DECENTRALIZED crypto currency (including Bitcoin) is a delusion (any solutions?)

[TPTB_need_war]

Unlocking the topic, if anyone wants to continue on the analysis of Iota and DAGs. I have resummarized my upthread point more concisely:

Take all that together with the fact that Iota's consensus convergence depends either on all payees choosing to employ the same Monte Carlo judgement

||

Take all that together with the fact that Bitcoin's consensus convergence depends either on all payees choosing to employ the same Longest Chain Wins judgement

The distinction is that that there is no way to verify from the block chain whether every payee did employ the Monte Carlo judgement. Thus there is no Nash equilibrium.

Kaboom!

Hasn't Selfish Mining proved that Longest Chain Wins is not a Nash equilibrium?

No. Because anyone who has greater than 33% of the hashrate must employ the Selfish Mining as their optimum strategy and everyone else must mine on the visible longest chains as theirs.

The Nash equilibrium does have a long-term failure as economies-of-scale centralization, but that is an orthogonal issue.

The problem with a DAG is no one can know the optimum strategy of the other participants and even which strategy they employed. Or at least not until you can show mathematically that no other strategies than following the Monte Carlo is profitable. The Monte Carlo is only the most profitable IF everyone else is also following it. That conditional "IF" doesn't apply in the LCR. That is the key distinction that makes a DAG fatally flawed.

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[Come-from-Beyond]

No. Because anyone who has greater than 33% of the hashrate must employ the Selfish Mining as their optimum strategy and everyone else must mine on the visible longest chains as theirs.

You say that "white" is "black". It doesn't make sense to continue after this point.


PS: Those who are interested in the subject can check

https://en.wikipedia.org/wiki/Nash_equilibrium#Informal_definition ("Informally, a set of strategies is a Nash equilibrium if no player can do better by unilaterally changing their strategy."),

https://www.cs.cornell.edu/~ie53/publications/btcProcFC.pdf ("We presented Selfish-Mine, a mining strategy that enables pools of colluding miners that adopt it to earn revenues in excess of their mining power.")

and https://bitcoin.org/bitcoin.pdf ("Nodes always consider the longest chain to be the correct one and will keep working on extending it.")

which clearly show that Bitcoin doesn't operate in a Nash equilibrium and still achieves consensus thus making TPTB's claim ("Thus there is no Nash equilibrium.") look out of place, because it shows/proves nothing.

[TPTB_need_war]

No. Because anyone who has greater than 33% of the hashrate must employ the Selfish Mining as their optimum strategy and everyone else must mine on the visible longest chains as theirs.

You say that "white" is "black". It doesn't make sense to continue after this point.


PS: Those who are interested in the subject can check

https://en.wikipedia.org/wiki/Nash_equilibrium#Informal_definition ("Informally, a set of strategies is a Nash equilibrium if no player can do better by unilaterally changing their strategy."),

https://www.cs.cornell.edu/~ie53/publications/btcProcFC.pdf ("We presented Selfish-Mine, a mining strategy that enables pools of colluding miners that adopt it to earn revenues in excess of their mining power.")

and https://bitcoin.org/bitcoin.pdf ("Nodes always consider the longest chain to be the correct one and will keep working on extending it.")

which clearly show that Bitcoin doesn't operate in a Nash equilibrium and still achieves consensus thus making TPTB's claim ("Thus there is no Nash equilibrium.") look out of place, because it shows/proves nothing.

Your IQ is apparently insufficient to understand what I wrote. Your rebuttal is not a rebuttal but you don't understand why.

This folks is the difference between a genius level IQ and not. I'll leave it as a homework problem for CfB or anyone else who wants to demonstrate they have genius level understanding of the Nash equilibrium w.r.t. block chain consensus algorithms.

Even then I would advise waiting for all the other coins using DAG

A DAG can never be a Nash equilibrium consensus. I don't care what magic is piled upon it, I have with my genius insight already determined that the data structure can't support a Nash equilibrium:

https://bitcointalk.org/index.php?topic=1319681.msg14357837#msg14357837

But proof of work is old. Its washed out. Get with the times

It depends which problem one is trying to solve: a) something new to sell to speculators, or b) a system that can scale decentralized because your plans for the use of the CC require that it does.

Satoshi's proof-of-work design is flawed in that it falls to centralization due to economies-of-scale. But the interim Nash equilibrium does function until centralization is at 33% or above, as Bitcoin proved during its nascent period. (Hint: I just refuted CfB's prior post but there is a deeper refutation that I would like to see someone else articulate)

But note every known consensus system for a block chain fails to centralization due to economies-of-scale.

I think I know how to fix Satoshi's design. My future white paper will explain the threats that remain.

Btw iota uses PoW, not PoS

This is what a person with a low IQ and/or incomplete understanding of the holistic analysis of block chain consensus would conclude.

Rather Iota actually devolves to either a proof-of-reputation or centralized proof-of-work because of the loss of the Nash equilibrium which I explained upthread, thus forces centralization in order to force convergence over choices of conflicting DAG branches. How this centralization is maintained will determine whether it is via reputation of which servers payers and payees trust (if these servers can sign these transactions somehow perhaps) else devolves to who has the most efficient ASIC mining farms same as for Bitcoin.

[andyatcrux]

Just finally caught this thread. A title bearing harsh assessment yet seeking solutions. This may be one of the most important threads in all this forum. Contentious, conscientious debate and brainstorming! Relatively civil and constructive too. Anyhow, a lot of questions I have had myself but am not computer literate enough to form the level of insight I see here. Hence this being the current limit of my contribution.  

Seriously, watching this one.

[hv_]

Just finally caught this thread. A title bearing harsh assessment yet seeking solutions. This may be one of the most important threads in all this forum. Contentious, conscientious debate and brainstorming! Relatively civil and constructive too. Anyhow, a lot of questions I have had myself but am not computer literate enough to form the level of insight I see here. Hence this being the current limit of my contribution.  

Seriously, watching this one.

Yep. And it turns on my small brain. E.g. I still cannot find out if an ideal Nash equilibrium is absolutely needed, since strict equilibrium means death like in thermodynamics is at 0 Kelvin. Thats not good for anything....

[YarkoL]

Yep. And it turns on my small brain. E.g. I still cannot find out if an ideal Nash equilibrium is absolutely needed, since strict equilibrium means death like in thermodynamics is at 0 Kelvin. Thats not good for anything....

Think of it as a balance of incentives on top of some
dynamic structure. You could say it is structured behavior
which can maintain itself because it is to no ones advantage
to stray from the pattern.

[hv_]

Yep. And it turns on my small brain. E.g. I still cannot find out if an ideal Nash equilibrium is absolutely needed, since strict equilibrium means death like in thermodynamics is at 0 Kelvin. Thats not good for anything....

Think of it as a balance of incentives on top of some
dynamic structure. You could say it is structured behavior
which can maintain itself because it is to no ones advantage
to stray from the pattern.

Yes thanks. But all dynamics underly some prob. distribution. And in this case here it is always a natural one that is not predictable and full of exteralities.... So guess there can be never be sth like a equilibrium.

[tempestb]

Fiat isn't perfect, but we've been using it or some version of it forever.  Flaws don't mean people can't use it. 

TPTB is trying to figure out how to make the perfect currency that can never be centralized, and under his "genius" all cryptos are flawed.  Except the imaginary one he's going to come up with one of these days when he's not arguing with everyone about why he is right and they are wrong.  Reality though, is that there probably is no perfect crypto currency, and that we will likely continue to evolve the currencies (and ledgers) to better suit the needs and real world practices of their use.  TPTB warns that all current methods are flawed.  That the mining will centralize due to financial incentive, and create the dishonest miner who will reap the most reward.  However, today's miner has a financial incentive not to do these things, because the value of Bitcoin (Or Anycoin) would quickly become zero.  Not to mention, not everyone is an asshole.  Community can do things for reasons other than being selfish.  TPTB would probably think that Open Source should fail because it has no financial incentive, and that the software that earns money is going to be the better product because it generates profit.  You can find many real world examples of why that isn't true.  The Bitcoin community can keep it honest or it will fall apart.  Meanwhile, we'll wait for the perfect currency from TPTB to appear.

[TPTB_need_war]

tempestb, the flaw in your logic is that the raison d'être of crypto-currency is to be the antithesis of fiat. Otherwise just use a digital fiat.

Thus as we have seen every crypto-currency so far (including B​i​t​c​o​i​n, B​i​t​s​h​a​r​e​s, N​x​t, etc) loses adoption momentum once it becomes centralized.

The plausible reason is that for network effects to develop through widespread decentralized investment in the ecosystem, there must be a trustless, permissionless system.

Btw, I am not attempting to make a perfect system. Rather I am attempting to make one where the users of the system are in control collectively, but the economy-of-scale of each user is irrelevant. It is eliminating the economies-of-scale that I posit can prevent the slide into centralization that all crypto-currency designs have fallen to.

[TPTB_need_war]

Most people don't even realize Bitcoin has it's own decentralized exchange, but it does.

Which only 0.001% of the population can participate in profitably. And it ceases roughly 2033 or unless transaction fees scale up but there is a Tragedy of the Commons dilemma there as well.

It doesn't really even matter if it's profitable or not.  You can define Bitcoin in one sentence:

The purpose of mining is to create a permanent two way peg, decentralized exchange, which thus results in a permissionless system.

The economic incentives are a side issue, but seem to work thus far.  It's designed to bounce back and forth between profitable and unprofitable.  The fact that it's deflationary creates a time opportunity cost reward to generally remain profitable over the long haul.

You missed the point entirely. Only 0.001% have the economies-of-scale to mine Bitcoin profitably. Sorry your argument fails on the economics of proof-of-work hash functions, unless you can argue there is one that can't be significantly optimized for an ASIC and economies-of-scale for cheaper electricity located next to utility scale hydropower (even free electricity perhaps if you do a handshake and wink in China with a Communist Party official).

R0ach's argument is valid, to a point. Even if only 0.001% can mine (hypothetical number of course) then 70000 can mine (importantly, as independent entities), enough to create a competitive market. If you believe the number is even much smaller than that, as I suggest has been the case with ASIC mining, then there may not be a competitive market and his argument fails (with respect to Bitcoin at least).

Satoshi's design makes the marginal miner lose relative share of the hashrate over time due to reinvestment of profits, because they are less profitable, so the ultimate end game is only the miners with the lowest costs.

In a normal market, the marginal producers are more nimble and can respond to changes in the market more quickly and thus they are always regenerated.

But Satoshi's design is static and the marginal miners have no competitive advantage in order to sustain their existence.

QED.

As r0ach correctly pointed out, it is dynamic and there is always give and take. A particular marginal miner my drop out but another will take his place. Costs are always changing. Even political connections with a corrupt local official in China can disappear at a moments notice with one bullet. Nor does China have a monopoly on corruption, so cheap electricity appears elsewhere. The cycle continues.

This belies understanding that costs can't exceed income.

As the lowest cost producers scale up, they drive income to the level of their costs (thus no profit for any marginal miners). Otherwise they form an oligarchy to raise income (e.g. transaction fees), but then they can exclude the other miners.

The coinbase along with the price being driven by speculation is a short-term mitigating factor but that diminishes as the coin matures and becomes widely used. Then transaction fees dominate and coin exchange price becomes stable.

Sorry my QED was a strong one.

Also I think we were originally talking about the breadth of distribution of the coinbase, and 0.001% is even worse than a typical power law distribution of wealth. (Note Monero apparently has a CPU friendly hash and thus probably had better distribution percentage participation, but limited to those who know about mining it, which is unfortunately a very small number of people)

As you know, I am adamant about this, because I am intending to create a token that I believe can have very broad distribution and also defend against long-term centralization.

[chanbtc]

So may I know what's the main purpose of this thread? Just saying PoW is better than PoS, or do you have any constructive suggestions making PoS better?

I also suggest it's better to do a calculation to compare the actual attrack costs of PoW and PoS with similar marketcap. It's not quite fair to compare common PoS coins directly with BTC because obviously BTC has much higher marketcap, popularity and hashrate.

[TPTB_need_war]

The better retort would be to argue that the as the adoption increases, the price will rise so the fixed size (in coins) tail reward has an adaptive valuation.

But I will retort that the value of shorting also scales up accordingly.

Shorting can't erase the cost due to PoW (burning energy). It can only erase a cost from loss of value of a holdings (PoS and other methods that claim to turn holding coins into "virtual miners").

If attacking a coin causes its price to decline, shorting can return a profit. If that profit exceeds the cost due to PoW, then it erased it. Cover the short, stop the attack. Repeat if the price rises again.

Yes but if the attack doesn't succeed, the energy burn cost is still there (i.e. risk of failure)

Agreed, I also acknowledged that in the past, that the market might simply ignore the attack since it knows if the price doesn't drop there may be no way to sufficiently monetize the attack to offset the hashrate cost.

However there are other more certain ways to profit on an attack of PoW, and that is to do the attack on behalf of the world government and charge the cost to the collective (i.e. to the people of the world). This is essentially my greatest fear for the future of Satoshi's design if it doesn't otherwise fail due to being a cartel:

Regarding the future of Bitcoin and its Tragedy of the Commons economic design:

At best one would see the type of cartel that TPTB_need_war  has suggested; however my take is that this kind of cartel would only last for a short time before collapsing. Just witness what is currently happening in the crude oil market.

Cartels form in power vacuums. They must align with the greater power vacuums in order to sustain their market inefficiency (top-down control can't anneal maximum fitness). So the only way such a cartel would not fail, would be to become a fiat of the world government and be sustained by the Iron Law on Political Economics which is the perennial, inimitable power vacuum.

If, by contrast, you try to attack a coin almost costlessly via PoS exploits and if your attack doesn't succeed then your your coins nor your short loses value. Then you can just try again, until you succeed...

Agreed one of the major reasons PoS(hit) is insecure— there is no ongoing expenditure.

I agree that "coins will go down in value" does not enhance the security of PoW; that would attempting to impute a some sort of stake-based incentive to mining, as some do, and that is flat out wrong, or at best, very weak security.

Agreed.

Security of a coin will be very tied to its transaction rate × average transaction size, i.e. velocity adoption and wealth of the velocity. The problem I have with the fixed size tail reward as compared to the design I am contemplating is that tail reward only captures those metrics indirectly through exchange price appreciation. I am not sure if the two models are equally powerful. I will need to think more deeply about it. My design also has an orthogonal tail reward.

Edit: some aspects of Monero's tail reward and block size adjustment algorithm are analogous to aspects of my design. There are some other things I didn't mention. I will need to really take the time to distil this into a carefully written white paper. So I would caution readers not to form any concrete conclusions (either for or against any design mentioned here) from these vague discussions.

[TPTB_need_war]

Segregated Witness is just another way to centralize mining. I will explain that in the future when I am ready.

... but that is a small price to pay in order to increase the blocksize from 1 MB to an effective 1.6 MB accomplish

• Malleability Fixes
• Linear scaling of sighash operations
• Signing of input values
• Increased security for multisig via pay-to-script-hash (P2SH)
• Script versioning
• Reducing UTXO growth
• Compact fraud proofs

ftfy

The technically-challenged will conflate features with don't require Segregated Witness with an argument for why we need Segregated Witness.

Segwit is an elegant way for Bitcoin to gain those benefits.  I never said segwit was the only way, but it's good enough and it's happening.

Other coins (like Monero) enjoyed second/late mover advantages by being designed for those features from the beginning.

Frankly I haven't yet studied SegWit in great detail, because I will wait until they have finished it, so I am not losing time studying a moving target. I have no influence on the Bitcoin community's decisions, thus studying it now is of no significant advantage in the holistic priorities.

Conceptually I understand that SegWit enables outsourcing validation and retains hashes of the validated data on the block chain. Afaics, this is centralizing for at least three reasons:

1. Those with preferential access/propagation to validators can earn more with the same hashrate by mining on the correct block slightly sooner. Over time this moves ROI and thus hashrate concentration to those who have these political connections. However, this is not much different than the same effect that can exist now where miners with significant hashrate (even a cooperating set of them) can validate their block announcements sooner than the rest of the network. Afaik, the salient worsening due to SegWit is that validation concentration can now be political, not only by hashrate concentration, so it amplifies the vectors towards centralization.

2. Afaik, SegWit relies on trust enforced by voluntary fraud proofs to insure that the validation is correct for each hash on the block chain. Afaics, the game theory around these voluntary fraud proofs drives more centralization. But this is not something I want to detail now. It is a complex discussion and I am busy on more urgent priorities.

3. Afaik the new versioning capability that will be introduced with SegWit, basically hands the power to Blockstream to drive forks any time they want to. Again this is another game theory discussion which I don't wish to elaborate on at this time. Note Monero's periodic forks as a protocol also seems to a form of centralized control. One can argue that miners can vote, but it is fairly impossible to stop the political clout of the lead developers especially when that control is hardwired into the protocol. Satoshi's design was that it should be nearly impossible to hard fork, because that is the only way you truly have decentralization.

3. Afaik the new versioning capability that will be introduced with SegWit, basically hands the power to Blockstream to drive forks any time they want to. Again this is another game theory discussion which I don't wish to elaborate on at this time. Note Monero's periodic forks as a protocol also seems to a form of centralized control. One can argue that miners can vote, but it is fairly impossible to stop the political clout of the lead developers especially when that control is hardwired into the protocol. Satoshi's design was that it should be nearly impossible to hard fork, because that is the only way you truly have decentralization.

Regarding [3], if miners/exchanges/merchants don't agree with the lead developers they can just remain on an old(er) version.

I said it is a complex game theory discussion. Seems you want to force me to have that discussion when I said I am busy on other more urgent priorities. Because I can't just leave your afaics incorrect assumption there unrefuted.

You can't retain an older version, because soon the new features will become intertwined in everything and soon you won't be able to function in the network. The complexity of failure modes with an older version are beyond the scope of the discussion I want to have now. That will be a technical discussion. Just remember what happened the last time I got into a technical discussion with gmaxwell on Ogg streaming format indexing, a topic that he thought he was more expert on (and he should have been since he was the co-inventor of one of the Ogg codecs).

[TPTB_need_war]

- Proof of work: Benefits owners of large mining farms.
- Proof of stake: Benefits participants with large amounts of the currency.
- Proof of importance (e.g. NEM): Benefits participants which hold and actively transfer large amounts, mostly services like online wallets and exchanges.
- Proof of burn (e.g. Slimcoin): Like Proof of Stake, it tends to benefit people with large amounts of currency, but involves more risk for the participants and the amount of time to recover investments is larger than in most PoS variants.
- Proof of disk capacity (e.g. Burst): Like Proof of work, it benefits owners of large amounts of hardware, but a different kind of hardware than PoW itself.
- "Proof of time connected" (e.g. Timekoin): Benefits people who maintain a stable node with few interruptions.

Maybe there are more, but these are the ones I know.

Now - couldn't it be a way to lower the centralization degree if you combine many of these algorithms in one single cryptocurrency? It would not stop centralization totally. But there would be not a single group, but various groups benefitting from the block rewards. So the game theory could be more complex and attacks could be more difficult.

There is only one solution and I already outlined the design in my decentralization thread and in the thread where I explained Satoshi didn't solve the Byzantine Generals Problem:

UNPROFITABLE Proof of Work: Benefits the users of the currency who mine at a loss because they are forced to attach a PoW to every transaction. Note there are numerous details to making this design work, and I am not going to explain them all now. Some of the details were explained already in the linked thread.

[TPTB_need_war]

Anyone taking this guy seriously on anything he says is pretty delusional.

You would have a more intelligent conversation with a 13 year old programmer.

OP fails, offer something better then - oh wait you can't.

He often ends things with "oh need months to explain" "too complex to explain" etc when in reality he is the type to over complicate even something simple beyond understanding and would fail explaining why 2+2=4 to anyone.

In other words - he is full of shit.

If you believe you are correct, then since I am not anonymous and my reputation is at stake, please provide your real identity so your personal reputation will be destroyed when you are proven to have been embarrassingly wrong in your ad hominem statements.

Btw, this isn't helping you. Astute readers can read and ascertain the level of my competence. Your remaining days of being not totally ignored are numbered.

Note I have flagged your post to the moderator since it is ad hominem trolling a technical thread. You provided no technical arguments.

[TPTB_need_war]

China's centralization of Bitcoin mining:

Chinese Mining Expands

Guo said the mine, operating 24 hours a day, mines 50 bitcoins all day.

Guo launched the operation two years ago. At that time, mining in China represented about 40% of the world’s mining equipment. China now has 70% of all the equipment, he said.

Guo has established two mines in China and is building another one that, once complete, will be the largest in the world and will produce more than 30% of the entire world’s bitcoin.

[Ayers]

China's centralization of Bitcoin mining:

Chinese Mining Expands

Guo said the mine, operating 24 hours a day, mines 50 bitcoins all day.

Guo launched the operation two years ago. At that time, mining in China represented about 40% of the world’s mining equipment. China now has 70% of all the equipment, he said.

Guo has established two mines in China and is building another one that, once complete, will be the largest in the world and will produce more than 30% of the entire world’s bitcoin.

he said he mine 50 bitcoin all day, and then if he add another farm he will mine 30%?, somethign wrong with his math, because 30% now are 1200 coins, and after halvign still 600 coin, very far away from 50 with just 2 farm

[generalizethis]

China's centralization of Bitcoin mining:

Chinese Mining Expands

Guo said the mine, operating 24 hours a day, mines 50 bitcoins all day.

Guo launched the operation two years ago. At that time, mining in China represented about 40% of the world’s mining equipment. China now has 70% of all the equipment, he said.

Guo has established two mines in China and is building another one that, once complete, will be the largest in the world and will produce more than 30% of the entire world’s bitcoin.

he said he mine 50 bitcoin all day, and then if he add another farm he will mine 30%?, somethign wrong with his math, because 30% now are 1200 coins, and after halvign still 600 coin, very far away from 50 with just 2 farm

That really depends if the third one it is actually the largest farm in the world--he never stated that they are the same size.

[TPTB_need_war]

China's centralization of Bitcoin mining:

Chinese Mining Expands

Guo said the mine, operating 24 hours a day, mines 50 bitcoins all day.

Guo launched the operation two years ago. At that time, mining in China represented about 40% of the world’s mining equipment. China now has 70% of all the equipment, he said.

Guo has established two mines in China and is building another one that, once complete, will be the largest in the world and will produce more than 30% of the entire world’s bitcoin.

he said he mine 50 bitcoin all day, and then if he add another farm he will mine 30%?, somethign wrong with his math, because 30% now are 1200 coins, and after halvign still 600 coin, very far away from 50 with just 2 farm

That really depends if the third one it is actually the largest farm in the world--he never stated that they are the same size.

Well if his claim ends up occurring and his mining farm has a lower cost than the 28.75% of the most marginal miners (and assuming no miners mine unprofitably), then simple algebra says China's share of mining will increase to 98.75% from currently estimated 70%.

Btw, I did that in my head in 30 seconds or less, including reasoning out the impact on mining difficulty. Please check my calculation. (note I assumed 30% share is 1200 coins pre-halving)

Anyone ASIC mining Bitcoin now should sell their ASICs while they still can.

[HCLivess]

Inconsistency could be solved by progressive grouping and neutral "centralizing" algorithms