A question out of genuine curiosity: Doesn't the nonce puzzle difficulty adjust to the amount of compute the network has, making it a zero sum game? If every mining pool buys 20% extra GPUs, isn't everyone soon back where they started, wasting hundreds of millions in the process?
I'm not an expert at the mechanism design, but yeah, that's my understanding. The network's goal is to have a block every X seconds; and the difficulty periodically adjusts if blocks come in too fast / too slow (due to hashpower coming on/off line).
(Ethereum & Bitcoin both add some other year-decade timeframe factors to the difficulty, but don't think it affects this basic principle, which acts on week-to-minute timeframes).
I view it as a race to the margins. Anyone who can do it cheaper, or benefit from economy of scale, will get a larger slice of the pie, but at smaller margins... creating a cycle of consolidation.
I think original assumption was that folks running PoW at home on their GPUs would be able to compete, but due to efficiencies of specialized hardware and regional differences in electricity costs, that's just not the case.
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Others might disagree, but my personal opinion is that this isn't a sustainable way to maintain decentralization, since it seems to obviously trend towards a few large "just turning a profit" players.
There might be some ways to adjust mining incentives to make it work, but this fundmental issue is why I think Proof of Stake has a much more viable future, as it sidesteps this (and the environmental) issues.
> If every mining pool buys 20% extra GPUs, isn't everyone soon back where they started, wasting hundreds of millions in the process?
In theory you could run the entire network on one CPU, though it would take a very long time for the difficulty to adjust downward by that much from its current level. However, the extra capacity isn't wasted—a network secured by the hashing power of a single CPU would be extremely vulnerable since a trivial expenditure would give an attacker >99% of the hashing power and the ability to create forks and double-spend almost at will. The point of spending so much on hashing is to ensure that no attacker could plausibly out-spend the rest of the network and thus acquire a majority of the hashing power.
Now, do we need all of the current hashing power to secure the network? I don't think so. That's a consequence of the initial block distribution system, with a fixed halving schedule for block rewards and a price which has risen much more quickly than anyone anticipated. The cost of reliably executing a double-spend via a 51% attack far exceeds the potential reward for pulling off the attack. At some point the market will be saturated, the price will cease to double every four years (or less), transaction fees will make up a majority of the block reward, and the resulting drop in the total market value of the block rewards will lead to a decrease in hash rate to a level which is sustainable and yet still sufficient to discourage any would-be attackers.
