OK, I finally grok what you are saying.

So if today,

1 ENC = 1 Loaf of bread = 10kwh = $1

and nothing marketplace changes except the fed prints lots of dollars.
Then what you want is,

1 ENC = 1 Loaf of bread = 10kwh = $5

I totally agree that is a laudable goal. That is what I'm attempting to approximate as well. If I work and decide, not to buy 5 loaves of bread today, I want to be able to buy 5 loaves of bread on any future date of my choosing.

===

I have $5 excess that I don't want to use to buy 5 loaves of bread today.
So I buy $5 worth of electricity and mine 5 ENC.
On some future date, after inflation caused by the fed printing lots of money
I take my 5 ENC to the exchange and sell them to a client for $25.
I spend my $25 to buy 5 loaves of bread.

===

However, one thing seems particularly odd to me.

I have $5 excess that I don't want to use to buy 50kwh of ELECTRICITY to run my air conditioner today.
So I buy $5 worth of ELECTRICITY and mine 5 ENC.
On some future date, after inflation caused by the fed printing lots of money
I take my 5 ENC to the exchange and sell them to a client for $25.
I spend my $25 to buy 50kwh of ELECTRICITY to run my air conditioner.

Doesn't this seem logically odd to you?

It sure seems like a *double spend* if I can buy electricity twice with the same $5 bill. Where does the extra $5PV=$25FV come from? It seems like it must come from clients, who later will expect their future double spends to come from future clients.

===

I submit to you, that the proposal to *actually burn* an equal amount of electricity to the ENC value is implausible.

Have I misunderstood something?

Good questions! Let's see if I have good answers. Really my goal isn't to prove I'm a genius. Or that I've already got all the perfect answers. I came back here to have a discussion about concepts like these.


For convenience of discussion I'm proposing a proof-of-work function similar to bitcoin's. They each miner tries to get their new coin transaction *blessed* by random chance. They do this by repeatedly hashing the transaction and a random (or sequential) nonce until the result meets the current difficulty requirements. In bitcoin's case this means a minimum number of consecutive zeros in the most significant digits.

So if the difficulty level is 1 the most significant digit must be zero. Exactly 1/2 of the possible hash result meet this requirement.
If the difficulty level is 2 the two most significant digits must be zero. Exactly 1/4 of the possible hash result meet this requirement.
If the difficulty level is 3 the two most significant digits must be zero. Exactly 1/8 of the possible hash result meet this requirement.
And so on, each time you increase the difficulty by 1, you double the average number of hash trials it will take to find an acceptable solution.

So, if Charlie doubles the difficulty ten times in a row, he has used up all of his computational advantage. 2^10=1024 He has in effect rescaled the game to put himself in the same situation that Alex and Bill were in before he arrived.

"Doubling his personal difficulty" does sound misleading. My bad. I meant by doubling *everyones* difficulty, he also disadvantages himself.



This is an interesting situation. I think you are correct in your analysis. But let's discuss what I was intending, where I messed up, and where it could be fixed.

You had said something like, "in the future, processors might be 1000x more efficient." I totally agree with your premise. They certainly will. I was being a bit of troll, however, when I made the example. I actually started with 8x more powerful, but that didn't seem very hyperbolic. So I went to 32, 64, then I said fuck it. Go big or go home! 1024 times was a big jump over his competitors all at once. It leaves room for a few examples I didn't consider.

A big Woot! to you for finding one. Woot!

---

You are correct, he could win say 5 times in a row to price his competitors out of the game. He could then quit mining knowing that *no one* could compete and the difficulty would fall back -1 where he could mine and win +1 again as you stated. Of course his competitors would all notice and start looking for upgrades... But that would be an unnecessary tangent to your more interesting question.

I had intended for the +0 level to prevent this. By offering a +0 tax refund, I was hoping to make it profitable enough for those with taxed transactions to each commit *some* effort to mining. This creates an ad-hoc mining pool. If any of them wins, all of them get their tax refund. I had intended this pool to *never* get priced out of mining, except when the economy was actually falling.

I also tried to compensate for situations like this using the ration between the -1 tax and the +1 bonus of (1/2 * tax). If the system starts to oscillate, the number of coins actually falls rather than staying the same. Eventually, I thought, this will cause enough inflation so others could get back in the game. However, 2^10 leaves enough room for Charlie to price *everyone* back out again.

---

The saving grace for me, is that even with Charlie taking control in a different way, the system didn't bubble or bust. The ENC value is still relatively stable. Except for the inconsistent taxing, network clients wouldn't even notice the difference.

The process doesn't care who gets rewarded in dollars. Its goal is keeping the value of ENC stable and it succeeds in this scenario.

In fact, it is in Charlie's best interest to move the market as little as possible. In the above example I said, "he could win say 5 times in a row to price his competitors out of the game." But, if he could price all competitors out by winning only 3 times in a row, his arbitrage gains would greatly increase. No sense for Charlie to spend 4 times the electricity if he doesn't need to.

---

Ironically, for me, if Charlie adopts this strategy, he in effect implements the proposed EnCoin transaction fee I've been lobbying against! This fee takes coins from the spenders, destroys them, then recreates and gives them to miners. All while minimally effecting monetary policy. Ugg!

Charlie is promising to keep everyone's monetary policy stable, in exchange for a small fee! It only seems like a scam because monetary policy would be even more stable without Charlie's actions and fees. Go figure?

Sorry for the delay in responding.

I understand what you are saying. A point that I didn't make clear is that, like with bitcoin, the difficulty levels are non-linear. In bitcoin, each difficulty level increase means a doubling of effort. Here effort means hashes/second which is a mathematically predictable. This of course has nothing to do with the cost of that effort as measured in dollars.

You are correct in that it is algorithmically impossible to externally calculate the cost of someone else's algorithm. I'm pretty sure that is a part of Church's Thesis. But if it's not, it should be!

The only way (I can see) that you can bind this problem to the cost of electricity, over time, given *hidden* technology changes, is through human to human competition. Human's decide how much *hidden* electrical cost they are willing to risk. Weighing the risk against their current projections for possible arbitrage gains. If there is no potential reward, nobody should risk anything by mining against their own self-interest.

It's this non-linearity of, and competition for, Dollar rewards (not ENC rewards) that makes the system converge. I'll make up an example and see if I can convince myself.

---

Say Alex and team run the only implementation of EnCoin, on the most efficient know hardware. So does Bill's team, and everyone else. Every time teams see an arbitrage opportunity they mine. One and only one team WINS new coins. All the competing teams LOSE their electrical investment.

The winning team immediately sells their coins to recoup their electrical investment. That coin sale must cover expenses for both this round and previous rounds in which they competed and lost. That leaves them either a profit in dollars, or a hemorrhaging of dollars. The latter, as in Vegas, causes unprofitable gamblers to stop by choice or by inevitability.

Each time any arbitrager sells new coins it does two things: 1) It lowers demand for competing seller's coins, lowering ENC's exchange price. 2) It doubles the *hidden* dollar investment required for every arbitrager who tries to compete in the next round. This reduces the overall potential for arbitrage profit. When the potential for profit reaches zero, the system has converged on an ENC price in dollars constrained by *still hidden* individual electrical costs of the participants.

I assert, this competition should keep the ENC/dollar exchange value relatively stable in the face of a growing or shrinking economy. Extreme economy growth can raise exchange prices, but arbitragers will work quickly to bring them back down. If prices fall, the transaction tax will both, take ENC out of circulation, and reduce the demand for dollars by penalizing panicking sellers in ENC.

---

The technology case is really what you are contesting. I claim that in the face of *hidden* technical change, the system *always* re-converges. Meaning, given zero human intervention, ENC value can never tend toward zero or even infinity. The only question I can't answer is, "How far can it wander from the current price?"

Let me expand on the original example by adding hidden changes in technology.

Say, Alex has a reputation for being the finest arbitrager. He's the best at knowing when to risk electricity and when to avoid doing so. Bill was being much less successful, so he adopts a strategy I call tit-for-tat. If Alex is mining, then Bill will mine. If Alex stops, Bill stops. This annoys Alex, but there is nothing he can do about it. As a result, both teams do equally well as measured in dollar profits.

Now Charlie creates another network. One equivalent in every way to Alex and Bill's. EXCEPT, *unknown to anyone* Charlie has a better implementation of the proof-of-work algorithm, or a secret processor, it doesn't matter. Charlie's can make 1024 times the number of proof-of-work guesses as the others. All for the same quantity of electricity.

There are a number of ways Charlie can play this hidden card.

1) He can start mining when no one else can and win every round. If he adopts this strategy, he can win at most 10 times in a row. Since he has to doubling his personal difficulty each time, eventually he will stop. If ENC prices hold during this period, they will continue to hold. If they move some, they will hold at the final price once Charlie runs out of arbitrage room.

The other mining teams can't help but notice Charlie has a technological advantage. In fact, no other teams will be able to compete with Charlie until they update their technology.

This has no effect on monetary policy. Charlie gains no additional power to affect prices even though he is the only miner. Self-interest prevents him from further mining. He can let the price rise a bit, then mine again. But again that is the goal of the process. The process doesn't care who gets rewarded in dollars. Its goal is keeping the value of ENC stable and it succeeds in this scenario.


This scenario, however, is NOT OPTIMAL for Charlie. We have what is commonly called an "Iterated Prisoner's Dilemma" situation. Charlie can maximize his technology advantage over the long term by cooperating with his opponents. Interestingly enough, it is in the opponent's self-interest to cooperate with Charlie as well.

2) Charlie decides, instead of winning every time, he will adopt Bill's tit-for-tat strategy and do exactly what Alex does. Sure, he is going to solve every proof-of-work in 1/1024th the time and electricity as Bill and Alex. BUT, he decides to only submit enough winning solutions to deliberately match what Alex and Bill are winning. Alex, Bill, and Charlie's wins affect the ENC's monetary dynamics in exactly the same way. ENC's value stays exactly as stable as it would have if Charlie had not been present.

Instead of the sudden inflation spike above, network "client's" see ZERO changes in ENC values or in the behavior of the network as a whole. Alex, Bill, and Charlie are indistinguishable to network "client's" and all equally trustworthy.

Instead of being bankrupted as above, Alex & Bill continue making money the way they always have, but predictably less because there is more competition (securing the network!). They don't see any issues, nor do they have any reason to distrust Charlie. Charlie and Bill's behavior is indistinguishable to Alex.

EXCEPT, Charlie is driving a paid-off Jag, while Bill is using his minor mining profits to pay down the loan on his Hyundai.

Why?

Because for every 1,025 dollars Bill receives for selling his ENC to the exchange, Bill sends $1,024 to the electric company and keeps $1. Charlie sends $1 to the electric company and keeps $1,024.

Which is as it should be.

Because, Charlie thinks Alex and Bill are deluded for leaving a hundred 100 watt light bulbs burning day and night, thinking they are helping to secure the world's future!

The process doesn't care who gets rewarded in dollars. Its goal is keeping the value of ENC stable and it succeeds in this scenario. I'm pretty confident it will succeed in every other scenario as well. Changes in market conditions or technology, might move the price a little bit. But it will never go into bubble or crash scenarios the way you postulated.

My bad. I meant $X to vary with time like you describe. That was why I said wandering target. But the equation doesn't make that very clear. We are in total agreement.


Agreed.


It's a design decisions of course, but I was serious about learning about internet peering vs transit if you are not already versed in it. It is a fascinating concept to understand when people are babbling about internet regulation.


I do understand the points you are making. And I understand the philosophy about actually burning 10kWh to create each block (except when caveats about cool down mode upset the philosophy ) rather than just trying to keep the ENC value converged with the 10 kWh value.

And without contesting anything you've said here, I still have some really interesting things to say about this. It is going to have to wait to tomorrow though.

I'll give you a hint though...

It involves me giggling at the idea of rolling blackouts in California, just because Amazon and iTunes decided to take ENC to purchase digital content!

Turns out there were 4 threads, but I'll link to my best posts. You can decide if you want the backstory. I've posted them in chronological order, but fullest explanations are probably in the last two.

Started with loaning gold. some thought about digital currency of the future 8/3
Then debunked loaning during deflation. Lending at negative interest rates. (People like bigger numbers.) 8/3
Some idiot said, "you can't do fractional reserve banking in bitcoin. Inflation, Fractional Reserve, and Bitcoins 8/5
Explaining banking yet again in detail. Remove economic nonsense from home page 8/14

Funny I found my favorite personal quote ever near the beginning of the last thread. I have to admin I was trolling the currency vs commodity argument, but I'm still right!

My suggestion for how to describe bitcoin on the homepage of the site:

---

In reality bitcoins are the first master planned scarce COMMODITY. It is unique to this commodity that we know it's total available quantity in the universe. We also know exactly how hard it will be to discover this commodity over the next XX years. Also this commodity is generally seen as easily divisible and fungible, but otherwise it is useless.

The only thing not master planned about this commodity is what people will do with it. Since there are no other known uses competing for this commodity, some people think bitcoins should be used as money. Others think this is a highly implausible foundation for monetary policy.

I have a long thread on this forum about how one does fractional reserve banking with any non-fiat currency including gold.  I can find it for you.

Otherwise, I don't really want to talk about it.


Of course I understand. That is why I came here. I would call it 1 ENC = $X = 10kWh. It's a wandering target but at least it is constant with respect to each individual's lifestyle.


Point understood. But stores are still going to adjust their fiat prices to what they want. After that, they'll look at ENC and decide if a price change is to their advantage. There is no *fair* price! Just the market price. :-)

I understand hoarding. 'nuf said.


I'm saying, I fixed it optimally. You are fixing it less optimally.

You are not arguing I'm pushing the system in the correct direction. You are saying, "We'll get by without a push. Just might take longer."


I don't think your conclusion follows from your premise. But you are free to charge transaction fees for providing a service. That doesn't affect my monetary logic at all.

I'm not sure why you see a benefit to charging yourself a transaction fee for your own service. Or for peers to charge a transaction fee to other peers providing exactly the same service. See Internet Peering for the best example of what I'm talking about.


I'm not implying you are wrong here. I'm calling you wrong directly!

Say we had 1,000 people which generally spend the equivalent of $100 each per month in ENC but keep little in their wallet. It is an optimal marketplace when coin velocity is at its maximum. Then Walmart or McDonald's decides they want to accept ENC payments. Suddenly, the same 1,000 people want to spend $200 per month. There is no excess velocity to be had. You are going to need more coins.

So you start generating them at your standard max X coins per trust per day. Eventually you will have enough.

But what if we had 1,000,000 people which generally spend the equivalent of $100 each per month in ENC but keep little in their wallet. It is an optimal marketplace when coin velocity is at its maximum. Then Walmart or McDonald's decides they want to accept ENC payments. Suddenly, the same 1,000,000 people want to spend $200 per month. There is no excess velocity to be had. You are going to need more coins.

So you start generating them at your standard max X coins per trust per day. Eventually you will have enough.

Are you saying it is OK for it to take 1,000 times longer?

That is why I suggested corrections be related to the economy size.

---

On the other hand, I've come to expect that you understand the system differently than I do. So I may be misunderstanding your dynamics.

Fair enough!  


Yes, reputation is much better when talking about how one group views another group. Or even how less familiar group members view each other.

If you hate the term compliance I would suggest something like:
Reputation =  consistency * accuracy * effort
Reputation =  dependability * compliance * securing
Reputation = (uptime) * (not fucking-up) * (mining)

Shit, I don't know! I hate naming things too!

I didn't mean to imply any threat to encoin. I was only trying to point out an instance of security not guaranteed by mining. For reference, I'm never trying to imply anything. If I see something worth implying I'll just come out and say it directly. I'm really not trying to pick a fight.


Yay! We get to argue about what I want to argue about! Woot!


I have to split the sentence to properly respond.

I don't concede this, but we *are* walking in the same direction. I think there needs to be *enough* incentive to guarantee the currency stays viable and secure. I propose for my reasons that *will* be the case. You propose for your reasons that *will* be the case. I don't want to argue about *why* we are walking in the same direction.

I posted the reasons in one of my earliest posts. I'm going to take another crack at it. This is really the crux of our misunderstanding at the moment. Most of the other differences I have reconciled in my head.

Humans make the decisions about when to change effort levels in both of our examples. In both humans compare the current ENC market price to the market price of electricity.

Your lowest "cool down" mode seems equivalent to my (ZERO) mining level.
Your "full blast" mode seems equivalent to my (current+2) mining level.
The other levels you mentioned as possibilities seem to fit in between.

I get it now. (won't try to explain how I thought yours worked before.)

---

So our main difference is that I deliberately separated the monetary policy sub-system, from the "incentive" system.

I said, to myself, pretend incentives are already guaranteed. How would I optimize monetary policy to that it discouraged what we didn't want *clients* to do, and encouraged what we did want *clients* to do.

In times of inflation, too many ENC are being exchanged for too few goods. I wanted to encourage hoarding and discourage rash spending. So I artificially raised the cost of spending. I didn't want to artificially increase pricing, (prices are already inflated) that tends to happen if you tax the merchants.

So see, "Without the tax.." is incorrectly posed. I do have a tax designed to stop inflation.

In a stable state, (excluding all thoughts about operator incentives) we don't want *clients* to change their behavior at all. So I did nothing. I couldn't figure out a way to know in advance whether monetary action would be necessary. So I proposed taxing everything, and refunding the tax when monetary action proved unnecessary.

In times of deflation, too few ENC are being exchanged for too few goods. I wanted to encourage spending and discourage hoarding. I didn't think computing a hoarding tax was feasible. Even if it was, that case doesn't seem optimal. I want MORE total ENC and more moving immediately into circulation.

So how to best increase ENC circulation? 

I certainly don't want to penalize the spenders and remove currently circulating ENC. That's exactly the wrong direction. The refund simply means, "Do no evil!"

But who best to give the newly created money too? Certainly not to someone who intends to hoard it. That won't change ENC exchange values at all. I could give it to those already spending. Perhaps by returning DOUBLE the tax to everyone in the transaction. That doesn't guarantee that they will circulate it though.

The only person who will immediately spend it is an arbitrager. Someone, who knows exchanging the ENC for dollars now is his greatest financial advantage. That is the person who will sell the ENC for the "highest bid" rather than holding out for a "lowest ask" that will never come. This is the optimal way to immediately move the market.

----

Oh yeah! One last thing...

I thought that the number of new coins being created should somehow be related to the current amount of coins *circulating*. Those are the ones that affect valuation. The tax is also related to the number of *circulating* coins. If the total economy is small, you need small efforts to affect change. If the total economy is large, you need larger efforts.

At least that's my guess.

OK, I'm with you so far. The perfect world generalization is fine with me, to get on with discussing the more interesting bits.

The only kibitz I offer is that I think you mean "200W" rather than "200Wh". If someone's power supply is drawing 200W and they run their computer for 6 hours. The electric company bills them for 1.2 kWh.



I understand all of this and have no criticisms. The intension is to encourage people to participate in these partnerships. Motivations might change, so you allow flexibility to adjust. Nice.

Agreed. Not interesting in forking. It creates something that is not the system we are discussing.

OK, I fundamentally understand "cool down" mode differently now. I thought it was a property of the system as a whole. After the X hour period generating a PB, *every* TrustNet goes into cool down *phase*. I appear to have been mistaken. Each network makes a decision on how much electricity it wants to risk mining at each mining interval. That makes much more sense to me now.

I have some questions about the non-linearity of the cool down mode rewards. But I want to think about things more in light of this insight.

I agree completely. But I want to point out that a lot of the benefits you are referring to come from trust in the humans behind the TrustNet abstractions. You can't chat with the code and ask it to vote on its best interest. I still think "Trust" means humans trusting humans. Compliance means nodes can't cheat.

Most of the comments I have made should be viewed from the perspective that I totally agree with you here. I also want to take advantage of the unique advantages that come from knowing your fellow human peers.

---

I'm going to comment on the rest after I've given things a little more thought.

Thanks for the new insights!

I hate to respond to this post first, but it is quicker.

Your other post is much more enlightening. Thank you for that. I will respond in detail to that in a few minutes.

My point was, he can run a complete peer an look at and check every single transaction for a trivial cost. No mining is requires. This will give an overall sense of how many people trying to cheat. Even if he doesn't want to do that, he can download the block chain every few days and check it for consistency. This is a built in feature of every client that runs automatically when you start a peer. If there exists even a single double spend in the block chain, the system is fucked and it is time to call the programmers and alert the media. The data structure and transaction validation rules simply won't allow it to happen. If its there, it is impossible not to notice. (I can go into details about in-point, transactions, out-points and the directed acyclic graph structure if you like.)

And important point is knightmb doesn't have to worry about anyone stealing his existing coins. Even if everyone else stops mining, and someone has 100% of the CPU power, they still can't generate compliant transactions to take them. They also cannot fork the block chain and erase them. His transactions are long behind bitcoin's programmed in (mandated consensus) block locks.

I understand what you are saying. I also agree that there is increased opportunity to cause mayhem if a huge majority of miner leave bitcoin all at once. But in the end it will be the vested interest of the bitcoin holders who motivate a solution. Even if it means changing long standing mining conventions.

I completely understand your destroyed transaction fee and its purpose. I put a similar Tax in my post on the subject.

I wasn't talking about or implying encoin in the above statement. It was common banter on this site that *bitcoin's*  trivially small (at that time) transaction fee would provide the ultimate reward to incentivize bitcoin mining after the 21M coins had been distributed. The thinking was, as each coin's external value skyrocketed, the transaction fee's external value would increase with it.

I'm pretty sure satoshi covered this in his original white paper. On fortunately it tends to get overlooked with everyone focusing on mining rewards.

According to satoshi, and I agree, the long term security and stability of bitcoin is in the hands of bitcoin owners. Meaning people who own/hoard bitcoins have intrinsic interest in the security and stability of the system. These people will always have an incentive to run honest nodes. Self-interest causes them to support the currency and make sure the system is free from fraud.

I used to chat on this forum with a guy with the handle "knightmb". He owned 371,000 BTC. At current prices, knightmb's market capitalization is over $1.5 million dollars. He has a serious vested interest in the stability of bitcoin. From what I read, he no longer mines. I'm absolutely sure that he keeps an honest node running continually though. It is necessary, and trivial, for him to monitor the overall behavior the network. He can see at a glance that everything is in perfect compliance. If he notices non-compliant transactions creeping into the log, he will be the first to phone the developers and post a notice of an attack in this forum. If he has spent a single kilowatt of electricity on this monitoring in the past year, I will be shocked.

There is a transaction fee in bitcoin. But, it was never designed as a reward system. It was a preemptive defense against someone swamping the system with needless micro-transactions. (See the code comments.)

The pondering that "transaction fees might provide some future incentive" came via a consequence of the previous decision. According to satoshi, self-interest was always the long-term logic for supporting bitcoin. After all he named it a peer-to-peer currency. As such there is no higher interest than the self-interest of the peers.

The point of that post was to propose a mechanism for monetary policy adjustment. I not to talk about consensus. I was directly answering the question someone else asked. I didn't want discussion of monetary policy self-adjustment to get sidetracked.

But yes, if you wish, I can explain my algorithm for consensus building. It's not really necessary. You've already proposed yours is secure. For this conversation, on monetary policy, that's good enough for me.

I just don't understand your concepts well enough to say, "let me propose an encoin like system, except..." Had I done that, I would have obviously been talking out my ass. I have no idea why you made most of your design decisions. Like say, why you changed 10 minutes consensus periods to X hours. How each miner is benchmarked against kWh. Or how effort based new coin allocation attempts to affect monetary policy.

What I'd really like to hear is how the monetary dynamics of your proposal relate to what I wrote down. I know my expansions constants (1/2 & 2) are probably not right. But the post captures the gist of my dynamics. Maybe there are more incremental levels to increase generation speed. Maybe the rules for varying the difficulty are too aggressive. That's not important yet. If their are changed, the basic structure of what I wrote will remain the same.

What I'm trying to understand is to what value/function does this system converge: If a new ASIC is 100 times more efficient? If a big new vendor joins the network? If the price of electricity spikes? If in any situation, the value of coins tends either to zero or infinity, I know the algorithm is not stable.


On the other hand, I genuinely don't understand your dynamics. I have nothing to compare or contrast.

You said you vary each difficult like bitcoin does. I don't understand when, how or why this happens. Say someone's hardware is generating ENC a 10 kWh per coin with X khash, and someone else's at 5 kWh per coin with x khash. You certainly can't vary the hash difficulty as a shared constant and meet your goals? You must have deeper thoughts than that. Tell them to me.

You gave constants for coin creation that seem unrelated to the transaction fees. I don't understand why you chose those constants and why (as both are part of monetary policy decisions) they are unrelated. If they are place holders to be calculated later that's OK. I just genuinely don't understand yet.

To combat increases in hardware efficiency over time, you propose rotating algorithms. Rotating doesn't seem to work, because if someone is willing to build an ASIC they might as well keep it around for when rotation comes back. 4 algorithms, 4 ASICs. Run when appropriate.

Beyond that, your concept seems to require competing engineers. Who decides if existing hardware is too efficient? Who gets to choose the next proof-of-work algorithm? How do you make everyone else adopt those new rules? That seems like a different kind of consensus building completely unrelated to your TrustNets.

---

I'm genuinely interested in understanding how your system meets its monetary policy goals. To me, all the other bits are optimizations to previously solved problems. They are interesting in their own right. I'm just interested in monetary policy first.

I wrote down the concept here. I think it got lost in all my ranting. There is no central server concept. Fully distributed. It's not that I don't use proof-of-work, its that I don't require proof-of-work for security. That makes mining optional except when it is actually appropriate to create new coins. In price inflated times nobody has to mine.

For monetary policy, it's not important who gets the coins first. However, in this case we always know where they go next—To the exchange. In this system, new coins always enter circulation immediately. That gives them the most immediate effect on prices.

See the other post for the real answer. It's a winner take all thing for the miners, but its up to each to decide which accounts they put the money in.

---

Now this doesn't mean the server can't add a client transaction fee to benefit the partners. It doesn't affect monetary policy at all. There is also no reason that different hosts can't charge different fees. They could compete on price or service.

Yeah, I did feel like I was ranting a bit. ;-)

I feel like you are reading what I write as more critical than I mean it.
I totally support your goal of creating a stable EnCoin currency.
I'm not opposed to you or anyone else calling it "a service" and charging for its use. Discussing those goals, however, is not a priority for me.
I happen to like the client/server part of the idea. It reduces the number of peers that need to communicate.

I'm still totally baffled by a lot of the names you have chosen. I've been developing software for pushing 30 years now. I know naming things is often one of the hardest parts. The terms "Network Trust" and/or TrustNet have too many ambiguous meanings. As an outside observer I think you should split your discussion into its two separate senses.

1) A TrustNet is a plug compatible replacement for a mining pool. In this sense you have "partners" who participate in mining, invest electrical cash, and get rewarded. You might consider calling this feature a "partnership". As in "Anyone can start their own EnCoin partnership..."

2) A TrustNet is also service which is provided to "clients". You might consider the term "host" or perhaps "teller". Originally I thought, from the name, that each TrustNet was itself a client facing entity. Meaning, a client connected to his particular TrustNet to get his transactions processed. As in, "I'm going to my bank." That made the two seem more like a single concept.

However, later you explained that each "partner" serves as a "host" for clients. It is not clear to me that clients even know that TrustNets exist. Perhaps they see each individual node as fungible automatic "teller" machines and don't care to which bank it belongs.

Either way, this is the sense most closely related to "Trust" for me. A client *is required* to trust its teller, since the client can't validate its own transactions. In the previous sense, it's clear partners don't have implicit trust for other partners. Neither do partnerships trust other partnerships. Certainly TrustNets don't constitute a web of trust. Using the word "trust" seems to obfuscate everything.


Well you caught me there! :-) As you know I gave up on bitcoin more than a year ago. I only know of that event from headlines. I was around, however, when the developers deliberately changed the bitcoin client to fork the block chain and rewrite history. It seems there was a bug, and non-compliant transactions had made their way into the block chain. The old clients would accept transactions from the new client, but the new would accept from the old. It was really interesting watching the new chain overtake the old and all the old nodes dumping their entire reality. It really gave me pause.

Actually, I do. There are long threads discussing details with satoshi somewhere.

I do understand them. I'm not trying to refute the fact that some of your ideas are better, safer, more efficient than bitcoin. They most certainly are.

I just think that my ideas are even better than yours! ;-) So there!


I was actually serious here. I think inside your sprawling confusing misnamed concept, is a much simple gem of an idea struggling to get out. :-)

In general I think the video was full of crap.

I do want to point out that if EnCoin is intended to have a stable value base. That makes it trivial to create money "out of nowhere" via lending. It's also simplifies creating fractional reserve banks. More money "out of nowhere". This is on top of the new mining currency created "out of nowhere".

Only bitcoin like currencies that aim for ever increasing coin value (price deflation) discourage this "out of nowhere" money. There is a thread called "lending at negative interest" or some such where I disprove that silly logic.

I'm going to take one more shot at this. Your calling me back here has been fun. I want to thank you for that.

I understand what you are saying about: trust = hash * time vs. bitcoin's way. I don't think that is "trust" though. I think hash * time = "effort". I'd don't think I'd even call it "work" because I'm not sure anything is actually getting done for the effort.

I'm also absolutely sure you overstate the dangers to bitcoin accounting. In bitcoin if you gain 51% of the hash power and you want to delete a transaction that happened 5 blocks back, you basically have zero hope of accomplishing that. If you have 51% of the hash power you CANNOT generate a fake transaction. You also can't transfer money from one account to another. You can't even do more than stall a transaction with 51% probability.

The dangers you hypothesized for encoin were much harsher than those bitcoin is currently suffers from.


I'll let most of this slide, since I'm under a pseudonymous handle. But trust me, I have more P2P experience than you know.

The important part of my message is about compliance to the protocol. In bitcoin, even with 75% of the hashing power, you can't stick a transaction into a block if it won't pass the validation rules. Every other honest node will reject your block. Worse, they'll all know you are a liar. That is what compliance means.

If I have your previous PB balances and all of the new transactions for this period, you had better not try to give me a new PB with balances that don't match the known transactions. If you do, you sure as hell better be able to produce a valid transaction I'm missing that reconciles the differences. I don't give a flying fart if your (hash * time) effort is 100% and my effort is 0%. If the math doesn't work you are still lying. That is what compliance means.

For that matter, previous investment of time adds nothing to ones trustworthiness. Say, I take a copy of the bitcoin block chain and validate it. I am now equally as capable as any other node at spotting fraudulent activity. I've spend no time and generated not a single hash. But even if the 10 longest running nodes agree to accept a new block with an invalid transaction in it, I can still publicly call them faulty at best liars at worst. Compliance means agreeing with the specification, not with the majority.

My recourse to compliance violations is not to bend over and take it because others have 51% of an imaginary quantity. My recourse is to publish the data on this forum. Call you a liar. Call the authorities and start sending out press releases. That is what compliance means.

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If the only digital currencies you've ever seen are bitcoin analogs, I know it maybe hard to understand that most digital currencies and money transfer services strive to not waste CPU cycles or electricity. Expending needless effort is simply not required to guarantee the validity of crypto-currency accounting.

If you changed bitcoin into a client server system with only a single bitcoin server doing the accounting, it would remain equally as trustworthy and secure as it is now. So long as everyone can download the server's history and validate the current state, there are simply very few ways for the server to cheat. If every client keeps track of the most recent couple of block hashes, then periodically checks to make sure they don't leave the chain, there is simply nothing the server can do while still remaining in compliance. Every false move is instantly detectable by even the simplest of client.

Never fail quietly! It's one of the most important rules of software design.

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I can show you how to take bitcoin's current implementation, remove the proof-of-work nonsense, and turn it into P2P network of Trusted Servers as you described. In the process you'll lose none of bitcoin's current security. If you want to add back in constant kwh mining and transaction fees, to help sustain a stable monetary policy that's awesome!

If you want to add a complicated history of effort model to rationalize sharing the wealth, that's your own business (literally). It adds, however, neither security nor trust.


A while back there was a bitcoin hack where a trojan stole wallets and transfered money out of people's accounts. There is nothing in the rules of bitcoin that prohibits that. There is certainly nothing in the rules that enables anyone to reverse that. But the programmers changed the rules and rolled things back.

That is what "Trust" means.

Well, it might not be. But just in case it is, I'm going to write down my logic. Maybe we can all bash on it and see where the logic takes us.

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The whole concept is based upon Arbitrage. The instantaneous buying and selling of something in different markets. In this case, we want to buy ENC in the "electrical market" using dollars and sell them in the ENC marketplace for dollars. (Your currency may vary) The tendency toward a fixed value is based upon the self-interest of the participating humans. They only participate if it seems profitable. If it appears unprofitable the humans do nothing.

So specifically, if a human thinks he can generate excess ENC for less dollars of electricity than the dollars he can IMMEDIATELY sell the ENC for, he begins mining. If he thinks it will cost more dollars of electricity than the ENC are worth, he stops mining. It's an intellectual gamble like in any financial marketplace. You have to put your dollars at risk to play.

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For the sake of discussion I'm going to propose a hybrid system that's like bitcoin, except that instead of using mining to add the next transaction block to the chain, it adds the block through consensus. 100% of the existing nodes decide that all transactions in that block are valid. Then they lock that block into the chain forever. There is also no standard 50 BTC award. Transaction accounting is NOT rewarded. For this discussion, just pretend I can prove that it's a secure process.

So in my version of the ENC system, mining is a completely optional process to that of transaction accounting. Mining DOES NOT secure transaction accounting.

The process works like I've discussed in this thread.

1) Every transaction has a X% tax that is destroyed. This provides a baseline tendency that reduces the ENC supply. Transaction are grouped into 10 min blocks like with bitcoin.

2) Mining is optional and can be run by anyone at any time. Mining generates new ENC transactions through a proof-of-work concept similar to bitcoin. The main differences more complicated ENC generation rules, and the process for varying the proof-of-work's difficulty.

Mining takes place in the 10 minute interval after the previous (consensus created) transaction block. The proof-of-work can be solved at increasing difficulty levels, leading to increasing rewards.

The transaction generation rules are as follows:

If the miner solves the proof-of-work at the (current+0) difficulty level, the transaction must contain:
a) Tax reimbursements for every transaction in the prior transaction block, paid back to those from which the tax was taken.
b) ZERO additional reward for the miner.

If the miner solves the proof-of-work at the (current+1) difficulty level, the transaction must contain:
a) Tax reimbursements for every transaction in the prior transaction block, paid back to those from which the tax was taken.
b) (Total Tax)/2 as reward for the miner.

If the miner solves the proof-of-work at the (current+2) difficulty level, the transaction must contain:
a) Tax reimbursements for every transaction in the prior transaction block, paid back to those from which the tax was taken.
b) (Total Tax)*2 as reward for the miner.

Mining is a competitive process. Whoever generates the proof-of-work transaction with the highest difficult in the 10 minute window wins. If there is more than one at the highest difficulty, the first wins.


Difficult is algorithmically adjusted for the next 10 minute period based upon the results of the previous.

If ZERO mining transactions were submitted, the current difficulty is adjusted (-1).
If a current+0 transaction wins, the current difficulty remains unchanged (0).
If a current+1 transaction wins, the current difficulty is adjusted (+1).
If a current+2 transaction wins, the current difficulty is adjusted (+2).

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As far as I can tell this tends to cause the following dynamics.

If the current difficulty causes higher electrical cost than the dollar value of ENC, there is minimal incentive to try and add new ENC coins to the system. As such the Tax will be lost, tending to slightly inflate the dollar value of ENC. The difficulty will also be reduced, tending to slightly lower the electrical cost of ENC.

If the current difficulty causes near equivalent electrical cost to the dollar value of ENC, anyone with a transaction in the prior block, has interest in mining for their tax reimbursement. This means the appropriate monetary action was to do nothing. (No tax penalties)

If the current difficulty causes less electrical cost than the dollar value of ENC, then there is a momentary arbitrage opportunity. No tax will be lost. New ENC will be added tending to slightly deflate the dollar value of ENC. The difficulty will also be increased, tending to slightly increase the electrical cost of ENC.
 
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I think those rules tend toward some wandering equilibrium measured against the cost of electricity. I'm not totally sure of the exact function.

What does anyone else think?

I agree. That is really the question I showed up to hear the answer to also.

I hear philosophy about why a constant value is good. I agree with that philosophy. I don't yet see how anything in the proposal facilitates that though.

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As a side note, I think I have actually come up with the beginnings of algorithm that might suffice. It is clearly only a partial solution. I haven't solved the bootstrap problem.

Technically, in my case, it's not 1 ENC = 10 kwh. It's closer to 1 ENC = 10 kwh * avg($/kwh). One ENC trades in dollars at the same price that 10 kwh trades in dollars. I don't know if 10 is the right constant either. It's a little more nebulous than that.

So hypothetically, say we had a currently running ENC system where the price of 1 ENC = $X = cost_of(Y kwh).
The goal of my algorithm is to cause the $_value_of(1 ENC) to tend toward the value_of(const Y kwh). This relationship should hold over time, even with changes in technology and changes in the price of electricity.

Again, I can't bootstrap this yet. Nor can I drive the ENC price toward any particular Y value. But if it is currently at a particular Y value, I think I can keep it there over time.

Anyone interested?

This post does not inspire confidence at all.

You know of course that the Sybil attack was one of the prime motivations for developing the wacky proof-of-work calculation. The logic goes, if we are going to have a group of anonymous peers, and we need to vote on things...

The answer of course is, never let anonymous fictional entities vote. It's silly.

Fortunately for you, EnCoin has relationships between non-anonymous trusted parties that investigate scamming, broadcast notices to the public, ban the scammers, and report them to the appropriate authorities. If the authority in your trust network can't do this, why on earth would you "trust" them?


The fact that you consider these possible (but implausible) attacks on your proposed system shows that your basic consensus (100% agreement) mechanism is non-existent.

Validity means a transaction is 100% in compliance with the rules of the system. There is no negotiation involved. No vote is ever required.

ATTACK: TrustNet tries to pay itself too much money

This should be trivially detected and prevented by *every* other TrustNet. It is either a defect in that peer, or fraud committed by the peers owner. The defective/fraudulent TrustNet entity and all its users should be banned until trusted humans determine which problem it is.

ATTACK: User abuses a TrustNet’s trust by approving bad spends (equivalent of a double spend in bitcoin)

WTF? How can any group of peers abuse the TrustNet's trust? The TrustNet was supposed to be the party everyone else was trusting? The only way to attempt a double spend is to simultaneously submit two conflicting transactions to different TrustNets. Both would be accepted and each would "race" the other to see which got "51% Trust" first.

That whole concept is STUPID and IRRESPONSIBLE.

Both transactions are part of a single common attempt at fraud. This should be detected in 100% of the cases, by 100% of compliant Trust Networks. In EnCoins case it should happen within 30 seconds or so. Both transactions should fail immediately so the targets of the fraud can be notified before irretrievable property changes hands.

All source accounts (transaction in-points) of both transactions should be locked system-wide. That prevents further attempts at fraud. Notice of the fraud attempt should be broadcast globally so nobody attempts to deal with the fraudster again. The locks should not be removed until the account owner presents himself to a trusted human and offers a believable explanation of how the situation happened honestly. 100% of the trusted humans must agree to remove the locks.

ATTACK: Control 50% or more of the total network trust and use it to change wallet balances
STATUS: Possible, and may cause temporary, but correctable problems.

REALLY! You even consider this a possibility? Arrg! If this can't be immediately detected by 100% of compliant Trust Networks and broadcast system-wide, then really there is no reason for anyone to trust your EnCoin at all.

I mean really, you are claiming that periodically your system "cools down" to reach a common consensus (100% agreement) point. At that point 100% of the Trust Networks agree on 100% of the account balances. You are saying that somehow 51% of the networks can conspire to change a balance or submit a fraudulent transaction and the other 49% either can't detect and/or can't prevent this fraud?

Any single compliant network must be able to validate the compliance of every other network. If they can't there is zero point in anyone trusting even an honest "Trust Network".

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Suddenly I have zero confidence in your proposed implementation.
Convince me that I'm wrong.

Part of my confusion is that you are not separating Physical entities from Logical entities.

As best I can tell, a "Network Trust" is a logical grouping of physical peers. I'm not sure if you consider these peers to be the humans or these human's (zero?, one or more) computer nodes. Can I be part of a "Network Trust" (to send and receive coins), without running a node at all? Do I have to be part of a "Network Trust" to send and receive coins? I guess I'm asking, are NT's optional just so I can share in your reward scheme?

I understand the logic of what you said. But who (what peers) is actually doing the work for a given "Network Trust" group? Does every NT member receive every broadcasted block from the other NTs? Or is there one-or-more delegates for each NT that NT members are *required* to trust? That was what I was referring to below.


I got really confused about your use of the term network peers here. Sometimes it seems to mean intra-NT peers. Other times it seems to mean inter-NT relationships.

And the statement "they will be putting" is completely nebulous. I understand why they will be putting together a block. I just have no idea who they are? Is there a single delegate for the NT? Do the members of the NT collaborate together? How do they share data? Who is responsible for resending the block every few seconds?

It seems like there is a delegation pattern at work here. But then you say "Each peer knows the address of every peer in their network in case Something Really Bad™ is happening (all 4 or 5 peers are disconnected, or all 4 or 5 appear to be doing shady stuff, or something similar)" which implies each peer is monitoring his NT peers, not trusting them.

I'm really confused.


Again, when I said "account(ing) part of your trust network peer," I was thinking about the delegate pattern. Supposed you delegated *all* the 1) receiving of NT member's transactions, 2) validation of NT member's transactions, 3) transaction block broadcasting and receiving, 4) validation and recording of inter-NT transactions. This could easily be done using only the power of an iPhone.

If you are not delegating the above 4 things to some "trusted" delegate node, then I'm totally confused about the dynamics of your NT group of nodes. If each member does these things individually without trusting the other members, then the batching, signing, and sending seems redundant.


I don't mean to be dense, but I'm totally baffled by this last paragraph.

We got all the way here, talking about a distributed system for trusted and verified transaction accounting. Never once did you mention any necessity for *mining* in order to guarantee transaction validity. Validity was guaranteed through transaction block signing (consensus notarization).

What on earth does mining secure? The only thing I see that it can possibly protect is the reward system for mining. This system seems to operate completely independently. In actually, it doesn't seem to secure the transaction system. It seems to rely on the consensus relationships of the underlying transaction system to frustrate subverting the mining reward system.

Again, I'm baffled.

I thought the mining system was a way to optimize monetary policy. Where "optimize" means, expand or contract the money supply as appropriate to maintain coin value stability. That is a hard problem and worth my time to think about.

On the other hand, levying a tax on every transaction and using *mining* as justification for redistributing this tax among miners... Well that seems to be an unnecessary problem to solve at all. At best it's a marketing problem. That's not at all where I want to waste my mental energy.