Attention Miners: The Block Reward is Changing Dramatically

I’ve decided to change the reward for miners from 70% of each block to 5% of each block. This change will happen as early as today.

I realize this change is so significant that some miners may feel betrayed and lose interest in the project. So, I want to take a moment to explain why I am making this decision.

Funding the Development of the Project

Right now, a small number of miners are mining most of the block reward and selling it at very low prices. They are selling so much at such low prices that they are extracting 100% of the tiny amount of liquidity in the market. This leaves nothing for me to sell to fund the development of the project.

I don’t think what the miners are doing is wrong. They are playing by the rules I created. However, I made a mistake. In designing the block reward distribution, I stuck too closely to the Bitcoin model. After watching the real-world dynamics of the system since launch and ruminating on the history of Bitcoin and cryptocurrency, I’ve come to realize the Bitcoin model is deeply flawed.

Bitcoin gives 100% of the block reward to miners. However, mining is actually a small fraction of what needs to happen to make a project successful. I have decided to change this dramatically and allocate 5% to mining—possibly less in the future. The remaining 95% will be used to fund software development of the mining software, wallet software, exchange software, and apps, as well as the hosting of these apps, along with design, marketing, sales, and any other functions necessary to build and grow the project.

Bitcoin is Deeply Broken

Consider two hypothetical blockchains. The first blockchain is like Bitcoin, where 100% of the block reward goes to hashing and 0% goes to transaction processing. The second blockchain differs dramatically, giving only 5% to hashing and 95% to transaction processing. What would happen over time?

I’d expect the first blockchain to end up with data centers full of hashers and no transaction validators. That’s because that’s what you’re being paid to do. And I’d expect the second blockchain to end up with data centers 95% filled with transaction validators and 5% filled with hashers. Again, that’s because that’s what you’re being paid to do.

Which system is healthier? Obviously, the system where a large portion is dedicated to transaction processing is healthier, because that is the purpose of the system. The one with all hashers and no transaction validators would be extremely unhealthy—totally unfit for any real purpose—and that is the form of Bitcoin we have today.

No one has run an experiment with a different reward structure, so we can’t directly compare any such system to Bitcoin. However, it is clear that what actually happened to Bitcoin after more than 15 years is exactly what you would expect by analyzing the incentives of the system. Small blocks are not Greg Maxwell’s fault. Rather, that is exactly how Bitcoin was designed. Bitcoin is a hashing system, first and foremost, and everything else is secondary.

Analogy to the Handicap Principle

The Handicap Principle is the idea that many species in nature create costly signals to indicate health and vitality. One such example is the antlers on a buck (a male deer). I asked Grok to estimate the amount of energy a buck uses to build its antlers. The answer is that during the growth season, it may use up to 30% of its energy to build its antlers. But during the rest of the year, it puts 0% of its energy into the antlers, and they eventually fall off. Over the lifetime of the buck, it uses roughly 2% to 4% of its energy growing its antlers.

Miners are like antlers. They are a necessary part of the system, but they are not the only part—and in fact, they are only a small part. Like antlers on a buck, the correct amount of energy to allocate to them is probably around 2% to 4% over the lifetime of the project. Everything else needs to be dedicated to the heart, lungs, skin, muscles, bones, and brain of the project. An incorrect distribution of energy can kill the buck.

Bitcoin is like a buck where 100% of the energy went to the antlers. And we got exactly what one would expect. Bitcoin has enormous antlers (very large data centers dedicated specifically to hashing) and a very tiny body (very few transactions). All functions other than hashing—such as tokens, smart contracts, and payments—have moved to other blockchains. Bitcoin is very good at hashing, and nothing else.

A Better Reward Distribution

A better reward distribution might look something like this:

• 5% to hashing (mining)
• 30% to transaction and block validation (mine operations)
• 30% to software development (protocol, mining, wallet, exchange, and app software)
• 35% to marketing, sales, and communities

This is just a rough estimate to give you a feel for what might be a better distribution of the block reward. The real numbers will need to change over time as I figure out where best to allocate capital. However, it is exceptionally clear to me, after ruminating on all this, that fixing the distribution is not optional. Bitcoin may have succeeded in spite of its flaws due to its first-mover advantage, but EarthBucks has no such advantage. The distribution must be correct, or EarthBucks will fail.

Conclusion

I realize this change is dramatic and may cause some miners to lose interest in the project. I hope you will understand that I am making this change because it is in the best interests of the growth of the system, and I believe it is critical and non-negotiable.

I am not keeping 95% for myself. The 95% of capital not allocated to miners will be distributed to others for performing important functions in the ecosystem. If you have not lost interest in the project, you can look forward to more announcements from me about how I will be distributing that capital to fuel the growth of the system, and you will find there are other ways to earn EarthBucks besides just mining.