The cost of specialized hardware is prohibitive for many people that would like to participate in Bitcoin mining. As a result "cloud mining" has become very popular, but it has two major drawbacks.
First, fraud is very common with cloud mining because the users are not able to verify that their mining time did or did not earn a block reward.
Second, the mining rewards are distributed through large numbers of small payments. This can be tedious and is unlike bitcoin mining where a miner may mine for months before discovering a block that contains a large reward.
Meld mining fixes these problems by providing proof the mining was executed, and by allowing miners control of the mining difficulty level (the higher the difficulty the less often blocks are discovered, but the higher the block reward).
There are three participants in meld mining.
This service coordinates mining between miners and cloud providers. Sell nonces to miners, provide nonces to cloud operators, accumulate payments from cloud operators and distribute earnings (with evidence that calculations were correctly completed).
Cloud mining providers maintain and operate data-center equipment on behalf of the miners. They accept nonce ranges, execute the hash calculations, broadcast found blocks to the bitcoin network, and distribute bitcoin block rewards.
Miners pay cloud operators to perform calculations to discover a bitcoin block using nonces they select.
Format:
Miners purchase a range of nonces that will be mined. They are provided with a time stamped hash of the ranges so that they will be able to verify mining was executed correctly.
This is essentially a purchase of mining hardware hosting that can range from a seconds to weeks.
The meld mining coordinator provides the nonces to mine and pays the cloud mining provider for the rental of mining hardware.
As the cloud hardware provider calculates hashes he discovers bitcoin blocks. He keeps block rewards as they are discovered.
As the cloud hardware provider calculates hashes using the provided nonces he publishes the proof that the job is completed in the form of attempted blocks.
Periodically the cloud hardware provider makes payments to the meld mining coordinator based on the % of the block rewards discovered using the provided nonces.
Miners are able to query attempted blocks database to ensure that their nonces were correctly calculated.
Miners are paid when their nonces meet the difficulty level they specified.
When miners purchase the use of mining hardware by specifying a range of nonces to use, they also specify the difficulty level than needs to be met for a mining reward.
If they selected standard difficulty this will match the current difficulty to obtain a bitcoin block reward. The amount paid to the miner will be the same amount of bitcoin as a bitcoin block reward (averaged over the mining period).
If they selected a lower difficulty level they will be paid when a nonce they selected is close to finding a block reward (this is how mining pools pay miners more often) and the reward will be proportionally lower.
If they selected a higher difficulty level they will be paid when a nonce they selected finds a bitcoin block AND meets the higher level of difficulty and the reward will be proportionally higher.
If a malicious mining partner could delay any blocks discovered with a selected nonce, they could give themselves an advantage in finding a block using another nonce first. This would allow them to obtain the block reward even though we have paid for the computing power.
- We are get paid daily for our "hash power" so even if the miner avoids our wining block it will not effect the compensation for mining.
- We still determine the winner based on the nonce meeting or exceeding the difficulty level. But as long as a hash is generated, using that nonce, we can determine if we have a winner.
- We will ensure that cloud partners calculate our nonces first and have enough processing power to do this within the first 30 seconds of a block being discovered. This is to ensure that nonces don't need to be calculated on blocks that have already been found.
A meld mining reseller knows the nonce, but is not paid by the block reward, so he could share the nonce with a competing miner. This would allow the competing miner, assuming he has more hash power, to reduce the profitability of his competitor by ensuring he will never be first to find a block using those nonces.
- The mining partner would detect this breach as soon as the first block is mined by a competitor using the nonce range.
- A competitor must still mine the nonce range. Assuming a 10% profitability this would earn the malicious competitor a total of ~20k assuming a $200,000 block reward. This is not enough to justify the effort involved by the malicious reseller and the malicious miner to coordinate the deal, let alone cover the costs of mining reconfiguration, etc.
- With several major competitors in bitcoin mining, it would be uninteresting for any miner to cost a competitor a single block reward.
If a mining partner discovers a valid block, using a nonce range that has been selected, he could simply keep the block reward for himself rather than using our public key in the coinbase transaction.
- We are get paid daily for our "hash power" so we don't care if the block that is found earns a block reward.
- We still determine the winner based on the nonce meeting or exceeding the difficulty level. But as long as a hash is generated, using that nonce, we can determine if we have a winner.
If an end customer knows the nonces that he has selected he could share them with a competing miner, and, unlike the risk from a malicious reseller, this attack could be repeated regularly.
- The end customer is not provided with the nonces, but rather a time stamped hash of the nonces he has selected. After the mining period the nonces and resulting hashes are published with the time stamped hash so that he can be sure his nonces were mined and verify that the winner was selected fairly.