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 a weak candidate. As more time passes it becomes exponentially less likely that the miner will be rewarded for 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 average latency. Yet due to the financial benefit of reduced latency, they would tend to move closer to each other. Miners obtain a premium on returns for aggregating.

This proximity-based pooling pressure is a consequence of the linear block ordering required by consensus rules. Bitcoin prescribes winner-take-all ordering, which produces disproportionate opportunity cost. The variance discount is another pooling pressure caused by consensus.

The defense that Bitcoin intends to raise is market defense against anti-market (state) forces. To do this hash power must be distributed broadly among people so that it becomes difficult to co-opt. However pooling pressures inherent in the consensus work against this objective. As such the characteristic is termed a flaw, though no way to eliminate the flaw has been discovered.