HIP-17 - Proposed Solutions to Prevent Exploitation of Low-Bid HACD Mining

1

Based on the Hacash White Paper, the current issue arises from miners selecting their own bids instead of considering the highest available bid, thereby artificially keeping HACD prices low. The following five proposals aim to establish a fairer, market-driven, and consensus-oriented HACD mining mechanism.

1. Implementing a “Fair Bidding Mechanism”.

Concept Recap

The current HACD mining mechanism allows miners to freely choose which bid to accept, meaning they can select their own bid instead of the highest available bid. This leads to price suppression and unfair market behavior.

A Fair Bidding Mechanism ensures that the highest bid submitted in a specific time window is automatically selected, preventing manipulation.

Step-by-Step Implementation

  1. Define Fair Bidding Rules
  • Modify the HACD minting logic so that only the highest available bid from the last X blocks can be selected.
  • Miners must include the transaction ID of the highest bid in their mined block.
  • If a miner submits a block with a lower bid, the block is invalid and rejected by the network.
  1. Identify Relevant Sections in the White Paper
  • Section 5.1: Competitive Bookkeeping Rewards → This section explains how mining rewards are structured based on competition. By enforcing bidding competition, HACD maintains fair market pricing.
  • Section 8.2: Low-Cost Channel Fraud → This warns about manipulative behaviors in bid-based mining, which the Fair Bidding Mechanism helps prevent.
  1. Modify HACD Mining Protocol

The HACD bid selection mechanism should be modified at the block validation stage. This requires changes in the full node software.
Key Implementation Points in Code

Step 1: Modify the block validation function

  • HACD blocks must verify that the bid included in the mined block is the highest available bid.
> 
> def validate_hacd_bid(block, bid_history):
>     """
>     Ensures that the bid included in the block is the highest bid in recent history.
>     """
>     highest_bid = max(bid_history, key=lambda x: x['amount'])  # Find the highest bid
>     if block.hacd_bid < highest_bid['amount']:
>         raise ValueError("Invalid HACD bid: Lower than the highest available bid")
>     return True

Step 2: Force miners to include bid transaction ID

  • Ensure that miners reference the correct bid in their block.
def enforce_bid_reference(block, bid_history):
    """
    Ensures the HACD bid in the block corresponds to the highest recorded bid transaction.
    """
    highest_bid = max(bid_history, key=lambda x: x['amount'])
    if block.hacd_bid_tx_id != highest_bid['tx_id']:
        raise ValueError("Invalid HACD bid: Incorrect transaction reference")
    return True

Step 3: Reject blocks that do not follow fair bidding

  • Modify the block acceptance rules to reject any block that does not contain the highest bid.
def process_new_block(block, blockchain):
    """
    Processes a new block and ensures HACD bids follow fair bidding rules.
    """
    bid_history = blockchain.get_recent_hacd_bids()
    if validate_hacd_bid(block, bid_history) and enforce_bid_reference(block, bid_history):
        blockchain.add_block(block)
        return "Block Accepted"
    else:
        return "Block Rejected - HACD bid manipulation detected"
  1. Network-Wide Enforcement
  • Miners must follow this rule, otherwise their block is orphaned and ignored by the network.
  • Other nodes in the network should validate each new block before accepting it.

Modification of the consensus rules:

  • Full nodes must track all HACD bids within the past X blocks.
  • Before accepting a block, nodes must verify that the included bid is the highest recorded.
  • Blocks violating this rule are automatically rejected.
  1. Expected Impact

:white_check_mark: Eliminates price manipulation by forcing miners to take the highest bid
:white_check_mark: Creates a fair HACD mining ecosystem by preventing self-selection of bids
:white_check_mark: Encourages real market bidding by enforcing an auction-style pricing mechanism

  1. Potential Challenges

Issue: Miners might try to manipulate the system by placing false high bids.
Solution: The next proposed mechanism (On-Chain Public Bid Records) will ensure that bids are verifiable and stored permanently to prevent bid spoofing.

2. On-Chain Public Bid Records.

Concept Recap

Currently, HACD bids are not stored on-chain, allowing miners to ignore the highest bids and selectively choose lower ones. This lack of transparency enables bid manipulation.

To prevent this, all HACD bids should be stored permanently on the blockchain before they can be selected. This ensures that miners cannot ignore the highest bids and all bid transactions are verifiable.

Step-by-Step Implementation

  1. Define Public Bid Recording Rules
  • Every bid for HACD must be written to the blockchain before it can be accepted by a miner.
  • The bid transaction must include metadata, such as timestamp, bid amount, bidder address, and transaction ID.
  • Each HACD block must reference a valid bid from the public record.
  • Bids must be immutable once written, preventing miners from selectively ignoring them.
  1. Identify Relevant Sections in the White Paper
  • Section 6.1: Total Supply and Growth → States that HACD is a limited supply asset, making transparent price discovery essential.
  • Section 9.3: Controllable Scale of Public Ledger Data → Discusses efficient on-chain data storage, which is necessary for storing bid records.
  1. Modify the HACD Bidding System

Step 1: Store all bids in a separate bid ledger

  • Modify the blockchain protocol to record HACD bids as standalone transactions.
class HACDBid:
    def __init__(self, bidder_address, bid_amount, timestamp):
        self.bidder_address = bidder_address
        self.bid_amount = bid_amount
        self.timestamp = timestamp
        self.tx_id = self.generate_tx_id()

    def generate_tx_id(self):
        return hashlib.sha256(f"{self.bidder_address}{self.bid_amount}{self.timestamp}".encode()).hexdigest()

Step 2: Ensure all bids are recorded on-chain

  • Modify the blockchain’s transaction pool to require bids to be written before inclusion in a block.
class Blockchain:
    def __init__(self):
        self.blocks = []
        self.bid_ledger = []  # Stores all HACD bids

    def add_bid(self, bid):
        """Adds a new HACD bid to the bid ledger."""
        self.bid_ledger.append(bid)

    def get_highest_bid(self):
        """Fetches the highest bid available in the current ledger."""
        return max(self.bid_ledger, key=lambda x: x.bid_amount)

Step 3: Modify block mining to reference the highest bid

  • When a miner mints HACD, they must reference a publicly recorded bid.
def mine_hacd_block(miner, blockchain):
    """Mines an HACD block by selecting the highest recorded bid."""
    highest_bid = blockchain.get_highest_bid()
    
    if not highest_bid:
        raise ValueError("No valid bids available")

    new_block = {
        "miner": miner,
        "hacd_bid_tx_id": highest_bid.tx_id,
        "hacd_bid_amount": highest_bid.bid_amount
    }
    
    blockchain.blocks.append(new_block)
    return f"Block Mined Successfully with HACD bid: {highest_bid.bid_amount}"

Step 4: Modify validation rules

  • Full nodes must reject any block that references an invalid or off-chain bid.
def validate_hacd_block(block, blockchain):
    """Ensures HACD bids in mined blocks exist in the public bid ledger."""
    valid_bids = {bid.tx_id for bid in blockchain.bid_ledger}
    
    if block["hacd_bid_tx_id"] not in valid_bids:
        raise ValueError("Invalid HACD bid: not recorded on-chain")

    return True
  1. Network-Wide Enforcement
  • Miners must include the highest on-chain bid in their mined block.
  • Full nodes must check that each HACD bid exists in the bid ledger before accepting a block.
  • If a block includes an unrecorded bid, the block is invalid and ignored.
  1. Expected Impact

:white_check_mark: Prevents off-chain bid manipulation by requiring all bids to be recorded
:white_check_mark: Creates a verifiable history of HACD bid prices
:white_check_mark: Miners must follow transparent bid selection rules

  1. Potential Challenges

Issue: Increased blockchain storage usage due to bid history.
Solution: Prune old bids that have already been used to keep storage efficient.

Issue: Attackers might place fake high bids.
Solution: Proposal #3 (Bid Staking Mechanism) introduces financial penalties to deter fraudulent bids.

3. Bid Staking Mechanism (Financial Penalty for Manipulative Bidding).

Concept Recap

Currently, there is no financial risk associated with placing fraudulent or low bids in the HACD auction system. This allows miners and users to manipulate prices without consequences.

A Bid Staking Mechanism requires users to lock funds (stake) when placing bids, ensuring that dishonest or low-value bids have a financial cost. If a miner selects an unfairly low bid, the bidder loses part of their stake.
Step-by-Step Implementation

  1. Define Staking Rules
  • Each HACD bid requires a stake (e.g., 10% of the bid amount) to be locked.
  • If a bid is below the average market price in the last X blocks, a portion of the stake is burned.
  • If the bid is accepted fairly, the stake is refunded.
  • If a bid is not used within a specific time frame, it expires, and the stake is partially burned.
  1. Identify Relevant Sections in the White Paper
  • Section 5.5: Block Diamond → Explains that HACD mining should follow a competitive market model.
  • Section 8.1: Channel Chain Delayed Signature Attack → Describes scenarios where delayed transactions and market manipulation can create unfair outcomes, requiring a financial deterrent.
  • Section 8.3: Channel Credit Currency Creation and Default → Discusses how improper bid pricing can destabilize the ecosystem.
  1. Modify the HACD Bidding System

Step 1: Implement Stake Locking for Bids

  • Modify the HACD bid system to require an additional stake amount.

class HACDBid:
    def __init__(self, bidder_address, bid_amount, timestamp):
        self.bidder_address = bidder_address
        self.bid_amount = bid_amount
        self.timestamp = timestamp
        self.tx_id = self.generate_tx_id()
        self.stake_amount = bid_amount * 0.10  # 10% stake requirement
        self.status = "active"  # Can be "active", "used", "expired"

    def generate_tx_id(self):
        return hashlib.sha256(f"{self.bidder_address}{self.bid_amount}{self.timestamp}".encode()).hexdigest()

Step 2: Create a Staking Pool

  • Add a stake ledger to track bid stakes.
class Blockchain:
    def __init__(self):
        self.blocks = []
        self.bid_ledger = []  # Stores all HACD bids
        self.stake_ledger = {}  # Stores locked stake amounts

    def add_bid(self, bid):
        """Adds a new HACD bid and locks stake."""
        self.bid_ledger.append(bid)
        self.stake_ledger[bid.tx_id] = bid.stake_amount

    def release_stake(self, bid_tx_id):
        """Releases the stake when bid is used fairly."""
        if bid_tx_id in self.stake_ledger:
            del self.stake_ledger[bid_tx_id]

Step 3: Implement Financial Penalty for Low Bids

  • If a bid is too low (e.g., 10% below market average), a portion of the stake is burned.

def penalize_low_bids(blockchain):
    """
    Checks for bids that are 10% below the market average and burns part of their stake.
    """
    avg_market_price = sum(bid.bid_amount for bid in blockchain.bid_ledger) / len(blockchain.bid_ledger)
    
    for bid in blockchain.bid_ledger:
        if bid.bid_amount < avg_market_price * 0.90:
            penalty_amount = bid.stake_amount * 0.50  # Burn 50% of stake
            blockchain.stake_ledger[bid.tx_id] -= penalty_amount
            print(f"Penalty applied: {penalty_amount} burned for bid {bid.tx_id}")

Step 4: Handle Expired Bids

  • If a bid is not used in X blocks, part of the stake is burned.
def expire_old_bids(blockchain, current_block_height, expiration_threshold=100):
    """
    Checks for expired bids and burns a portion of their stake.
    """
    for bid in blockchain.bid_ledger:
        if current_block_height - bid.timestamp > expiration_threshold:
            penalty_amount = bid.stake_amount * 0.20  # Burn 20% of stake
            blockchain.stake_ledger[bid.tx_id] -= penalty_amount
            bid.status = "expired"
            print(f"Expired bid: {bid.tx_id}, {penalty_amount} stake burned")
  1. Network-Wide Enforcement
  • Miners must verify that each bid used in mining has a valid stake attached.
  • Nodes must enforce stake burning if bids are too low or expire.
  • The network must reject blocks that include a bid without a proper stake.
  1. Expected Impact

:white_check_mark: Prevents bid manipulation by adding a financial cost
:white_check_mark: Encourages fair HACD price discovery
:white_check_mark: Reduces spam bids that could artificially lower prices

  1. Potential Challenges

Issue: Honest users might lose stake due to price fluctuations.
Solution: Implement a buffer threshold (e.g., 5-10% deviation allowed before a penalty applies).

Issue: Users might place high fake bids just to increase penalties for others.
Solution: Combine with Proposal #4 (Reputation-Based Mining Access) to penalize frequent manipulators.

4. Reputation-Based Mining Access (Preventing Repeated Manipulation by Miners).

Concept Recap

Currently, there is no penalty for repeated market manipulation by miners. This allows bad actors to continuously mine HACD using low bids, ignoring market fairness.

A Reputation-Based Mining Access system introduces a public tracking mechanism, where miners accumulate a reputation score based on their bidding behavior. If a miner regularly selects low bids, they are temporarily banned from mining HACD.

Step-by-Step Implementation

  1. Define Reputation Rules
  • Each miner has a reputation score that increases/decreases based on their bid selection behavior.
  • If a miner selects bids that are below 90% of the market average multiple times, their reputation decreases.
  • Miners with low reputation scores are banned from mining HACD for X blocks.
  • The community (DAO governance) can vote to extend bans for repeat offenders.
  1. Identify Relevant Sections in the White Paper
  • Section 8.3: Channel Credit Currency Creation and Default → Describes how economic trust is built through a reputation-based model.
  • Section 7.5: Channel Reversal → Highlights the importance of an audit system for trustless transactions.
  • Section 9.1: Simplicity and Intuitiveness → Discusses how simple but effective rules prevent systemic abuse.
  1. Modify the HACD Mining System

Step 1: Create a Reputation Tracking System

  • Implement a miner reputation ledger.
class MinerReputation:
    def __init__(self):
        self.reputation_scores = {}  # Tracks reputation of each miner

    def update_reputation(self, miner, action):
        """
        Updates the miner's reputation score based on behavior.
        Actions:
            'fair_bid' -> +1 point
            'low_bid' -> -5 points
            'block_rejection' -> -10 points
        """
        if miner not in self.reputation_scores:
            self.reputation_scores[miner] = 100  # Start with default 100 reputation points
        
        if action == "fair_bid":
            self.reputation_scores[miner] += 1
        elif action == "low_bid":
            self.reputation_scores[miner] -= 5
        elif action == "block_rejection":
            self.reputation_scores[miner] -= 10
        
        # Ensure reputation does not exceed limits
        self.reputation_scores[miner] = max(0, self.reputation_scores[miner])

Step 2: Penalize Repeat Offenders

  • If a miner falls below a reputation threshold, they are temporarily banned from mining HACD.
def check_miner_eligibility(miner, reputation_system):
    """
    Determines if a miner is allowed to mine HACD.
    Miners with reputation < 50 are banned for 20 blocks.
    """
    if reputation_system.reputation_scores.get(miner, 100) < 50:
        print(f"Miner {miner} is banned from mining HACD for 20 blocks.")
        return False
    return True

Step 3: Enforce Reputation in the Mining Process

  • Before a miner can submit a block, their reputation is checked.

def mine_hacd_block(miner, blockchain, reputation_system):
    """Ensures that only reputable miners can mine HACD."""
    if not check_miner_eligibility(miner, reputation_system):
        return "Mining Denied: Low Reputation"

    highest_bid = blockchain.get_highest_bid()
    
    if not highest_bid:
        return "Mining Denied: No valid bids available"

    new_block = {
        "miner": miner,
        "hacd_bid_tx_id": highest_bid.tx_id,
        "hacd_bid_amount": highest_bid.bid_amount
    }
    
    blockchain.blocks.append(new_block)
    reputation_system.update_reputation(miner, "fair_bid")
    return f"Block Mined Successfully with HACD bid: {highest_bid.bid_amount}"

Step 4: Reject Blocks from Low-Reputation Miners

  • Full nodes should reject blocks from banned miners.

def validate_hacd_block(block, reputation_system):
    """Rejects blocks mined by low-reputation miners."""
    miner = block["miner"]
    
    if reputation_system.reputation_scores.get(miner, 100) < 50:
        print(f"Block rejected: Miner {miner} has low reputation.")
        return False

    return True
  1. Network-Wide Enforcement
  • Miners with low reputation scores cannot mine HACD.
  • Full nodes check the reputation of each miner before accepting blocks.
  • Reputation scores are recorded on-chain, preventing manipulation.
  1. Expected Impact

:white_check_mark: Prevents repeated market manipulation
:white_check_mark: Encourages miners to maintain fair play
:white_check_mark: Increases trust in HACD mining

  1. Potential Challenges

Issue: Miners might try to manipulate their reputation scores by alternating fair and low bids.
Solution: Introduce a weighted penalty system where consecutive low bids cause exponential reputation loss.

Issue: Some miners might try to game the system by creating multiple wallets.
Solution: Proposal #5 (Dynamic HACD Difficulty Adjustment) increases mining difficulty for suspected bad actors.

5. Dynamic HACD Difficulty Adjustment (Punishing Low-Bid Miners with Increased Mining Difficulty).

Concept Recap

Currently, the difficulty of mining HACD remains fixed, regardless of market conditions. This allows miners to continuously exploit low bids, without facing increased computational costs.

A Dynamic HACD Difficulty Adjustment mechanism would increase mining difficulty for miners who frequently select low bids or manipulate pricing. This creates a natural disincentive for abusive mining behavior.

Step-by-Step Implementation

  1. Define Dynamic Difficulty Rules
  • If a miner selects a bid that is more than 10% below the market average, mining difficulty increases for that miner.
  • Difficulty automatically resets after X blocks if the miner returns to fair bidding.
  • If network-wide bid prices drop below a threshold, global difficulty increases to slow down mining.
  • If fair bidding is detected, difficulty returns to normal.
  1. Identify Relevant Sections in the White Paper
  • Section 6.4: Prohibition of Artificial Monetary Policies → Discusses how adjustments should be market-driven, not manually controlled.
  • Section 5.2: Public Ledger Fees → Suggests that adaptive mechanisms should maintain a fair economic balance.
  • Section 9.2: Compact Data and Efficient Execution → Describes how dynamic mechanisms can be lightweight yet effective.
  1. Modify the HACD Mining System

Step 1: Track Mining Difficulty per Miner

  • Store a difficulty modifier for each miner.
class MinerDifficulty:
    def __init__(self):
        self.difficulty_map = {}  # Tracks custom difficulty for miners

    def adjust_difficulty(self, miner, action):
        """
        Increases difficulty for miners who repeatedly mine at low bid prices.
        Actions:
            'fair_bid' -> Reset to normal difficulty
            'low_bid' -> Increase difficulty
        """
        if miner not in self.difficulty_map:
            self.difficulty_map[miner] = 1.0  # Default difficulty multiplier
        
        if action == "fair_bid":
            self.difficulty_map[miner] = 1.0  # Reset difficulty
        elif action == "low_bid":
            self.difficulty_map[miner] *= 1.2  # Increase difficulty by 20%

        return self.difficulty_map[miner]

Step 2: Increase Difficulty for Low-Bid Miners

  • If a miner selects a bid that is too low, their mining difficulty increases.

def penalize_low_bid_miner(miner, blockchain, difficulty_system):
    """
    Checks if miner selected a low bid and increases their mining difficulty.
    """
    highest_bid = blockchain.get_highest_bid()
    if highest_bid and highest_bid.bid_amount * 0.90 > blockchain.get_last_mined_bid(miner):
        new_difficulty = difficulty_system.adjust_difficulty(miner, "low_bid")
        print(f"Miner {miner} has increased difficulty: {new_difficulty}")

Step 3: Adjust Global Difficulty if Market Prices Drop

  • If overall bid prices fall below a set percentage of historical average, global mining difficulty increases.
def adjust_global_difficulty(blockchain, difficulty_system):
    """
    Adjusts global HACD mining difficulty based on market conditions.
    """
    avg_bid = sum(bid.bid_amount for bid in blockchain.bid_ledger) / len(blockchain.bid_ledger)
    last_50_bids = [bid.bid_amount for bid in blockchain.bid_ledger[-50:]]

    if min(last_50_bids) < avg_bid * 0.85:
        print("Global HACD mining difficulty increasing due to market manipulation.")
        difficulty_system.global_difficulty *= 1.15  # Increase difficulty by 15%

Step 4: Enforce Dynamic Difficulty During Mining

  • Miners with higher difficulty multipliers must perform more work.
def mine_hacd_block(miner, blockchain, difficulty_system):
    """
    Enforces mining difficulty based on reputation.
    """
    miner_difficulty = difficulty_system.difficulty_map.get(miner, 1.0)
    
    work_required = 1000000 * miner_difficulty  # Base difficulty * modifier
    proof_of_work = perform_proof_of_work(work_required)

    if proof_of_work:
        highest_bid = blockchain.get_highest_bid()
        new_block = {
            "miner": miner,
            "hacd_bid_tx_id": highest_bid.tx_id,
            "hacd_bid_amount": highest_bid.bid_amount,
            "difficulty_multiplier": miner_difficulty
        }
        
        blockchain.blocks.append(new_block)
        difficulty_system.adjust_difficulty(miner, "fair_bid")  # Reset difficulty on fair bid
        return f"Block Mined Successfully with HACD bid: {highest_bid.bid_amount}"
    else:
        return "Mining Failed: Insufficient Work Done"
  1. Network-Wide Enforcement
  • Miners with a history of low bids will have increasing difficulty.
  • Full nodes must track difficulty levels per miner.
  • If the entire network sees artificial price suppression, the system reacts by making HACD harder to mine.
  1. Expected Impact

:white_check_mark: Prevents long-term low-bid abuse
:white_check_mark: Dynamically adjusts market conditions to prevent manipulation
:white_check_mark: Miners are forced to participate fairly or work much harder

  1. Potential Challenges

Issue: Some miners might avoid the penalty by switching addresses.
Solution: Use Proposal #4 (Reputation-Based Mining Access) to track and ban repeat offenders.

Issue: Increased mining difficulty could discourage honest miners.
Solution: Implement gradual difficulty scaling to avoid sudden changes.

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