TLDR: Existing cryptocurrencies already implement something resembling your idea, and anything that more closely resembles your idea gets sunk by Sibyls. Most

TLDR: Existing cryptocurrencies already implement something resembling your idea, and anything that more closely resembles your idea gets sunk by Sibyls. Most cryptocurrencies have an adaptive difficulty, where the amount of hash power required to mine a block is proportional to the average total power of the network in the recent past. So if Bob controls x units of hash power, the rest of the network controls N, and each block pays an expected reward R, then Bob's expected return per block is: f(x) = R x / (N + x) Of course, if Bob is small enough, f(x) is approximately equal to R x / N when x ~ 0. That is, small miners see expected returns proportional to their computational power [1], but miners large enough to represent a significant fraction of the network see nonlinear diminishing returns, at least until they get big enough to do a 51% attack and simply take over the whole network. I guess your idea is to make each individual miner's curve exhibit diminishing returns on a smaller scale than "a significant fraction of the network." The problem with trying to do this on the scale of a single miner is that the network has no way of "knowing" the identity of a miner. So if a single selfish miner named Sibyl with 1000 machines gets penalized by your system relative to 1000 independent miners with equally powerful machines, she can just have her machines pretend to be 1000 independent miners and get out of the "diminishing returns" region and back in the "linear" region near zero. There's no way the network can "know" that Sibyl's thousand accounts should be grouped together when it figures out what her diminishing returns should be [2]. Under the existing whole-network-power based diminishing returns system, Sibyl can't convince the network to increase her marginal return per unit computational power by pretending to be a thousand people. [1] Assuming R and N remain constant, and when returns are measured in the currency being mined. [2] Of course you could have a centralized entity approving accounts which has some way to audit Sibyl's 1000 machines and make sure they in fact represent 1000 different real people and broadcast a digitally signed statement that it's okay to give those 1000 machines the favorable diminishing returns for individual miners which is automatically checked by all honest nodes, but a system with such centralization is more like Paypal than Bitcoin.