I have been reviewing the comments here and in discord, as well as working with our developers to assess various options for the consensus mechanism. There are clearly some very good reasons that both pure PoS and hybrid PoW / PoS would be problematic. There are very good reasons why Ethereum is struggling to deploy PoS. My conclusion is that if we chose that route, the project would run the risk of being a monumental effort... at least if you want a highly secure network. That said, there may be a solution leveraging BLS "magic" that could enable a safe implementation of PoS at some point in the future, but I believe there is much we could do now to improve economics even if we stay with PoW for the time being.
Therefore, if we assume staying with PoW is the most direct path to a better economic profile, it begs the question "how should our PoW allocation be adjusted in light of the enhanced security from ChainLocks?". If you enhance security through ChainLocks, it logically follows that you are less dependent on PoW than you were before. What is clear is that we would want to remain the dominant X11 PoW chain. Therefore, we calculated the hashrate of the other X11 chains. There wasn't much out there... Happycoin, Axe, Imagecoin, Magnet, Cannabiscoin, MonetaryUnit, Startcoin, and PACcoin were the biggest. There are others, but collectively, they are a rounding error. I then multiplied the sum of these other chains by 10x. To buy that much hashrate, we would only need about 5-7% of our block reward. Therefore, even if you rounded up to 10%, there is very little incremental security from spending more than 10% of our block reward on mining.
This is great news, because it means we have the ability to safely reduce mining from 45% of our block reward to 10% (which represents about 80% reduction in mining expense), and that is the vast majority of the gains we could be making with pure PoS. And we could capture that efficiency gain without a lengthy development process.
I believe the best approach to distributing the gains is to ensure as wide of participation as possible. This means one of two paths... either a deterministic holders list, or masternode shares. There are pros and cons with each approach.
DHL:
+ Likely simpler to implement... similar process to DML
- Because DHL participants wouldn't really be doing "work" for the network, this would make Dash more closely resemble an investment... I believe that we would nonetheless have a compelling case why Dash is not a security, but it might nudge Dash in a direction that regulators would view less favorably. Not a reason not to do it, but it is a consideration.
- Not that scalable. We might need a minimum of 100 Dash to prevent the list from becoming too long for nodes to maintain. Or we would need to rearchitect the way the DML list works to make it more scalable. Either way, this is less than ideal.
Protocol level shared MNs:
+ Not difficult to implement, but there are a few minor complexities we could work through quickly (e.g., the engineers have practical solutions in mind)
+ Can scale very well. Completely feasible to stake 10 Dash or less, which mean the benefits are extended to the most number of users.
+ Provides incremental decentralization and security to the network... because it provides benefit to the network, this would make Dash no more susceptible to being labeled a security than it is today.
+ Ensures that shared MN services are trustless, which eliminates the need to take risks that people currently take to earn rewards on smaller balances
- Might require time-locked inputs to properly function, which may be less attractive to users
- Doesn't fully solve the fundamental issues with the network economics, but it can defer those issues to a later time, when they are less impactful (e.g., several years from now, the inflation rate would be much much lower)
I believe by combining reduced mining expenses with greater access to the MN rewards (and increasing the share of block rewards that go to this larger group of recipients) we can successfully mitigate MOST of the economic issue with a relatively simple solution. My current hypothesis is the following (assuming no change to the proposal funding share, which I view as a fully independent discussion):
1) Introduce shared MNs to enable greater access to staking rewards
2) SLOWLY increase the share of block rewards from 45/45/10 to 80/10/10 over a very long period of time. Our previous reallocation was far too fast. If we reallocated about 0.5% per month, it would take nearly 6 years to fully transition.
One other benefit of this approach is "fairness" to miners, as they would retain the ability to mine dash with the full life of their existing equipment. In fact, I need to model it, but I believe even they would be financially better off. How is this possible if we are cutting the amount of Dash allocated there? First, they would be mining slightly less Dash the next 18 months, but at an otherwise higher price, which would help. They also would face less competition from new mining capacity because miners would be unlikely to invest in new X11 equipment knowing reward reductions were baked into the protocol. Lower competition would in turn extend the life of existing equipment and allow miners the opportunity to mine for longer without replacing their miners. Most of a miner's profit takes place in the first 12-18 months under normal circumstances, so this could create a unusually long runway of profitable mining if new equipment is not brought to market at the same pace it otherwise would.
Another benefit... low risk of implementation. The only complex piece is masternode shares, which wouldn't be overly complex as it would simply require a different DML registration type, a way for users to signal their inputs are available to stake, and the ability to distribute the rewards differently as part of the coinbase transaction. All of that is based on technology we already have, and would simply need to modify.
Would like to hear reactions to this model from the community.