is the only way.