The quality of writing on this thread amazes me.

Although I recognized technical triangles in daily stock charts for decades, it was not until I actually watched realtime bitcoin tick by tick trades with a revealed order book, that I realized why they happen. It is exactly as you say. The dampened oscillations that frequently characterize bitcoin price charts at disparate time resolutions result from price discovery converging towards the trader's consensus.

It now appears that adjusted transaction volume is headed down over the last two days, lagging the price movement by about three days . . .

My Bitcoin Proof-of-Stake project could provide 2 second or less transaction acceptance using a single temporary mint.

The Satoshi Social Contract

Bitcoin core developers speak of the Satoshi Social Contract as those features of Bitcoin that have been promised by Satoshi, and upon which the integrity of Bitcoin rests. For example, releasing a new version of the Bitcoin Core client that increases the upper limit of mined coins breaks the social contract between the core developers and bitcoin using public.

In this project, proof-of-work will be replaced by proof-of-stake, and a pure decentralized peer-to-peer asynchronous mesh network will be replaced by a hierarchical peer-to-peer synchronous network.

To what degree of severity, does this project break Satoshi's promises, and can the result be called Bitcoin despite claimed advantages?

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Here are the notable promises extracted from the defining whitepaper Bitcoin: A Peer-to-Peer Electronic Cash System by Satoshi Nakamoto.

From the Abstract . . .

*   Bitcoin is a purely peer-to-peer version of electronic cash that allows online payments to be sent directly from one party to another without going through a financial institution. Retained as-is.

*   The Bitcoin network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.  The data structure is retained with a zero-difficulty proof-of-work.

*   Bitcoin messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone. Bitcoin messages are routed along fault-tolerant paths from the originating peer to a certain peer having the role of temporary mint, which echos each received transaction back to the network as instant acknowledgment that it will be included according to order received in the ongoing record chain.

From section 1. Introduction . . .

*   Bitcoin is an electronic payment system based upon cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.Retained as-is.

*   Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms protect buyers. Mechanism changed - to be explained.

*   Bitcoin is a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. Retained as-is.

*   The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes. Mechanism changed - to be explained.

From section 2. Transactions . . .

*   Bitcoin defines an electronic coin as a chain of digital signatures. A payee can verify the signature of a received transaction by computing the transaction payer's digital signature and the payer's public key. Retained as-is.

*   [Because the private key is required by the payer to sign the transaction, if the private key is lost, then the transaction cannot be performed.] Retained as-is.

*   Bitcoin transactions are publicly announced. Retained as-is.

*   In the event of multiple transactions from the same address, the earliest issued transactions counts, and subsequent others are dropped. Retained as-is.

*   Bitcoin is a system whereby the participants agree on a single history of the order in which transactions were received. Retained as-is.

*   The payee has proof that at the time of each transaction, the majority of nodes agreed it was the first received. Retained as-is.

From section 3. Timestamp Server . . .

*   Transaction are gathered into blocks. Retained as-is.

*   The blockchain consists of timestamped blocks whose embedded hash includes the hash of the previous timestamped block, forming a chain. Retained as-is.

From section 4. Proof-of-Work . . .

*   The block contains a SHA-256 hash having a certain number of leading binary zeros, determined by increment a number-used-once until a value is found that gives the block's hash the required zero bits. Retained as-is for backwards compatibility, but the zero-difficulty means the effort is trivial.

*   Proof-of-work difficulty is determined by a moving average targeting an average number blocks per hour. Changed - the difficulty is always one, which is the lowest value.

From section 5. Network . . . Changed - to be explained.

*   The steps to run the network are as follows:

• New transactions are broadcast to all nodes.
• Each node collects new transactions into a block.
• Each node works on finding a proof-of-work [with specified difficulty] for its block
• When a node finds a proof, it broadcasts the block to all nodes.
• Nodes accept the block only if all transactions in are valid and not already spent.
• Nodes express their acceptance of the block by working on creating the next block in the chain using hash of the accepted block as the previous hash.

*   Nodes always consider the longest chain to be the correct one.

*   Nodes receiving two different version of the next block, work on the first version received, but abandon that branch if a longer chain is received from any peer node.

*   Transactions reaching many nodes have a high probability of being included in a block.

*   Nodes missing a broadcast block may subsequently know to ask for it by number when the next block is received the gap recognized.

From section 6. Incentive . . .

*   The first transaction in a block is a special transaction that starts a new coin owned by the creator of the block. Retained as-is.

*   The new coin awarded to the block creator is the only way to initially distribute coins into circulation.  Retained as-is.

*   The transaction fee is equal to the transaction's input value minus its output value and is added to the block reward received by the block creator. Retained as-is.

*   The incentive may help encourage nodes to stay honest.  Retained as-is.

From section 7. Reclaiming Disk Space . . .

*   Transactions are stored within the block in the configuration of a Merkle Tree, with only the root included in the block's hash. Retained as-is.

*   Once the latest transactions in a coin is buried under enough blocks, the spent transactions before it can be discarded to save disk space. Retained as-is.

From section 8. Simplified Payment Verification . . .

*   It is possible to verify payments without running a full node. Retained as-is.

*   Verification is performed by querying network full nodes until the SPV node probably has the longest chain of block headers. The transaction timestamp indicates which chronologically ordered block must contain the transaction. The SPV node requests that block's Merkle branch and determines the presence of the transaction to be verified. Retained as-is.

*   The number of following blocks is a measure of confidence that the chain will not be reverted back to before the transaction was accepted into its block. Changed - to be explained.

*   A SPV node is more vulnerable to attack as it depends upon the honesty of its connected full nodes. Retained as-is.

From section 9. Combining and Splitting Value . . .

*   To allow value to split and combined, transactions contain multiple inputs and outputs.  Retained as-is.

*   [The inputs must be unspent to create a valid transaction. When the transaction is accepted by the network, its inputs are regarded as spent, and its outputs are regarded as unspent in the absence of a subsequent transaction having that coin as an input.] Retained as-is.

*   Despite the recursive chain of dependency on a transaction's inputs, there is never the need to extract a complete standalone copy of a transaction's history. Retained as-is.

From section 10. Privacy . . .

*   Privacy can be maintained by keeping public keys anonymous. Retained as-is.

*   New public / private key pairs may be used by the receiver of each transaction to keep them from being linked to common owner. Retained as-is.

*   Multiple inputs to transactions indicate common ownership of the inputs due to the necessity of the owner signing each of them with private key corresponding to the input's contained public key. Retained as-is.

From section 11. Calculations . . .

*   Honest nodes do not accept an invalid transaction as payment. Retained as-is.

*   Honest nodes do not accept a block containing an invalid transaction. Retained as-is.

*   An attack is possible in which the attacker changes one of his own transactions to take back the money he recently spent. Changed - to be explained.

*   In order for the double spend attack to work, the attacker must control a majority of the full node connections, i.e. the 51% attack.  Changed - to be explained.

From section 12. Conclusions . . .

*   Nodes work all at once with little coordination. Changed - to be explained.

*   Nodes do not need to be identified, since messages are not routed to any particular place and only need to be delivered on a best-effort basis. Changed - to be explained.

*   Generating full Nodes vote with their hashing power expressing their acceptance of valid blocks by working on them at will, and rejecting invalid blocks by refusing to work on them. Changed - to be explained.

*   Any needed rules and incentives can be enforced with this consensus mechanism. Retained as-is.

From the released Bitcoin Core program, as described by Wiki: Controlled supply . . .

*   The rate of block creation is approximately constant over time: 6 per hour. Retained as-is.

*   The number of Bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 4 years. Retained as-is.

*   the number of Bitcoins in existence will never exceed 21 million. Retained as-is.

From Satoshi's comment in Bitcoin 0.3.2 released

*    There are checkpoints to prevent very probably needless verification of the oldest portions of the blockchain. Changed - to be explained.

mBTC pronounced embee.

Easy to say in any tongue.

I am very busy at the moment, but I will enter this commendable wisdom of crowds contest when I get the time. Cheers!

I believe that a good time to revisit both models, beyond keeping them up-to-date, would be somewhere near the bottom of the next bubble. Perhaps in the late fall. By then we should see more adoption for ordinary transactions and perhaps a lesser proportion involving an exchange. Likewise with the worldwide growth of the Bitcoin Economy there will be more opportunity for small world effects to disconnect the Metcalfe Law model from its up-to-now very close fit to prices.

Thanks so much!

My new project needs this level of scrutiny or it will fail . . . Bitcoin Proof-of-Stake

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.

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.

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.

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.

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.

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.

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.

Transitional SHA-256 Mining Multipool


Thanks for the idea about hashing power.

This project will create, or otherwise facilitate, a transitional SHA-256 multipool which pays its participating SHA-256 ASIC hashers in bitcoins free from the taint of inputs dependent upon rewards created by ASIC miners after the fork.

At launch of this project, the Bitcoin Network will regrettably split to some degree as bitcoins mined by the new proof-of-stake version cannot be spent by proof-of-work clients and vice versa. A condition of the launch is that the number of full nodes in the proof-of-stake version greatly outnumber their counterparts in the proof-of-work version, in particular that the major bitcoin exchanges and online wallets support the proof-of-stake version. The ASIC miners who continue to operate their rigs can obtain new-version bitcoins by joining this new multipool, which in addition to mining proof-of-work version Bitcoin, will also mine altcoins sharing the SHA-256 algorithm.

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
Transitional SHA-256 Mining Pool

I am studying Satoshi's paper in order to extract the terms of the social contract. Then I will author a project whitepaper to describe Bitcoin Proof-of-Stake in an academic format suitable for review. What I have thought about so far assumes well-behaving and bug-free agents operating in an ideal network - abstracted from the real network used by Bitcoin today. The whitepaper must allow for misbehaving and buggy agents operating in a possibly broken network. The new system must be shown to work without any trusted agents. The more convincing math that is in the paper - the better. The developer consensus can be moved by logic and math.


The year 2016 is the last year for awarding 1,314,000 block reward bitcoins, then the block reward halves for the subsequent four years. I would tentatively set January 1, 2016 as the project launch date, because the reallocation of the block rewards is the enticement for switching transactors and holders over to the new version. I will revise a small portion of the Bitcoin Core C++ source code, and create a reference pool Java software program before the end of 2014, and then use all of 2015 for public testing in a sandboxed Bitcoin testnet. At least one altcoin, e.g. bytecoin, could be forked by others to test proof-of-stake in the wild in 2015.

A controversy over the future of Bitcoin can only hurt its price and utility.

All further actions of this project must be non-confrontational to the maximum degree.

By this definition, this project is intended to be a fork, indeed what bitcoin core developers call a hard fork.

Deal. And thank you so much.