Mining is a Security Flaw

Skycoin has no mining?

Mining is a security flaw. Satoshi’s original vision was for a decentralized cryptocurrency. The Bitcoin network is controlled by three mining pools. At one point Gigahash.io controlled over 65% of the network.

The objective of the Skycoin project from the start was to fix the problems in Bitcoin. This includes redecentralizing consensus over more than three people.

For security and incentive reasons, the blockchain consensus network has to be independent of coin creation. It is suicide to link coin creation to whoever controls the consensus network. Unless you want a “decentralized” coin whose consensus network is controlled by three for profit mining pools (who are basicly a cartel now, who splits ASIC costs and divides the hash power between themselves by agreement).

The idea behind mining is that whoever has the most money, to buy hashing power should own and control the consensus network. “Whoever has the most money should own the government and make the laws”.

The original premises (economic and human) required for the security of PoW established by Satoshi have been shown to be empirically false in reality.

Right now, eliminating mining seems absurd. In the future, that mining was accepted will be absurd. People only support the cost of mining as long as they make money from it and the price is going up.

Another objective for Skycoin, was to have transactions that were as fast or faster than credit cards. We are able to do 10 second blocks. In order to do that, PoW and PoS has to be eliminated. Decreasing the block time decreases securities for PoW/PoS coins.

Additionally, mining costs the Bitcoin network tens of millions of dollars per month and does nothing that anyone is willing to pay for directly. Bitcoin requires an exponentially growing influx of new users and capital to offset the mining costs. No one would use Bitcoin if they had to pay the mining costs directly and each transaction cost $50.

Skycoin transactions do not cost $50 in inflation from new coins being created every block.

It is my opinion that in the long run, we are going to see all the existing Pow/PoS coins die as people realize the actual economic incentives. The cost of PoW/PoS mining is bounce by the users and paid for in a lower market valuation as money is bled out of a coin by mining costs until the coin is abandoned. Only a few coins, like Bitcoin and Ethereum can achieve enough new users coming in with new money to offset hundreds of thousands a dollar a month to tens of millions a month in electricity costs, just to process seven transactions per second.

The price equation is simple - this may dollars per month are coming in from new users and capital inflows - this many dollars per month are being thrown in a pit and burned by mining costs

We are moving away from “free coins for miners” and moving towards “community coins” and treating cyptotokens as digital property and a type of equity. The objective is to make the coins useful and that people doing useful work people are willing to pay for should get coins.

Right now the Bitcoin economy consists of new users putting them money in and then the money being thrown in a pit and burned in a sacrifice ritual to the mining electricity costs.

If the average user had to paid the miners electricity cost directly as transaction fees, instead of it being robbed from them through inflation by the creation of new coins, then each Bitcoin transaction would cost more than $50. It would be more expensive than an international bank transfer.

Achieving mathematically provable consensus in a decentralized way, without the cost ($50 per transaction) and problems of PoW/PoS is a cornerstone of the Skycoin project. Solving the PoW cost problem is a requirement for stability and mainstream adaption of crypto assets.

Skycoin is not premined, because Skycoin does not have mining. The objective of the Skycoin consensus algorithm was to eliminate the miners and the downward pressure they create on the coin price.

The most important thing about mining however, is that when everyone had a GPU miner in their house and was getting coins, it was “decentralized”. Now that ASICs and three mining pools dominate the network, there is nothing for the Bitcoin community to do or participate in. It is no longer fun and relevant. Its not fun anymore and people are unable to participate in mining in any meaningful way. This is what has driven a lot of the activity and community out of Bitcoin and into the altcoins.

We need a new model for people to get coins.