I'm trying to get a better understanding of the demurrage fees. Is it 5% flat per year for any public key address that doesn't maintain an active node? That sounds very steep, and also resource intensive to avoid as every wallet holder would need to keep a computer with an active connection running.
Three points:
1) We need active nodes for the system to work. Active nodes are the analogue of PoW in this system. Work is almost irrelevant. Thus the need for some levies to fund incentives for activity.
2) The inactivity levies are not as steep as you think. You have to compare them to something to have a useful measurement. Worst case demurrage taxes compare favorably with best case money supply taxes for national currencies. The worst case scenario levy also compares favorably with bitcoin's fees+subsidy.
3) There are other options for evading the tax besides maintaining the node on your home computer.
- Active nodes are necessary. Maintenance of nodes needs to be incentivized.
Regardless of how security works, we need active nodes to maintain a P2P system. The strong incentives to maintain nodes are intentional. Based on discussion among bitcoin developers (see irc logs at
http://bitcoinstats.com/irc/bitcoin-dev/logs/), the lack of active nodes in bitcoin is a significant problem. If you cannot convince anyone to maintain a cryptocurrency client out of altruism, then the zero trust system breaks down. You will always be trusting someone else to maintain the blockchain for you. That is bad.
The number of active nodes is slowly decreasing over time, see
http://bitcoinstatus.rowit.co.uk/. In bitcoin, there is no incentive to maintain a node unless you are a PoW miner. Node maintenance is extremely cheap, but the costs are not zero. To fix this problem, I have created rewards for people who maintain nodes.
- The levies are not as steep as you think. The PoW miners are already levying unavoidable taxes at a 25% annual rate (soon to be 12.5%). Absolute worst case scenario you pay one-fifth of what you are currently paying to maintain the network. Best case scenario you earn some money by maintaining an active node.
Money supply growth taxes for holding national currencies are larger than 5%. Money supply growth imposes a tax equivalent to demurrage. i.e. 5% Money supply growth = 5% demurrage in terms of the revenue levied. See this table for money supply growth rates around the world:
http://data.worldbank.org/indicator/FM.LBL.MQMY.ZGThe world average money supply growth is a little over 9%. Even for countries which historically maintain extremely tight monetary policies (such as Switzerland) the average growth rate is still around 6%. The worst case scenario 5% demurrage tax is better than holding your money in Swiss Francs. Swiss Francs tax you at 6% via money supply growth tax. Other developed country currencies are somewhat worse than Swiss Francs. Developing country currencies are much much worse.
Bitcoin is currently printing money at 25%/year, much like a developing country. 5% is five-fold less. Can bitcoin credibly charge less than 5% of the money supply in fees+subsidy? I don't think so. Rampant double-spends will result. Most importantly bitcoin's 5% is unavoidable. The 5% here is avoidable simply by running a client or partially trusting an online wallet service (see below).
- There are other options for evading the tax besides maintaining an active node on your home computer's IP.
1) You can rent a VPS and maintain your own remote node in the cloud. The remote node only needs to have your stake signing key. If the VPS is compromized, your theft risk is limited to 10% of your balance maximum if you own less than 0.002% of existing coins [that is at least 200 BTC right now]. If you own more, your theft risk is still capped at 20 BTC, provided you notice the theft immediately.
Currently a VPS costs US$23/year. Recall that doing this can earn you money as well. Future prices depend on blockchain size growth vis a vis growth in computing power. Hopefully computing power grows slightly faster than blockchain size. If not, bitcoin will eventually collapse under its own weight.
2) You can trust an online service provider to maintain a node for you. The online service provider only needs your stake signing key. If the online service provider is dishonest and steals your coins via the stake signing key, theft risk is limited. The limits are the same as those for the compromised VPS. The online service is profitable because active keys earn interest. Presumably the provider takes a cut of these interest profits and passes the rest on to you. The interest rate depends on the number of proportion of dead nodes. Interest rates increase as the proportion of dead nodes increases. This negative feedback ensures a stable level of activity.
3) If you are just worried about exposing your computer's IP address, you can run the node through a VPN.
Finally, if 5% is really still too steep after you consider all this, the rate could be adjusted downwards. If theft risk is too great, this could also be adjusted downwards as well. The theft risk is there to make sure you trust anyone you delegate your signing key to store min(10% of your BTC balance, 20 BTC) for you. Decreasing penalties and lowering theft risk weakens security and increases convenience. Maybe I am paranoid, but I prefer very strong and trustworthy security to inconvenience.
