Every miner that gives a damn about decentralization should read this
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🧵 The death of FPPS and rebirth of PPLNS When talking about pool payment methods, FPPS is hailed as the savior of Bitcoin Miners worldwide. But what if instead of its savior, FPPS was nothing but a leech? Let’s break it down with a nice thread.👇
Usually, they're compared like this: FPPS (Full Pay Per Share) pays a fixed rate per share, constant payments. PPLNS (Pay Per Last N Shares) pays based on actual blocks found, more variance and risk. But is that right? Let’s explore it step by step:
2/ Let’s take a look at the formulas: The FPPS formula has changed over time— so much so that most miners don’t even know how it’s calculated anymore. And to add insult to injury, not all FPPS formulas are created equally. it’s a black box.
3/ Trust, Don’t Verify That’s the FPPS motto, as even if you wanted to verify how much you are getting paid, you couldn’t. At the end, you end up trusting that the pools pay you what you agreed. Not exactly what Satoshi intended when creating Bitcoin -
4/ And the data shows that you shouldn't trust FPPS Pools Recent data shows that despite claiming low fees of 1-2%, FPPS pools pay between 10-15% less than PPLNS pools over a long time period. That’s the hidden spreads working overtime But how?
5/ That’s because FPPS is not a payment system, it’s an insurance product And insurance products are EXPENSIVE! Especially when you take into account the huge capital requirements needed to run an FPPS pool.
7/ So how do FPPS pools claim 2% fees but still make money? They copied the exchanges: Claim low fees Charge high spreads You get to eat your cake, and eat it too. Because you claim being competitive, while hiding the real costs inside the inscrutable Black Box.
9/ But wait, it gets worse Because with FPPS, the counterparty risk is incredible, and the possibilities of your pool going bankrupt at any moment are quite high. That’s an extra reason for all the proxy pools and mining centralization we have seen.
10/ Summarizing FPPS High Capital costs lead to both hidden fees and centralization effects, and the miners pay the party, while the network becomes more centralized. We could go deeper into all of this, but let’s keep it short. What’s the alternative?
11/ The rebirth of the Phoenix: PPLNS Unlike its capital intensive, centralizing-counterparty, PPLNS is on a “Funded model”, if you will. Let’s break down how PPLNS reduces costs and risk, while increasing transparency and auditability. Yes.The variance issue will be addressed
12/ PPLNS only pays out once the pool has found a Valid Block This means that the miners only get paid for the work already delivered. This means a reduction in counterparty risks and financing costs. These costs are transmitted to the miners in low fees and NO HIDDEN SPREADS
13/ This also increases the capacity of miners to audit the pool, and check its work Since payments have a fixed time span and a simple payment split, miners can challenge and audit the pool. This makes sure that miners don’t have to “trust me, bro”, they can actually verify.
14/ “What about the variance? What if we don’t find a block in a week?” Well, I’m happy to inform you that math and statistics, the things that underpin Bitcoin, are on our side. Here’s how:
15/ Bitcoin mining is a game of statistics and large numbers Miners don’t really want daily payouts, they just want to avoid arriving to EoM and being stuck with a huge energy bill and an empty wallet because: “Oops, sorry, bad luck, I bet we’ll get more blocks next month!”
16/ But that’s not going to happen as long as the pool, or miner has a minimal amount of hashrate. For example: With 1% of the network hashrate, the chance of not finding a block in a week is 0.004%. That’s 51x less likely than getting hit by lightning in a year.
17/ And if you do the math for a full month, you might as well try to guess my seed phrase out of the 2048 BIP 42 words. Now, are you truly willing to pay an expensive insurance against something that’s basically never going to happen? Math and statistics are on our side.
18/ Now, let’s remember that Mining is only going to get more competitive, not less. Any extra advantage or shortcut will eventually be used. In that sense, FPPS is like attaching a parachute to your F1 car. GL with that ;)
19/ That’s not all, because every time the phoenix returns, he comes back stronger and better. The same is true for PPLNS, which has now been reworked by @dev_sv2 into a future proof, transparent and auditable format. You can check it out here: dmnd.work/pplns-with-job…
19/ That’s not all, because every time the phoenix returns, he comes back stronger and better. The same is true for PPLNS, which has now been reworked by @dev_sv2 into a future proof, transparent and auditable format. You can check it out here: dmnd.work/pplns-with-job…
20/ i hope this was a helpful thread to understand why FPPS is not the way to go, it’ll fall by its own weight, and how PPLNS is the solution & the future.