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 co-opt 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.

The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation...

As such one cannot assume that any large mine can exist outside of state control. A reduction in pooling requires an increase in the number of miners, specifically those who are willing and able to operate covertly. This requires that grinders, converted to miners, suffer the increased cost associated with reduced pooling. Given that such a conversion takes time and is not in the financial interest of grinders unless the alternative is more costly, 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 as currency controls commonly restrict transfer.