Targeted Nakamoto: A Proof-of-work protocol augmentation to improve security and limit energy consumption
Abstract
In a Proof-of-Work blockchain the equilibrium mining hashrate is increasing in the value of the block reward, with no lower or upper limit. An increase in value induces miners to increase hashrate, which consumes electricity, thereby increasing carbon emissions. A decrease in value induces miners to reduce hashrate, which lowers the cost of attacking the network. These opposing forces suggest there is a hashrate interval in which overall cost is minimized. I propose an augmentation of the proof-of-work protocol, called Targeted Nakamoto, which incentivizes miners to hone in on a hashrate interval. The augmentation uses the ratio of mining puzzle difficulty to blockchain growth rate, which are encoded on the blockchain, as a signal of hashrate, which is not observable. The miner receives less than the current proof-of-work block reward when hashrate is above the targeted interval and more than the block reward when hashrate is below the targeted interval. Monetary neutrality is maintained in a UTXO blockchain with a soft-fork that increases or decreases the spending potential of UTXO’s to offset the adjustment to the block reward, spread proportionately among UTXO’s.
