P2share: how to turn any network (or testnet!) into a bitcoin miner

The discussion revolves around the architectural considerations for a sharechain, specifically debating between an account-based model versus a UTXO (Unspent Transaction Output) methodology for tracking shares within the system. The conversation underlines that while the preference for one model over the other is acknowledged, it is viewed as a secondary concern at this stage of development. The primary focus should be on addressing fundamental incentive and fairness issues inherent in the share distribution and compensation mechanisms.

A critical problem identified with not burning the entire UTXO containing shares is the potential for miners to minimize their losses by distributing their shares across multiple outputs. This strategy could lead to disproportionate share accumulation by older miners, creating barriers for new miners and possibly leading to centralization and unfair compensation practices. In such scenarios, miners would effectively be rewarded multiple times for the same contribution, undermining the fairness of the system.

To counteract these issues, a proposal is made for adopting an above-linear probability function for share selection, where doubling the amount of shares more than doubles the chances of being selected. This approach penalizes the fragmentation of shares into many small UTXOs, encouraging the consolidation of shares and making it more challenging for miners to game the system. It suggests that shares might hold varying values for different actors, with larger miners potentially valuing smaller miners' shares more highly due to the exponential increase in selection probability with share accumulation. This dynamic could incentivize the purchase of shares by larger entities, potentially addressing concerns around fairness and centralization.

Another aspect discussed is the potential for coordination among miners within the pool, suggesting the use of a coordinated payout tree and leveraging the sidechain as a coordination point and data availability medium. This approach could facilitate more efficient share distribution and compensation without impacting the main Bitcoin chain.

Overall, the conversation emphasizes exploring the general framework of peer-to-peer sharechains (p2share) to ensure its alignment with Bitcoin's principles and its viability as a secure and fair system for all participants. The focus remains on developing a sound theoretical foundation before delving into specifics, highlighting the importance of addressing incentive misalignments and ensuring equitable participation opportunities for miners of all sizes.