Pooling Pressure Risk

Pooling pressure is the set of financial incentives for hash rate aggregation, specifically:

• Proximity Premium
• Variance Discount
• Market Distortion
• Market Variation

While latency and variance are unavoidable, consensus rules actually create the first two financial incentives. Distortion is a consequence of varying non-market forces including tax, regulation, subsidy, and patent. Variation is a consequence of varying market price for mining factors.

There are several manifestations of of pooling. One is geographic, where independent miners become physically closer together. Another is cooperative, where formerly-independent miners join forces and co-locate grinding. Another is virtual, where miners become grinders and aggregate hash rate to a single remote miner. Another is the existence of relays, which aggregate miner hash power. Another is capital flow, since the higher hash rate associated with greater capital utilization is a form of co-location.

Given a perpetual positive pressure, transaction selection will eventually be reduced to one person's control. It is possible that this is already the case. The risk to Bitcoin is that one person is the sole defense of utility, making successful co-option inevitable. This risk cannot be mitigated by the economy.