Before the release of DigiShield, miners could take advantage of coins with low difficulty to make a better profit. Kimoto Gravity Well (KGW) was introduced and curved this behavior, but DigiByte with their DigiShield effectively stomped it out.
For those of you who might not know what a multipool is, it’s a mining pool that determines the most profitable coin for you to mine based off your hash rate, the coins difficulty and the going rate on the exchanges. In contrast to direct mining pools, where only one coin is mined.
After a coin has been mined long enough for the difficulty to increase, the pool switches to another coin. Leaving all the dedicated miners with a huge difficulty increase and few coins left to mine. The coins are also “dumped” into the market, damaging their value.
KGW works by automatically adjusting a coins difficulty when it notices a large jump in the network hashrate. Traditionally, difficulty would only adjust after a set amount of blocks was solved. It takes KGW five minutes to kick in, which means multipools can still be used to increase profitable, but you have to use a pool that used low coin switch speeds. Then came DigiShield.
DigiShield adjusts the difficulty of a coin to either increase or decrease in sync with the network hash rate of the coin. Miner who gained profits 30%, 40% or even 50% using multipools might have seen smaller gains in the 5% – %10 range when KGW entered the market, but DigiShield has taken all that incentive away. But are multipools worthless?
No. I’ll give you two reasons why not.
Protections like DigiShield have only been implemented in two coins, Digibyte and, most recently, Dogecoin. There are plenty of other coins that are still vulnerable to multipools. Even if your multipool switched to a coin with this protection if the coin has a short target block time you could still solve one or two blocks before switching. A profit gain of 3-6% is not unlikely.
Assume all coins use a system like Digishield only they are perfect in that profitability for a direct miner was equal to that of a miner using a multipool. Even then I don’t believe multipools would be worthless. With a change in the switching algorithm, multipools could be used as a sort of mutual fund for miners. Rather than miners dumping their coins as soon as they’re mined for Bitcoins, they would hold on to them as a way to diversify and reduce risk. Direct miners always face the risk of losing everything if the coin fails, but multipools could be used to protect miners.
Unlike fiat money, we can know everything about a coin such as; its market cap, how many coins are in circulations or being held. Multipools could tap into this and instead of basing their algorithm on difficulty and profitability, they can base it off risk and profitability. Miners could set their risk tolerance levels, and certain coins would be avoided for risk averse miners, given miners the ability to pick coins without having to analyze each coin they want to mine.
Granted, it’s no here yet, but it should be.
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