I thinking the pool operator (server) does so little relative to work of the pool miners that it doesn't need to charge a very high fee. Thus there isn't much ability (incentive for pool miners) to uncut competitors based on fee.
So there just needs to be a slightest incentive to encourage pool miners to seek out another pool as a pool grows large. This will encourage a poliferation of pools.
How do pool miners know that a pool server isn't cheating them by paying some of the earnings to themselves pretending to be a pool miner?
Go down that line of thought and you will discover what I am thinking.
The only way you can prove a pool isn't cheating is by estimating the hash rate of the pool and comparing it to the number of blocks found. Unfortunately, you could probably still skim a couple of a percent this way.
Modern protocols (GBT & Stratum) both have the full coinbase transaction visible to the miners, meaning you can verify that the block being built will be paid to a certain address or has a certain message encoded in the block that identifies the pool. This allows you to audit if the pool is trying to skim blocks if certain users start seeing work without a coinbase message that identifies the pool. In the case of BTC Guild, it's both, they always pay to the same address and always include "Mined by BTC Guild" in the coinbase message.
It's not no-trust, but all it would take is a few % of users monitoring this to determine if a pool was trying to skim blocks by sending a certain % of work that doesn't include identifying marks.
How could anything less than 100% of the pool miners know if some of the coinbase transactions were to addresses not owned by pool miners who contributed shares?
Since you can never know if you are the 100% (because mining pool shares* are not recorded in the block chain), thus seems to me there is no way to verify if there is skimming or not, as bytemaster and I wrote.
*For those who don't know the terminology, a pool share is a proof-of-work hash below some threshold that is easier than the current network difficulty. It might also be a block solution.
Why don't you just use P2Pool? Is there any reason?
I was waiting for bytemaster to answer because I wanted to know his thoughts. Seems to me that you have no way to stop the Share Withholding Attack since it is decentralized. And every peer has to run more of a full client if I am not mistake. And there is a lot more overhead I believe. And perhaps also much less resistance against denial-of-service flooding. Frankly I didn't analyze for long enough to be very sure of my initial intuition which is to stay away from it.
I know it is generally impossible to enforce reputation on a 100% decentralized system. So I am intuitively skeptical of P2Pool.