Targeted Nakamoto: A Bitcoin Protocol to Balance Network Security and Carbon Emissions

TL;DR

This paper introduces Targeted Nakamoto, a protocol that balances Bitcoin network security and carbon emissions by incentivizing miners to maintain a target hashrate range, optimizing total costs.

Contribution

It proposes a novel Proof-of-Work protocol augmentation that incentivizes miners to stay within a target hashrate interval, balancing security and environmental impact.

Findings

Balances network security and carbon emissions.

Maintains monetary neutrality through proportional adjustments.

Minimizes total cost by targeting optimal hashrate range.

Abstract

In a Proof-of-Work blockchain such as Bitcoin mining hashrate is increasing in the block reward. An increase in hashrate reduces network vulnerability to attack (a reduction in security cost) while increasing carbon emissions and electricity cost (an increase in externalities cost). This implies a tradeoff in total cost at different levels of hashrate and the existence of a hashrate interval where total cost is minimized. Targeted Nakamoto is a Proof-of-Work protocol augmentation that incentivizes miners to hone in on a target hashrate interval. When hashrate is above target a ceiling is placed on the block reward a miner can receive. When hashrate is below target a floor is placed underneath the miner's block reward. Monetary neutrality is maintained by a proportional increase in spending potential among addresses holding UTXO's to match a deduction from total block reward when the ceiling is operative and a proportional reduction in spending potential among addresses holding UTXO's to match an increase over the total block reward when the floor is binding.