Cockroach Fallacy

There is a theory that pooling and centralization do not materially reduce the security afforded by risk sharing because miners and the economy will disperse as necessary, similar to the scattering cockroaches disturbed by a light. This is essentially a dismissal of the Threat Level Paradox.

People cannot be expected to work against their own financial interest. In order for risk sharing to increase, the financial pressures against it must be reversed. An assumption to the contrary is economically irrational. Reversal cost can be significant, especially considering consensus-based pooling pressures and decentralization switching costs.

The theory is based on grinders switching miner allegiance at low cost. This is based on the Balance of Power Fallacy, which incorrectly models miners as the threat. A shift of hash power from one mine to another does not reduce pooling or the risk associated with it. The risk is that states take control of large amounts of hash power, substantially reducing the cost of attack. It is an error to assume that states do not collaborate in defense of seigniorage.

A reduction in pooling requires an increase in the number of miners. This requires that grinders, converted to miners, suffer the increased cost associated with reduced pooling. Given that such a conversion takes time and may not be in the financial interest of grinders it is an error to discount the risk to the economy posed by pooling.

The theory also ignores economic centralization and delegation. It is an error to assume the economy can rapidly decentralize, and de-delegation would most likely be infeasible in the case of state attacks. Currency controls commonly restrict transfer.