Introducing Halving of Mining Reward in Zilliqa to Accelerate Transition to Proof-of-Stake

Proposals
1

Introducing Halving of Mining Reward in Zilliqa to Accelerate Transition to Proof-of-Stake

Summary:

This proposal aims to introduce a mechanism similar to the ‘difficulty bomb’ to progressively reduce mining rewards, thereby accelerating the transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS). By implementing this mechanism, we intend to:

  • Gradually decrease mining rewards by 50% in the first month starting from October 2024, followed by another 50% reduction in the subsequent month, continuing this pattern until reaching 12,5% of the initial amount.
  • Encourage miners and the community to support and accelerate the transition to PoS.
  • Reduce the immediate sell pressure on the ZIL token caused by miners liquidating their rewards.
  • Reallocate resources to enhance network security, ecosystem development, and community incentives.

Rationale:

Accelerating PoS transition:

  • Zilliqa is actively developing a new consensus mechanism. Implementing halving mechanics creates a sense of urgency, encouraging stakeholders to prioritize and accelerate the migration.
  • Reducing PoW incentives aligns the interests of miners and validators towards adopting PoS, ensuring a smoother and more collaborative transition.

Resource reallocation:

  • Resources from reduced mining rewards will be reallocated to strengthen PoS network security by expanding the set of reputable validators, conducting audits, and other related measures.
  • The vast majority of resources will be allocated to ecosystem growth: supporting development initiatives, protocol enhancements, and community incentives.

Mitigating miner sell pressure:

  • Miners often disengage from the ecosystem and tend to sell their rewards immediately, exerting downward pressure on the ZIL token price.
  • A gradual reduction of mining rewards can help stabilize the token’s value, making it more resilient and better aligned with its utility.

Proposal details:

Implementation of halving mechanism:

October 2024: Introduce a change in the reward structure that effectively reduces miners’ rewards by 50% retroactively counting the total amount of mining rewards calculated on a monthly basis.
November 2024: Implement an additional adjustment to reduce rewards by another 50%, resulting in miners receiving 25% of their original rewards.
December 2024: The 3rd iteration will reduce rewards to 12.5% of the initial amount, allowing miners to continue operating while incentivizing the transition to PoS.

Technical implementation:

The halving mechanics can be implemented without a network upgrade. The implementation involves monthly adjustments to the base_reward_in_percent, node_reward_in_percent and lookup_reward_in_percent fields of the reward control contract specified in ZIP-24 (ZIP/zips/zip-24.md at master · Zilliqa/ZIP · GitHub). The value of base_reward_in_percent and node_reward_in_percent is divided by 2 and added to the lookup_reward_in_percent. The resulting lookup_reward_in_percent represents the amount that will be sent to the verifier node, which transfers the staking rewards (currently 25%) to the SSNList contract and burns the rest (the mining rewards saved).

Impact on miners and network security:

Miner operations:

As mining becomes less profitable, miners are encouraged to support PoS or participate in staking. They will continue operations and be rewarded by the protocol until the transition to PoS in Zilliqa 2.0 occurs.

Network security:

Leverage guard nodes and prepare validators to ensure network security during the transition. Additionally, provide documentation and support to assist miners in transitioning to staking within the PoS.

Resource allocation strategy:

The reduction in mining rewards will result in a surplus of ZIL tokens, which can be reallocated in various ways to benefit the ecosystem

Ecosystem development fund: Establish a fund to support new and existing projects, protocol upgrades, and innovation.

Community incentives: Reward active participants, such as developers, validators, and users, who contribute to network growth.

Potential gZIL utility: Consider allocating a portion of the resources to be managed by gZIL holders.

Accelerated transition to PoS:

Community mobilisation: The halving will incentivize all stakeholders to prioritize the transition.

Reduced dependence on PoW: Gradual phasing out of PoW minimizes disruption and allows for smoother adoption of PoS.

Ecosystem development:

Innovation funding: Reallocated resources can fund projects that enhance network functionality and user experience.

Community engagement: Incentive programs can boost active participation and strengthen the community.

Stabilized token value: Reduced sell pressure may lead to a more stable or appreciating ZIL token price and stimulate the ecosystem growth.

Risks and Mitigations:

Risk: Miner Exodus Leading to Network Instability

Mitigation:

Enhanced security measures: Strengthen guard nodes and validator infrastructure ahead of reductions.

Communication: Provide clear timelines and support to miners for transitioning roles.

What is your opinion on the proposal?
  • Support the proposal
  • Do not support the proposal
  • Needs revisions
0 voters
8 Likes
2

Wonderful idea. Miners are only selling, no use from them.

8 Likes
3

Yes, let’s launch it.

5 Likes
4

Great idea, as they keep selling.

5 Likes
5

Although I am pro reducing rewards in general (not just for miners) due to the inflationary effect, there are a couple of points in this proposal that might be misunderstood.

Firstly, the pool of zil that is allocated to miner rewards is not directly controlled by Zilliqa Research or any other entity, so these rewards could not be easily reallocated to developers, users, gZIL holders etc as proposed without a network upgrade and creation of some kind of DAO treasury.

Secondly, until the switch to PoS is complete, PoW miners are very much a necessary part of Zilliqa’s infrastructure, and taking any action that reduces the number of miners objectively reduces the security of the network. Generally speaking 10-20% of rewards that miners sell will be profit – the vast majority goes towards covering electricity and hardware maintenance costs, so it’s not a particularly lucrative operation unless you have access to free electricity.

I note that this second point has point been addressed in the proposal by increasing the number of guard nodes (those maintained by Zilliqa Research), but 1) this would result in centralisation of the network and 2) maintaining such hardware is expensive – I would personally rather Zilliqa Research’s resources were targeted at incentive programs for the adoption of Zilliqa 2.0.

Here is some insight on mining costs from @vp_ezil, operator of the Ezil mining pool who ceased their mining operation earlier this year due to lack of profitability:

2 Likes
6
  1. The network’s security remains intact thanks to the presence of sufficient guard nodes.
  2. Staking rewards have already been adjusted and now meet industry standards, especially given that only a small percentage of users are staking.
  3. There is no need for additional guard nodes at this time, so no extra expenses are necessary.
2 Likes
7

The network is currently down due to an unresolved issue. Could the proposed changes increase the risk of downtime if miner participation decreases?

Edit: After discussing with people further on Telegram it seems there is no risk really. And will save A LOT of sell pressure. So we from Torch wallet are heavy in favor of this proposal.

3 Likes
8

Hey Zillicians,

I’ve dug into the risks associated with such a serious cut of miners’ rewards, and here’s what I learned.

There are 3 stakeholders in the mining system: the Zilliqa network, mining pools, and miners.

The Zilliqa network requires DS Nodes to validate the blockchain. DS Nodes are chosen every 100 blocks through a PoW process orchestrated by mining pools. When it’s time to mine ZIL, mining pools start sending Zilliqa PoW puzzles to their miners and accept solutions from them. When one of the miners’ solutions fits ZIL PoW criteria, the mining pool submits the solution to the ZIL network, and one of their nodes will become a DS node and start validating the consensus. In their spare time, miners mine other coins. This means that 99% of the time, miners do not mine ZIL, and what’s really important is that we don’t need to account for the costs of running mining rigs during this spare time.

Mining pools operate ZIL nodes, which I’ve learned are usually hosted within AWS or Google Cloud. A really good server for a ZIL node has 4 cores and 4GB RAM, which will cost around $150 a month according to Google Cloud. There are 600 nodes in the network, so it would cost $150 * 600 nodes = $90,000 a month to run the whole network. I don’t really know how many of these nodes are guard nodes managed by the ZIL Foundation, so let’s assume that 50% of the network is operated by mining pools. Therefore, the total costs borne by mining pools for ZIL nodes are $45,000.

Mining pools need to make some profit from their operation. For simplicity, let’s say that a mining pool adds a 100% margin on the node cost, which is an extra $45,000 for the network.

Server costs and mining pools’ margins form the fixed cost of running the network, which equals $90,000 a month.

Everything else goes to the miners pro-rata to their hashrate. If mining is not profitable for a miner, they would stop mining ZIL and increase the share of rewards for other miners. This means that when ZIL PoW rewards halve, some miners will probably leave the ZIL network, but this move will increase the reward for other miners and transform the market back to a balanced state.

Is it fine if the ZIL network hashrate drops? I think it’s totally fine because the network has guard nodes, and they will not allow any malicious activity on the chain. ZIL can’t be attacked via a 51% attack or manipulated in any other way.

What is the optimal strategy for the mining pools? If your fees decrease, just increase the fees for the miners. This proposal aims to introduce halving for the miners, while mining pools can keep their fees constant by balancing the fee percentage they charge from the miners.

Will ZIL reward be enough to provide sufficient incentive to mine? Yes. As of now, miners receive around $1.8m a month (correct me if I’m wrong).
First halving: $900,000/month
Second Halving: $450,000/month
Third Halving: $225,000/month

Probably, the ZIL price can pick up due to the decrease of miners’ sell pressure, which theoretically can increase reward in dollar terms.

cc @will_speaks

3 Likes
9

Removing mining from the network worked so well for eth that now everyone is doing it just because there is no more mining does not make the price go up there has to be a use case for zil in the short term price might go up but overall it will stagnate there is a reason btc is still king and eth is not and from what I see just by doing a pos update the network has already stopped working for a few hours now I wonder why that is ?

2 Likes
10

Ни к чему хорошему это не приведет
Эфир вон топчется на месте
Классик из за этого помер

11

Смысла нет, монета интересна только майнерам, без майнинга все пути к скаму, после ухода на POS, ее сразу же сольют все.

12

Добрый день. Проти данной инициативы. Нормальных монет на pow осталось не много, а тут еще вы решили все изменить. Ничего хорошего из этого не выйдет

13

Sad to see so many unhinged POS-lovers talking out their rear.

“Miners effing prices, they just sell”

Nothing could be more distanced from the truth.

A lot of miners, myself included, have been mining Zil for years, never sold a single Zil and actively contributing by staking Zil.

Naaaah boys, the ones hurting the project are the moon boys, who just buy Zil and sell for a profit, not actually contributing at all, besides some marketcap numbering.

But hey, why not bite the hand that fed and carried you for years.

1 Like
14

доброго времени суток. благодаря майнерам вы решаете 1 обеспечивая максимальную децентрализацию сети.
2 большая (точнее огромная) реклама ziliqi. Убрать майнеров - это ваша ошибка потому что спрос на манету упадёт. и я все что копил скорее всего продам после вашего окончательного перехода на “POS”

15

Absolutely against it!

16

why do this reduction of the reward for miners, go straight to the pos when the time comes.

17

без майнеров просто не будет сети.
Запустили бы сразу Зилику на ПОС :))