Proximity Premium Flaw

Latency is the time required for communication. Information moves at a speed not greater than the speed of light and therefore latency cannot be eliminated. Different distances between miners implies announcements will be known to some before others.

While a miner remains unaware of an announcement he wastes capital grinding on an weak candidate. As more time passes it becomes exponentially less likely that the miner will be rewarded by the candidate. Miners therefore compete to see announcements before other miners, as this reduces opportunity cost.

If we were to disperse miners with equal hash rate at equidistant points around the Earth they would experience the same latency. Yet due to the financial benefit of reduced latency, they would tend to move closer to each other. This force is pooling pressure, and manifests in several ways.

One manifestation of pooling pressure is geographic, where independent miners become physically closer together. Another is cooperative, where formerly-independent miners join forces and co-locate grinding. Another is virtual, where miners become grinders and aggregate hash rate to a single remote miner. Another is capital flow, since higher hash rate is a form of co-location. Another is the existence of relays, which have the same effect as hash rate aggregation.

The term "selfish mining" refers to a pooling pressure created by withholding, though this also relates to latency. The financial benefit to improving cash flow by reducing variance is an aggregating pooling pressure. The distortion and variation of markets is a geopolitical pooling pressure.