Can someone explain to me how PoS works?

[Viper1]

Coins are not exactly countries so I think that there is nothing wrong with interest/inflation as long as the price of the coin itself is steady and growing.

Here is the killer. What if it isn't growing? See my comments above. If it is steady and growing, why have inflation at all? It only counteracts any growth by spreading it more thinly over a higher number of coins.

Interest/Inflation != growing value. More coins != more value. That is just the false link that marketers want you to make when they use the term 'interest' in place of 'inflation'.

PoS is not only about inflation, but securing the network as well.

It's not only about securing the network but also about the loss of coins over time whether them simply being lost in some wallet (like the guy that threw away a hard drive he had that had something like $4m worth of bitcoins on it) or someone accidentally burning some. Beyond that, as adoption of a coin grows, you'd also want to have more in the system. Frankly, the whole "inflation" thing people have against reasonable % POS coins is just a load of crap.

[1714920338]

1714920338

[Troonetpt]

NXT and Qora don't have interest, they only earn transaction fee. It more like all bitcoin was mined and the miner will only earn  transaction fee.
Interest is totally wrong, the infinite amount coins make is worthless.

I think you are wrong. If a coin is with let's say 20M in supply and interest is 3%/year only about 610k coins/year will be created. This is like holding your savings in bank + faster and more secured network.

NO, Interest is absolutely wrong.
You save your money in the bank, the bank will pay your interest, why?
Because the bank use your money to loan other people with high interest.
But a coin with interest, can you tell me who pay the interest?
The answer is nobody. That's why is wrong.

[Troonetpt]

Coins are not exactly countries so I think that there is nothing wrong with interest/inflation as long as the price of the coin itself is steady and growing.

Here is the killer. What if it isn't growing? See my comments above. If it is steady and growing, why have inflation at all? It only counteracts any growth by spreading it more thinly over a higher number of coins.

Interest/Inflation != growing value. More coins != more value. That is just the false link that marketers want you to make when they use the term 'interest' in place of 'inflation'.

PoS is not only about inflation, but securing the network as well.

It's not only about securing the network but also about the loss of coins over time whether them simply being lost in some wallet (like the guy that threw away a hard drive he had that had something like $4m worth of bitcoins on it) or someone accidentally burning some. Beyond that, as adoption of a coin grows, you'd also want to have more in the system. Frankly, the whole "inflation" thing people have against reasonable % POS coins is just a load of crap.

The key point is nobody pay the interest, not just the inflation problem.
And which lead two problem:
1. It like a perpetual motion machine.
2. It's unfair.

[spartak_t]

Let's say you have 100k coins from a coin which worth 10k satoshi and it has 3% PoS interest (call it inflation if you wish.. no matter how wrong it is). This is equal to 10 BTC or ~$2370 (based on current Bitcoin price). This is about ~$70 annual profit. If the coin rise steady in price (while it have active development and adoption) let's say 5%/month your "investment" (some people think that trading or holding cryptocurrencies is not exactly investment) will grow with 60% each year. What if Bitcoin doubles it's price in 2016 after it halves? In the end that means you will make like $400-500/month while holding. Is that bad profit? Of course this is something which sounds like a scenario from science fiction, but I strongly believe that it can be achieved.

And please stop comparing PoS with inflation. Do you know what happens with a blockchain if there is no PoW or PoS? It will just stuck. Purpose of PoS is not only securing the network, but keeping it alive at low costs as well.

[achimsmile]

If the coin rise steady in price

This is the problematic assumption.
In a currency with a fixed percentage of inflation, the demand has to increase forever in order to keep the price steady or rising, which is not possible on a large timescale.

[Daedelus]

And please stop comparing PoS with inflation. Do you know what happens with a blockchain if there is no PoW or PoS? It will just stuck. Purpose of PoS is not only securing the network, but keeping it alive at low costs as well.

Nxt has had zero inflation since inception and has never caused the blockchain to just stuck.

[spartak_t]

If the coin rise steady in price

This is the problematic assumption.
In a currency with a fixed percentage of inflation, the demand has to increase forever in order to keep the price steady or rising, which is not possible on a large timescale.

Though I recently didn't followed DNotes and I think it is still PoW only coin, what can you tell about it as example for steady growth? Of course it is nearly impossible to preddict what will happen in 1-3 or even 10 years, but I think that every coin who has active development and community has a good chance for steady rise in price.

[spartak_t]

Nxt has had zero inflation since inception and has never caused the blockchain to just stuck.

NXT PoS system is kinda different. I do like it, but I also think that there is nothing wrong in earning few extra coins while holding.

[Daedelus]

If the coin rise steady in price

This is the problematic assumption.
In a currency with a fixed percentage of inflation, the demand has to increase forever in order to keep the price steady or rising, which is not possible on a large timescale.

You're wasting your breath  

My last try:

Assume 2 coins, one with and one without inflation. They grow at the same rate, G. The inflation rate is I.

Coin1 growth over time t = G
Coin2 growth over time t = G - I

Unless inflation, I = 0, all else being the same, one Coin2 will have less value (lower purchasing power) than Coin1. You might have more Coin2's than Coin1's, but each Coin2 buys less as it has been eroded by inflation.


Eroded how? Both coins started with zero value and have grown in value by the same growth, G. But Coin2's supply, S, is now higher by inflation in the coin of I. So

Value of Coin1 = G/S
Value of Coin2 = G/(S+I)

Unless inflation I = 0, the vlaue of Coin2 will be lower >>> it has been eroded.


Inflation = New coins out of thin air  << Crypto
Interest = Share of return from charges of another product i.e. mortgage, loan, credit card << traditional banking


We are firmly planted in the former, inflation camp. Btw, deflation isn't good either but my comments now are limited to addressing the belief that inflation = profit. Which is a marketing tool against the ignorant.

[Daedelus]

If the coin rise steady in price

This is the problematic assumption.
In a currency with a fixed percentage of inflation, the demand has to increase forever in order to keep the price steady or rising, which is not possible on a large timescale.

Though I recently didn't followed DNotes and I think it is still PoW only coin, what can you tell about it as example for steady growth? Of course it is nearly impossible to preddict what will happen in 1-3 or even 10 years, but I think that every coin who has active development and community has a good chance for steady rise in price.

Very little. Are you trying to link the presence of inflation as the source of steady growth? If not, why try to link the two?

[spartak_t]

....

You are the one who is wasting your breath. I will never look on PoS like real life inflation as long as the annual interest is not more than 2-4%. If the currency is developed good, market can easily deal with that "inflation". With that said, I will repeat that people will be more keen to hold their coins which vastly improves the network of the coin.

At the end I will say that I'm not arguing with you and I completely agree with your scenario about inflation, but I just think it can't be compared with cryptocurrencies.

Cheers,
Spartak

[Viper1]

people will be more keen to hold their coins

That's actually the biggest issue with purely POS coins. Too many people hoarding them. Course that also alleviates the whole "inflation" thing since (assuming there's actual plenty of adoption of the coin), it decrease the supply which would lead to an increase in price. Doesn't really matter if you're creating 100% coins a year through staking if none of them get into circulation lol.

[Daedelus]

....

You are the one who is wasting your breath. I will never look on PoS like real life inflation as long as the annual interest is not more than 2-4%. If the currency is developed good, market can easily deal with that "inflation". With that said, I will repeat that people will be more keen to hold their coins which vastly improves the network of the coin.

At the end I will say that I'm not arguing with you and I completely agree with your scenario about inflation, but I just think it can't be compared with cryptocurrencies.

Cheers,
Spartak

Semantics. What you choose to believe is irrelevant. If the currency is good, there is no need to force it to deal with the inflation that makes everyone poorer (unless of course you do actually believe inflation is the cause of steady growth?). Why don't you think economics applies to cryptocurrencies?

If your position is based on a belief without good reason, then yes, I too am wasting my breath.

[spartak_t]

That's actually the biggest issue with purely POS coins.

I think that the bigger problem of purely PoS coins is the price of the coin. Let's say you have $100 worth of some altcoin, but the price stays pretty much the same (this example excludes declining) for a long time. Having this $100 is in no use for you, because your "investment" is not working for you. This is how this coin will die in short time.

[Daedelus]

That's actually the biggest issue with purely POS coins.

I think that the bigger problem of purely PoS coins is the price of the coin. Let's say you have $100 worth of some altcoin, but the price stays pretty much the same (this example excludes declining) for a long time. Having this $100 is in no use for you, because your "investment" is not working for you. This is how this coin will die in short time.

http://en.wikipedia.org/wiki/Supply_and_demand Prices don't stay the same.

Inflation won't provide a solution to declining prices, it makes the decline worse.

"I had 100 coins, inflation has given me 20 more. If I sell those, I am back to where I started but with some profit."

^This^ is flawed thinking. All things being equal, the value you had in 100 coins has now been diluted across 120. All things not equal (growth is free to fluctuate), the inflation acts as a brake on growth (G-I above).

People are selling the price lower, thinking they are maintaining value, and it feeds itself as inflation continues. Sooner or later, the 100 coins they hold start to approach zero.

[spartak_t]

Daedelus, I want to make something clear and the idea is not to brag or something, but somehow to prove you that I don't need explanations about market, supply, demands etc... I have a master's degree on Marketing & Business Administration and certificate "A" from SCE (Sofia Commodity exchange).

I already said that I completely agree with your opinion, but you first might want to understand why PoS is good for the coin's network and how markets can deal with that inflation of yours. Of course my examples are valid if we are talking about perfect market environment, which is pretty much impossible in crypto-world, but I just think it can be achieved. A coin may not be perfect, but parts of it can be excellent.

Will repeat myself though... I am 100% agree with you.

[BitJohn]

This link is a bit old but explains Proof Of Stake pretty well https://cryptocointalk.com/topic/700-proof-of-stake-explained-rough-draft/

[Daedelus]

Of course my examples are valid if we are talking about perfect market environment, which is pretty much impossible in crypto-world, but I just think it can be achieved.

You think it is impossible in crypto and you also think it can be achieved. Fair enough, but there is no reason for anyone else to hold these views in the face of all evidence.

Will repeat myself though... I am 100% agree with you.

As long as you hold the view that inflation can be viewed as profit/interest, you don't agree with me and haven't been reading my posts.

[spartak_t]

Oh, Daedelus,

While 3% inflation could be a big problem for a country with ~$17.5B GDP like USA, you just can't compare it with cryptocurrencies. If we assume that we have a coin with 20M supply and 3% PoS interest (inflation), then we have about 606k more coins created each year. That means about ~3022 BTC (or ~$716k) pressure/inflation/year and ~$1960 volume/day, which market must deal with at the price of 500k satoshi. Don't you think that it's possible (if we assume that the coin is kept "interesting" through the years)? PoS have some great advantages and this is the most important thing in it as technology. Inflation in it is not a big deal imho.

[Sylon]

You should take a look at this video. It's very well explained.

https://www.youtube.com/watch?v=L1HqLudciVU