PayPal proposes ‘cryptoeconomic’ rewards for sustainable Bitcoin miners

International payments giant PayPal has proposed to make sustainable Bitcoin (BTC $66,375) mining more economically attractive by rewarding miners through incentives layered on top of the Bitcoin network.

PayPal’s Blockchain Research Group, in collaboration with Energy Web and DMG Blockchain Solutions, has proposed using "cryptoeconomic incentives" to encourage Bitcoin miners to use low-carbon energy sources, according to an April 22 blog post.

The firm hopes that the experimental incentive contributes to further discussion and innovation around Bitcoin and is seeking industry feedback on potential improvements.

Under the proposal, “green miners” who use sustainable energy sources would be accredited with special “green keys,” which are associated with their public keys.

Bitcoin transactions would be preferentially routed to these green miners by attaching lower fees but with an additional locked BTC reward in a multisig payout address that only the green miners can claim.

“Green miners will be incentivized to mine these transactions since they will be the only ones eligible for the additional “locked” BTC reward,” it explained,

This incentivizes rational profit-driven miners to operate with low-carbon sources to get the extra BTC rewards.

Green miner transactions. Source: PayPal Blockchain Research Group

According to the paper, the proposed solution will leverage Energy Web’s “Green Proofs for Bitcoin” platform for miners to get certified based on their clean energy and grid impact scores.

The green miners can register and share their green keys on the platform as participants of the incentive program.

PayPal BRG said that it has successfully tested the proposed solution with Bitcoin miner, DMG Blockchain Solutions Inc.

During the test, it broadcasted multiple low-fee transactions to observe effectiveness under different levels of on-chain transaction volume.

Depending on transaction volume, “these transactions would either take a long time to confirm or eventually be dropped by the network,” it observed before adding: “This would increase the chances for green miners to pick up these transactions.”

An alternative approach would involve exploring private channels such as the Lightning Network or smart contracts, but there would be trade-offs such as more complex implementation, it added.

“The solution outlined here aims to achieve a good degree of decentralization, ease of implementation and trust independence while distributing incentives,” PayPal BRG concluded.

Cointelegraph contacted PayPal for further details on potential implementation but did not receive an immediate response. 

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