This post is a repost from foruim.yacoin.org (
https://forum.yacoin.org/index.php?topic=746.0) and is in the context of implementing it with YACoin...
The ProposalThe idea is for a PoW ONLY system that simply bases the next block reward as a function of the total supply to achieve an annualized ‘inflation’ (coin-generation) rate of 2%.
(total supply) X (annualized inflation rate) / (blocks per hour X hours per day X days per year)
To demonstrate an example, the next block reward under this new construct would be
81536148 X (0.02) / (60 X 24 X 365.25) =
3.1 YACoins per block and so forth…
Strength through Simplification With each coin, one has to ask what the block rewards currently are and what they will be in the future. It is weakness of many coins but also arguably a weakness with Bitcoin… 21 million coins total (arbitrary and will never actually be reached) with block rewards decreasing every 4 years (A seemingly drastic event every time it happens which causes uncertainty).
With a constant inflation rate, it is simple to understand. One does not have to think about the next time block rewards will be cut in half. It is easy to explain because inflation is a concept built into our current money supply of government fiat:
http://www.federalreserve.gov/faqs/economy_14400.htmRewards Early Adoption; Rewards Future InvestmentIn recent history, when a cryptocurrency goes through a change in the block rewards payout structure, it is usually in an attempt to benefit an ingroup at the detriment of an outgroup. That ingroup almost always consists of the ones who consider themselves the “Early Adopters” who want to keep the value of their coins high while decreasing the rewards to ‘miners’. What is misunderstood is the function of miners in securing the network from attack.
The Constant PoW proposal benefits everyone. If implemented tomorrow, the PoW block rewards will decrease from 100 YACoins to 3.1 YACoins. The total supply would have to equal over 2.6 billion before we would ever see rewards like that again, which would be in over 170 years.
The competition for those increasing PoW rewards will spur investment in technology and energy that will come with the need for capital costs as well as operating costs to mine, ie specialized chips and efficient, independent energy systems. It certainly will not be without risk to newcomers, but the increasing rewards will incite new players—big, small, innovative, driven, influential. Also, it is not accurate to say that the 2% increase in total supply will steal value from the existing supply. In fact, the value of a single YACoin could increase in the long-run (certainly in the short-run). Transaction fees will still be destroyed as is the case now, so the supply could theoretically decrease over time. Ideally, each YACoin will be at a stable value in the long run, as you would hope to expect for a functioning currency.
PoW vs PoW/PoSThe PoW/PoS Hybrid concept was created experimentally--first with PeerCoin (
https://peercoin.net/whitepaper). The idea was to offer a system less prone to a 51% attack by integrating another “Proof Of” mechanism, and it is also is supposed to reduce energy consumption. Issues have arisen in the chain trust mechanism where long chains of PoW-PoS can be ignored by a long PoW chain. Even with preventative measures, a PoS-PoW combination attack is not impossible. In terms of energy consumption, there are plenty of pure PoS coins that are obviously better than PoW-PoS in that arena.
Proof Of Work is tested and proven. The main chain protocol determines the main chain simply by the total work done by the chain. There is no evidence that PoS-PoW prevents an attack, although it may make such an attack more complicated.
Further, PoS rewards people for simply keeping their wallet open. Those who want to keep their coins safely secure in cold storage, miss out on rewards. It is not definite or clear when exactly your wallet will stake. There is a tool to help predict when each input will stake, but it still does not bode well for the cause of mass adoption.
Economically SoundThe Federal Reserve in the United States targets a 2% inflation rate, and according to them, “Over time, a higher inflation rate would reduce the public's ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling--a phenomenon associated with very weak economic conditions.”
http://www.federalreserve.gov/faqs/economy_14400.htmNo matter one’s opinion on the fed, it has been around much longer than cryptocurrencies. The long-term inflation rate of Bitcoin is actually negative because of the amount of coins lost in ‘dust’ or in lost private keys or in coins sent to an empty address, etc. At this moment, however, the ‘inflation’ rate is around 10%. There is a lot to be concerned about with Bitcoin when it approaches the inflation rate below that which is considered dangerous for a currency. There seems to be no focus on price stability, so a coin that has that in mind will have a perceived advantage over the others.
Destruction of Fees, Construction of the Perfect Economic ModelEven though I reference 2% as an ideal target inflation, it would actually be a MAX inflation value. Theoretically, YACoin could be price deflationary AND supply deflationary due to a canny feature already in place: destruction of fees.
In reference to the equation of exchange (
https://en.wikipedia.org/wiki/Equation_of_exchange), the velocity of money is something to keep in mind when considering block rewards. Rewards due to PoS, tend to have a low velocity (hoarders continue to hoard), whereas we can assume rewards due to PoW will result in higher velocity. In other terms, PoS rewards do not require any 'work' (resources, energy, maintenance); contrastingly, we know 'miners' do not tend to sit on their PoW rewards so much since mining comes with unavoidable costs to pay to continue operations (large-scale mining especially). With YACoin under the proposed system, higher velocity will equate to more transactions, which will lead to an increase transaction fees, which will lead to a decrease the money supply, which will lead to a decrease block rewards, which will lead to an increase the value of each YACoin (barring speculation). Thus, if a miner isn't rewarded through more YACs, he will be rewarded by the increase in value of YACs. Similarly, people holding on to YAC because they believe in it as a store of value, will be rewarded with price deflation as the YAC economy grows. People keeping YAC in cold storage, as a secure method of protecting their assets, will not be punished in lost opportunity cost for not participating in PoS. In regards to the economics, it will be a brilliant scenario, a revolutionary scenario.
Bitcoin's Failure = YACoin's SuccessAs we witness the scalability debacle play out with Bitcoin, it is apparent that rewarding miners on only transaction fees in the future is a broken system. Bitcoin faces a paradigm that makes a more efficient system for processing transactions (larger ledger) result in punishing the ones securing that system. It is a catch-22 that will require Bitcoin to fork to survive. It is inevitable.
YACoin can capitalize on the valuable lesson trying to be taught. It is important that YACoin strives to be in competition with Bitcoin and not just try to reach the top 10 in market capitalization.
Spotlight of Innovation (Continuing the YACoin Legacy) Ever since inception, YACoin has a reputation of being one of the most innovative coin out there. It was the first to have block rewards connected to difficulty—it hasn’t worked out so well, but the model was cloned many times. YAC was one of the first to implement the coin control feature. It was the first scrypt-chacha coin, which requires memory intensive hardware as opposed to raw computing power.
There are plenty of coins that have a constant inflation due to PoS, but a PoW model with a constant inflation rate will be unique. It will spark interest and discussion over the new model and make YACoin a magnet for innovators and entrepreneurs even more so than it is now. It will mean a lot to be the first to implement such a model as it will surely be copied.
With thousands of cryptocurrencies out there, exchanges and other services often ask what makes a coin innovative before they consider making it part of their service. It is important to stand out among the crowd. YACoin will do just that and beyond. At around a $40,000 marketcap currently, YAC is at a point where such a change is a great opportunity with very little to lose. It is established enough to prevent the label of ‘premine’ for those of us who obtained YAC through the old (current) block reward model. At the same time, there is a lot to be gained--limitless, almost.
Any comments, concerns, questions will be very much appreciated. This proposal should be considered a topic of discussion and not a plan to be implemented... not yet.
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