Bitcoin Forum

The Bitcoin Economy will pay miners over $500 million in 2014 to maintain the blockchain and to secure the network. Proof-Of-Work miners have large expenses that subtract from their profit.

If Bitcoin had Proof-Of-Stake today and that was the only change, then network-attached, blockchain-maintaining holders would receive an average 10% annual dividend on their holdings. If only half of holdings were exposed to the network, then the annual dividend would be 20%. Ordinary computers suffice.

[update April 27, 2014]

The Bitcoin Proof-of-Stake project thread is https://bitcointalk.org/index.php?topic=584719.msg6397403#msg6397403 (https://bitcointalk.org/index.php?topic=584719.msg6397403#msg6397403) . A descriptive post there is . . . https://bitcointalk.org/index.php?topic=584719.msg6415632#msg6415632 (https://bitcointalk.org/index.php?topic=584719.msg6415632#msg6415632) .

funny, i've just been studying proof of stake models today.

Not sure about your idea, but I think more people should be
thinking about POS or other methods to shore up Bitcoin
against 51% attacks, which in my opinion are becoming
more likely the more Bitcoin grows and becomes a threat
to elite power/banking interests.

I believe that the likelihood of 51% attacks is fading. The entities capable of such an attack would have relatively little to gain in the period before the attack is detected, and much more to lose if the integrity of bisection is compromised.

Gain of suppose $100K double spent transaction vs loss of 20% bitcoin market cap of $1 billion.

I am now investigating how to contribute Proof-of-Stake code, test suites, and documentation to Bitcoin Core - not for immediate approval of course, merely available as a working plug-in library for inspection and comment.

I suppose that bureaucrats in about 4 years will declare our current Proof-of-Work scheme contrary the public good, e.g. Article 19 of the Energy Charter Treaty which urges energy efficiency.

Bitcoin doesn't care about what bureaucrats say. I don't think energy consumption is a problem, because there is ongoing competition among miners being the most efficient. In future excess heat could also be put to secondary uses.

But I think a hybrid POW/POS system is worthy to be discussed, because the POS aspect encourages a healthy network of distributed fullnodes. Some altcoins ( I think Novacoin among others) have already implemented this quite some time ago.


ya.ya.yo!

The purpose of the attack would certainly not be to do a double spend transaction for $100k.  It would be
to destroy bitcoin in order to retain market share/power/influence, which are worth potentially
trillions to the elites and their power structures.  In other words, to retain their monopoly
on money and power.
 
Never underestimate your enemy.


This is excellent.  I would appreciate being informed of what you find.  Will you be writing some
implementation proposals or white papers before submitting code?  

Good foresight on the energy angle.  Solving problems before they manifest is always wise.

I doubt such a government would survive their civil war.

I believe it is increasing. The more successful Bitcoin is, the more worthwhile attacking it becomes, for terrorists, enemy countries and other interested parties. The goal would be to destroy it, by destroying trust in it, and also to disrupt the lives and finances of everyone who uses it. If that happened today, relatively few people would be affected (and everyone else would laugh, as they did at MtGox). If it happens after another 5 years of Bitcoin growth and success, a lot more people will be hurt.

They'd be right, too. I am also concerned about mining fees. Proof of work means there is an arms race between miners to gain ever-greater hash power. That hardware is expensive, and the arms race means the cost of mining keeps rising. Currently most of that cost is met by the block reward (ie, inflation). As the block reward halves, either transaction fees increase to compensate, or else mining becomes less profitable. If the latter, and it leads to miners dropping out, then we become more vulnerable to the 51% attack again.

Yes, exactly.  Well said.

If we are wrong about that, then nothing bad happens.
But if there is any possibility we are correct, then it
is wise to take prudent measures to thwart such a catastrophe.

On a smaller scale, we have become quite attuned to the
need for security to prevent wallet hacks, etc. 

People were shocked when Gox happened.

Yet, we do not seem to learn the lesson (and I'm not
talking about don't keep your money on exchanges).

The bigger lesson is we need to be defensive and
take security seriously on EVERY LEVEL.  And the
bigger the level, the more serious we need to be.
 
Perhaps the core devs are 6 steps ahead of me on this,
but as a general Bitcoin user, I'm starting to think about
such things (as are others).   

If that is any indication of where we are on the timescale
of Bitcoin evolution, I think it is time to take action.

Can Proof of Stake guarantee that it won't be permanently controlled by a cabal of global bankers?

Proof of Work can. PoW is an open universe where organizations can form to compete for mining shares. If a pool does anything suspicious, miners can move out. Blockchain watchdogs will keep pools honest because they are known. There are no anonymous mining pools, nor can there be. Any electronic circuit can be traced. Changing pools will not cause people to lose faith in the integrity of the network. If a rare attack that reverses a transaction is successful, engineers can trace the problem and correct it.

Does PoS have the same safeguards? If not, as soon as it is shown that a transaction is reversed, it will kill the currency because it will show that the bad actors are in a position of power and it is not traceable because there are not enough circuits to trace. That's not something anyone wants to risk.

Actually, there is a solution to making PoS resistant to conspiracy. Require every address to be linked to an person with verifiable ID. I am okay with that.

Bitcoin can already assimilate any useful technology using the spin-off technique (https://bitcointalk.org/index.php?topic=563972.0).  For example, if a group feels that a PoS payment network would be preferable to a PoW payment network, they can create a blackcoin-clone (for example) and distribute the pre-mine exactly as per the unspent outputs in the bitcoin blockchain at some agreed-upon point in time.  Bitcoin users can claim their share in a trustless manner using their ECDSA private keys.  

This wouldn't really be a fork in the traditional sense.  You'd have the current bitcoin PoW network operating side-by-side a new PoS network based on entirely different source code.  Bitcoin users would control the same % of coins on both ledgers.  The US government could attempt to "force the switch" to PoS by buying up the PoS fork to increase its perceived legitimacy.  Impartial bitcoin users wouldn't really care because they would retain the same % of wealth on both ledgers.  But this is financially risky for the US Gov. If they pump the PoS fork and if too many people dump their "free coins" and continue using PoW bitcoin, it would result in large transfer of wealth from the US gov to bitcoin adopters.  

I believe the PoS spin-off would be rejected because, like cbeast just said, "can proof of stake guarantee that it won't be permanently controlled by a cabal of global bankers?"

Here is an example (https://bitcointalk.org/index.php?topic=563925.0) that illustrates how a new payment network could be "spun-off" the bitcoin blockchain.  

Cool but I'd rather make bitcoin core ideal rather than spin something off, wouldn't you?

To be honest I think proof of stake is still half-baked. The NXT guys seem excited by "transparent forging", meaning that everyone gets to know who mines the next block, and that seems like an invitation for a denial of service attack. So it has its own issues, which need to be resolved.

The kind of attack that concerns me is someone spending $100m or so on new hardware, not part of any pool, and thus gain over 51% percent. They then private mine empty blocks until they have a chain say 3 hours long. Then they publish it. At which point, all the transactions in those blocks, some of which had 18 confirmations, suddenly have zero confirmations. They all become vulnerable to double-spend attacks by their original senders. The attacker continues mining blocks, now including any double-spends. They do this once a day, at random times, from different IP addresses, for the next six months.

(Instead of empty blocks, they can fill them with artificial transactions. They can mix in real transactions to make the bad ones harder to detect. It can probably be done for cheaper than $100m; but $100m would be cheap enough for a government or bank.)

Abandoning Bitcoin to a spin-off would be one solution. A bit extreme, though. Lots of people would still lose out because of lost transactions. People who bought coins for fiat and then didn't get their coins because that transaction happened after the spin-off took its snapshot.

I think we are on the same page brangdon.

There exists the means , the motive, and the opportunity to commit the "crime" against bitcoin in the way you describe...perhaps there needs to be a bounty on the best way to upgrade bitcoin to prevent this.

I would personally contribute to such a bounty.

Implementing PoS into the Bitcoin protocol would seriously devalue it. Onlookers of our currency would declare that we were creating a 'toy interest rate' which was being drawn out of thin air. Bitcoin blocks are cracked via the calculation of very difficult algorithms, so why turn that on it's head?

The words 'difficult', and 'difficulty' are the two things which ultimately drive the value of Bitcoin. What you are discussing is just another 'alt' coin, and there are plenty of them around already. Let's stabilise what we have, it's worked so far.

No I think block awards should still only go to miners with hashing power but perhaps there can be confirmation checks built in somehow.  Maybe that isn't POS but something else.

What I want is largely irrelevant.  I know that bitcoin will become what consensus turns it into.  

PoW is the technique that we have chosen to establish consensus on how transactions are entered into our blockchain ledger.  In a sense, each "orphaned" chain is a spin-off that quickly died because it was perceived as less legitimate than the longest chain.  The "spin-off" technique is a generalization of this process.

If the economic majority favour the PoS spin-off, then it becomes the legitimate chain. In fact, I think the "masses" would still call it bitcoin.  They may simply download a wallet update and never know that the network hardware and consensus mechanism were now 100% different.

Once again, I think PoW is the superior mechanism for establishing consensus.  The "spin-off" technique is just a method for the blockchain ledger to assimilate new technology.  


EDIT: Jonald, what is the core of bitcoin?

Mining hashrate is still growing. I don't think you can 51% attack for less than a billion and your rewards at this point wouldn't be nearly enough to cover even a million. Anyone willing to throw away money like that would probably be discovered. Sacrificing bitcoins for pump and dump spinoffs is just a bad idea unless it is a complete overhaul of Bitcoin and the legacy system was still supported.

Where did you come up with $1 billion?

I can buy a CoinTerra TerraMiner IV which gets 2 TH/s for $5999.
Thats $3000 for 1 THs.

At that rate, I can get 60 PH/s (the entire current bitcoin network)
for 180 million.  And arguably, it would be much cheaper for
a bulk order and working directly with core component manufacturers.

Even if it was a cool billion, that's not much
for a government.  Heck, the freakin
state of illinois just decided to spend 100 million
on a library for Obama.

http://www.breitbart.com/Big-Government/2014/04/18/Illinois-Taxpayers-to-Give-100-Million-for-Obama-Library

You are playing with numbers without even bothering to check them. $100m can't buy you 51% network hashrate, not even close. As each month passes by that figure is getting closer to $1 billion. Who knows how much it would be by the end of this year, but someone investing billions in 51% attack is not a realistic scenario.

See above.  180 million on the upper end,
and that will only DECREASE as hashing gets cheaper.

The governments of the world spend many billions
on "unrealistic" things.  like billions every year on the war
on drugs, etc.

Of course it is a realistic possibility that someone
could spend billions to attack Bitcion.

Bitcoin needs better security.

No you can't buy it and get it delivered today, you can order future batches for that price. Price for available THs are much higher, and only a few companies have any hardware on stock. You can offer millions, but they don't have the hardware to sell to you in any significant quantities.

Keep in mind that in order to mount 51% attack you don't have to purchase 51% of the current hashrate, you have to purchase 102% of the current hashrate.

Pos is a great idea. It rewards each full node for staying on right? :) You dont have to have 51% of hash power, perhaps 51% of the full nodes :D

I have to keep the Bitcoin wallet open and I will have a chance to collect more?

Spending $100 million to fuck up Bitcoin?  If it could be done for 10 million (which it can't) I doubt anyone would take up on that offer.  You can do a lot of things with 10 million that benefit yourself or make even more money.  Doing an attack that you describe basically burns most of the money. 

This is true in theory, but not practice. Mining gear is usually obsolete by the time it ships. By the time you get your gear it will be inadequate. But, if money is no problem, then why not hire your own scientists and develop the next generation ASICs and build a secret fab to produce them? You could build it at the South Pole and import exotic animals for your tropical undergound zoo. You might have to kick out the Nazis first.

So sure are you?  I could have said the same thing 2 years ago: "it's true in theory but not in practice" if one suggested that a large exchange could go bankrupt and the CEO could steal/lose hundreds of thousands of coins...and sounded just as credible.

Proof of Stake is socialist.  It creates money out of thin air without working for it.  Like a bank.

I'm not saying proof of stake is the answer necessarily, but I do think the protocol should have something in place to prevent transactions from being permanently excluded in the case of a sustained 51% / mining monopoly.

It does, and it will get stronger over time.  The protocol is consensus.  Right now the consensus is:

- Control of coins is proved by ECDSA signature
- Double-spends are eliminated with blockchain PoW timestamp server
- PoW is based on SHA256 hashing
- New coins are created as per the original Satoshi inflation model

All of this can change and will change if necessary.  For example, in the extremely unlikely case that an unrelenting 51% attack took place, a bitcoin spin-off could be created using the latest version of the blockchain but with script hashing instead and with difficulty reset to 1 something low enough to entice miners.  Most people with script hashers would start mining these new bitcoins like crazy because difficultly would be so low.  Users won't care because all their coins are still valid.  Blockchain.info and Coinbase wallet users probably won't even know that anything changed.  

 :o

good to know that's possible... still I think we should have some mechanism to enforce transactions being included...like the block itself cannot be forged without some kind of checksum against a pool of transactions.  whats wrong with that idea?

Bill O'Reilly over here lol

It's not functionally different than how mining creates bitcoins. Both provide payment for securing the network. The main difference is that PoS doesn't waste a bunch of electricity in doing so.

If you want to get technical linking value to labor performed is the basis of the labor theory of value and is the antithesis of free market economics which are informed by the view that value is a completely subjective characteristic, determined only by the interaction between buyer an seller in the open market. Markets are all about price discovery, not a predetermined value based on performed labor.  

Ideas like this have been debated for many years.  It is sort of a "rite of passage" and it is important that people like you continue to ask them.  The non-technical people in your sphere of influence will make up their mind about bitcoin based not on doing their research, but on listening to the opinions of people they trust like yourself. 

The problem with a check against a pool of transactions is that the attacker could simply add a bunch of his transactions to the pool and only include those.  Blocks would still get filled, but it would be useless to all of us.  Add a new twist to your defence, and they'll be a new exploit.   

I think there is no general solution to the Two Generals' Problem; the Satoshi model is a practical implementation that works provided honest nodes control more than 50% of the hash power.

From my understanding, most here believe we should find ways to incentivize "hashers" to become "miners" (e.g., using P2P pool).  This is the goal to work towards, IMO. 

A proof of stake system sounds like a decent idea. Although it would have some unintended consequences as well. There would be a new incentive to hoard BTC and would slow down the still infant BTC economy. If I am getting an automatic percentage just for holding my BTC it is much more likely to sit idle. Of course the additional coins created by the POS system would help a bit but I do think it would slow down the speed at which BTC moves around the world right now. 

Thanks Peter.  

Yes, I realize I probably sound like a noob asking questions that have been debated for years but that's the only way one can learn.  We are all advancing in knowledge on both an individual and group level.

I'm not smarter than anyone else here but we should all try to think of ideas and solutions.  You never know who's brain will come up with a breakthrough.  And as you said it's important to keep asking the core questions because it stimulates further thought among everyone.

Yes, more twists will be met with more exploits but that doesn't mean we can't tighten up the ship.  

I do see your point about the pool.  How do nodes decide how many transactions of the pool to include in the checksum and which ones?  If we could solve that, would we be onto something?

No, the main difference is that consensus is formed by those holding stake and not those willing to work.  To me it is the difference between rent seekers (PoS) and innovators (PoW).  

The miners' eternal vigilance is the price paid for freedom.  

An ideal Proof-of-Stake wallet is very much like the Bitcoin wallet you download for Bitcoin Core.

There would be a generate option that you would enable with the amount of your bitcoin that you wish to risk exposing to the network in return for dividends. Over 12 months you would occasionally receive a bitcoin dividend that on average amounted to 10% of your risk-exposed bitcoin amount. When the block reward halves in 2017 your dividend rate drops to about 5%.

Wallet owners such as yourself could opt to join a mining pool offering daily dividends if you permit them to risk your bitcoins in aggregate with other owners on the network. Mining pool fees are very reasonable - on the order of 1% per payment to you.

If you take your coins off the network to be really safe, as in a paper wallet, then those coins do not get the dividend payments.

Proof-of-Stake should increase bitcoin prices as more gets held in anticipation of earning 10% dividends. The Bitcoin Economy would actually speed up after dropping the wasteful overhead of the current wasteful mining.

No additional coins are generated by Proof-of-Stake. Satoshi's promise of fixed supply remains. You simply receive your fair share of the block reward rather than waste it in someone else's datacenter.

Yes, the main difference is that PoS doesn't waste a bunch of electricity in doing so. That is why government bureaucrats will force a change in a few years when more than $100 billion gets wasted.

(2018) You are a Chinese bureaucrat looking out your window at noon. On your desk is a staff regulation to prohibit SHA-256 and Scrypt ASIC manufacture, sale, installation and operation in China. The staff says that 5% of the coal-burning power plants under construction could be postponed if you sign the regulation . . .

http://images.huffingtonpost.com/2014-04-21-BeijingChinaWorldPhase3.jpeg

credit: http://www.huffingtonpost.com/daniel-k-gardner/can-china-win-the-war-on-_b_5182132.html (http://www.huffingtonpost.com/daniel-k-gardner/can-china-win-the-war-on-_b_5182132.html)

The important part of your argument is the creation of money out of thin air - so to speak. Satoshi put rewards into the network to motivate miners. Proof-of-Stake is exactly like the current Bitcoin system except that you get your fair share of the block rewards as a 10% average annual dividend, instead of those same rewards getting wasted in someone else's datacenter. You are the miner. But the genius of Proof-of-Stake is that it can be performed on an ordinary computer as long as you help process transactions and maintain the blockchain.

Proof-of-Work is bizarre. It is sort of like a bank burning their notes in a moat to keep robbers out.

No, with a PoS network we will exploit our natural resources faster than with a PoW network.  That is my opinion and you may disagree; in the final analysis it really doesn't matter what either of us thinks.    

What matters is how does one actually force a change?

What you do is create a PoS "spin-off" from the bitcoin blockchain and try to legitimize it using your influence and economic power.  

The market will decide whether is succeeds or fails.  

Pretty sure there's an altcoin that already does that.  

I think he is just trying to argue a point why pos might be better than pow

I'm interested in at least discussing pos for security reasons.  I don't think thing energy use is an issue for the foreseeable future, although that seems to be slope's concern.

For readers, PoS = proof of stake and PoW = proof of work.  They are two different mechanisms that can be used for achieving consensus in peer-to-peer networks.  With PoS, consensus is formed by those holding stake; with PoW, consensus is formed by those doing work.  

I think it would be proper to call a PoS version of bitcoin, bitshares instead.  Dividends are awarded to share holders for holding stake, rather than to miners for doing work.  Arguments are settled based on how many shares one holds, rather than by how much work one performs.  

But I think the future is already foretold.  A strong PoS alt-coin will emerge to satisfy those that prefer this method of consensus.  Perhaps it will become strong by merging the blockchain ledgers of smaller like-minded communities, and perhaps it will eventually grow to challenge litecoin.  

I independently had a similar idea before I learned you were yet again ahead of me.

Here is the sort of similar idea. Clone all the Bitcoin source code to create XCoin. Cleanly add PoS as an option to PoW but turn off PoS. After sufficient testing, e.g. on a testnet, release XCoin clients in lock step with Bitcoind and Bitcoin Core clients. Operate on the existing blockchain where XCoin peers are otherwise indistinguishable from Bitcoin peers. I propose that XCoin clients inform users as to how much dividend they could receive if there were enough of them.

Spin-off the new PoS network by forking the blockchain given an overwhelming number of XCoin clients as compared to validating Bitcoin clients.

Why? I foresee that Proof-of-Work power requirements will continue at the 10x trend we both model. How could Proof-of-Stake exceed that?

I was recently invited to give a talk on this very idea at Trader Steve's online bitcoin conference in June (http://gobc.co) and I intend to do so.  It is an exciting idea.    

I'd like to see us build infrastructure to take "snap-shots" of the unspent outputs in the bitcoin blockchain, and to create awareness around how one can use their existing bitcoin private keys to claim their share of any pre-mine in a "spin-off" coin.  This would make it much easier to create spin-offs (such as your 10% dividend PoS idea) to experiment with new methods of achieving consensus, and it would provide a Plan B in the extremely unlikely event that the network comes under unrelenting 51% attacks.  

Existing Miners Should Love Proof-of-Stake

Proof-of-Stake pays miners a 10% average annual dividend on their bitcoin exposed to the network in a Bitcoin Core wallet. Anyone can be a miner because Proof-of-Stake processes transactions, secures the network, and maintains the blockchain using the modest resources of an ordinary computer.

But why would existing Bitcoin miners love this new thing? Because it is common wisdom among miners that they would have been financially better off by simply buying and holding bitcoin, with the funds they spent buying designed-for-obsolescence ASIC mining devices and the power required to operate and cool them. Plus the time and effort of configuring, maintaining, monitoring, and ultimately disposing of them.

When 10% annual Proof-of-Stake dividends are added to the profit equation, the balance should clearly tip in favor of abandoning the current wasteful Proof-of-Work system.

This is one of the best ideas I have heard.

I would like to know the answer to that too.

It is difficult to explain, and that's why I agree with you that it appears that PoW is more wasteful (and that this could be used as a political weapon).  This is a half-baked explanation, but perhaps the essence of what I'm trying to communicate will still come across:


For me it comes down to the simple fact that PoS rewards those who already hold the most wealth--they no longer even need to work for it.  I think this creates more opportunities for rent-seeking and less impetus for innovation.  I believe an economy that favours rent-seeking over work + innovation leads to the misallocation of our natural resources.

With PoS, consensus is formed by those holding stake.  In other words, those who already have the most also get to make the rules.  Look at who accrues the new coins in your 10% dividend model: they accrue to the largest stake holders!  It's no longer a coin-distributoin mechanism--it is a way for those with first access to new money to benefit un-proportionately.  Sounds a bit like the Fed.

PoS supporters appeal to idea of the "greater good" (less electricity consumed).  This makes me highly suspicious:

1. For the greater good, we must stop this wasteful bitcoin mining and we will all be richer!

2. For the greater good, we must create more coins so that we can direct them towards important projects that the free-market neglects!

3. For the greater good, we must incentive spending to keep the people employed!

4. For the greater good, we must create more coins so that we can lend them to people to stimulate the economy!


I just can't see how the end-game of PoS is anything different than the current system.  How much pure waste do we currently have?  I bet a shift to bitcoin cuts the rate at which we exploit our natural resources at least by half, maybe more.  Bitcoin favours efficiency.  Our current system favours debt and consumption.  

In fact, I am a landlord and collect rents. But of course you mean economic rent-seeking of the sort that patent trolls employ to bedevil innovation. I believe that capital seeks its wisest custodian - optimal for the overall economy if opportunities for rent-seeking are minimized or mitigated.

How can rent-seeking behavior be prevented by Proof-Of-Stake? The critical aspect is the Bitcoin mining reward and its schedule for halving. When the mining reward is tiny compared to the transaction fees awarded for solving a block then I propose that rent-seeking behavior will be diminished as annual dividends drop to the point where the risk of exposing the stake to the network is not worth the gain.

Because Proof-of-Stake is many orders of magnitude more efficient than Proof-of-Work, I expect that Proof-of-Stake holders would accept much lower transaction fees to process a block than would Proof-of-Work miners who must pay for equipment, power and their own time.

In the meantime, I claim without proof, that Proof-of-Stake rent-seeking behavior is less harmful than the manifestly wasteful Proof-of-Work alternative.

I have very little knowledge about how mining actually works but I am trying to conceive an abstract solution based on what little I do know. Even if this idea is theoretically sound, I have no idea whether or not it is possible to implement it in computer code.

Suppose that in order to solve blocks a miner would be required to have 1 BTC in a certain address per quantity of hashing power contributed. Suppose arbitrarily the requirement were 1 BTC per gigahash. For someone who has and intends to hold 10 BTC, it would make perfect sense to devote 10 gigahash to mining, but hashing power beyond that would not increase the chances of solving a block. There are about 12 million BTC that have been mined, so the maximum profitable hashing power of the network would be 12 million gigahash, which I believe is less than it is today, and is certainly less than it is projected to be in the next few years. Excessive energy waste becomes a negligible issue.

Another benefit is that Bitcoin mining would be more decentralized. It is estimated that there at least 10,000 people who have more than 100 BTC, but only a handful with more than 100,000. It makes economic sense for a holder of 100 BTC to devote 100 gigahash to mining and a holder of 100,000 BTC to devote 100,000 gigahash to mining. So the miner number 10,000 would earn approximately 1/1,000 as much BTC as the top few miners. What is the difference in earnings between the top few miners and the number 10,000 miner in Bitcoin today? I strongly suspect that the difference is much greater. So in the mining system I propose there would be more incentive for more people to mine.

Would a 51 percent attack be feasible in this system? Suppose a government or mega-bank wanted to destroy Bitcoin. Suppose there are 4 million BTC devoted to honest mining (not every holder/user will bother to mine) and total of 4 million gigahash mining power. The malicious entity could certainly acquire more than 4 million gigahash of processing power for a few hundred million dollars, but could it acquire more than 4 million BTC? The current market cap is ~7 billion dollars and there are fewer than 1 million BTC on all of the exchanges. If the malicious entity tried to buy all of the BTC available on exchanges, the market cap would probably rise two orders of magnitude, costing hundreds of billions of dollars to acquire less than a quarter of the coins necessary to execute a 51 percent attack. I believe it would be impossible for any entity to acquire the requisite number of BTC to execute a 51 percent attack.

I have thought about ways to limit hashing power but they do not seem to work. Others certainly have argued this before so my comment may turn out to be naive. I tried to apply rules from the economics of cap-and-trade for pollution permits.

How does the network measure hashing power contributed? I could supply twice the allowed hashing power and claim that I am simply lucky when my share of the block rewards is twice what averages predict.

Among miners, there is a protocol named VAR DIFF for variable difficulty in which the pool server measures your hashrate by giving you work-shares to hash with progressively increasing difficulty until a shares are solved by the client at say 4 - 10 per minute. This allows the mining pool to estimate and report your hashing rate. But this can be faked by the client to fool the server if the client wanted to cheat beyond the allowed maximum hashrate.

I would say that people who have a lot invested in mining activities may have a perspective that is subject to confirmation bias leading them to rationalize an inferior method because of their vested interest.

Why would you prefer having to have specialized equipment to produce new money? Squandering more and more electricity necessarily to secure a network is rent seeking exemplified, not productive behavior. Which is why that will only lead to centralization and cartelization as in the fiat world. This can be observed as mining is already controlled by two major cartels and most of the larger positions are held by financial institutions of one sort or another.

PoS is better all around.  It individualizes production of new coins which only helps fight the manipulation by mining and trading cartels that is the current situation. Not to mention the savings in overhead from power costs.  

Both are methods of achieving consensus so why use the expensive, difficult way unless it is because you already spent a lot on mining equipment and have a vested interest in that? I'd rather my position stake on an android tablet or something.

People all over the world have android phones and tablets, not everyone has a 10K mining rig or the means to ever get one.

Now which method of achieving consensus is more likely to be widely adopted? It's easy to see which way the wind is blowing.

I do not observe manipulation by the large mining pools. However, many people reading this thread in hopes of receiving 10% bitcoin dividends on the holdings are not aware that of the tens of thousands of Bitcoin mining rigs operating, almost none of them are actual miners. They are rather hashers who do not maintain the blockchain, nor validate blocks, nor propagate transactions. Rather they are delegated Proof-of-Work tasks by the pool operator, who is the actual miner.

Look at the following pie chart from Blockchain.info . In the Unknown pie slice are private datacenters and ASIC manufacturers that are large enough to keep the 1% typical pool fee for themselves. Suppose there are four very large datacenters in there. Count the named pie slices and add say 4 for the private datacenters in Unknown and get 12.

Those 12 miners control Proof-of-Work Bitcoin mining.

I am not really alarmed at this situation. It is not one that Satoshi envisioned when considering how miners would operate, but pools flow naturally from the motivation of miners for steady income as opposed to luck. Hashers, those who actually operate ASIC rigs, are free to move from pool to pool as they see fit to balance this pie chart.

My point is that concentration of mining power by large holders in a Proof-of-Stake scheme could not conceivably be worse than this . . .

https://i.imgur.com/ceSql55.png

But the hashers are mobile if a pool turns out to be a bad player. If a bad player acquires a significant portion of the PoS coin that mobility does not exist.

Let's not forget that all PoS implementations so far also suffer from quite a bunch of potential attacks that PoW does not. Do your research.
Maybe in the future somebody will come up with PoS that would really work.

Wrong, these "named slices" are not miners, they are public pools with thousands miners contributing to each one. The second those miners sense their pools get bribed to destroy bitcoin, their source of income, they would switch to non-corrupted one. Instantly, within a day. With each month passing and more and more money being poured in mining hardware the chances that hardware being obsoleted by some external bribing attempt are diminishing rapidly.

No, you are wrong and here is why. These "named slices" plus a few private datacenters are the miners, only they execute a few instances of bitcoind.

The numerous ASIC owners execute cgminer or another program that adheres to the stratum protocol which is not a part of the Bitcoin Network and was never envisioned by Satoshi.

An ideal you might be thinking about is P2Pool for Bitcoin. Only in this sort of pool does each participant actually execute an instance of bitcoind, and the pool exists to share the solved block rewards fairly among them. Note that P2Pool does not appear in the named entities on the market share pie chart. Why? Because the ASIC operators find it more convenient not to be miners and delegate that most important aspect to the few big pool operators.

As core developer Greg Maxwell said in a thread suggesting a revival of Bitcoin P2Pool . . .


Here are Bitcoin network statistics showing the number of bitcoind instances - and few of these actually have generation turned on because it wastes resources if they have only minuscule chance of finding a block.

Note how few nodes there are compared with the number of bitcoin wallets.

With Proof-of-Stake, each wallet owner would be highly motivated to join the Bitcoin network to receive their 10% annual dividend on the amount exposed to the network.

https://i.imgur.com/cWcnobk.png

credit: https://getaddr.bitnodes.io/ (https://getaddr.bitnodes.io/)

I agree.  This was in fact the logic for the "spin-off" proposal: you launch an experimental new coin with a pre-mine distributed proportional to the unspent outputs in the bitcoin blockchain at a pre-defined point in time.  The wealth distribution starts as the one already known to be efficient for bitcoin.



I don't believe it can.  

PoW : consensus is achieved by people who have capital at risk; rewards flow to those who perform the most work.

PoS : consensus is achieved by people who have capital; rewards flow to those who have the most capital.

Although "capital seeks its wisest custodian," these custodians should be rewarded for risking that capital and proving that they are wise.  Not by everyone assuming they are wise because they already have the capital.  To me this is the fundamental difference between PoW and PoS.  



Now this is something I can support, SlipperySlope.  Shifting hashpower away from the big pools and towards P2P-pool improves our consensus mechanism.  

This is where we should direct our efforts IMO.  I think with time, education, and the commoditization of SHA256 ASIC chips, that this will happen naturally.  

This is disingenuous.

Bitcoin also "suffers" from a multitude of "potential attacks". There's been attempts to launch these attacks on PoS coins but none were have been successful producing a double spend or other anomalous behavior on solid altcoins, with development, as far as I know.

There is a lot of monetary disincentive for those types of attacks because they require a large stake would would necessarily be destroyed in the attack. So it is a theoretical question for the most part. No one will ever do it

This is bad logic

Both are examples of capital at risk and work being performed to secure a network. The difference is one is performing a type of "work" that is essentially useless and has a high overhead due to excessive power usage. Rewards flow to those that have the most capital in both scenarios.

You can write a wall of text and that will not make your statement less false: "named slices" are not some entities which are hard to control, they are simple pools run on a few servers. Those servers serve thousands of real miners, people that invested hundreds of millions of dollars in their equipment, people that spend electricity, people that are real flash and blood of bitcoin network. "Named slices" can go up or down in their network percentage at the whim of the miners, and that already happened several times through the life of the bitcoin. And it will happen again, those names that we see on that chart will probably not be there in a year or two. Those handful of servers each pool consists of provide healthy competition for their services to the miners, if that was not a case we would not have 0-fee-pools we have today, and if any of them ever starts to misbehave it will go down in hours. There's no reason we should worry about "named slices" as you call them, they are by far most easily controllable part of the bitcoin community.

PoS = proof of stake and PoW = proof of work.  They are two different mechanisms that can be used for achieving consensus in peer-to-peer networks.  With PoS, consensus is formed by those holding stake; with PoW, consensus is formed by those doing work.  

You can dance around this fact as much as you like, but that's what it comes down to Mgburks77.  The question is which mechanism will the market prefer?

I would actually like to see a PoS alt-coin and I believe that through blockchain mergers of like-minded alt coin communities one can grow to challenge litecoin.  This will help us answer these questions empirically, rather than through hand-waving debates that this thread is evidence of. 

I think it would be proper to call this PoS alt bitshares instead, for it is no longer a coin.  Dividends are awarded to share holders for holding stake, rather than to miners for doing work.  Arguments are settled based on how many shares one holds, rather than by how much work one performs.  

Ok. Less text and more pictures. Here is MegaBigPower, located in Washington State. He is a single miner in the Unknown pie slice chart whose ambition is to control 10% of total Bitcoin hashing power.

http://cdn.arstechnica.net/wp-content/uploads/2014/03/bitcoin-dave-carlson-640x426.jpeg

Here is infamous mining equipment manufacturer kncminer. This is a single miner in the Unknown pie slice chart whose ambition is to compete with customers still waiting for paid-for equipment. Proof-of-Work manifestly encourages bad behavior.

https://i.imgur.com/WunBFmI.jpg

The one that performs the essential task of achieving consensus, in a decentralized manner by private individuals without the need for expensive specialized equipment and outrageous power and cooling requirements.

Bitcoin has been betamaxxed, at least in my humble opinion. There may be a few kinks left to be worked out with PoS but it is the way crypto currency will go in the end. It's the most reasonable scheme.


Again,

The idea that labor somehow infuses a product with value is a totally mistaken assumption with a basis in obsolete neo-classical economic theory. Value is is purely subjective so whether consensus is arrived upon via proof of work or proof of stake is completely irrelevant. The only essential requirement is only that a consensus be arrived at somehow. The easiest and cheapest manner of doing so is clearly the best choice.

It is pretty amazing how our infrastructure has grown.  I hadn't seen either of these before, and they make me confident in the security of bitcoin and proud of what we've accomplished.    

These are just two examples of ambitious groups who want to earn income by mining bitcoin.  They have large amounts of capital at risk and a vested interest in securing our network.  They are rewarded objectively based on how much work they accomplish.  

It also encourages competition. This sort of bad behavior only exists in a monopoly and may be actionable. Certainly such bad behavior will not be forgotten, excused, nor forgiven.

That's centralized databank that individuals have to trust in order for it to operate

Mt Gox was a centralized bank that people had to trust in order for it to operate.

That model sux, it shouldn't inspire confidence in any one that is paying attention or is not blinded by their own vested interests.  

It sounds like you agree with this statement then:

PoS = proof of stake and PoW = proof of work.  They are two different mechanisms that can be used for achieving consensus in peer-to-peer networks. With PoS, consensus is formed by those holding stake; with PoW, consensus is formed by those doing work.

Here is some competition - the 5GH/s bitcoin miner from Butterfly Labs.

https://products.butterflylabs.com/media/catalog/product/cache/1/image/9df78eab33525d08d6e5fb8d27136e95/s/i/single2_4_1.jpg

According to the mining profitability calculator at https://tradeblock.com/mining/ (https://tradeblock.com/mining/) and assuming you get electric power at only $0.03 per KwH, then every month you mine with this ASIC you lose money. They are still for sale. ASICs are designed for obsolescence. And the established industry business model is pre-order which invites fraud.

You can't evade my point like that.

Consensus is consensus. All you need is an accurate way to assess each individual's choice. You could do it by hand with a pencil and paper if you had to. No reason to go through that though. Proof of Stake and it's distributed P2P network can show where the true consensus lie cheaply and easily.

There are no centralized banks of miners or financial institutions involved in skewing the consensus toward their preferred form of infrastructure.

And in the question of mass adoption PoS wins hands down. ASIC miners will never be widely adopted. It's become a planned obsolesce scheme, at its basis. Those chips are junk and can't be used for anything else once they pass the end of their shelf life. Being able to stake on your tablet or mobile device is going to be the most important factor in destroying the grip mining cartels have on the crypto economy.

Once the staking Android wallet is developed mining is finished. That is the writing on the wall, as I see it.

You have no point.  You are evading answering a simple question because by talking about proof-of-stake in plain words the problem (at least to me) is obvious: consensus is formed by those holding stake; rewards flow to those holding the largest stakes.

I engaged you in debate because I thought you were a bitcoin user genuinely interested in whether PoS had merit or not.  After reviewing your post history, I see you are a MintCoin pumper.

You do realize that in the extremely unlikely event that you were successful in convincing the community that PoS is preferable, that a bitcoin blockchain-based PoS system would be "spun off"?  It's not like people would panic trade out of bitcoin and into some PoS coin.  

With the advent of sidechains and spinoffs, alt-coins will only be successful moving forward to the extent that they can merge blockchains with like-minded communities.  If you want MintCoin to have a fighting chance, I think you need to increase your users base and the legitimacy of you blockchain.  You can do this by merging with other PoS coins such as NxT or Blackcoin.  Alt-coin mergers are coming and only those that form alliances will survive…

ha ha you are being totally disingenuous


In PoW consensus is formed by those who own the most computing power instead of from individual devices. The most rewards flow to those who hold collective hashing power or bitcoin with the infrastructure they have designed to create an entry barrier.

They used their capital stake to purchase this infrastructure so that's not a valid point at all. It's better for a decentralized trustless network to produce coins than to have trusted authorities controlling the network and doling out low rewards to their subjects.

I think both are flawed
The arrival of the staking android wallet is going to to be the catalyst for change.

It's going to revolutionize crypto and put it back in the hands of individuals. No one is going to need banks anymore because they will own their own bank and it will be on their mobile device.

Not really here to pitch any particular alt coin, but only one has this sort of staking wallet in development and it is supposedly almost ready.

That is the future.

If it's not broke/broken, don't fix it.
Unless there is a major problem, there is no accepted precedent for such a huge change to the Bitcoin code.

Ha. I am presently researching whether anyone has a full node bitcoind running on a Linux smartphone.

CPU capacity on a multi-core smartphone already exceeds what Proof-of-Stake requires. Likewise for RAM regarding the flagship Android phones now, and ordinary phones in a couple of years. The blockchain is about 20 GB today and could fit on flagship Android phones now. Furthermore, Bitcoin Core developers have plans to prune or otherwise compress the blockchain for the purposes of validation.

From my own experience running a full node, network bandwidth is the most precious resource. Propagation of new blocks, and of the entire blockchain for new mobiles entering the network requires much symmetric bandwidth, depending upon the number of permitted peer connections.

In a possible world, every smartphone is a Proof-of-Stake full node. There would be billions of them in the Bitcoin Network rather than the less than 10 thousand full nodes nowadays. It is fair that only block-validating, and blockchain-maintaining wallets receive their annual 10% bitcoin dividends. These dividends, given the higher prices for bitcoin that I expect with Proof-of-Stake, would be sufficient to pay for the cellular data bandwidth consumed. Or consider that the full node smartphone client could connect to the network only when WiFi is the connection - and receive a diminished bitcoin dividend in proportion to the time spent securing and maintaining the network, effectively receive annual 5% bitcoin dividends for coins held in the smartphone's full node wallet connected 12 hours each night to the owner's WiFi.

This make no sense. There are plenty of independent miners.

Yeah. It's competitive. There are no laws preventing you from being a top miner. The only barrier is you.

The major problem is that the Energy Charter Treaty encourages our respective governments not to permit waste of energy. In perhaps four more years the cost of electric power to operate and cool ASIC mining equipment will exceed $100 billion annually. The precedent is the incandescent light bulb ban. Do we want a bitcoin ban when it can be avoided?

The lesser problem is fairness. Why should Proof-of-Work ASIC-operators waste their bitcoin rewards on equipment and power, when those very same rewards can be given to us, the bitcoin holders as annual 10% bitcoin dividends using ordinary computers.

I liken the current Proof-of-Work system to a bank protected from robbers by a moat filled with burning paper currency.

I agree with Peter_R regarding altcoins and sidechains, yet hope to allay his concerns about Proof-of-Stake.

My notion of a Proof-of-Stake spin-off is to spin-off the Proof-of-Work miners from Bitcoin, which means that we need approximately 24,000 Proof-of-Stake full nodes participating in the Bitcoin Network as non-generating stealth nodes until everyone on our side is at the table - so to speak. I choose 24K because that is three times the number of bitcoind Proof-of-Stake full nodes in the network now.

To make the spin-off work, we need the Bitcoin brand and for it to want us. As US President Abraham Lincoln said "In this age, in this country, public sentiment is everything. With it, nothing can fail; against it, nothing can succeed."

spin off?  is that a fork?

Yes, it is a hard-fork of the blockchain. Not a from-scratch genesis block as used by altcoins. The Proof-of-Stake version of bitcoind would be made to reject as invalid new blocks created by the then-existing Proof-of-Work version.

This scenario is worst case. In the best case, public opinion sways the majority of Bitcoin Core developers to embrace Proof-of-Stake and the migration from Proof-of-Stake to Proof-of-Work is handled via long advance notice and simply a new version of Bitcoin Core for download by everyone.

what you are suggesting is a very dangerous game, i don't like the idea whatsoever, and i'm sorry but you will find a multitude of ugly little me's if this ever gets approval.

you want to fork bitcoin and call it bitcoin?

Then, if i want to send some coins, which protocol is being used?
Do I have to tell someone , i want to send you bitcoin v1 or v2 ?
how is that going to work?

This thread makes me so happy... OP do you follow Invictus and Bitshares? Most up to date POS models and many more insights


This is already a thing! bitshares.org

Could you please elaborate on the nature to your objections. The public consensus cannot be moved towards Proof-of-Stake unless all objections are reasonably addressed.

SlipperySlope what you say is what Dan Larimer from Invictus started saying months ago.

Bitcoin is an autonomous company which have a negative bottom line. Bitshares, thanks to a variante of PoS, will be a range of several autonomous companies which will make profits and therefore pay dividends to shareholders/owners of the company token. Bitcoin will need to adapt (ie. eliminates PoW) in order to survive.

POW will be eliminated sooner or later, but blockchain will survive forever. bitshares go!

This is not quite correct.  There is no difference between your "worst case" and your "best case."  They are the same thing in both cases.  

If you attempt to do this SlipperySlope, and win-over some developers to your cause, you could create a PoS spin-off and try to legitimize it.  After you launch it, both bitcoin-PoW and bitcoin-PoS would be running side by side; users would control the same % of coins in each system.

And then the market would decide which system is legitimate.  

I expect to see the first spin-offs launched within 6 months.  It will be very interesting to watch the experiment unfold.  

That's the real revolution guys...
Worth reading!

Delegated Proof of Stake
by Daniel Larimer on April 3, 2014

This paper introduces a new implementation of proof of stake that can validate transactions in seconds while providing greater security in a shorter period of time than all existing proof of stake systems. In the time it takes Bitcoin to produce a single block a DPOS system can have your transaction verified by 20% of the shareholders and by the time Bitcoin claims the transaction is almost irreversible (6 blocks, 1 hour) your transaction under DPOS has been verified by 100% of the shareholders through their representatives.

read more here
http://bitshares.org/security/delegated-proof-of-stake.php

I get the notion that existing and planned Proof-of-Stake altcoins are a short-term bet that Bitcoin continues its 3.2x annual economic growth, and lifts the value of all altcoins as the public adopts crytocurrencies. Those same altcoins are a long-term bet that Bitcoin keeps Proof-of-Work and thus gets banned in some countries as wasteful allowing those altcoins the opportunity to replace Bitcoin.

My mission is with Bitcoin.

Let me be more clear. In the best case, I would like Proof-of-Stake to be owned by Bitcoin Core developers before it gets turned on. I would help develop, document and test Proof-of-Stake on a Bitcoin sandbox testnet that receives new transactions from the Bitcoin network but does not otherwise interfere with it.

As Satoshi Nakamoto foresaw, and as last year's blockchain hard fork demonstrated, you carry on as normal. The majority of v2 full nodes will build the longest valid blockchain, and v1 nodes will only create orphans.

Yes, that is how I understood it.  But remember that in the very unlikely event that every current bitcoin core developer got on board with your proposal, a new set of bitcoin core developers would step up to maintain bitcoin PoW.  There is no way to "force" a change from PoW to PoS.  The only way is to create your spin off and then use your influence and economic power to attempt to legitimize it.  In the end, the market will decide.

Bitcoin doesn't necessarily need to be banned to get overthrow.

In a pure free market perspective, what's best: to have an asset which is debased 10% per year or an asset which pay 5% dividend per year?

The rate of adoption and the absence of credible competition hide the flaw of Bitcoin right now. But when more efficient alternatives will be out there, the flaw of BTC will be glaring. And it's not far-fetched to think the adoption rate will be hinder and the price put in a negative feedback loop. I'd prefer see Bitcoin succeeding too, but market creates efficiency: to survive in the free market, Bitcoin need to become efficient.

This
One can’t emphasise this enough, to experiment safely one could spin-off the blockchaine into a NXT clone. The predicted outcome will be the paradox of thrift, as holding capital is reworded, where as in Bitcoin holding capital is a risk that increases or decreases according to the state of the economy.

Understated but important are the myriad of speculators creating a free market force who perform the same function as the FED as they try and control the money supply by selling high and buying low.  In contrast PoS rewords give advantage to those with capital and leave those without vulnerable to rent seeking, (more realistically seeking a PoW alt.) 
 

simple, i like it just as it is. thanks.

Hi everyone.

I added an opinion poll to the first page, to quantify how you feel about this issue.

The argument I make for the change has two independent points . . .

(1) The existing Bitcoin system of using Proof-of-Work to prevent double spending is wasteful, and growing so 10x worse each year. In about four more years at that rate, governments will take notice of the $100 billion worth of wasted electricity and perhaps ban bitcoin mining in some jurisdictions, using the incandescent light bulb ban as precedent.

(2) The alternative Proof-of-Stake method to prevent double spending can be performed on an ordinary computer, and probably in a few years on a smartphone. Proof-of-Stake allows each of us to expose bitcoins to the network and receive annual 10% dividends. Everything else about bitcoin, in particular the promises made by Satoshi concerning mining rewards and the fixed limit remain unchanged.

If you care one way or the other, please vote.

Could you please elaborate on the nature to your objections. The public consensus cannot be moved towards Proof-of-Stake unless all objections are reasonably addressed.
[/quote]

simple, i like it just as it is. thanks.
[/quote]

I agree with the broad principles of conservatism. They have served my household very well over the decades.

Is it that a change has an unknown risk associated with it? And this risk to you is not worth the change I propose despite the assurances of my two arguments?

No need for POS since we already have fiat money system where bankers have the biggest stake

I would take another btc position if it transitioned to PoS, otherwise I'm more interested in assets that explore concepts conducive to mass adoption such a fast transaction times, ease of use, ubiquitous mining, P2P exchange, true decentralization and true anonymity.

Security is always going to be a concern and I don't see that PoW is really any stronger in that respect because it requires a lot of trust in particular gate keepers to navigate the byzantine labyrinth that is the btc economy.

Someone can always rip your wallet file either way, unless YOU make it difficult.

It isn’t that bad, I believe PoW is called mining because it relates not to burning bank notes but to using energy to dig for gold.
I am sympathetic to your cause, my life and business is devoted to environmental sustainability, it is the allocation of capital that has the biggest impact on our environment, not consumer choices.

If Bitcoin mining is to compete for the finite energy available to sustain its exponential growth, we would see consumer’s preference for energy allocation change; this would bring about the necessary shift for long term sustainability we need.

I think your energy projection needs to be modeled with the existing economy in mind, just a rudimentary though experiment makes me quite excited for a sustainable future of abundance.

Firstly only the most efficient electronics will be used, as they will be orders of magnitude more efficient, I for one was still GPU mining over the winter as the heat cost was subsidised 20% by Bitcoin. But I believe this coming generation of ASIC’s will be significantly efficient to render that benefit obsolete next winter.  

So projecting on that understanding each subsequent generation will take an estimate of a year to deploy and 2 years to become obsolete and if the price of Bitcoin justifies it, competition will spark innovation, I have half a dozen investment opportunities available for the waste product Bitcoin promises to produce.  

Note planning for energy infrastructure to accommodate this projected energy demand is not happening, and if it was it would take a decade to implement.

This ASIC race will significantly accelerate the halving time in turn we could be seeing a reword of about 1.5 bitcoin in as little as 10 years. If consumers over that time learn to become incredibly efficient choosing to direct their entire national energy supply to Bitcoin production and forgo using it as we do today, they will be ready for the future.

On the topic of banning Bitcoin because it is considered ineffective energy usage, is hypocritical as electricity is being converted to heat everyday all over the world, what should happen in a free market is mining will not be centralised but distributed at the very leased to all those applications that use electricity to generate heat.    

You are toast  :D

Oh c'mon. At least come up with something that hasn't been done before. Howabout a coin that pays compound interest calculated continuously?

This.

And PoW allocates capital more efficiently than PoS.  PoW rewards those who do the most work by risking their time and resources, rather than those who hold the most capital.  The electricity spent on PoW (that can go to useful heat) is dwarfed by the natural resources and human labour wasted when capital is misallocated (like we see in our current debt-based fiat system).

The bitcoin economy will be good for the environment. 

I would argue that PoS adoption uses more electricity that a PoW global system.

Im a little late to this thread, but I just came here to drop this link:

http://bitshares.org/


bitshares is already a thing, and its very promising

OK. Let's hear your argument.

It's been argued several times in this thread: misallocation of capital leads to inefficient use of our natural and human resources.  

If you are going to reward yourselves 10%, why not 20%?  More is better right?  Since consensus is controlled by stake holders, why not vote yourself 50% dividends per year?  The more money you award yourselves, the more stake you gain, and the more control you achieve over the network.  You guys deserve it!  Think of the electricity you saved.  In the words of Goldman CEO Lloyd Blankfein, "you're doing God's work."

Because PoS gives financial authority to individual stakeholders, no sovereign nation would allow a global authority to control the flow of money. They would enjoy having such authority themselves, however. Therefore each nation, state, community, large corporation, and many individuals as well as financial institutions, brokers, etc. will issue each their own PoS coins with competitive incentives. Not only would people need wallets for their legal tender PoS coin, but they would always want the best deal they can get from all the others. Just the exchanges alone would need computing power greater than the PoW network for Bitcoin in order to keep them straight. Point of Sales would need to be able to differentiate between thousands, if not millions of currencies. The power resources needed to secure all those PoS alt coins would be enormous.

At least with all the PoW alt coins, nobody really takes them seriously because they are too insecure. Bitcoin derivative coins like Mastercoin simply use the one Bitcoin blockchain. Millions of clones can be created without adding additional power hungry nodes.

The dividends come from the transaction fees. If you charge too much fees nobody will use your DAC.

It's like a brick and mortar corporation, why Coca-Cola shareholders don't vote themselves 50% dividends per year?

You really need to grasp the analogy between blockchain technologies and autonomous corporations, that would avoid you to say wrong stuff such as PoS=rent-seeking. Shareholders of brick and mortar corporations are not rent-seeker, the same apply for the holders of blockchain tokens.

I've seen these pictures, and have a same feeling as you looking at them: these are the people that will protect the bitcoin mining at any cost, not destroy it. I think they would go as far as restricting their own network hashing percentage, if the unlikely event that would be necessary. However, as time passes by they will have trouble keeping their < 10% of the hashrate, chances they can afford to continue investing and grow the percentage are slim, they have to cover the cost of investment sooner or later.

You don't charge too much right away, of course.  You wait until you have a large user base, preferably with loans denominated in your shares too.  And then you increase the fees, or print more coins, or whatever you want since you're the dominant stake holders.

Your example of real corporations was good: the people with the most control always find a way to vote themselves more at the expense of the smaller share holders.  Hasn't this been proved time and time again?

For me:

PoW : consensus is achieved by people who put their time and resources at risk; rewards flow to those who perform the most work.

PoS : consensus is achieved by people who have capital; rewards flow to those who have the most capital.

PoW seems like the superior mechanism of establishing consensus in decentralized systems. 

peter i think you misunderstand what capital is. mining equipment is capital. bitcoins are capital. any resource, even labor or information, is capital. 

in pos, capital flows to those with capital. and pow captial flows to those with capital and economies of scale. you get the same result but at a much higher cost with pow.

Perhaps it would be more clear to write:

PoW : consensus is achieved by people who put their time and resources at risk; rewards flow to those who perform the most work.

PoS : consensus is achieved by people who have shares; rewards flow to those who have the most shares.

The thing you're missing is the difference between capital and capital at risk.  PoS rewards rent-seeking; PoW rewards efficient work.

This actually makes a lot of sense to me.  It's similar to the idea of foregoing a mining venture when one can simply invest their money directly in buying coins.

Peter, true.

However, what is the inherent value in doing work?  What is the inherent value in taking risk? 

Work and risk are valuable in life and business, but this is another context.

the whole world is coordinated through proof of stake consensus. the amount of capital you have is your weighted "vote." those who "vote" in accordance with the future consensus of the rest of the group stand to make more capital. that is to say that those who invest their capital to its most efficient ends will realize a gain on that capital.  those that do not will lose capital. this is the essence of capitalism and the free markets and is why it is the foundation of our economic system.

Assuming a competitive environment, the fees will be stable or decline because alternative DAC with lower fees will always be a threat.
The top management capture value from shareholders because of the agency problem, yes. But in an autonomus corporation there is no executives.
PoW is exactly the same thing than burning $$$ to get BTC.
- it's the people with the more capital who get rewarded (because they can burn the most of it)
- this is capital consuming, and it's become an economics uber-nonsense as soon as there is an more efficient way to achieve the same security level

Imagine a world were company A and company B provide the exact same service for the same price. Company A pays 600 000 000$ (and I am conservative, but it's enough to prove the point) every year for security guards. Company B achieve the same level of security without any expenses. Assuming a competitive environment, which company will survive?

BTC-PoW will soon be in the same situation where the banking system is today: competing with a more efficient alternative. And between two solutions to the same problem, markets make emerge the more efficient one (because efficience = profits, and people are attracted by profits).

You are working to remove enough entropy to create a coin.  You express your opinion that the coin is worth looking for by risking your time and resources in trying to find it.  Once the entropy is removed, it is removed forever and you have a bitcoin--similar to how gold ore is dug up, processed, and then turned to gold coins.  It is this physical relationship between energy and entropy that make it difficult for coins to be created.  

PoS is predicated on the idea that mining is wasteful.  In other words, PoS says that it takes too much work to create a bitcoin and that we should create bitshares instead.  But isn't that another way of saying that it should be easier to create shares than coins?  And if it becomes very easy to create more shares, won't more shares be created?  PoS supporters will tell you that this won't happen, but really if consensus if based on stake and shares can be created out of thin air (there's no entropy requirements) how is this really any different than our fiat system?

Hmm... Seems to be related to the "pos scheme still needs a pow issuance mechanism" argument that meni made yesterday in this thread https://bitcointalk.org/index.php?topic=27787.0;all

My point being maybe we need elements of both pos and pow

Solar powered mining farms can help provide low cost electricity for BTC.

http://www.businessgreen.com/IMG/208/261208/siemens-solar-plant-370x229.jpg?1371472248

Good point, and at the heart of the matter but that is a big If.

Paying hundreds millions/billion of dollars to achieve something you can achieve for free is a lot of things, but it's not efficient.

You don't create the same thing: you have either bitcoins or bitshares.  Entropy is the difference.  Here's what I said when Jonald asked what the purpose of the work was a couple posts back:

no shares can't be created out of thin air, at least not with the bitshares DAC concept. The blockchain does not create more shares, it instead destroys transaction fees which in turn acts a stock buy back or dividend if you will for all shareholders. You would never complain about a dividend or a stock buy back, because we understand what gives a stock value and that is the profitability of the company. bitcoin is operating at a loss and as such its equity will reflect that in the future.

if your problem with the pos system is because you do not like that ppl earn capital based on the capital that they already have, what do you think about issuing new forms of capital for which there are varying returns. ppl can exchange these new forms of capital at the market rate given their perceived returns. those that are most informed as is true with any market will earn the most capital in this system. this system rewards accurate information, and the work associated with this system is the accumulation of information not the pointless hashing of alpha-numeric strings.

does this system sound similiar to systems we already have? it is capitalism, it is the free markets.

bitshares bank and exchange leverages the free market consensus to create assets that are market pegged to any real world asset and those that provide the most accurate information to the blockchain through the process of voluntary exchange accumulate the most capital.

is this not the pos implementation you are looking for?

what a complex topic  :-\



Question:  How does PoS system utilize the "easy to prove, hard to solve" edict of cryptocurrency security?

mining affords consensus, it is not necessarily a matter of security. proof of whatever is necessary for consensus. the mechanism for consensus will most likely be voting. in pow miners have all the votes. their votes are weighted by their share of hashing power. individual miners will delegate their votes (hashing power) to mining pools, which act as representatives for their constituents (the miners) best interests. this is why if you have 51% of the hashing power you effectively control the network.

Coin distribution is a problem for PoS, since the distribution mechanism that mining provides is absent.  But PoS communities can partly deal with this by merging with other like-minded PoS communities.  For example, Blackcoin could merge with NXT, which could later merge with MintCoin.  This is more efficient that trading out of one PoS ledger and into another.  

I actually think this is inevitable because it seems there is demand to empirically test the merits of PoS at a larger market cap.  It will be very interesting to watch.    

Bitcoin is already a share (in a autonomous company which is really good at storing and transfering value). You don't need PoS to view it as a share, PoS would only make the company more profitable by cutting it expenses.

The same incentitive structure exist wether you call it a coin or a share: shareholders of a PoS blockchain don't want to be dilute more than shareholders of a PoW blockhain want to be dilute .
PoS shareholders have voting rights whereas PoW shareholders have no voting rights (only miners do). And in fiat, well, nobody have voting rights except the Central Bank.

that doesnt make logical sense. more ppl have bought into bitcoin than have mined it. issuance isnt a problem unless you are continually issuing new coins that devalue previously issued coins.

distribution...is that the main argument against POS?

OP seems to be implying everyone gets a 10% dividend. 
Wouldn't that be the distribution?

Nonsense.  PoS is predicated on the notion that bitcoins require too much work to create, so you create a bunch of bitshares instead because they are easy to make. 

This is the number 1 argument in favour of PoS: since bitshares are easier to create, PoS enthusiasts claim that we will waste less energy and make the world a better place (which I believe is also untrue). 

It's not really distribution if it only goes to those already holding stake.

Proof of stake was my main reason to hold Peercoin before I sold it after the run up during Bitcoins last growth spurt because I considered it a true differentiator. However, I tried using it and never received any. Let's just say I'm sufficiently proficient in computer science to follow simple instructions so I was probably going to get "interest" on my coins at some point but there was no way to verify this. If this ever gets implemented for Bitcoin please keep this in mind.

PoW coins are coins because energy (work) is required to remove entropy in order to create them.  PoS shares are shares because there is no energy (work) required to create them (there is no minimum entropy requirement).  

How are they easier to create?

An agreement between 51% of shareholders to dilute their value is by no mean a realistic scenario.
With PoW miners vote proportionaly to their hashing power, with PoS stakeholders vote proportionaly to their stake. The difficulty to create token is not a question of entropy. Both with PoW or PoS, it's fundamentally a question to obtain a voting majority.
And arguably, obtaining 51% of hashing power is a lot easier than obtaining 51% of shares.

no its not, you're making assumptions that are not true. pos and pow are not predicated on coin distribution, they are predicated on consensus. you don't even understand the technology, how then can we argue the economics of it?

hows that any different than distribution coins only to those who already hold mining power?

I've explained my point of view here several times already.  It seems you disagree.

I would actually like to see a PoS alt-coin emerge with a larger market cap, BTW.  PoS needs to succeed or fail when the stakes are higher.  To solve the distribution problem and grow its market cap quickly, I think a dominant PoS coin should emerge by combining the blockchains of already-existing PoS communities using a modification of my "spin-off" (https://bitcointalk.org/index.php?topic=563972.0) proposal.   

I think bitshares is a good name because that is what PoS is: shares.

PoW distributes coins to those who do the work.  It doesn't matter how many bitcoins you hold. 

It is really obvious if you think about the early days of bitcoin: if bitcoin was PoS, Satoshi would of had to give away or sell all the coins.  Instead, he created an incentive system whereby people who didn't have coins could try to find them.

yeah but that incentive has been warped by the need for specialized equipment and the work is essentially useless and a waste of resources.

Thanks so much for the links which I am bookmarking now for analysis later.

I posted a message to the bitcoin developers mail list asking for permission to branch Bitcoin Core for the purpose of researching Proof-of-Stake, while finding its vulnerabilities and fixing them.

A public dairy of the research could be published on in the Project Development sub-forum - "Bitcoin Proof-of-Stake Project".

No pun intended, but you are embarking upon a slippery slope.

Please leave Bitcoin the way it is- we don't need no stinkin' 10% annual inflation. To put it into perspective the US dollar currently inflates at around 1% annually.. 10% is just a ridiculous number.

Also this would leave many ASIC companies and purchasers with useless equipment and there would be some blow back suffered from the harm this would do to the way people trust Bitcoin. When you change the rules as you go, people may not be so apt to invest in Bitcoin. The rules were written a long time ago and everyone here has accepted Bitcoin how it is today, why change it now? It would only lead to a loss of confidence.. in today's troubled market this would be very bad.

You get it upside down.

Currently, Bitcoin money supply inflate +10% a year. Fixed money supply + X% dividends equal X% deflation a year. PoW is inflationnist, PoS is deflationnist.

what came first? the specialized equipment that is resource efficient but expensive (a result of XBT=$500) or the inefficient CPU (XBT=$0.01) remember bitcoin is still in the early stage of distribution, Big mining operations are similar to the early miners in 2009, they are not guaranteed anything, and they are building the fundamental infrastructure on nothing but faith.  

A solution to this problem exists its just not Proof-of-Stake.

The problem is actually in the value of bitcoin, that is what is driving this crazy behavior.

Good point.

However, the 10% a year number will slowly decrease to 0% over time.

I see no mention in the proposal to allow for a slow decrease in the dividend percentage to mimic the future rate of minting.

Also, I see the bigger problem being people losing trust in Bitcoin (which I just edited into my previous post- see above).

for the remainder of your life bitcoin will be inflationary, it is absurd for you to support it just because there is a fixed supply at a very arbitrary point in the future. would you support us inflation just because the government says, in 125 years we will stop printing more usd?

we are making the proposal that you do not have to pay a 10% dividend at all. dividends are paid for by transaction fees which are burned.

bitcoin is not the end all and be all of the crypto currency space. it is just the beginning. so many ppl talk about not trying to reinvent the wheel, but that logic is antithetical to the bitcoin/crypto currency movement. the idea is to reinvent everything that needs to be reinvented. in this case that includes bitcoin.

Just have an initial mining period, like say 45 days, for the initial distribution. You won't have much trouble generating interest in the project, I'd say.

I agree, and at this point, Bitcoin is big enough and known enough -- there is no
incentive system any more in the original sense when Satoshi created it.
At this point, you either spend lots of money to mine or you buy coins.

Sarc: Yes, you're right!  The fact that people can do work and be rewarded with coins is inflationary!  Why bother distributing them to just anyone who is able to find them when we could create a PoS spin-off and keep more for ourselves!! 

I have the perfect solution!  I am going to create my own coin called PeterCoins.  I will own all of them and I will reward myself with 50% dividends each year just for being me!!  Each time I write a post here, I'll give myself a raise because I deserve it. 

It is absurd that I would support any distribution of these coins, since I can just keep them for myself.  I'm not even going to sell any because they are going to be worth sooooooo much as soon as people realize the benefits.

I think we should all do this.  We should all own 100% of our own personal PoS coins and since we have 100% stake, we get to make the rules.  We can give ourselves as much money as we like!  And if we never sell them, the supply is zero and the price is therefore infinite.

Yeah!!!!!


In case anyone missed that, I was being sarcastic.  Mining is the technique we use to efficiently distribute bitcoins.  The legitimacy of the entire distribution system fails if a coin does not use mining.  The inflation from mining acts to drive the price down when it gets too far ahead of itself, and acts to keep the coin alive when people lose interest.  Mining reduces volatility and acts to distribute coins efficiently to people who actually want them.

Think: would you really buy PeterCoins from me?  PoS is the same idea except is it (Peter+Joe+…Bob)Coins.   The more I think about PoS the less legitimate the concept seems.  You are basically trying to get people to buy into your special shares, but if your shares are so special why are you selling them?

You could also say that 21 million BTC exist now, but only 12 million have been mined (available to be spent). That is quite different than a fiat currency, where 20 years later the money supply could be 50, 100, 500, 1000, or 5000 percent greater than it is today. The Bitcoin market has absorbed the money supply information and it is factored into the price; the fiat market cannot absorb money supply information because there can be no certainty or even close approximation of money supply in the long-term.

I think you are sensing the psychological advantage of pow.  New adopters value pow. That's part of what convinced me about bitcoin ...seeing it wasn't just some digital creating, but something was solved.

Sure, in fact I believe anything other than PoW would be perceived as illegitimate.  Its funny: I remember last spring people were complaining there wasn't enough inflation.  People argued that too many coins were mined in too short a time.  But now we are talking about the opposite: creating a PoS spin-off to cut off the supply completely.  

It will be interesting to watch the first PoS spin-offs from bitcoin.  They might actually get a big pump due to the restricted supply.  But I expect they will collapse in the end because (a) the PoS coin will need genuine adoption to grow, yet (b) why would I buy your coin if you need me more than I need you?

That being said, I am pleased that no one seems to agree on anything.  I guess this means once again that things will just continue as they are (unless something actually breaks).      

Another way of saying it is that PoW distributes coins to those who invest in mining equipment. PoS distributes coins to those invest in coins. It really doesn't seem that much different - invest in X, get coins. If PoW and PoS can both support the functioning and security of a cryptocurrency equally well, then PoS seems superior because it does not waste energy and would have a wider distribution than PoW.

The thread poll also indicates a skeptical majority. I sent an email message to the bitcoin developer mail list asking for permission to branch the source code on the GitHub repository and begin researching a Proof-of-Stake version of Bitcoin. No comment so far. I noted that I understood that Proof-of-Stake is listed as as a prohibited yet disputed enhancement on the Bitcoin wiki. Prohibited features are those which break the social contract between the Bitcoin developers and Bitcoin users.

I am preparing to devote the next year or two at least to the branch. I will create a project in the Project Development sub-forum to transparently track progress. I will keep this thread and poll alive to engage and potentially educate anyone who is not a developer or technical expert.

As an indication of my commitment to this Bitcoin improvement project, I am now using my real name and recent photo where possible. I regret postponing my AI research, but the coding decisions I made years ago have stood the test of time, and will endure until I fund them with future bitcoin valuations.

The only way to get PoS shares is to buy them from an adopter.  There are two ways to get PoW coins: buy them or find them yourself.  This is key.  

Based on the results of SlipperySlope's poll, it looks like there is a slight preference for PoW.  But I seem to be the only one here arguing for it.  Probably because we've had this debate many times and if you actually want to create a PoS spin-off go right ahead.  No one is stopping you.  In fact, I would like to see what happens. 

The market will decide whether or not it has merit.

That's it for me guys.  Off to sushi...

. . . Key to your understanding, but misleading to someone who does not appreciate the reality of bitcoin mining.

When you say "find them yourself", it means buying shares at a bitcoin cloud mining company, or leasing a mining rig, or buying a bitcoin mining rig and buying electricity to operate and cool it. Return on investment for a miner is only positive because the price of bitcoin has risen on average 10x per year. In the bitcoin coin mining sub-forum, when a new person asks "what miner should I pre-order?", the conventional wisdom response is "just buy bitcoin with the money you would have spent on the miner - you will come out further ahead".

I would restate your point, weakening the distinction . .

There are two ways to get PoS coins: buy them from an adopter or use your coin stake to certainly earn them yourself.
There are two ways to get PoW coins: buy them from an adopter or buy stuff and use that stuff to probably earn them yourself.

You can always create and altcoin with the same addresses as Bitcoin and with the same distribution of existing Bitcoins over those addresses. Than everyone can choose which Bitcoin to use (or both). I would personally feel safer using both concurrently than to change the existing social contract of the original Bitcoin. When the first change is made, the discussion for the 21M limit will surely start as well ....

I don't understand why needing to buy from an adopter is bad thing. Isn't mining essentially buying coins from ASIC manufacturers and energy companies?

You're right logically. However, human psychology isn't always logical.  Having the "option" to mine your own coins makes one feel that it is more of an open system and seeing that "work was done" gives it more perceived value.

Sounds to me like you have touched upon the true heart of the matter. Emotional attachments prevail.

I would say that psychological preference for the perceived fairer and open PoW system may have been important in the early days of Bitcoin, but at the current stage of its evolution, I think future adoption of Bitcoin depends on practical things like price and usability. I have tried explaining the virtues of Bitcoin to many people, and none of them have cared about how new coins are distributed. The fact that the supply of coins is limited and it is a bank-less, decentralized system is good enough. If PoS is indeed superior and a shift to PoS is possible, then I do not know any rational reason why it should not be done.

It actually makes sense given the context.  

Fiat money finds it's utility simply from its universally acceptance that has already been established.

Bitcoin is new, and in order to achieve adoption, people want something that seems fair and just.  Proof of work accomplishes this.  Perhaps in the future, when Bitcoin has wide acceptance, we will converge onto a point where proof of work is no longer needed, but I don't think we are there just yet.

I believe that is the spin-out proposed by Peter_R. While there is any chance of retaining the Bitcoin brand and its connected customers, I will work entirely in the framework proposed by Satoshi who allowed for changes via a consensus of full node miners. There are about 8300 of those today, and a million wallets at Blockchain.info.

In a possible world a couple of years from now, there is a peer-reviewed and invulnerable Proof-of-Stake version of Bitcoin Core - not yet deployed but running great on a large scale Bitcoin testnet. The sales pitch to Blockchain.info is simple. Blockchain.info arranges to lease m3.large instances from Amazon Elastic Compute Cloud that support Bitcoin Proof-of-Stake Bitcoin Core full node instances for an online wallet. Blockchain.info makes an offer to its million customers to pay a minimum of annual 10% bitcoin dividends to each online wallet that chooses Proof-of-Stake on the condition that at least 50,000 enroll. Blockchain.info keeps a fee of 2% of the earned rewards.

50,000 low-latency, well-connected full nodes on the new Proof-of-Stake version easily outvote 8,300 full nodes on the old Proof-of-Work version and on the pre-announced day, the blockchain forks. Ordinary bitcoin users are unaffected. Suppose at that time bitcoin is valued at $10,000. The daily mining reward is 3,600 bitcoin divided among the 50,000 Blockchain.info enrolled wallets. Blockchain.info's daily commission is $720,000 from which they pay for the Amazon instances at $72,000 daily, a gross profit margin of 90%. The deal is great for the 50,000 enrollees who get daily dividends each of bitcoin worth on average $705. Of course these numbers are for the early adopters. Once the remainder of the million online wallets enroll, the average daily dividends drop by a factor of 20 yielding a daily average dividend of $35 dollars.

From a simplified, possible world business case such as this example, it is clear to me that a very large opportunity exists to disrupt the disrupter. The challenge is to create an invulnerable and broadly acceptable Bitcoin Core Proof-of-Stake.

You make some good points and it could be argued either way.

Perhaps we have indeed hit upon the heart of the matter.

People have been cheated by costless fiat for so long time that they already forget that a currency without cost actually worth nothing, legally counterfeiting is still counterfeiting

I agree with you completely. With all due respect to the PoS innovators like Peercoin and Nxt, seamlessly converting the Bitcoin brand and blockchain to PoS would be far superior to adopting an altcoin. I find it ironic that Peter is arguing so strongly in favor of the seemingly inferior PoW system, when he is the one who recently proposed the perfect solution for shifting from one blockchain to another.

The problem with fiat is not costlessness, but possibility of arbitrary, limitless creation. PoS costs much less than PoW, but coin creation is still constrained by the parameters of the code.

The adoption of Bitcoin is apparently mathematically chaotic in the sense that certain small changes to the present situation lead to large and unexpected consequences. There is simply no precedent for Bitcoin, and therefore we depend upon argued imagination.

Sorry - I read the 1st post and then skipped the last 9 pages.

Shouldn't PPC have been the one end-all to be all had proof of stake had been successfull wouldn't the mass majority of miners simply convert to PPC and hold a portion of it to roll over with POS?

"makes me dream of folks out there who have 10,000,000 PPC and recieve a cool million PPC each year to live off of :P "

you completely misunderstand me. My objections are not political, nor are they to do with risk. I am not adverse to change.
We have Bitcoin, which has been designed from the ground up before any other additives or preservatives were realised. Sure it has it's minor flaws but that is all part of it. It is not broken, in actual fact, it is surviving pretty damned well; from it's humble beginnings.

By introducing PoS into the workings, all you are doing is making those who have massive farms, even richer - and those who have 3 or 4 coins in a wallet, poorer.

your idea stinks of idiosyncrasies and I feel, if you want a coin which produces PoS, then you should go mine some shitcoin or other.

This is not for Bitcoin. Bitcoin is exciting - difficulty level trends are tremendously interesting, as is - for a small miner like myself, watching who is top of the pile. If you introduce PoS into Bitcoin, then you will see value plummet, Bitcoin accumulation lifespan shortened and interest lost.

It's not a good idea, whatsoever.

How do you figure? In the PoS system proposed, a holder of 3 or 4 coins would receive a yearly dividend of approximately 10 percent. A year later he would have 3.3 or 4.4 coins. In the current system a holder who does not mine does not receive any dividend. In fact, it the opposite of what you say; small holders actually get poorer in the current system because their share of the total coin supply decreases as new coins are mined (they get richer relative to fiat holders, of course). Sorry, but the idea that PoW is good because difficulty level trends are interesting is not a strong argument.

I do not believe Bitcoin will fail if it does not shift to PoS, but if it can be improved with little risk, it should be done.

so if I mine a fiat value of $500,000 per day, how much stake does my wallet accrue... my 3 btc will accrue 0.3 in one year - are you taking the piss?
I think i'd rather keep mining thanks.

No, because Bitcoin was and is miles ahead in terms of infrastructure, adoption, and market cap. The people with so much invested in Bitcoin had every incentive not to allow a competitor to succeed. But now thanks in part to Peter's idea (not sure if he was the first to conceive it, but I learned it from him first) of shifting the exact distribution and ownership of Bitcoin to a new blockchain, it is possible implement a PoS system that will have the support of the entire Bitcoin community because they do not have to give anything up to have a stake in the new system and they automatically have the same investment in it as in the original blockchain.

This is basically back to the psychological dillema.

Accumulation doesn't happen to anyone without capital investment one way or another.
Its just a question of:  is Bitcoin big enough, mature enough, established enough
IN PEOPLE'S MINDS that we don't need to rely on PoW.

Anyway, people don't forget: the 2 implementations in the Wiki are hybrid PoW/PoS.  

https://bitcointalk.org/index.php?topic=320404.0;topicseen (https://bitcointalk.org/index.php?topic=320404.0;topicseen)

please move over to a PoS coin, if you want a PoS coin and leave Bitcoin as it is.

The point of PoS is that mining is unnecessary. You seem to making a Luddite argument. Instead of investing hundreds of thousands or millions into a massive mining operation, you could just buy a lot more coins and spend your time relaxing on the beach sipping your favorite beverage while you collect 10 percent each year rather than spending time and effort every day maintaining your mining operation.

or I could go buy an ISA from my bank; but that's NO FUN, is it?

Sorry, but that isn't adding any value to the conversation.

I'm not saying I "want a PoS" necessarily.  Some are saying that.  
At the very least, there are real reasons why PoS merits discussion for Bitcoin.

Even Peter, who is pro PoW, is interested in the conversation and seeing
what would happen with PoS.

I value your opinion too, but I would like to hear the arguments against PoS,
not just "move to an alt coin".

The difference is that you would be getting 10 percent more coins, not 10 more fiat. I don't think fun has anything to do with this.

Answer this question - how many coins did you spend on your mining operation in the past 12 months, including equipment, energy, labor, and everything else, and how many coins did you mine?

The price will immediately crash to the coin's production cost, since miners have the motivation to immediately cash out large gains

Then you clearly misunderstand why people become Bitcoin enthusiasts (at home miners).

I became interested in mining bitcoin because I am a tech geek. My wife works in a bank and If it were the accrual of funds that I wanted, I could easily get a valuable fiat product, which could would be monitored and tracked and would pay me (some form of) stake/interest. Now, although I am a very small investor (as would be the same case with Bitcoin) I see many massive investors high above me, accruing their own share of ~whatever 10% will accrue them.

lets take ABC Mining Farm (fictitious name) for example - to add PoS into the Bitcoin framework, you are not actually making it less worthwhile for ABC to exist, and build bigger datorhalls, but you are providing more of an incentive to those massive operations, to become bigger. This is already proved in my case above; massive fiat banking investors become richer, small investors become poorer (the financial divide becomes greater).

The only thing a PoS system in Bitcoin would do, is widen the gap.

In future when majority of the coins were mined, people might consider switching to a POS system, since the incentive to mine will get less (if a very low fee is still preferred by users) and the system will become vulnerable. But that is not going to happen in decades

I totally understand you and I respect and admire what you have done. Bitcoin would not be where it is today without you. All I am saying is that if there are major improvements that can be made to Bitcoin, it should be done. I do not believe in tradition for the sake of tradition. Bitcoin is in a much different place today than it was a few years ago.

I think you misunderstand the proposal. The proposal is to shift Bitcoin entirely to PoS, not merge PoS and PoW. In a PoS system there is no mining and no reason for massive mining operations to exist. 

I would rather see a blend of PoW and PoS.

Use PoS to improve security while leaving
PoW that people are used to and trust.

Lets talk as miners then, as my very first posts on this forum concerned mining. Here is a photo of one of my three mining rigs. This open design rig has 6 x 5770 cards that hash at a total 0.98 MH/s performing altcoin scrypt-mining for renters. They pay me in bitcoin, which indeed subtracts from the altcoin economy and adds to our Bitcoin economy. These cards despite their age, mined tens of bitcoins for me back when BTCGuild was just getting started. I abandoned mining when SHA-256 ASICs arrived to begin the exponentially soaring difficulty that continues to this day. I did not then, and will not now pre-order ASIC rigs whose return on investment is so uncertain. I will migrate the litecoin-compatible scrypt-mining rigs to Vertcoin-compatible scrypt-N when scrypt-ASICS arrive this year. I will keep running those loved rigs for a long time when I move them to Colorado to heat my mountain home.

https://i.imgur.com/XrOFFNd.jpg

I ask you, as a small scale bitcoin miner, have you run the numbers to determine whether you would be better off simply holding bitcoin instead spending cash on  ASIC rigs?

But I think your main objection is belief that bitcoin values will drop if PoS is introduced into Bitcoin. In the best possible world, PoS adds great value to bitcoin as less of daily mining reward gets sold to pay for power and new rigs. Holders are motivated not to sell and that lifts prices. Interest will heighten, especially when 401-K investment funds observe that not only does bitcoin appreciate, it also pays high dividends.

That seems more complicated and I don't understand why it would be better.

well mostly because of this:

I want to know that too.

Well, if there is a risk of large and unexpected consequences, wouldn't it be better to make a more simple change rather than a more complex one? It seems to me that a complete shift to PoS would be simpler than merging PoW and PoS, though that is just my intuition, I have no technical knowledge of cryptocurrency.

You may be right.  The truth is I just don't know.

The only thing that is clear right now is that we DON'T have consensus :)

thank you for making an effort to be polite, 'Luddite' remarks are not appreciated and I feel that you are better than that.
However, here is what I see...there are already PoS coins available on the toy exchanges, some of which will provide a much higher stake than the 10% which is being discussed. I don't see why PoS should be introduced into Bitcoin, when one can simply exchange their Bitcoin for say; Peercoin, or TEKCoin, hold it for a year until suitable stake is accumulated and cash it back to Bitcoin. I do also; however, agree that Bitcoin is evolutionary, and without trying to sound like one of the greedy large farming operations myself; you'd have a shitstorm from ASIC manufacturers if this was to go ahead.

So, may I ask, is the true purpose of PoS, to reduce electricity use? to bring down mining difficulty? and make the rich, richer?

I concede, it would do all of the these three things but really, none of these are in the best interest of Bitcoin. We would see value plummet and BTC price hit the floor.
If it were to be accomplished, it certainly should not be in the near future; having had only one block halving, in mining terms, we are still early adopters and Bitcoin is still very young. I feel we would be forcing our cryptocurrency to 'grow up' before it's time.

PoS? well maybe, yes, but only after all 21million coins have been mined.  :D

Bitcoin Core developers share this intelligent concern, namely "the rich get richer" problem. Indeed Europe and the USA are reading an economic best seller on this topic - that I have downloaded from a tip on this forum to my kindle.

This gets quickly into a defense of the freedom of capital to seek its wisest custodian, including the dumb wisdom of never selling an income-producing asset.

I concede your point utterly, claiming without proof, that the political process will evolve to fairly mitigate this problem. It is bigger than even Bitcoin and will be solved or otherwise dealt with by various jurisdictions worldwide in the fullness of time.

Meanwhile, I for one, favor the concentration of great wealth in the hands of those saved it up and boldly spend it to advance our civilization as they see fit - even to Mars.

Why would miners have the motivation to cash out their gains?  They would have motivation to hold onto coins to take advantage of PoS awards.

I cash-out portions of my mining efforts each month, to help pay bills and enjoy an active lifestyle. I think that you will find there are a lot of miners, just like me who enjoy mining, but cannot just hold onto all their coins.

Sure...but if PoS made things cheaper, you could hold onto more, not less.  just saying.

It's a big 'if' and for all intents and purposes, you could be correct, but you could also be very wrong, it's a gamble which i'd rather not (s)take.

I am sorry if my Luddite remark came off as rude. I was merely trying to express a similarity that I perceived. The Luddites had good reasons for being Luddites, and serious miners have good reasons for supporting PoW. In retrospect, mechanization was clearly beneficial to the economy. The debate between PoW and PoS is not clearly resolved yet, but the more I learn the more it seems to me that PoS is superior.

PoS would reduce electricity use dramatically, it would eliminate mining, not reduce mining difficulty, and while it would make the rich richer, it would make everyone richer in equal proportion, which provides an incentive for more and more people to own coins. In PoW, the only people who get richer are miners who are performing a wasteful, unnecessary task (necessary in the beginning, but unnecessary now that PoS has been invented).

I am willing to listen to any arguments against PoS, but I have yet to hear anything very convincing. The strongest criticism of PoS altcoins was that the initial coin distribution was much worse than Bitcoin, but now the ability to transfer the Bitcoin blockchain coin distribution to a new blockchain overcomes that objection.

why is it that I get a feeling of impending doom? a - perhaps, desperation to bring in something new?

4000BTC have been dumped on bitstamp in the past few hours. Whoever it was, clearly don't have Bitcoin in their best interest list and it is sellers, like this, who too, would also have no interest in holding their coins for PoS.

Regardless of the algorithm used to create Bitcoin, we will always see would-be-stock-traders cashing out at ~whatever price they can achieve.

EDIT: the dump is more than BTC7k and it's not just on bitstamp, but across many exchanges. You are simply not going to persuade people like that to hold their coins, for any %.

Bitstamp was up earlier in the day and I felt the opposite emotion for a while. Here my analysis of the moment with a chart . . .

https://bitcointalk.org/index.php?topic=400235.msg6385540#msg6385540 (https://bitcointalk.org/index.php?topic=400235.msg6385540#msg6385540)

cough cough....PeerCoin

I will be examining PPC, NXT and whitepapers for ideas that I can implement in such a way as the result can be called Bitcoin. The difference would be the absence of wasteful Proof-of-Work, and the presence of mining rewards distributed to full nodes in proportion to the amount of bitcoin each is willing to expose to the network. Coin age is a good starting point.

I should leave alone the coinbase transaction whose output sends the reward to a single recipient and depend upon an envisioned reference peer-to-peer pool or other pool to fairly distribute daily dividends to pool members.

What's the point in doing this?
Why don't we all switch to NXT and leave Satoshi Nakamoto holding the bag?

Bitcoin has not been distributed more fairly then any other shitcoin that came out recently, be it PoW or PoS.
Bitcoin is well distributed now because it is the oldest.

Found this remarkable thread 2 days too late, but read it all nevertheless :) My thoughts:

The economy is what ultimately gives value to any coin (or other currency). The economy consists of using the coin in its typical monetary roles as:
A) unit of account (in contracts and pricing, etc.)
B) store of value (deferred spending, investment, speculation)
C) means of exchange (transactions on-chain, off-chain).

To get to a functioning economy, there has to be an incentive to use the coin in some of the roles, ie. it must fulfill at least some of them better than the other alternatives.

Jumpstarting an economy is very difficult, even if the coin is superior in many aspects (like now, Bitcoin is far better than fiat in B) and potentially in C) but mostly dysfunctional in A) - after 5 years, its marketcap and # of transactions is <0.01% of fiat.)  

The coin can receive initial value by fiat, backing, or free market.

One of the novelties of Bitcoin was the mining concept, which among other effects, balanced the rewards of new coin generation to exactly equal the value of the coins (in times of boom, you could get +EV, during declines you would run at a loss).

Therefore, Bitcoin money supply has totally been paid for by expending effort to create it, according to its daily value.

Therefore, all the increases in Bitcoin marketcap are not early miner or early adopter unfair advantages but a reflection of the growth in Bitcoin economy, mainly the aspect B).

Trying to give value to something that you don't have to work for is very difficult.

Network effects are crucial in economy. You only get to that point if your coin is perceived legitimate. Auroracoin tries to achieve this by distributing coins equally in a limited area with a homogenous population. Bitcoin burns the equal amount of resources to acquire new coins so that there is really no inflation, nor has ever been.

In an optimal economy, there should be as little barriers as possible for hoarding and dishoarding wealth (converting income to wealth and vice versa). If this process is reasonably unhampered, it leads to higher value for the coin.

Proof-of-Stake

With the proposed model, the expenditure that is now spent in developing, manufacturing, delivering and operating ASICs, is cancelled.

Instead, there is an expenditure that people who own bitcoins, need to purchase, configure or operate generic equipment, to receive the reward. This reward would not accrue according to the work, and would not be equal to the value of the new coins.

People with many coins would gain more (in proportion to the effort required).
People with less coin would gain less (same work, less reward).
People with the least coins would not gain at all, because there would be a cutoff, below which people do not care to setup the PoS.

The total cost (effort) will be less than the cost (effort) of PoW (because the marginal holder will not work for -EV), but this would end up being a regressive scheme, enriching the rich.

It does not change the price any way, other things being equal. Proof: If we assume that at present supply = demand, which means that newly mined coins must be exactly absorbed by somebody. Mining cost = price, so all of the new demand is "burnt" as expenses. In the PoS case, same amount of coins is generated, but it is doled out to existing holders, inflating the money supply. New demand must buy the coins from them. By buying the same number of coins, it is able to keep their price stable. Net difference is that previous owners get the money.

The above paragraph may sound lucrative. It is what Quark, Blackcoin &co are doing. It has been observed to lead to extreme volatility and be inconsistent with increasing adoption, problem of confidence, necessity of a short premine period, etc. I believe it will only work in "mark of the beast" type environments, where:
- accounts are 100% connected with humans
- buying and selling using this system is compulsory.

Bitcoin's novelty is that each and every coin has been mined into existence, at a 100% cost in open markets. Nobody has got them at preferential terms. All the subsequent gains in value have been because of economy building. The ideas presented do not yet seem compelling enough to me to work on changing this. The idea that a parallel fork would be made instead of an altcoin is an interesting one and warrants careful consideration.

For the record, the main reason I like PoS (although I'm at the current time not in favour of incorporating it in Bitcoin, although this can change later) is that it gives an incentive to run full nodes. In the current system people are not rewarded for running full nodes while running full nodes is indeed very important to the distributed nature of Bitcoin. I'm not interested at all in reducing wastefulness. There are millions of things in the world I consider highly wasteful and the energy spend to secure the most important social network the world has ever seen is not amoung them.

POS make the whole system more closed to outside people: Early adopter not only benefit on the price appreciation, but also gain in dividends. This will cause less and less people joining this system

An important part of a distributed system is to continuously give the new comers incentive to join the network, thus new comers with newer technology/better service can re-balance the whole mining picture and take over the throne. For example, deepbit's leadership were replaced by BTCguild, then Ghash.IO and discuss fish, etc... This will make sure the system is enough decentralized and there is always healthy competition to make the network strong and fresh. Miners seek profit, but also have the voting rights, this is a very important aspect

But in POS system miners would lose the incentive due to losing of voting rights. What they do is just make the early adopters rich, and if there is a situation need a protocol level change, they don't have voting rights, they will abandon this closed system

In PoW system, the decision making rights is always stay with the current most actively working miners, that is the best way to distribute the decision making power, although there is certain risk of 51% attack. But the 51% attack is not a big problem, because ultimately is the majority of bitcoin miners decide which chain they select to work on, not existing bitcoin holders, this is a key difference (You can buy lots of coins using printed fiat money thus gaining more stake, but you can't buy a farm with huge amount of hashing power since those guys who are capable of making hashing machines will inform others at the first place)

Here is the most substantial response from the bitcoin developers mail list to my initiative . . .


An attacker modifying a past block would have to redo the proof-of-stake of the block and all blocks after it and catch up with and surpass the effort of honest nodes, as Satoshi wrote for proof-of-work. I need to ensure that proof-of-stake works for this.

I will move the continuing technical side of this discussion over to a new thread in the Project Development sub-forum.

Because many miners liquidate their rewards to replace obsolete equipment and to pay power bills, I expect the net sales of daily mined bitcoins to be less under proof-of-stake. Your argument about inflating the money supply is unclear.

I'm probably in favor of a PoS switch at some point in a few years from now.

Two years ago it would have sounded VERY believable since Mt. Gox was just hacked, which caused the $32 crash.

After that I never had an account there again. The proved conclusively to be amateurs then.

If miners mine at a net zero gain (as is now the case; they don't earn excessive returns as defined by economic theory), then there is really no inflation. The new coins do not dilute the value of existing coins because thay have been paid for upon arrival. Somebody has wanted the coins so much that they have been mined and the cost has been paid.

With PoS, new coins are a bonus that are just created without paying anything (or at least full price). If we simplify the case and move the Bitcoin decimal place 3 points, calling the resulting unit "bitcoin", and the process "proof-of-stake", have we fooled anyone? No. This is 1000-fold inflation, and its effect is that the price of the new bitcoin is only 1/1000 of the old.

I don't see at all compelling the idea of valuing something that has a built-in inflation which is not based on some useful work. Owning currency is useful work, but the hoarders should be compensated by opportunities to invest their coins, loan at interest, or declining general price level, not gimmicks such as increase in the account balance without work or risk.

In pure PoS, coins are not generated. For example Bitshares will have a fixe initial supply of 4 millions shares, and the network will to PAY transaction fees to holder by DESTROYING shares (5%/yr), the money supply will decline over time. PoS coins are truly deflationnist, Bitcoin is inflationnist despite everyone are saying (until 2140).

If you compare the features of Bitcoin vs Bitshare, you cannot come to the conclusion that the price will not be affected:
- Bitcoin increase it money supply by 10% each year
- Bitshare will decrease it money supply by 5% each year

Everything else being equal, prices will reflect that huge difference of returns.
 
You are reasoning based on a false premise: coins are not generated in PoS. Peercoin is not representative at all.

NXT doesn't generate new coins (and doesn't pay dividends).
Bitshare doesn't generate new coins AND pay dividends with the transaction fees (by destroying shares/coins which is equivalent of a shares buyback).

Thanks for taking a stab to analyzing the problem. Before proposing a solutions one should identify the problem.

First off one does not just get Bitcoin, one gets the economic synergy an Utopia it enables. (Utopia as in pain and suffering is the conduit for change not Utopia where there is no pain and suffering.)

If you get Bitcoin and you get the economic theories of Ludwig von Mises and Murray Rothbard, we can agree on the problems.
If you are at odds with the ideas of Ludwig von Mises and Murray Rothbard, we should agree to disagree, as that is an ideological debate and unrelated to Bitcoin.

Observation
1) energy + ingenuity is a replacement for labour.
2) harnessing energy and industrialization has created enormous wealth.
3) harnessing energy and industrialization has destroyed enormous natural capital.
4) we need balance between natural capital and subjective wealth or self destruction.
5) Bitcoin's exponential growth and energy consumption under certain assumptions seems will contribute to 3 above.

I will limit my problem identification and solution to the OP in an attempt to modify Bitcoin to address the problem he is technically capable of solving. There are other assumptions I believe more flexible that may result in the desired outcome.

Assumptions
Lets assume energy time and intelligence is the primary commodity in an economy, and for the sake of resources lets assume Adam Smith was correct (in that land will accumulate in the hands of the most competent - I favor Marx's evolution of ideas on the topic but will ignore them for now.) With the 4 ingredients (time, intellect, energy and land) you can produce everything we have in the world today and will need in the future.

Problem
how do we best allocate those resources for maximum benefits without compromising our natural capital.
Bitcoin enables an untested solutions but if it scales at in the future like it has in the past it is fair to assume the energy used would scale at the same rate. (Arguing this is also mute as this problem will for arguments sake assume that it does, although it most probably won't - but if it does it is a low risk experiment as the OP has time knowledge and resources to do it.)


TL;DR
So the problem here is effective allocation of energy and securing the Bitcoin network so Bitcoin can used the free market to efficiency optimize the 4 economic ingredients for maximum benefits.  ( nether I no anyone can answer this)

But assuming it is a problem lets say 0.1% of all energy available in the economy should be used to secure the exchange network that keeps everyone honest. Lets also assume we want another 0.15% of the global economy to distributed the network for resilience. And PoS isn't the solution because it runs counter to Austrian economic equilibrium.

One could:
1) Reward those who run a full node with 1 Proof-of-Storage coin (infinite supply) for every active block added to the blockchain.

2) Destroy 1 Proof-of-Storage coin for every Gigahash/s per block mined (pay 1 PoSt to participate in current round)

The result is a market will emerge to specialize is storage, the storage would grow exponentially ultimately providing a limit to the energy invested in hashing.

Market forces would encourage nodes the transaction fees could be modeled mathematically on the percent of transaction fees as a function of the number of transaction and block size.  As the storage size requirements grow for a node Proof-of-Storage coin becomes more expensive and mining slows as the network grows.


The results is every node is responsible for allowing a % of total hashing power. Nodes are limited by Moore's law until 0.15% of all Bitcoin economy is invested in securing a node.

Please focus this conversation for my purposes. I would like to define the problem to be solved as the simplest modification to Bitcoin that enables the riddance of wasteful PoW using efficient PoS.

I desire the result to become the Bitcoin brand by virtue of recognized lowest vulnerability and broad acceptance. Within the framework of PoS, I want to keep every other aspect of Satoshi's social contract with users that binds today's Bitcoin core developers. There is more freedom with respect to mining pools, which I now believe can replace the stratum protocol with something else that has full nodes as clients and fairly pays daily bitcoin dividends at the 10% annual rate. Bitcoin core developers do not, as a whole, maintain mining pool software and there are fewer obstacles for radical change.

A good problem solving technique is to first solve a simpler problem.

May I suggest setting aside the issue of new coin rewards,
and simply focus on how to achieve consensus
between nodes without PoW.

It quickly becomes clear that if solvable, it is non-trivial.

The core developers stated that no one has achieved
this so far.

This is what Meni said too -- you still need PoW as
issuance mechanism.  

We are talking about a node creating a new block
and the rest of the network accepting it.

I think it may be possible with some kind of cryptographic
handshake between nodes, but my ideas on this are
vague at best.

EDIT:  If you want to simplify the problem even further, assume all nodes trust each other and are honest.

I created the Bitcoin Proof-of-Stake Project thread . . . https://bitcointalk.org/index.php?topic=584719.msg6397403#msg6397403 (https://bitcointalk.org/index.php?topic=584719.msg6397403#msg6397403).
Your advice is excellent I believe regarding solving the simplest problem first.

a hybrid pow+pos system would seem to answer many of these issues. Also people with pos nly wtill need to spend some coins for goods and services.

Do you think mining is that open in the asic world. The rate of redundant hardware is scarey.

no one likely has 10M PPC. there are on just over 20M PPC and the less being made than BTC or LTC.

However PPC is looking like it will go >$100 within a year

It rewards everyone who participates in proportion to their holdings. Everyone gets 10%. They do need to work for it, though: they need to validate transactions. Only people who operate full mining nodes get the dividend. Coins held in cold storage get nothing.

I don't see why you think that.

With PoW, those who can afford the best mining rigs get to make the rules. Either way it is the richest sector. I think if anything, the barrier to entry is lower with PoS, since you can start smaller. You don't need as much computing power to make a contribution.

(This wasn't always the case. You used to be able to mine Bitcoin on a desktop computer; and that was a good thing. PoS will return us to those days, now long gone. PoW was also necessary as a way of distributing coins, to help boot-strap crypto-currencies. However, we are now past the boost-strapping stage.)

Not at all. Everyone who participates gets 10%, no matter how small their stake. It is still a coin-distribution mechanism. That you say it isn't, makes me wonder if you understand it. It will distribute coins more widely, since mining is so much easier. Everyone can benefit; it's not reserved for the people with warehouses full of ASICs or with the technical knowledge to run them.

Why is consuming less electricity a bad thing? You keep talking about work, as if it were noble. Miners still have to do work in PoS; they still have to validate transactions. That's good, productive work. Solving arbitrary hashes is wasteful work. It's like paying people to dig holes and then fill them in again. The only thing it achieves is network security, which can be achieved equally well without it.

The first point is evidentially true. Other things being equal, less waste is good. The later points don't follow from the first point. Points 2, 3 and 4 could equally happen in a PoW system. They aren't problems specific to PoS. I think your reasoning here is very unsound. You are inventing policies and attributing them to PoS, and then using them to attack it.

PoW is not efficient; that's the point. It favours a never-ending arms race of escalating consumption of computing resources, presided over by an elite with the capital to buy it and the expertise to run it.

What is the reason that the new coins should be given in proportion to existing coins, iff the holder also does some work?

If the work done is equivalent for 1 and 10,000 coin holder, should the reward not be also?

See the point you make in bold. rent-seeking is how you get income without working. (They don't work the computer program does the work)


It is actually the other way around. PoS is more energy efficient at maintaining a cryptocurrency. It is not efficient at allocating capital in the economy as a whole. Capital is used to fulfill need, currency is the conduit. If you can fulfill need by not working and just holding currency then capital from the economy will accumulate in hoards of revenue generating currency.

And those who need to use currency will do what those who have hoards of it what.

Competition in PoW insurers those who make the currency have to spend it into the economy.

Good point, actually every node (Stake) is doing the same work. But the reward is not based on the work done, the reward goes to the rich.

The reward should go to those who do the work most effectively.

Bitcoin block rewards are quickly dwindling. Could it be that it was intentionally designed to be more energy-efficient in the steady state when the initial distribution is completed?

I should make my position clear:

1.  I believe that blockchain "spin-offs" are an excellent tool to facilitate experimentation with new cryptocurrency features.  They award all current bitcoin users with a percentage of any pre-mine equal to the their holdings of the unspent outputs in the blockchain at a pre-defined point in time.  Current users can "claim" their pre-mine in a decentralized and trustless manner using their bitcoin ECDSA private keys.  

SlipperySlope's proposal to create a proof-of-stake spin-off is an example of the general spin-off methodology.  I would like to see the process of creating spin-offs made as easy and transparent as possible, and I intend to assist SlipperySlope by working towards this goal.  

Here is the "spin-off" thread: https://bitcointalk.org/index.php?topic=563972.0 .  And here is a complimentary proposal for a Turing-complete spin-off: https://bitcointalk.org/index.php?topic=563925.0 .

2.  I am saddened that some of the posters that I follow and respect believe that it would be superior if money was created without work or cost.  In my opinion, the issuance of money is too important to trust to humans, even ourselves. I hope readers will go back and read Risto's and Adrian's posts in this thread, as they both explain using different words why coins must come into existence through work, and why this is preferable to shares issued freely based on the consent of stake holders.  

Once again, I support SlipperySlope's PoS spin-off experiment, for I've been promoting spin-offs since April 9.  It will put the fear of god into PoS alt-coins with less-efficient initial coin-distributions, and then it will succeed or fail based on its own merits while piggybacking bitcoin users by default.  

Question for SlipperySlope: Will the initial distribution of wealth in Bitcoin-PoS be exactly as per the unspent outputs in the bitcoin blockchain at a certain point in time in the future, or will you consider redistribution of wealth if you find popular support for it?  

i'm not so sure anyone could have predicted that ASIC's would have come into play and we would be running the kind of energy that we are running to find Bitcoin blocks. So, no, I don't think that could have been assumed.

Nice read Brangdon, thanks for that.  Makes me more in favor of PoS now.

While I'm not sure I agree 100% with your philosophical position,
I think bitcoin is still too young and unstable to abandon
PoW while keeping it psychologically appealing.

I mostly agree. Especially as I think real PoS are still too immature to incorporate into the Bitcoin protocol today. Even though I've been advocating PoS in principle, I'd argue against that step until PoS is better understood.

That said, I think network effects make it almost impossible for altcoins to succeed again Bitcoin. Even if we agreed PoS was better than PoW, I expect getting from here to there will be extremely difficult.

Brangdon, what SlipperySlope is proposing is an alt-coin.  The only way to turn bitcoin into a proof-of-stake network is to create a spin-off or fork (i.e., an "alt-coin") and try to legitimize it with your influence and economic power.

SlipperySlope's project development thread for Bitcoin-PoS is in the Alt-coin Section for a reason: https://bitcointalk.org/index.php?topic=584719.0

How would a hybrid pos/pow work?  50/50 or something thereof?  Do any altcoins already have this feature developed?

I think they both have something to offer to the network.  More "work" and more incentive to create a node.

Does proof of work have to be limited to computer calculations?

No it could be limited to IP address or any other computer operation (all can be digitally reproduced). Satoshi discussed it here on Bitcointalk and argued that it was the hardest process to fake, in that one had to invest economic resources to do it and in so doing that would introduced risk and competition and efficiency, optimizing the distributing of coins.

If you can do Proof of Storage that would be a more effective distribution method than PoS. Some proposals but not invented yet. CloudCoin comes to mind as 1 of 3 attempts I know of.

500 millions for miners ? i think this number is  getting lower with time

The problem with that calculation is supply and demand.   It's simply not possible to simply double the hashrate of the network by buying it all at once.  The supply is not there.   If you were to monopolize the output of ASIC  manufacturers in an attempt to double the network hashrate, the rest of the bitcoin community would see it coming, and respond in kind.

Would it be possible to tie Proof of Storage to a gps coordinate for example? If as a miner, I could register an IP address to a physical and known location, earning trust over time (it's centralization - but there could be competition, anyone can register w/gps and documented physical address depending on regulators or trust of your location by the outside world) then work could be defined as transporting to and from storage, getting resources to the most effective location, addressing. It seems to me that work might be defined as almost any human endeavor that can be agreed upon by the block chain. If there is litter on the ground, and that litter can somehow be identified as lost, and it is then registered that I've moved the litter to a waste receptacle, then I've proven work. To me, bitcoin is about rewarding more people for the work they do every day. There should at least be enough coins to measure every keystroke that has ever landed on the internet - if that makes any sense. :)

To be honest, it doesn't. Only work that is rewarded in Bitcoin is maintaining the integrity of a blockchain. That's exactly what mining does. It doesn't mean that we can not find additional uses for the system, but they have nothing to do with it's core components.

If we assume that an other system (except mining/PoW) can more efficiently conduct the exact same work, and therefore the cost of maintaining the network would be lower, would this lead to an increase or decrease of Bitcoin market cap?

Hint: If there is a way to do it for free, what would happen to Bitcoin in this scenario?

And for starters, try to remember that changing the number of coins is irrelevant - only market cap matters and it can be divided to whatever number of coins we wish, by changing the decimal place or doing more complicated things.

This is hard to arrange. A rich miner with 10,000 coins could split their holding into 10,000 wallets of 1 coin each, and present to the network as 10,000 poor miners, and there-by get 10,000 times the reward.

Are we rewarding from the work, or just instituting inflation? If latter, what was the point exactly.. :P

Yes. And I think that's going to be immensely difficult. The spin-off idea helps, but (in my view) not enough. I doubt Bitcoin will ever be superseded by an altcoin unless some disaster happens to Bitcoin (like a massive, sustained 51% attack).

PoS is no more inflationary than PoW. Go re-read the first post in this thread. The idea is that exactly the same number of coins gets created in each block, presumably with the same block-reward halving schedule.

We do need to reward the work, to keep miners mining, so that transactions keep getting validated and coins keep flowing. However, the deeper motivation for PoS or PoW is as a solution to the Byzantine Generals Problem. Basically, in a distributed system, conflicts are resolved by majority vote, and voting has to be made expensive to prevent stuffing the ballot-box. Proof-of-work is one way to make it expensive. Proof-of-stake is another.

I have read the thread, and there was a convincing differentiation of shares vs. coins.

With shares, you vote without working, according to how much you have at stake from previous investment.

With coins, you must pay for every vote you want.

The first one is scarcely suitable to be a basis for a monetary system, because there is no anchor, no cost that "keeps people honest" like in gold standard vs. fiat standard.

Switching back to fiat after just 5-8 years of enjoying the renewed benefits of gold would be sad.

One concern is that a 51% attack could be launched by a privileged player. For example, by an ASIC manufacturer. A lot of ASICs are made in China, a country with a rather anti-Bitcoin stance. The Chinese government could compel chip foundries to cooperate. Or terrorists could, by applying extortion to the chip foundry staff.

You don't even need to be that privileged. You can ask a chip foundry to manufacture some chips just for you, even when that foundry doesn't normally deal in Bitcoin ASICs, and as they'd be new chips they wouldn't affect the general market. That's pretty much what happened when the first Bitcoin ASICs got developed: so that, but as a commercially-secret agreement. (Compare with how PS4 and XBox One contain custom chips.) The chip foundry can't tell the difference between an honest miner and one planning an attack (and they probably wouldn't care anyway). If you are, say, Saddam Hussain planning to attack financial infrastructure as an alternative to developing nukes or other weapons of mass destruction, you might need to conceal your identity through fronts.

It's easier if you can prevent new ASICs being supplied to honest miners, though. I don't follow what you mean by "respond in kind". Try to bid up the price? Where would the money come from? Kidnap the children of the staff of the chip foundry? Become the Chinese government?

Generally with PoS you pay with "coin-days". The longer you hold coins, the more weight they carry for voting, but the act of using them to vote resets their age to zero. So that's what you lose; not the actual coins, but the coin-days. But you do lose something, something that is unavoidable expensive to acquire (you have to buy the coins and then hold them for a time). So it is not like voting with company shares. As you say, that is essentially free once you have the shares; you can vote the same shares multiple times.

What are the things that I pay for / vote for?

You vote with coin-days.

Thanks for the reply itod. I'm starting to understand it a little better.

for = is there anything that I can spend them on?

I don't understand the question. Coins can be exchanged for goods and services in the usual way. Doing so resets their age to zero, so the receiver can't use them as mining stake for a while.

Is there any economic benefit at all to the network from such a mining? The transactions are practically handled centrally, like in banks(?)

No, it's distributed. (Unless you think Bitcoin is also mined centrally, due to a few mining pools having a virtual monopoly.)

Does it [PPCoin mining] function in absence of a central authority? If not, in what way is it distributed?

The Bitcoin Proof-of-Stake project thread is https://bitcointalk.org/index.php?topic=584719.msg6397403#msg6397403 (https://bitcointalk.org/index.php?topic=584719.msg6397403#msg6397403) . A descriptive post there is . . . https://bitcointalk.org/index.php?topic=584719.msg6415632#msg6415632 (https://bitcointalk.org/index.php?topic=584719.msg6415632#msg6415632) .

With shares you also have to pay to vote, since you have to pay to acquire shares!

I don't get why people are so prompt to make the analogy PoS=Fiat. In fiat people who vote (Central bankers) have divergent interest with fiat holders, they have no skin in the game. Whereas with PoS the interest of the decision makers are the same than the interest of holders. Skin in the game is the way to keep decisions in check (and that's why everybody right now is fine with miners making decisions: because like holders, they have skin in the game).

Also the argument of the value derived from cost has the flavor of the marxist labor theory of value. The value of the network doesn't comes from the cost to maintain it but from the services provided by the network (the more useful the services are, the more there is adoption, and the more the price increases).

It is interesting to analyze how SlipperySlope's experiment (bitshares) will play out.  

If SlipperySlope succeeds in releasing his PoS spin-off with pre-mine proportional to the bitcoin unspent outputs, and if he has agreements in place with various crypto-exchanges prior to launch, and if the launch is well-advertised, what will happen?

All bitcoin users will instantly be awarded an equal number of bitshares.  On the exchanges, bitshares will trade directly against bitcoins.  If you have 10 BTC in your Cryptsy account, Cryptsy could credit you instantly with 10 BTS for free.  That's what PoS is: shares created without any work requirement.  The next question is will these shares retain any value?

Some bitcoin holders might think that the idea is stupid and will immediately dump their "free shares" at say a 1 : 100,000 discount.  Users who believe in PoS would be wise to purchase these, for if bitshares supersedes bitcoin, then they've 100,000X their money.  Maybe I'll buy thousands of these shares if they are cheap enough.  Most users will remain impartial (not do anything) and retain x BTC and x BTS.  PoS supporters will keep trading out of BTC and into the "discounted" BTS ledger until the market cap of BTS is near the market cap of the other PoS alt coins (0.1 - 1% of the bitcoin market cap).

Now it gets interesting.  It will probably be "worth it" to me to start selling my "free" BTS at perhaps a 1 : 100 discount.  Maybe I'll slowly sell half of them should the price of BTS continue to gain on BTC.  I feel a lot of others will do the same.  Meanwhile, PoS supporters can continue to sell out of BTC to purchase these PoS coins as they are still "discounted."  Eventually, I think it will be obvious whether bitshares has any hope of superseding bitcoin.  

And the last question is : what would Satoshi do?  If BTS ever trades near 1 : 1 with BTC (or higher) Satoshi could always "dump" his estimated 1,000,000 BTS shares and crash the entire PoS experiment.  

SlipperySlope reported in his PoS alt-coin development thread that a bitcoin core dev said this:


I cannot vouch for the accuracy of this information, but it sounds like the fact that shares are free to create caused a problem that forced Peercoin to become centralized around the developers who sign each block to be valid.  So in essence, these developers are the "Central Bank of Peercoin."

Correct.  It is like a popular democracy where shares (money) can be created and destroyed based on popular opinion.  For example, SlipperySlope has a tricky decision to make: should he credit Satoshi with his estimated 1,000,000 shares and risk a dump of 8% of the outstanding bitshares?  Or should he redistribute them more "fairly"?

When I asked him about his policy on the redistribution of wealth, he said the following about the Satoshi coins:


I found it very interesting that SlipperySlope believes that Satoshi holds some sort of "social contract" with us not to spend his coins.  I disagree.  

What about the DPR seized coins?  Perhaps these should be redistributed for the "greater good" too?  And then perhaps it will become popular opinion that some whales have too many shares and it's unfair that the staking rewards flow in proportion to stake rather than work.  The bitshares community will claim that people should be rewarded for work, not for rent-seeking.  And then perhaps they will vote for some sort of progressive transfers of shares from these whales to projects for the betterment of humanity (the "greater good").

Bitcoins are very difficult to create for a reason.  

Since PoS schemes aim to create value out of nothing (cf. alchemy), surely they can decide to exclude whatever entities from the nothing ahem. value distribution if they want. There is no social contract that forces the creators to give shares to anybody. Most altcoins only give shares to the creators themselves and exclude all the others.

If we are aiming to have another social engineering fiat experiment, do as you wish and don't be surprised if nobody wants to hold your paper except (max) at gunpoint, as is the case with national fiats.

Yes.  Thank you Risto.  It is clear to me that PoS is Fiat 2.0, but I think a lot of others here haven't had that epiphany yet.  

I actually hope SlipperySlope proceeds with his bitshares experiment.  It will be very interesting to see the dynamics that unfold.  If bitcoin holders believe in PoS, they should trade out of bitcoin and into SlipperySlope's bitshares as they could profit immensely should bitshares become dominant.  On the other hand, if they are wrong, then they will transfer some of their wealth to bitcoin holders.  SlipperySlope's experiment will give PoS supporters a chance to "put their money where their mouth is."

To me the problem is not about rewarding more people it's about distributing Bitcoin to more people. Satoshi came up with a market system to do it, one that is consistent with Adam Smith's description of why metals were mined and how metals came to hold value.

As for your solutions if you can come up with a distribution mechanism that is controlled by a trust free market system it would have value, IP address and GPS locations are easy to spoof and controlled by a central system not a trust free market system.

Are you disputing the affirmation that value is derived from the usefulness of the network and therefore not from the cost of maintaining the network?

No it's an affirmation that saving doesn't doesn't service the greater good,  the act of saving is risky one only saves if there is a future benefit, while one invests or spends one's savings for future benefits. With PoS saving are reward always.

No. I had a long treatise concerning this as my first post in the thread.

I dispute that the network can sustainably gain any value if the currency unit is created out of thin air.

It's like holding a share in a company. Dividends reward people who hold shares in companies who are profitable (ie. which resolve a problem in a efficient way).

Are you stating that shareholders shouldn't earn dividends?

this thread is very superficial. to begin with the mining subsidy decreases over time. It will half in 2017 to 4%.

a fork from Bitcoin to PoS will never happen. this just doesn't make sense.

if you want to create a new protocol you should learn the basics, otherwise nobody will take you seriously. and besides there several major issues with PoS. if you solve those, just start an altcoin and get rich. end of story.

How about you tell - do you think increasing the number of currency units (other things being equal) increases the market cap?

Answer is of course NO, but why is the whole thing then so important?

PoS doesn't involve by itself creating new currency units.
Everybody imagine that should be the case because everybody are reasoning within the PoW paradigm which make necessary to create new units. But a PoS network can work fine without creating new units (see NXT and soon Bitshares X, or any brick and mortar corporation).

In your example:
economy = company
shares = currently

The problem is the company needs the shareholders to give up there shares to do business.

Of course not, money creation is a value transfer not a value creation.

This value transfer from holders to miners is necessary because miners are doing a service for the network. Holders pay this service by diluting their value via the inflation of the money supply.

But with PoS, holders can accomplish by themselves the very service the miners are doing. Therefore they no longer need to pay miners, they no longer need to see the money supply be inflated and diluting their value. The main point is that PoW is fundamentally inflationnist whereas PoS is truly deflationnist. If BTC-PoS would born tomorrow we can have a money supply which will be forever 12,7 millions BTC, instead of 21 millions with PoW.

You are not making any sense. In your model, there is no work that the "PoS" does. So all coin creation serves only to inflate the value of all coins. Is there anyone in the thread who knows what he is talking or do I have to conclude that all "PoS" is smoke and mirrors?

In my model there is no coin creation. Before you insult me please read what I write.

The main argument you've been proposing and I've been attacking is the blessing of new coins given to existing holders.

If there is something more to it, please bring it to the table.

Well I already said 4 or 5 times in this thread that with PoS new coins/currency units don't need to be create, therefore existing holders would no be blessed with new currency units.

You can either fixed completly the money supply (1) or destroying the money supply as transaction fees (2).

Both with (1) and (2) nobody wins more coins and the money supply never increase. In (1) holders' stake as a proportion to the total money supply is forever fixed, in (2) holders' stake as a proportion to the total money supply increase over time due to the destruction of the money supply, economically this is equivalent to a dividends/shares buyback.

Yes. I see. So this brings us to the problem of how to create the monetary base then?

- Loan it into existence (current fiat banking system). Most evil and insidious way that indebts and consequently enslaves most everyone.
- Create it out of thin air and give to the early adopters/whoever (premine). Unfair, uneconomical and does not work in practice.
- Mine it, with each unit of currency created against an equal value of real resources wasted (Bitcoin).

-Airdrop it to current BTC holders

(Peter R's spinoff proposition, which is awesome imho).

Yes, I also think it is very nice. The debate whether to steal somebody's share in the process is also very interesting and reveals much of the designers. (Not taking sides though).

Creating a bitcoin spin-off is unethical because you are giving away most of the value to the already rich bitcoin early adopters and the majority of them will surely dump their stake in the early stages and they can kill the project.
Creating entire money supply out of thin air and give to the early adopters is ok but i think the best solution would be to launch an Etherum style IPO to raise money for developing and promoting the project.
I think that only those who believe in the project and those who develop it deserve to become early adopters. Why do you want to give a stake to someone who doesn't give a shit about PoS?

And before talking about the distribution i think it is better if we find a way to achieve consensus using PoS which is the real big issue.

Shares are not currency. (Oh my. In the "ancient times" 100 years ago a banker would need to know the difference between a mortgage and a real bill, since the former was not currency but the latter was. Now people are in all seriousness propagating shares as currency  :P :-[ )

Is there a thread where we could talk about the interesting concepts of distributing the currency (assuming that the network security is a non-issue)? For example:

Satoshi gets 100,000 units of the new currency. Everybody that applies for his share after him gets an ever-declining amount. No new currency creation, only way to amass it is to buy in open market.


The idea of IPO or one-week premine just does not fly, because nobody would have the incentive to join the system where random blokes own all the money and others have to buy it from them. Bitcoin's mining schedule is pretty much perfect in this sense.

This is a very bad idea why rewarding Bitcoin early adopters even more? And i'm sure most of them don't give a shit about this project and they will rush for dumping their Bitcoin PoS as soon as they can.

I don't know what you are talking about. I propose to do an IPO for initial distribution and you tell me that i don't know the difference between shares and currency, are you drunk?

Quoted for lulz. I think I need to put this to my sig  ;D

What incentive had someone to buy Apple shares at 30$ considering that random blokes owned all the company at the time?
If the system is well promoted and well developed, and it is safe and resilient and works perfectly without wasting resources people will buy it even if 3 days after launch its market cap is 100M$.

Currency is the most marketable good. Shares can be currency if marketable enough.

And a share almost instantanely and freely exchangable anywhere in the world thanks to a P2P network is damn marketable. We can even assume a bitcoin is a share in a non-profitable corporation (ie. which pays no dividends).

I agree 100% with you on this but he will probably laugh at you because a sheep is not a dog after all.

Because the current distribution of Bitcoin is a much better distribution of currency than any of the other proposals. Whether it's deserved or not is not relevant in the slightest.

Hang out here a little longer and you see the problem with the IPO has been discussed, the premises is Bitcoin distribution is unfair so an IPO would be fair except it's unfair for those who didn't here about the IPO

Have 100% premine and then sell the entire supply at 1 satoshi per coin until the initial supply is fully distributed. Then give proceeds to charity or something.

No, getting the coins for free happens because of the spin-off idea of basing the initial distribution of coins on a snap-shot of the Bitcoin block chain. Any altcoin that uses spin-off will give free coins, even if it uses PoW.

Similarly, the altcoins that have an initial allocation based on, eg, Icelandic or Scottish citizenship also give free coins, and again it has nothing to do with whether the currency is based on PoS or PoW. The initial distribution has to come from somewhere. It's always going to be controversial.

This is referring to a rather technical problem with PoS. The basis of PoS is that mining a block be expensive, with the cost in coin-days. The problem is that they only pay that cost if their mining attempt is successful, because the transaction that takes away their coin-days is effectively part of the block they mined. This means it is free to mine blocks that aren't included in the block-chain. So a rational miner would mine new blocks for the longest chain, but also mine blocks for shorter chains in the faint hope that the shorter chain somehow becomes the longest and that the miner gets some advantage when it does. And this in turn means that there are a lot of long forks floating around, and the system isn't doing a very good job of establishing consensus.

It's a big problem with PoS, that needs to be solved or else the system isn't viable. However, it's not accurate to say that "shares are free to create". They are only free if they aren't actually created.

The PoS does require some work to validate transactions; it's just a lot less work without the proof of work requirement. So forgers (what NXT calls the validators; it doesn't like to use the word "miners") still need a reward, but it can be a much lower one.

Coin creation devalues existing coins through inflation whatever the system. Arguably, PoW requires more inflation because the miners are doing more work and so need higher rewards than mere transaction fees can give them (at least while the currency is young, transaction volumes are low and the capital value is low).

Part of the problem is that there are multiple PoS systems. I, for example, know NXT somewhat better than I know PeerCoin. I get the impression people are assuming features of one coin or another are inherent to PoS, even if they aren't.

And I'm very far from an expert on NXT. I hope you don't conclude that all PoS is smoke and mirrors just because people in one thread aren't expert.

here is the newest PoS altcoin

https://bitcointalk.org/index.php?topic=583591

and only 24hours after launch, exchange volume:

https://www.scifi-ex.com/#/trade/exchange/39

people want fun, not serious clones of bitcoin

With Bitcoin, the "inflation" has not prevented the coin purchasing power from rising a lot. In this context I cannot see how inflation has been bad.

This question concerns the initial distribution of coins; it's not the same as bankers making deciding how much money to print on a day-to-day basis. It's a one-off choice.

As an aside, I don't think it's right to pick on Satoshi but I do think there's an argument for basing the initial distribution on the unspent transaction outputs in the Bitcoin block-chain that are, say, less than 2 years old. The main reason being, you want the new coins to be held by people who are reasonably active in the Bitcoin community, in the hope that they will also be active in the new altcoin community. Satoshi would be excluded, not because he is too rich, but because he's too inactive. Arguably there is no need to reward the earliest adopters of Bitcoin because they are not early adopters of the altcoin. You would advertise the snapshot date in advance, so that whales that were still active and monitoring the scene would be able to transfer their bitcoins to themselves to freshen their transaction dates before the snapshot.

Rewarding stake is actually rewarding risk. Anyone holding large amounts of bitcoin when they could sell them, is risking the bitcoin price crashing and them losing a fortune. It shows they have faith in Bitcoin. That risk-taking and faith does deserve some reward, in my view.

Also, do you see what a leap it is from "whales are dangerous to our new currency because they could crash it by dumping their coins, so perhaps we should exclude them to reduce that danger", and "we should exclude whales because they don't deserve to be rich, because they didn't work for their money"? The first is pragmatic. The second is philosophical/moral; the politics of envy.

You keep making things up and ascribing them to your opponents.

Considering that everyone has a right to make an altcoin and distribute to whomever he wishes, that is quite a reasonable proposal.


Whales are important to the new currency because:
- they have the means to prop up the price during downturns
- they have access to marketing and project development
- they supply the coins to the market at times of popular demand
- they provide the overall backbone to the economy.

If I did not have loads of bitcoins, would I do all that I am doing to help it succeed (for free)? Hell no. If there was nobody in that position, bitcoin would be without leader and without rudder. (It is already enough ;) )

If people want PoS they should go use Peercoin or some other PoS coin. Bitcoin is bitcoin. It's a PoW coin and should stay that way. That's not to say people should favour bitcoin. By all means start using a PoS coin.

+1 totally agree.

The OP is proposing a PoS spin-off from the bitcoin blockchain.  It is an "alt-coin."  What separates it from the other alt-coins to date is that the initial distribution of the pre-mine is proportional to the unspent outputs in the bitcoin blockchain at some pre-determined point in time.  For example, if a current bitcoin user controls 0.0001% of the existing bitcoins, his bitcoin ECDSA private keys will also allow him to claim 0.0001% of the PoS pre-mine.  A "spin-off" is a technique to bootstrap your alt-coin with a large potential user-base and with a wealth-distribution known to be efficient for bitcoin. 

If you are already a bitcoin user, you will be awarded shares in SlipperySlope's experiment for free.  You could immediately dump them if you think the idea is silly, do nothing if you are impartial, or buy more if you like the idea.  The aggregate behaviour of all market participants will dictate whether the coin thrives or dies. 

Spin-off concept:
https://bitcointalk.org/index.php?topic=563972.0

SlipperySlope's PoS spin-off development thread:
https://bitcointalk.org/index.php?topic=584719.0

Turing-complete spin-off "request for comments" thread:
https://bitcointalk.org/index.php?topic=563925.0

LeChatNoir, if you think you can come up with a wealth distribution that would be more "popular," then simply let SlipperySlope's team do all the hard work for you, and then clone his code and re-launch it with your ideas for the best wealth distribution.  Your PoS shares will compete directly against his.  

In SlipperySlope's PoS spin-off development thread (https://bitcointalk.org/index.php?topic=584719.0), they were recently discussing the need to win-over influential people to help promote their PoS shares.  You could play this game in a more devious manner by awarding more coins to whomever you think is most important to your cause.  You could also apply a non-linear scaling to bitcoin's wealth distribution, to alleviate your concern with "rewarding Bitcoin early adopters" and having them "dumping their Bitcoin PoS as soon as they can."  It's your creation so you can do whatever you want.  The market will let you know the value it places on your shares.  

Since PoS shares can be created without any work requirements, we could see several PoS "spin-offs" from the bitcoin blockchain.  SlipperySlope's PoS shares may stay true to the bitcoin wealth distribution (although they have already considered re-distributing the Satoshi coins), LeChatNoir's may take from the rich to give to the poor, and I may launch PeterShares where I award 100% of the shares to me (I will then arrange a sale of 0.0000000001% for $1000 to my dog giving my shares a mark-to-market value of $1 quadrillion dollars).    

I'd like to see the process of creating spin-offs (https://bitcointalk.org/index.php?topic=563972.0) made as easy as possible so that people can empirically test their ideas (https://bitcointalk.org/index.php?topic=563925.0), rather than repeatedly engaging in the same tired debates.  It is pretty clear to me what the outcome of all these spin-offs will be, but I like them because they give people who want to "change" bitcoin an outlet for doing so and a way to "put their money where their mouth is."

My code will be open sourced on GitHub, where presently sits a cloned Bitcoin repository . . .

https://github.com/StephenLReed/bitcoin (https://github.com/StephenLReed/bitcoin)

My plan is the keep this branch up-to-date with regard to released versions of the main branch.

My ideas about reward distribution change almost every day. For example today I am mulling simply allocating the block rewards, e.g. $500 million this year, to the super-peer pools, and let them compete for acquiring proof-of-stake shares from client full nodes.

This "spin-off" concept has been discussed for years in the case of a hard fork that is not at all compatible with the current one. Legacy nodes would still need to be around for stragglers for many years. It would be good to see someone try it and work out the bugs. Perhaps they can do it with one of the other altcoins first.

Your issue is noted, and thanks for bringing it up.

I have no clue of technical implementation, as a user i do not accept the costs for mining, i switched from BTC/LTC/FRC to BC/MINT/PHS.

Selling coins to pay for electricity and hardware is not very supportive for a price, nothing else is happening at PoW,  only sometimes hype has overdubbed this tendency.

I say there is no choice, PoW eats itself already via multipools of PoS-coins, maybe it is fun to mine, but every innovation needs high efficiency to scale.

And miners did not tell the truth of what they are doing, "securing the network" sounds like a real need for energy, but to generate an incentive for keeping the nodes online does not need hashing power.

This can be a bad year for PoW, since i only noticed a few critical voices on energy usage, all is well deserved, we have only one world and we need our energy for more important stuff, sorry.

PoS-only coins are for a good reason, it still take some time until they have reached the same age and secure status as Bitcoin - this is exactly the timeframe you have to find a solution.

Very interesting.

Learning from BlackCoin experience,  upon launch of the Bitcoin Proof-of-Stake project, an old version pool is launched which pays participating old-version ASIC miners new-version bitcoin via automated transactions at an exchange. The old bitcoin mined at the pool is sold for new bitcoin - depressing the price of the old and lifting the price of the new.

Bitcoin Proof-of-Stake project (https://bitcointalk.org/index.php?topic=584719.msg6397403#msg6397403)
Transitional SHA-256 Mining Pool (https://bitcointalk.org/index.php?topic=584719.msg6457249#msg6457249)

If you want money that doesn't use energy, use gold. But wait, it's heavy and takes a lot of energy to move. It must be stored securely, that requires a lot of energy too.

Money must be based on energy. The USD is based on oil, which served it well for a long time. Nowadays acquiring oil is getting messy. We need an alternative to the petrodollar. Modern economics has evolved into sophisticated use of balance sheets that create efficiency of scale for corporate profitability. Our focus on an energy backed currency makes this possible.  Financialization and the ever increasing layers of money abstractions depend on a growing energy supply. This is a good thing and why you are not living in a third world country.

Work must be done to add value to that money. The Bitcoin algorithm does the jobs currently held by firms like Arthur Andersen, HBC, the Federal Reserve, and other such reputable institutions. It does the bookkeeping as transparently as you want it, but also with extreme efficiency. Bitcoin does not require large executive bonuses, bailouts, or bail bondsmen.

PoS is anti-industrial. It doesn't promote commerce nor capitalism. That's why the Bitcoin economy is growing and the PoS coins are merely hoarded by false escaping princes of Africa. PoS economies would probably be useful in dictatorial regimes which force its subjects to use them under the threat of violence.

No, mining computes useless SHA256s. It's only purpose it to decentralize block production which can be done with POS or other consensus mechanisms.
The belief that mining somehow "backs" or adds value to bitcoin is like a cult mentality. "The bitcoin algorithm does jobs currently held by ..." - except these parts can all work fine, you just skip the part where you do a billion hashes.

The entire Bitcoin network uses less energy than one out of thousands of large banks like the Philippine National Bank.

It is a fact that mining somehow backs and adds value to Bitcoin. But how to explain it best? Who can help? (I am at a loss despite calling me "monetary economist" even before Bitcoin was invented  :-[ )

The simplest explanation: It is proof of actually doing work, not proof of being rich, greedy, and power hungry.

I am not convinced.

Probably because you recognize that money itself is an abstraction, or a reification. Defining money is an exercise in ontology.

Modern money is mostly an abstraction.  It's value comes from its wide use and acceptance as value,
which is admittedly, circular logic.  However, remember that the United States Dollar
was once backed by gold.  Other fiat currencies are at least backed by governments.

Remove human psychology from the equation, and any semi-scarce unit could be a currency.

However, psychology cannot really be removed from the equation, since
the very concept of money is that of a medium for which to exchange values.

Proof-of-Work is psychologically satisfying because it is more "fair"
than bootstrapping a new currency out of nothing.

Doing work doesn't entitled you to anything. You can dig hold and refill them with the soil you just extract all day long, nobody in his right mind will pay you to do so.

Thinking that work back value is marxism, thinking that useless work adds value is keynesianism. Both are deeply broken economics theories.

Modern money is mostly an abstraction

This has always been the case.

(I do agree with most of your comment BTW, just think you can generalize it further)

Paul Krugman has suggested exactly this.  

In fact, I bet Paul Krugman would simultaneously support PoS and paying people to dig holes and then fill them in.  He would say the PoS is superior because it saves energy, and then he would say that PoS share holders should create more shares to pay people to dig holes and fill them in to keep the economy going.  

So you admit that PoW is "digging hole and refilling them" kind of work?

Krugman can say whatever he wants, shareholders won't destroy their wealth to please him.

Quite the opposite.  I admit that I think Paul Krugman believes that money should be easy to create (like PoS) so that we can direct it for the "greater good" towards projects that waste our natural and human resources.  

Proof of work makes money difficult to create so that it cannot be easily misdirected towards wasteful projects.  

I am sorely afraid that the instant (or not too long after) the U.S. stops using any kind of threat of violence to support the U.S. dollar, its value collapses.

Gold will still be dug from the ground with great effort as usual, no matter if USD is destroyed or not.

So the day where there is no more gold under the ground (assuming this is possible, for the sake of the argument let's ignore the rising marginal cost of the extraction which make this impossible), do you think the value of gold would somehow decrease since no work would be required to extract it?

PoS is a kind of gold which were already fully mined.

I just thought of something.  When did humans begin to most heavily damage the environment?  It started shortly after the US went off the gold standard in 1933.  The fact that money became easy to create helped finance that enormous waste of resources in WWII and has continued to support our "consumer economy."

In fact, most "economic stimulus" by the Fed is an attempt to get people to consume at a faster rate.  And the faster we consume, the faster we use our natural resources.  

The US went off the gold standard because "it was too difficult to create hard money."  They moved to a new type of soft money that, unlike gold, could be created by stakeholders without work.  Since this money was easy to create, it eventually got created in abundance.  

@ toast, the evolution of logic(scientific method)  cult is an open cult many follow the scientific method because it is functional but some are just cult follows and not open to reason, your job is to distinguish between the two.

Ludwig von Mises describes how the commodity with the most general utility becomes "money"  then through evolution his regression theorem explains how we get fiat.

It is important to understand that "money" is you labour or the product of your labour, and not all labour or products are equal. (Digging a hole in the ground and filling it up is labour intensive but has no value, like wise making something no one wants lacks value)

Subjective human preferences give commodities there value, this value changes but it represents the majority.  (This is called intrinsic value, it should be called functional utilitarian value - gold bugs get hung up here as they can make a cup from gold but not cryptocoins.)

Adam Smith presents arguably the definitive argument of on how we all  cooperate in a free market all notable economists agree including Marx.

Smith explains how excess resources in an economy lead to the division of labour which in turn leads to codependent relationship in an economy like mining copper and copper being manufactured into a plow which in turn increase productivity resulting in competition and an increase in productivity.

Smith also shows how the excess resources are invested in the most valuable commodities and how those commodities become money as everyone can use them in trade to be more productive.

Those comprises that improved productivity were metals, bronze and later silver and gold because they out lasted all others.
 
Over time the value of metals came to represent the cost + profit it took to mine them.  They held there value in the free market because capital accumulates where it it provided the most utility.

Mises explains how we get from then to now, understanding this and projecting explains how fiat causes mal-investment and the mis-allocation of resources.

Now PoW ensures the cost of money requires the investment of excess resources, this is consistent with the work of Adam Smith it's value is derived by the majority its production is limited by competition and availability of excess. It isn't a cult.  It's value is free market driven and like gold its production gets exponentially more expensive.

Now PoS has more similarity to how capital functions today, it requires an all knowing enlightened administrator, capital allocation is not determined by the free market but by the controller of the capital.

+1

Nice write-up Adrian. 

Austrian economics is pseudo-intellectual twaddle. Forget that nonsense.

Money is a indicator of social status.

It determines what resources society makes available to you as a member of society.

The value of labor or any product is entirely subjective. To one person a shell represents a days work, to another it is a gold piece, to still another it is a piece of paper.

The nature of the medium of exchange is irrelevant to this process. It is only relevant that something represent what resources are afforded to you from the collective efforts of society.  

The idea that mining "backs" money with work is magical thinking.

You confuse Money and a money substitute.

You view is well represented by Nobel economist who think we need to be invaded by aliens to avoid the moral problem of going to war with each other. They are high on fiat.

Read  Mises's regression theorem, it is logical and free of wishful alien invasions, don't just dismiss it.
Admittedly it is out dated as we now know historically we used social debt as the first currency before barter, and later evolved the jubilee, and some think it inconsistent with cryptocurrencies.  It's not alien voodoo but not unproven.  


The magical thinking goes like this the demand for money backs the work invested in mining. It is as risky as digging a hole in the ground for no reason.

Satoshi believed, as do I, that miners by competing with each other invest in equipment and power equal to the value of the mining reward. He said . . .


The cost of proof-of-work is not merely equal to the power used, it is indeed equal to the mining rewards - $557,358,000 annually at today's quoted price.

I concede that this is a lower figure than the 10% of the world's economy consumed by the financial sector, yet it is a waste because Satoshi could not conceive of proof-of-stake, nor did he debate the concept. The existing idea of hashing proof-of-work instead was adopted for Bitcoin.

Permit me to add that banks create credit that fuels the boom and bust cycles that cause the misallocation of economic resources.

In a possible Bitcoin world, great wealth, perhaps inconceivably great, is available for spending on good causes without the need to borrow.

I'm very familiar with Austrian economics. It's an apologetic for the economic polices of the Austro-Hungarian Empire and thus represents a rationalization for policies that are nothing less than a recipe for oligarchy. Notice that the Austro-Hungarian Empire is now in the wastebin of history. There's a reason for that and it is very much the same as the reason for what we currently face in the world today.

Also, so you know, you have no idea what my economic ideas are about, but since you think must be a choice between Austrian economics and the corruption of Keynes' economic theories that is currently dominant I can see you have the same extremely limited economic perspective shared by almost all Americans.

If the idea of a free currency is going to take hold those ideas needs to be jettisoned quickly.

Precisely.  

If bitshares are easy to create this is what I expect to happen "for the greater good."  

Do you generally hold to the intrinsic value argument, that is ironically used against bitcoin by its detractors? Some say that digital virtual currencies have uncertain value because they cannot be used for anything else, e.g. precious metals have a use as jewelry. Fiat currencies have a non-intrinsic value as legal tender for the payment of taxes.

Theory of money allows for the absence of intrinsic value insofar as the particular currency is widely accepted as having value. I argue that an electronic cash, peer-to-peer payment system, operating without trusted intermediaries has value due to its comparative utility - even without being legal tender anywhere yet.

goldbugs  ::)

I believe that the triumph of capitalism is complete. World events over the past few decades and the ebb and flow of welfare-state governments have precluded the mass confiscation of Bitcoin for economic leveling and such. I do expect small percentage rate wealth taxes, which are already applicable in certain jurisdictions, as are estate taxes which also apply to bitcoin.

My intuition is that as bitcoin continues its 10x average annual price appreciation, then large holders will tend to save, and will only spend on necessities and the most certain of investments. Take the example of Bill Gates who, while CEO of Microsoft, began setting aside a stash of cash equal to the company's annual sales. This tactic has been widely copied. Perhaps $1 trillion USD is held as a cash safety net by large enterprises worldwide. Likewise sovereign wealth funds are saved for necessary and very deserving possible future expenses.

Why do you use scare quotes to describe the concept doing something for the greater good of humanity?

Basically the world is in an economic mess because because the people who control the economy are ignorant and still  believe in fanciful theories from the 18th and 19th centuries

LOL. The mess originated when they threw the said theories and common sense out of the window.

(Almost as hilarious as saying that something with an IPO is a coin and not a share..;) )

It seems to me that the essence of the PoS-vs-PoW debate is whether one prefers "soft" or "hard" money.  I would define "hard" money as coins that are created by doing work (mining for gold or searching for nonces).  I would define "soft" money as shares that are created by popular agreement of stakeholders (issuing new fiat currency or creating new PoS shares).

PoS supporters see PoW as wasteful because time and energy is spent looking for coins.

PoW supporters see PoS as wasteful and dangerous because:

  (a) there are no physical constraints limiting share creation (only popular opinion) which tends to over issue shares for the "greater good" resulting in malinvestment and misallocation of capital.

  (b) it is not possible to stop or necessarily even identify that a cabal of anonymous central planners is controlling a PoS system.


What I find disingenuous is that it seems some PoS supporters argue that PoS-shares are hard currency that somehow got around the constraint that work is required to create hard currency (coins).  If your PoS shares have no work requirement, then it is not a lot of work to issue new shares by definition.  

The world economy is a mixed economy, but let's put that point aside for the moment,

"Capitalism", even in the altered form it currently takes, is standing still only because there have been massive infusions of cash pumped into the economy. Capitalism is a failed system and is on it's last legs. History is not over by any means.

Over the last 100 years or so we've adopted the welfare state because pure capitalism provides no basis for a social compact and without social reforms the system would have already collapsed.

Consider this:
How is mass consumerism going to operate as a motive force when people don't have any money or any way to get money because human labor will be obsolete within a 100 years?

There will be no tax base to support them with the welfare state. So basically what that means is market distribution has reached the limit of it's utility and will be abandoned by the end of the century.

The adoption of digital currency will be a minor stop down that path.

That opinion has it's basis in a basic misunderstanding of historical facts.

The truth is that reduced economic regulation due to the adoption of policies such as those outlined von Mises in the last decades has resulted in the top 2% of the population owning 80% of the wealth. This is what caused the current economic problems.

That is what happens when you adopt policies such as those championed by Austrian economists. Corporate profits have never been higher, but that money has to come form somewhere and that somewhere is our pockets. That is why the middle class is gone and people have less access to money than ever before.

That is oligarchy. That's what type of political economy we have.

I am postponing my artificial general intelligence R&D for the duration of the Bitcoin proof-of-stake project, which should succeed or fail in 2016.  I believe in the concept of the Technological Singularity, and indeed Bitcoin is a milestone along that path.

J. Storrs Hall says it all, without mentioning Bitcoin, in . . .“The Age of Moral Machines”: an interview with J Storrs Hall on nanotech, AI and the Singularity (http://hplusmagazine.com/2013/02/18/the-age-of-moral-machines-an-interview-with-j-storrs-hall-on-nanotech-ai-and-the-singularity/).

He, and I too, think of the Singularity as giving us all the opportunity to take early retirement.

I believe that capital flows to its wisest custodian, and with the advent of AGI, intelligent computers will control capital far beyond today's algorithmic trading. When the constraint of limited human labor is removed from a conventional model of economic growth, the result is super-exponential. We cannot really foresee the trajectory beyond - hence the notion of Singularity.

How the fruits of machine labor get distributed to we humans is a progressive politician's dream. The drawbacks of the Welfare State are removed if no person must be motivated to work. The issues are mainly that we, being human, desire some sort of meaningful work. What might that work be?

I would not care to discuss the general technological future any further because I must focus instead on a detailed and convincing whitepaper for Bitcoin proof-of-stake.

During feudalism, the top 2% owned 100% of the wealth.

The mercantile age and later, industrial age, and liberalism, all increased the middle class (although the poor stayed poor until liberalism tried to lift them up also). The current concentration of wealth has nothing to do with Misesian policies. In reality what has happened is that the age of liberalism (with maximal freedom that the western world has enjoyed lately) ended in Federal Reserve in 1913 and the war 1914 (war could only be started when Fed had been founded). Since that the world has suffered from a tightening grip of one collectivist cabal, who have controlled and control both the collectivist Soviet Union and the collectivist USA. The details of wealth concentration are slightly different, but in both the wealth has been concentrated to the inner circle.

With Bitcoin we see how wealth is concentrated in a fully voluntary fashion. The end result is not even very different. Currently 1400 bitcoin holders (0.15%) own half of the bitcoins, and 80% of the bitcoins are in the hands of 2.5% of the people. The same!

I am not a great fan of the current system, but the reason is not that they are too capitalist (because they are not; socialism is a better word, or fascism, corporatism, collectivism). The reason is that the system is unfair.

Bitcoin, as a fair equal opportunity system, has produced a similar wealth distribution, therefore we cannot say the wealth disparity is evil per se. All market participants, you, me, and everyone else can decide to buy or sell bitcoins. How can that result in anything but optimal distribution?

As a child I think that I understood what frugality, savings and compound interest meant over the long remainder of my life. Frugality is against human nature; perhaps evolution favors one who would eat today and conceive tomorrow.

I am OK with the current wealth distribution. As I say, capital flows to its wisest custodian. And perhaps Bill Gates is a wiser custodian for his vast estate than would be millions of other Americans should that estate be leveled.

you are misinformed. the reason for the stratification of wealth stems from technological unemployment and the fact that our economy redistributes wealth disproportionately through employment as opposed to capital ownership. as the barriers to capital ownership are alleviated through technological advancements in financial exchange this gap will lesson as more individuals privately own the means of production and the profits there in are equitably divided. you do not really understand bitcoins place in our economic development if you do not understand that phenomenon. and you certainly do not understand economics and collective decision making if you do not believe in capitalism and the free exchange of capital.

It is evident you are ignorant of the ideas I give merit, i was just commenting on the ides you expressed. I think I am radically removed from the perspective of most Americans, and even disagree fundamentally with the idea libertarians hold in defining property.

My ideas are not my ideas but just an understanding of existing principals that are based on systems in nature and free market synergies between the underlying Marxist principals and that of Hayek in managing resource allocation to the benefit of all species on the planet.  They originate from the principal there are equal rights shared by all living organisms on the planet, when a right is violated one needs the free market to compensate to restore balance.

I have a clear understanding of economics, it is foremost and fundamentally the study of economic interactions between participants, I believe it is you who may be mistaken thinking it is something that is managed or manipulated for the greater good.  

I believe you are correct he didn't debate the the topic but I believe he saw the problem of energy consumption and introduced a diminishing return.
I also believe early adopters understood this to be key. 

You are correct in that the policies such as those outlined Mises and Hayek have led to to extreme distortion of wealth distribution and failing economy today, the outcome is not the fault of Mises and Hayek ideas, but that of the perverted ideas of Milton Friedman. He has robbed the world of the institutions implemented by the ideas of Keynes, Friedman's ideas have destroyed the checks and balances provided by the free market by advocating a central bank control the money supply.

The ideas of Mises and Hayek can now be tested for the first with the likes of cryptocurencys.

Good news for PoS systems,

http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R007.pdf this could have be a bit of a bummer.

Funny though FINCEN can see how dirty Bitcoin can be laundered via Casascius coins, but overlooks the rental of mining equipment to launder dirty fiat.

Only in Amerika. Besides, they can rent anonymously using Bitcoin.

I put the Chicago school and the Austrian school in the same basket, but am open to experimentation and being proven wrong.

One of the reasons crypto interests me  :D It's a great way for people to learn about what has been presented as a sort of esoteric subject firsthand.