Blockstream's motto: "Can't be evil" - cypher will have a field day with this

The point is that there'd be too little money paid for mining Bitcoin. Sure miners could continue to get paid, but not for mining Bitcoin. I don't think "oh yeah you can also merge-mine Bitcoin for a small extra profit" is a robust enough incentive.

Fortunately Truthcoin is being proposed as a sort of spin-off if it can't be done as a sidechain. Paul Sztorc recognizes that an altcoin or alternative store of value is a terrible idea.

What if he launched it ala Counterparty, as an unmined sidechain that rides on Bitcoin and has no other tokens than the pegged ones?

Hi all,

The following snippet by JR had me thinking for a few days about the blocksize debate and how it relates to sidechains, while reading the extensive back and forth between sidechain supporters and opponents here. I believe I have an answer, but it overturns some of the conventional wisdom.


First of all, in a future where trillions of dollars' worth are transacted on the network, a 51% attack has to cost on the order of billions at least for good security. When the block reward ceases to fund miners enough to make a 51% attack cost billions, total revenue from transaction fees will have to be around that high to maintain security. But, as JR implies, tx fees will tend to fall to the actual marginal cost of including them in a block, which makes it seem near impossible for the revenue to be enough. After all, if Bitcoin devs choose to artificially limit block sizes as a handout to miners in lieu of the block reward, another coin that charges lower fees will eventually take its place...

...but no, this isn't quite right. Because somehow or other, a PoW network where trillions of dollars are securely transacted has to have plenty of mining to thwart 51% attacks, and in order to do that there must be a hefty incentive for miners to keep mining. That means a competing coin can only steal Bitcoin's thunder with lower tx fees if it retains high block rewards - and in the long run it must be like Dogecoin, retaining constant, non-decreasing block rewards, in order to continue funding miners enough to secure the trillion-dollar network.

In other words, besides the dynamics of who pays (just the transactors, or every holder), the block rewards and the tx fees (and hence the blocksize limits) are two sides of the same coin: they're both ways of paying the miners, with the aim of ensuring the miners get enough to keep the network secure.

Since it cannot be known in advance how popular Bitcoin will ultimately be, nor how big the world economy may grow over the next hundred years under Bitcoin, it doesn't makes sense to go the Dogecoin route of perpetual inflation. The block reward is deemed sacred by investors so should not be altered. That ultimately leaves only transaction fees to be adjusted in line with the volume of transactions vs. the cost of securing the network. Who will adjust the fees? Of course the market, finally, but who will put a floor on the fees to ensure miners are getting paid enough? Rationing, as it were, but by the market. Perhaps there is a way to tie it to market conditions directly, or perhaps devs will simply release different versions with different max_blocksizes and see what the economic majority goes for. Either way, it is being left to the market. It is not centrally planned rationing, but market rationing, whether directly or indirectly. It is not like government rationing food or apartments, any more than Bitcoin's 21M coin limit and block reward schedule is.

Therefore I believe blocksize limits will increase, but not without bound. Any coin that tries to increase the blocksize limits without bound, in an attempt to undercut Bitcoin's transaction fees, will have to do that by having - at that point in time - a larger block reward, punishing savers a little more and spenders a little less. There is not free lunch. In the end the same tax is being paid from the users of the network to the miners. Any chain that tries to undercut on both aspects will be undersecured, not to mention the network effect making this whole undertaking difficult in the first place. The network effect makes is so the market or economic majority can mess up its guestimates quite a bit and still retain Bitcoin's dominance.

Nevertheless, this means that if most of the transactions are happening on sidechains the Bitcoin network could become grossly undersecured after a few more halvenings. Which suggests that ultimately paying miners with transaction fees for a ledger network that is designed, above all else, to store the value of its ledger is a bad idea, since the transactions can be moved off the network. The transactions are not something that must happen on the network, as sidechains make clear. Paying miners with tx fees thus fails to tether the service miners perform to the payment they receive.

As uncomfortable a prospect as this is, perhaps endless inflation like Dogecoin really is the answer, maybe with hardforks every few decades deciding on new inflation schedules that the economic majority prefers. The 21M coin limit is sacred to me, yet I have to admit it is meaningless if you have to pay a hefty fee to do anything with the bitcoins you own. What difference does it really make, as a hodler, if you lose 1% to inflation over 21M coins vs. losing 1% to transaction fees when you spend? In the end what matters is that there is no central authority dictating the inflation rate for political whim, and hence it will be very low, just as tx fees will be very low. Ultimately that rate, and hence the "tax" going to the miners (whether by inflation or tx fees), is determined by the market.

TL;DR: Sidechains (if they succeed) force Bitcoin's hand, although decades in the future, in setting an inflation rate determined by the market, in order to tie miner's subsidies more exactly to the primary service they perform: that of securing Bitcoin's store of value. This is because successful sidechains would allow Bitcoin transactions to be disconnected from Bitcoin miners. Bitcoin therefore could not rely on transaction fees for its network security incentives. Sidechains would have made it clear that transaction functionality is not intrinsic to or inseparable from the Bitcoin network; only the store of value function is, and therefore miners must be continually rewarded for maintaining this function alone, for the lifetime the network.

The comparison would be if everyone lost their private keys. That'd pretty well kill Bitcoin the ledger as it stands.

If just some people lose coins locked in sidechains, I agree that's not a problem. Investor beware, as with anything new an experimental.

This is a little different: It's like people switching over to a "better" alter-ego of Bitcoin only to realize they made a grave error and all their money is lost, destroying confidence in Bitcoin and ruining the ledger that has been built up over the all these years. We'd have to start from scratch, which isn't the end of the world but it's a lot worse that just losing some private keys. I tend to think this is a bit unlikely, though, simply because I can't see "everyone moves their BTC over to the sidechain" until it is absolutely solidly established that it is no more dangerous than Bitcoin is. That could take years, if it ever happens.

I just had a thought. If you wanted to have a sidechain that itself used proof of work mining (peg a PoW altchain to Bitcoin), how could it really work? The miners would have to get paid, and they surely can't be paid in bitcoins so they would get newly issued altcoins. But those particular altcoins would not be convertible to bitcoins, in spite of any so-called 2-way peg, or if they were perfectly fungible you would still end up with whatever percentage of the coins that had been mined constituting an inconvertible set of coins.

That is, say you kickstarted a new, clean-slate version of Monero by setting up a peg where locking 1 BTC brought 500 XMR into existence for you to hold, and locking the 500 XMR would release the 1 BTC back to you. But to keep the chain secure, you also set of PoW mining that issued some number of new XMR for each solved block. Now let's say at some point in time a million XMR have been created by locking BTC and a million have been created by mining. In the event that half of these XMR were converted back to BTC, there would be no more BTC to unlock, so the rest of the XMR would be inconvertible.

This means the 2-way peg only covers as much XMR as is created by BTC-locking. Not all XMR are finally convertible to BTC.

What are the implications of this? For one thing, it seems that mining for the sidechain would not really benefit from Bitcoin's network effect except insofar as - and for as long as - plenty of BTC were locked into that chain. If there were relatively few BTC, miners (and perhaps anyone who didn't have an immediate, pressing, get-in-and-get-out-quick use for XMR) would race to convert their XMR to BTC while there were still BTC up for grabs at the peg rate.

Actually, it depends on whether locked BTC can only be reclaimed by the original locker. If they can be reclaimed by anyone and the XMR are perfectly fungible, then things get quite dicey as you can't even be sure you get your BTC back (despite the peg!). However, it may be that locked BTC can only be unlocked by whoever locked them, in which case maybe you might get miners making deals with BTC lockers for their coins. However, in that case again there might be little or no benefit from Bitcoin's network effect, since the miners couldn't directly convert their block rewards for BTC in general anyway.

/cursory thoughts, there a lot of variables to consider here

Perhaps cypher's concern is that everyone moves their BTC over to the sidechain, then the sidechain fails in such a way that it's not possible to reconvert them to BTC, and the whole Bitcoin ledger is destroyed.

To fully comprehend whether this is a concern requires some terminological cleanup. I think there's a basic misguided focus in the term "sidechain." It's not the chain but the peg that matters.

Imagine if Counterparty had delayed their launch a year. Instead of proof of burn where provably destroying 1 BTC gave you 1200 XCP, they set up a 2-way peg where locking 1 BTC gives you access to 1200 XCP (and the reverse: locking 1200 XCP gives you access to 1 BTC) in perpetuity. Why does that make XCP a "sidechain," whereas proof of burn makes it an "altcoin"? The key thing that's happening is some assets are being pegged to bitcoins. Insofar as the market was confident that you could always very easily convert between the two, forever, at 1 BTC = 1200 XCP, the price of 1200 XCP should be very close to 1 BTC. If someone sent you 1200 XCP, after all, you could easily convert them to 1 BTC and sell them for the same amount of dollars as if you had held 1 BTC from the start (and vice versa). So in theory you should be agnostic about which form you get paid in, and wallet software may not even show the end user which currency they are technically holding, i.e., whether they have 2 BTC or 2400 XCP, since it can be converted any time depending on the user's needs.

Now let's suppose everyone but you converted their BTC to XCP. You are the last BTC holder. Assuming convertibility remains, miners would still mine BTC for the block reward - since they could simply convert to XCP and sell for fiat. And you could still convert at any time. Theoretically your investment would never be at risk and you would only stand to gain if XCP were better since the value of XCP - and hence to the same degree BTC - would rise. If the peg lasts, the value of you coins can only grow if XCP is all around better.

One might even conceive that it's possible to do this without a protocol change, just using timelocks and one chain as the other's oracle. In the example, a kind of smart contract in Counterparty that issues you 1200 XCP when the oracle (trustless data directly from the Bitcoin blockchain) says that 1 BTC has been locked in a certain way, and similar smart contract in Bitcoin being set up simultaneously that unlocks the 1 BTC when the oracle (data directly from Counterparty's system) says that 1200 XCP has been locked in a certain way.

If it were done that way, it would look a lot more benign, but it may be the same in effect. Or it may not. But it's important to characterize the proponents' side correctly first in order to properly argue about any possible dangerous edge cases and have those arguments be understood by the proponents.

It seems like if this were a concern it would become general practice to have the locked bitcoins be set to automatically unlock after a certain period of time, barring input from the sidechain.

In any case, I don't think this warrants special concern considering the scBTC can potentially be hacked away from the holder, meaning that the BTC can be hacked away as well. The difference between some BTC going to a hacker/scammer and being lost forever is not great. I'd probably prefer lost forever. That way at least everyone else's coins would be worth more. It'd just be a gift from suckers investing in unstable sidechain schemes to the rest of the bitcoin holders. Same as Counterparty's burning of bitcoins for XCP, except with Counterparty it was known that there was no way to get the coins back in the first place.

Here are some links to help deepen understanding of Bitcoin and its implications, updated from here:

Money as Memory

Wences Casares talk: https://www.youtube.com/watch?v=aQTI1OFFFdw&t=2m49s
Polished video of the same: https://www.youtube.com/watch?v=IP0jCjyrew8
Casares again, on Big Think: https://www.youtube.com/watch?v=gKkfhi8Eaiw
In text form: https://xapo.com/post/what-is-bitcoin-the-best-money-in-human-history/
Peter R on Money as Memory: https://bitcointalk.org/index.php?topic=68655.msg9247581#msg9247581
From the Fed's own mouth: http://www.minneapolisfed.org/research/sr/sr218.pdf
AJ on Money as Memory: http://libertyhq.freeforums.org/fed-economist-predicts-bitcoin-will-end-the-fed-t938-20.html
AJ on What Bitcoin Is: http://archive.freecapitalists.org/forums/t/31743.aspx
Peter R on spin-offs: https://bitcointalk.org/index.php?topic=563972.300

Natural Order

I, Pencil video: http://www.youtube.com/watch?v=IYO3tOqDISE
I, Pencil essay: http://en.wikisource.org/wiki/I,_Pencil
How Wolves Change Rivers: http://www.youtube.com/watch?v=ysa5OBhXz-Q
The Obviousness of Anarchy: http://mises.org/journals/scholar/hasnas.pdf
The Depoliticization of Law: http://faculty.msb.edu/hasnasj/GTWebsite/TIL.PDF
AJ on Why Anarchy Fails and Succeeds: http://archive.freecapitalists.org/forums/t/8889.aspx
AJ on Emergent Order: http://archive.freecapitalists.org//forums/t/18619.aspx
Emergent Networks: http://greatestinstruments.net/the-rise-of-emergent-networks-part-2-of-2/
Decentralized Society and Bitcoin Contracts: http://prezi.com/vfdcr18qie2w/decentralized-society-and-bitcoin-contracts/
The Myth of Science as a Public Good: https://www.youtube.com/watch?v=C_PVI6V6o-4
Hayek, The Fatal Conceit (google it)

Panarchy

Balaji Srinivasan, Silicon Valley's Ultimate Exit: http://www.youtube.com/watch?v=cOubCHLXT6A&t=1m0s
http://athousandnations.com/2009/10/20/towards-youtopia-are-all-public-good-providers-earthbound/
http://www.panarchy.org/knott/bitcoin.html

Economics

Economics in One Lesson (google it)
Applying Economics to American History: http://www.youtube.com/watch?v=m-LJ3wZjD4I
Libertarian Gallop through American History: http://www.youtube.com/watch?v=BRhtmcxDSIs&t=3m15s
and many more

Investing

rpietila's SSS: https://bitcointalk.org/index.php?topic=345065.0
Social Role of investors:
http://www.reddit.com/r/Bitcoin/comments/1mb27q/bitcoins_vast_overvaluation_appears_caused_by/cc7i6y8
and
https://bitcointalk.org/index.php?topic=678866.5
and many more

Smart Contracts

Nick Szabo: http://ojphi.org/ojs/index.php/fm/article/view/548/469

General

Rumors of Bitcoin's Death Greatly Exaggerated: http://archive.freecapitalists.org/forums/p/32931/512864.aspx
ZB on the philosophy of bitcoin (summary): https://bitcointalk.org/index.php?topic=230416.msg2450191#msg2450191

Future Applications

Mike Hearn's 2012 talk: http://www.youtube.com/watch?v=mD4L7xDNCmA
Decentralized prediction markets via spin-offs or sidechains: http://www.truthcoin.info/
much more here

And why it matters to truly get Bitcoin comes up in all sorts of contexts:

• Should I invest in altcoins?
• Can governments kill it?
• Does switching to bits mean inflation?
• What would be the effects of sidechains, or of spin-offs?
• Can I be sure the coins will hold value?
• Will mining centralization destroy Bitcoin?
• Can the blockchain be separated from the currency?
• Are premines an acceptable way of funding innovation?
• Does the price drop mean Bitcoin is losing popularity?
• What really gives bitcoins their value?
• Is the sky falling?
• Should I start a business, or invest in a business, doing X?

You can see examples of wrong answers to these questions every day, and how the wrong answers drive misguided decisions (and usually lost money).

I'm beginning to doubt Maxwell (nullc) has a grasp on the economics of money as a ledger, and he seemed like the best of the sidechain team on the economic aspects. This seems like a basic error:

http://www.reddit.com/r/Bitcoin/comments/2k7xwj/aantonop_sidechains_could_unleash_even_more/cliw3mi

What if sidechains, or a large part of their motivation, comes from not understanding the idea of spin-offs? Peter R has in places proposed spin-offs as a way to bootstrap an altcoin launch, but the relevance here is they serve many or perhaps even all the functions of sidechains, but without need to mess with Bitcoin.

I get a general sense from the sidechain crew that they don't understand Bitcoin as ledger, that the ledger is what matters, and that the protocol is secondary. To them, as coders, it must seem like the ledger and protocol are inextricably linked, but if you take Money as Memory seriously, the ledger is something outside the protocol and is merely updated by it. Understanding spin-offs requires fully internalizing this insight, and that is what I see no evidence of from the sidechain team.

It just needs time...but other things will help, too.

Excellent post, and surprising to see how Fed people are some of the best or most intelligent supporters of Bitcoin. Someone will post this to Reddit.

Start a thread in Off Topic.

Because it's easier for people to conceptualize miners as automatons. Them having their own volition and responding to incentives complicates the mechanistic view people tend to take on this issue. It's the same reason economics is so counterintuitive yet so many people have an opinion on it. "We'll just raise the minimum wage, then employers will pay the workers more."

I'd say alcohol works especially well for me, because I tend to be very analytical by nature and I also self-moderate quite well. I suspect most who are investors and into Bitcoin will have that tendency to some degree, but if not the effect will be less - but still big - and you might have to exercise more conscious self-control to keep from drinking too much or getting addicted. Still, alcohol has been popular for thousands of years for a reason. It counterbalances some instinctual vestiges of when we lived in much smaller tribes, where social interactions with strangers and especially interactions with women were very high stakes and evolution has not caught up yet.

That said, alcohol alone is not enough, and drinking daily is probably not a good idea (and course: never drink and trade ). It seems 3x per week is good because it's just enough to keep you from getting rigid and falling into antisocial patterns, in my experience, while giving your liver time to relax between sessions.

Alcohol gives a kind confidence by removing social anxiety, but it doesn't necessarily give you positivity. Positivity, or at least a total lack of negativity, is golden when it comes to doing well with women, especially quality women. They can easily detect if something gets to you or intimidates you or if you have some grudge or sticking point or idiosyncrasy that raises a red flag or reminds them of some bad ex or stalker, etc. Just floating in easy with no anxiety is something alcohol can give you, but to have that same easiness at all times even when it comes to sex and challenges she puts up takes real confidence and comfort in the situation that can only be achieved through practice (repeated exposure and high volume of exposure per week) and through a genuine lack of negative thought patterns. If you're a real Negative Nancy, that's the very first thing to address as that will haunt you no matter how social you otherwise get.

I usually don't get into off-topic, but this is relevant to investing in a not-too-roundabout way. It's very hard to make good investment decisions if you're sexually frustrated, or if you're relying on getting rich as the way to solve this area of your life.

First, most obvious thing: stop spending time online (no computer except maybe dating sites, no phone except for setting up in-person meets). Never be home. NEVER. BE. HOME. Home is for sleep, breakfast, and sex. Everything else is out there. Stop doing every anti-social/unsocial thing you're doing and start doing social things where you actually interact with people face to face. Doesn't matter what it is or who it is, because for the first few weeks practice is your only goal.

And for those times that you must be online, because you're addicted to content, watching TV/movies is way better than reading things. Couchtuner has most of the good shows. Comedies like Wilfred and visceral shows like Vikings will at least put you in a decent semi-social mindset before you go out. Better yet, take a laptop or smartphone to a coffee shop and watch there. Of course you'll have to graduate from that, but start small if you have to.

You can read pickup books if you want to, as they may provide inspiration on what's possible and open your mind, but beware that a most of them focus on the wrong things (gimmicks, getting numbers) rather than correcting the basic errors most guys end up with from years of indoctrination: scarcity mindset, putting her on a pedestal, taking yourself too seriously, etc. If you want to see material of this nature, as far as I'm aware of, you have to go back 15 years to the Usenet newsgroup alt.seduction.fast circa 1999-2001, which I don't even know how to browse now. Anyway, if you look hard and you need it, you can find it. Even there you have to carefully sort the wheat from the chaff, of course, but there is a lot less harmful advice. Re: The Game (Neil Strauss), it's definitely not the right mindset overall but in with the silliness there are some gems so if you've never done well in your life it can help. I'd look elsewhere first.

Now, nuts and bolts: Never turn down a request to hang out with someone, go to every gathering, party, etc. Find groups that share your interests, hiking clubs, tennis circles, Bitcoin meetups... no matter what it is, it's definitely going to be better than whatever you're doing that led to no social life and not touching a woman in a long time. And do it all, every day have multiple things in your schedule, even better would be to get a part-time job that requires social contact, like being a waiter. Look up every event, festival, concert, etc. in your area, put them in your scheduler and go to as many as you can. Anything to force you out of the house and to interact with people, or at least just be around people as a start.

Alcohol is called a social lubricant for a reason. If you don't drink and have no history of problems with alcohol, I invite you to start - but only in social settings! Drink a decent amount three times a week, at a bar or other such place, never to excess but just enough to get a solid social buzz. (To do this comfortably might require eating better and exercising more, which is a great idea anyway, and you'll need to drink a lot more water.) This alone can work wonders. If, as your name suggests, you prefer other substances, force yourself to only do them with other people. Once you're drinking, it will be way easier to talk to people and make friends. In fact, "drink until girls start returning eye contact" and "drink until you strike up conversations without even noticing" are good guidelines to ensure you're drinking enough (feeling sick, uncoordinated, sloppy, etc. are of course signs you drank too much). At first it might be that you get sloppy drunk and still aren't able to overcome social anxiety, but don't worry; just like in investing, "the trend is your friend" and you're moving in the right direction even if it might take a few weeks to see results. You have to see the upside even when it feels like nothing good is coming, knowing you're doing things that will change your results despite any short term inertia and noise. In other words, you have to HODL through it.

Just keep drinking 3x per week outside the house, keep exercising, keep going out, never be home, never do anything unsocial, never use the computer, never refuse an invitation, fill your schedule with meets any way you can, never dwell on negative thoughts, never analyze, just get out there for a few weeks and it will start to happen naturally. Input creates output; whatever you're doing every day is creating a certain mindset in you that creates a social output that is not working. Hanging out on the Internet and whatever else is pushing you down socially. Take that giant millstone off your neck and start doing all the things that you know push you up socially, and it won't be long before things turn around, assuming you've ever had any success before.

Once you feel up to it, you can do more deliberate things. One easy progression when you're out on the street, at a mall, etc. is to simply lock eye contact with every person you pass. Once you can do that, eye contact and smile. Then graduate to a "Hi!" if you want. That alone will put you in a much more social state.

Then as far as women specifically, you'll want to either go to bars/clubs/etc. or rely on connections, or use the Internet, or do cold/buzzed approaches, or better yet kitchen sink it. Do it all, and do it all at once. If you have specific problems after several weeks, PM me.

So it's like the hose is the exponentially growing stream of new money coming into the Bitcoin investment space, and it just goes into different buckets, one of which is actual price growth. That means as long as either price or mining (or perhaps VC money into startups?) continue upward then nothing is amiss.

Although this is old hat for many here, I put together a little explanation that may help people see how mining difficulty affects the bitcoin price.





Think about how much money was invested, both by consumers and manufacturers, into pushing the difficulty up several orders of magnitude over the past year. That's all money that could have and arguably would have been invested into driving the BTC price up. A lot of the fresh fiat has been going into the mining industry instead of the price. This is of course self-limiting, and so with all that investment happening behind the scenes, when the curtain is pulled back (when buying mining equipment becomes unprofitable), without any outside reason for the investment to slow down, it should start funneling back into the price.