Bitcoin: a new Proof-of-Work system with reduced variance

TL;DR

This paper introduces a practical variant of Bitcoin's Proof-of-Work that reduces reward variance by requiring multiple nonces for block insertion, promoting fairer reward distribution and more stable block times.

Contribution

It presents a new PoW variant that improves upon Shi's theoretical algorithm, enabling easier implementation and better reward fairness in blockchain mining.

Findings

Reduces reward variance for miners

Facilitates emergence of small pools and autonomous miners

Regularizes block insertion times

Abstract

Proof-of-Work (PoW) is a popular consensus protocol used by Bitcoin since its inception. PoW has the well-known flaw of assigning all the reward to the single miner (or pool) that inserts the new block. This has the consequence of making the variance of the reward and thus the mining enterprise risk extremely high. To address this problem, Shi in 2016 proposed a theoretical algorithm that would substantially reduce the issue. We introduce a variant of Proof-of-Work that improves on Shi's idea and can be easily implemented in practice. In order to insert a block, the network must not find a single nonce, but must find a few of them. This small change allows for a fairer distribution of rewards and at the same time has the effect of regularizing the insertion time of blocks. This would facilitate the emergence of small pools or autonomous miners.