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Author Topic: Some cryptocurrency questions for dinofelis.  (Read 275 times)
Wind_FURY
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February 03, 2018, 09:31:45 AM
Merited by achow101 (2)
 #1

This was taken from another thread but I believe it is better to discuss them here to avoid being off topic in the original thread.

I am trying to find out what is your stance in the "scaling debate", though I am too lazy to read all your past posts. But are you for bigger blocks? If yes, then what is your opinion on Bitcoin Cash? Is it good enough or can it be better?

I could give you a simplistic answer, but it wouldn't be the right answer.  The simplistic answer is: yes, of course bigger blocks.  However, I think that a single question, like, "are you for bigger blocks" misses entirely the point, simply because everything influences everything.  That's like asking a doctor "are you for or against chemotherapy".

Thanks for your honesty. I also have some questions on the following.

Quote
I think bitcoin has fundamental design issues on the deepest conceptual level, that far overshadow the simple question of "bigger blocks".  I think bitcoin is fundamentally broken on the following points:

- the PoW consensus mechanism that is too wasteful and leads to centralization of power, even though it is a very good consensus (no dispute) mechanism, it doesn't provide the other desired factors, on the contrary.

But what would be a good PoW replacement for you? Proof of Stake? There is also Proof of Capacity, also called Proof of Space, which I heard from d5000. PoC does look more energy efficient but it is not without its "centralization problems".  

Quote
- the fact that the consensus mechanism is remunerated (which, in itself, is necessary for PoW), which gives rise to a lot of game-theoretical issues and is the motor of centralization, by "economies of scale".

Yes but it is a brilliant coin issuance and distribution system. Was that not the real purpose of the mining incentives aside from "keeping the miners honest"?

Quote
- bitcoin's coin emission curve, which links erroneous monetary theory, market speculation, crazy power consumption and security in one big clusterfuck

This would make one good topic with it own thread. There is to much to discuss.

Quote
- bitcoin's lack of anonymity and hence lack of fungibility

What is your opinion on Monero? Would that make a better "Bitcoin"?

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February 03, 2018, 07:13:02 PM
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Yes but it is a brilliant coin issuance and distribution system. Was that not the real purpose of the mining incentives aside from "keeping the miners honest"?

We don't need mining in the first place never mind CPU-Wars and I would say that PoS is better than PoW but it does come with problem too
and I would use that word "Trust" that gets established but I am sure someone would come along and beat me up for swearing.

I mean one broadcast results in 20,000 nodes trying to agree on whats said and then putting a finger in the air to try and guess quite what the next block
will look like as they all try to stay in sync with each other.

it is not a brilliant system by any means, it's slow, it's costly to run and is 1st generation with none of the new coins taking
much from it at all  and they can present a public ledger without budging it by going "off-block" and having a number of single points
of failure as is the case with Lightning banking hubs.

ETH with the concept of "Smart Contracts" brought more to Crypto-World than hashing data and linking it to the next
block in the chain in what is really just a read only supped up version of something called a linked list

What gets up my nose is they run out of resources and then up the transaction fees as if they didn't know from day one
that bitcoin would not scale so what we have today is nothing like the original vision of just being an experiment to play with
and coins not being worth a dime.

 

Mining is CPU-wars and Intel, AMD like it nearly as much as big oil likes miners wasting electricity. Is this what mankind has come too.
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February 03, 2018, 08:21:54 PM
 #3

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Yes but it is a brilliant coin issuance and distribution system. Was that not the real purpose of the mining incentives aside from "keeping the miners honest"?

We don't need mining in the first place...

...nothing like the original vision of just being an experiment to play with
and coins not being worth a dime.

 

Say that the current implementations of cryptos are not the original version.  What would make the implementations adhere to the original version?

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February 04, 2018, 08:14:12 AM
Last edit: February 04, 2018, 08:25:27 AM by dinofelis
Merited by Welsh (1)
 #4

This was taken from another thread but I believe it is better to discuss them here to avoid being off topic in the original thread.

I am trying to find out what is your stance in the "scaling debate", though I am too lazy to read all your past posts. But are you for bigger blocks? If yes, then what is your opinion on Bitcoin Cash? Is it good enough or can it be better?

I could give you a simplistic answer, but it wouldn't be the right answer.  The simplistic answer is: yes, of course bigger blocks.  However, I think that a single question, like, "are you for bigger blocks" misses entirely the point, simply because everything influences everything.  That's like asking a doctor "are you for or against chemotherapy".

Thanks for your honesty. I also have some questions on the following.

Quote
I think bitcoin has fundamental design issues on the deepest conceptual level, that far overshadow the simple question of "bigger blocks".  I think bitcoin is fundamentally broken on the following points:

- the PoW consensus mechanism that is too wasteful and leads to centralization of power, even though it is a very good consensus (no dispute) mechanism, it doesn't provide the other desired factors, on the contrary.

But what would be a good PoW replacement for you? Proof of Stake? There is also Proof of Capacity, also called Proof of Space, which I heard from d5000. PoC does look more energy efficient but it is not without its "centralization problems".  

I'm working on a write-up on that, but you can get the gist in the thread about proof of stake bitcoin.  It is true that as theoretical offline trustlessness goes, if that's the ONLY criterium, PoW is essentially the only solution.  This is maybe why PoW was the best way to start this thing, as an underground means of getting up and running.   However, PoW induces so many other, bad, properties (of which waste and centralization are the most important), that we get here the situation of "the best is the enemy of the good".  

That said, most other consensus schemes, that "prove use of scarce resources", like proof of space, will fall in similar pitfalls: you will get a kind of madness of piling up HUGE resources, which are a form of waste, in the merciless battle of.... just agreeing on a data set.  PoS is different, because the resource is virtual ; however, the standard way of seeing PoS is self-referential (that critique is justified).  All *working* PoS systems have in fact an auxiliary "backup" consensus mechanism that does the real work.  Nevertheless, I think I can work out a real pure PoS system, if we drop, what I consider, crazy not-of-this-world trustlessness demands, of which the most important is: reached consensus by on-line parties shouldn't be required to be checked offline in a totally trustless way.
That is, as a newcomer, that wasn't online before, there's no guarantee to find the "right consensus" all by yourself in a totally trustless way.  The reason why this a priori shocking statement, isn't, is that a newcomer trusts in any case the software he downloads, and the pointers he found on the internet to download it, so he left trustlessness already.  If you are willing to download the latest Core software, and at best, you check the software with signatures from devs, and the https certificate of github, there are already a lot of entities you trust.  If these entities or similar entities tell you that a recent consensus was X, you've not been losing your trustlessness, you didn't have if from the start.

The other aspect of usual consensus mechanisms that wrecks more havoc than it solves problems, is this:

Quote
Quote
- the fact that the consensus mechanism is remunerated (which, in itself, is necessary for PoW), which gives rise to a lot of game-theoretical issues and is the motor of centralization, by "economies of scale".

Yes but it is a brilliant coin issuance and distribution system. Was that not the real purpose of the mining incentives aside from "keeping the miners honest"?

Yes.  And I think that PoW is still the best "coin issuing mechanism".  The problem with bitcoin's system, and which almost all alt coins took over apart from a few very modern ones, is that bitcoin mixes up three entirely different functions:

- coin creation
- consensus proposition
- consensus approval

In bitcoin, these 3 functions are the same: the entity creating a proposal of consensus (a new block with a choice of transactions) also votes for previous consensus (choice of what previous block to build on if there are several) and creates new coins, as a "reward" for doing this - but in a competitive system where this reward is essentially wasted again in heat and hardware expenses.

If we separate these 3 things, then life becomes much simpler.   One should limit the number of "proposals of consensus" all while being not a big effort for those that can do so.  The reason is that those propositions need to be propagated on the network, and we want to limit what propagates.  This is why PoS is a good way to limit the number of propositions: a good rule (it is going in my write up) will essentially allow at most a few tens of proposals to be considered (and hence, propagated) per consensus round.   The network (online network nodes) will then "approve" one of the proposed consensus blocks in the list, but they have no free parameter: a deterministic random function will indicate, of a list of proposals, which is the one to be approved.  All nodes can then see which of their peers behave correctly (and can hence gain somewhat in trust), and which are untrustworthy and not to be taken into account in the future.
When the network came to a consensus this way (the decision is now taken), the data corresponding to this consensus can be propagated and verified.  If these data turn out to be erroneous, we start all over ; if they are correct, the consensus is reached: nodes signal that consensus was reached.

All this is done online, with enough time for network propagation delays.  Nodes that are latecomers, lose trust: they can still be spectators, but their role in the network propagation is diminished. The trick is also to use real world time.  I don't explain everything here, there are a lot of technicalities I won't go into (and some, I didn't work out entirely myself yet).

The important part is that nothing in this is remunerated.  It is based upon altruistic participation. That makes that all honest nodes have no preference in this consensus process: if their proposal is not accepted, there's no loss of any potential reward.  The only "reward" is that you know that you are going to have the right consensus because you were there, and that you won't need to trust anyone.  In other words, by participating, you diminish the risk of being told nonsense, and you contribute to the solidity of the network that holds your value.  If you "get out", you leave the decision to others and you accept all consequences of that.  It is like democratic voting: you don't have to, but you leave the vote to others then, don't come and cry.

I think that coin creation is still best done with PoW, because it burns seigniorage.  PoW is a great price regulating mechanism, that could make for a near-ideal money instead of the speculative asset bitcoin was.   There was a very bright insight here on that in 2010, but Satoshi didn't want to hear it.  

If you can make it such, that the economic cost of PoW is constant, or even continuously slight increasing, you can have an automatic price regulating mechanism of your currency, that will always avoid it becoming a speculative asset.  But maybe we needed first a speculative fight to push technology to its limits, and maybe the "PoW silliness" of bitcoin is in fact strongly useful in this respect.

Suppose that we can calculate that an antminer wastes on average $10 for a certain number of hashes X right now.  There can be "coin creation transactions" where the "input" is not the output of another transaction, but a pre-image of a hash that proves X hashes, in such a way, that it is not equal to a former such creation.  In other words, a coin is created when you find a new pre-image with a difficulty of X hashes.  That's a possible input to a transaction: If you make such a coin, it is now yours, and it can be transacted.  You cannot re-use that work, because you've published it already ; but you can re-do the work, find another pre-image with difficulty X, and you've made another coin.   As many as you want.
The difficulty X should be continuously increasing, by a factor that slightly outpaces technology advances.  If we could pin that value exactly, the coin would be ideal money.  Indeed, if it would always cost the equivalent of $10 now to make a coin, nobody is going to buy a coin for more than $10, because he can make it.  Nobody will make a coin if it is below $10, because making it would be more expensive than buying it.  The coin's value would always be around $10, like "real money".  If we make it slightly deflationary, we can expect that it becomes more and more expensive to make coins, but at a very light pace.  It is a bit like a savings account.  You gain some value, but not extremely so ; this is offset by the risk you take in the system.

If adoption grows, there would be simply more coins.  It would work somewhat like a central bank (but an honest one), regulating the issuance of coins as a function of its value, and with no seigniorage that "makes some rich for nothing".  There may be industrials using economies of scale to make coins at a lower price.  That would diminish their value somewhat, until these guys don't make any benefice any more.  It wouldn't be a very lucrative business, and an equilibrium would be found.

The big advantage of this use of PoW over the PoW in consensus, is that the waste in this system is a quantity of energy, spend once to burn seigniorage, and re-used.  While PoW for consensus wastes POWER, that is, energy per unit of time, so continuously.

If the system I propose would be globally adopted, there wouldn't be much coin creation any more.  It would simply follow economic growth.

Quote
Quote
- bitcoin's coin emission curve, which links erroneous monetary theory, market speculation, crazy power consumption and security in one big clusterfuck

This would make one good topic with it own thread. There is to much to discuss.

Ooops, just did it.

Quote
Quote
- bitcoin's lack of anonymity and hence lack of fungibility

What is your opinion on Monero? Would that make a better "Bitcoin"?


I'm quite fond of monero.  I only don't know how to solve PoS with it, even though I have an idea.  I think monero improved a lot of things over bitcoin, but it still has remaining problems.  It solved the block size issue, it solved the fungibility and anonymity issue, (and with it, it rendered useless the power of miners, because they cannot use their power against someone) ; monero also solved the "hard fork fobia" lock in issue, by pre-programming hard forks.  It solved the end-problem by tail emission.  But some problems remain still.
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February 04, 2018, 08:46:44 AM
 #5

If you can make it such, that the economic cost of PoW is constant, or even continuously slight increasing, you can have an automatic price regulating mechanism of your currency, that will always avoid it becoming a speculative asset.

We've been over and over PoS vs PoW in the other thread, so I'm not going to bother digging those old arguments up again. But this one about price stability needs some more attention.

You cannot regulate the price of an item without controlling both supply AND demand. Just changing the supply side isn't enough, and there's no way to control the demand side with this proposal.

To be able to do it, you need a market for selling PoW; miners are buying PoW with their electricity costs - if you had a market where you could buy and sell PoW against USD, you could short it and each short would represented a USD pegged value, but this is a nonsensical example because the value of PoW is ephemeral if its used only for minting coins (this is probably something to think about a little more deeply).

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February 04, 2018, 09:38:07 AM
 #6

Say that the current implementations of cryptos are not the original version.  What would make the implementations adhere to the original version?
The killer is that the block-chain as implemented in the original version simply won't scale so it's what you call evolution and the other
killers is that anyone can just copy the block-chain and fork it.

EVO has a public ledger but apparently it's been done in such a way that if anyone tried to copy it the nodes start shunting
down so no one can get a snapshot in time so maybe they choke off the number of requests 

Mining is CPU-wars and Intel, AMD like it nearly as much as big oil likes miners wasting electricity. Is this what mankind has come too.
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February 04, 2018, 10:08:36 AM
Last edit: February 04, 2018, 10:20:57 AM by dinofelis
 #7

If you can make it such, that the economic cost of PoW is constant, or even continuously slight increasing, you can have an automatic price regulating mechanism of your currency, that will always avoid it becoming a speculative asset.
You cannot regulate the price of an item without controlling both supply AND demand. Just changing the supply side isn't enough, and there's no way to control the demand side with this proposal.

With a collectible, the notion of "offer" is different than with a commodity which is consumed, of course, because there is offer also from those selling it after having "used" it.  

With a consumable, there's a net flow from production to consumption, and "offer and demand" are relatively straightforward notions.  With a collectible that also has economic utility (say, real estate), we have both an offer by production, and by people selling it after having consumed some economic utility of it.   We are dealing here with collectibles that are not consumables, and that have no economic utility per se: they are speculative assets.  There are two classes of speculative assets: "same fool" assets, and "greater fool" assets.  In principle, there could also be "lesser fool" assets, but these things don't really work out.

A purely speculative asset is ONLY acquired because of its rational future expectation of value.  You can't do anything economically useful with it.  As such, the ONLY thing you can do with it, is keep it, or sell it.  In that respect, it is different from, for example, real estate.  Even though you may have a speculative aspect of real estate (you buy it with the idea to sell it), it has economic utility: you can live in a house.  You can do useful things with it while you have it.  You would even want to spend money on it just for this utility, independent of your expectation to sell it.  So real estate having intrinsic economic utility, you are not ONLY acquiring to sell it.  You buy a house to live in, and you also expect it to be able to sell it, but you still need it to live, so even if you weren't selling it, you would be ready to pay money for it.  With a purely speculative asset, the ONLY thing that gives it value, is the rational expectation of its value when you sell it.

Now, the relationship between your readiness to buy it now and your rational expectation of selling it later, is what classifies the asset.

a) if you are willing to buy it now at a price that is comparable to your rational expectation to sell it later, it is money.  You only do this because you need to transport value in time.  Whether that is a transport from last week to next week (your salary/groceries) in the short term, or whether it is savings for your kid's college over several years, your rational expectation is TRANSPORT OF VALUE.   Such a system is a "same fool" kind of asset, which is money.  Ideally, you would like to have little risk (of losses), and little gains.  The perfect form of this asset is what Nash calls "ideal money".  This transport in time in itself is an economic utility, and that's, ultimately, where such an asset derives its value from. You can use Fisher's formula to estimate its value as a function of the economic utility (time transport - inverse velocity vs amount of value).  In fact, the economic utility you derive from being able to transport value, even allows you to "pay" for it, that is, to accept that you will get SLIGHTLY less value later than now.  This is why slightly inflationary currencies can exist.

b) if you are willing to buy it now at a price only if your rational expectation is to sell it later for much more, it is a financial speculative asset.  You want to make a benefit.  This is a "greater fool" kind of asset. It is a form of gambling.  You are willing to accept great risk (namely, that you were the greater fool) in order to make great benefit (find a much greater fool than you are).  

c) of course, nobody is willing to buy an asset now of which your rational expectations are that it will be much less worth later.  "lesser fool" assets only exist for a short time.  In fact, greater fool assets have tendency to turn into lesser fool assets when they run out of greater fools.

All these assets need of course a recursive belief.  There's no economic need for them, like real estate.  If people collectively decide that your stuff isn't worth anything, it isn't worth anything.  So there's no way to "regulate price" in the upward sense.  You cannot guarantee a lower price limit.  The only way to guarantee a lower price limit is to make a redeemable, backed asset for true economic utility.  A "backed" currency, for instance, backed with real estate, or land.  That was John Law's invention.  But you cannot make a trustless backed asset ! A backed asset is a debt asset.    But that's "burk" in crypto land and in any case, you need a form of law enforcement to guarantee the backing is effectively redeemed.

So with a purely, stand-alone, non-backed asset, there's no way to have a lower limit on value in any case.  However, there's a simple way to have a higher limit: by allowing unlimited emission of new coins when that higher limit is crossed.   Proof of work can do so: from the moment an asset would have a market value of $20, and it only costs you $10 of work to make one, the market price will of course not be tenable: what fool would pay $20 for an old coin, if he can make a fungible, new one for only $10 himself !  But also, in as much as its market value is only $0.1, NOBODY is going to make a new coin.  So we have a collectible that you can acquire for $0.1 in the market, and of which you know that nobody will make any until it reaches $10.  That sounds like a good thing to do: your rational expectations will be that one day, this will be $10, so you can make a gain of a hundredfold, and you DON'T HAVE TO FEAR running out of greater fools !

Strangely enough, putting an upper cap on price is what will change your rational expectations of the asset.  In as much as buying bitcoin at $0.1 was a funny thing to do, because there wasn't any rational expectation of ANY value, and you might have expected that everyone recognized immediately a pyramid game, if you know that the value will be capped at $10, that's a clear expectation, so you hoard all coins that exist (not many !).  That hoarding pushes the price quickly up to $10, and then, people start making coins.

As long as the market is expanding, and there is a higher demand for coins, the coin cannot go above $10.  If, during a long time, there has been a rational expectation of the coin being worth $10, confirmed in the market, there will be a firm belief that that is its value.

If on top of that, we make it slightly deflationary, we get an incentive for people to have it acquire value, in the same way that bitcoin acquired value: a SLIGHT expectation of benefit, without the greater fool divergence.  

However, this slight expectation of benefit doesn't boost value over the current PoW cost.  Indeed, if you expect a coin to be worth, say, $20 in a few years, you might be willing to spend, say $15 right now.  But you won't be buying it in the market for $15, because you can make it yourself for $10 !  So the market price will be pushed up to $10 because you find that interesting, but will not cross it.  If, in a few years time, as expected, it now costs $20 to make one, knowing that in again a few years time it will be worth $40, the market price will be pushed against $20.   And you can use it as money, because RIGHT NOW, that market price will not change.  So if you want to pay something worth $200, you can just as well use your coins as anything else.  The slight deflation would induce you to convert more and more of your fiat in this currency, because it is a great savings account, without turning it into a greater fool game.

So, if you can regulate the production such that it has a "constant price offer" (a 100% elastic offer), then you regulate price as long as there is any extra demand over the 'going round offer'.  You may expect that there will be this extra demand during the adoption phase, that's evident.  You may also expect that there is an extra demand because of the slightly deflationary proposition.  If, at a certain point, the market doesn't need more coins, of course, the asset will be freely evolving, it will be a collectible as long as it doesn't fall into a deflationary spiral (a speculative bubble).  But it won't, because everybody knows it is capped in value.  The very long sustained price in the market will induce firm belief in its value steadiness, and we have near-ideal money as Nash described it, without going through dangerous boom-bust greater/lesser fool games.

Bitcoin has missed this opportunity.
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February 04, 2018, 11:05:30 AM
 #8

I largely agree with your analysis. What I don't agree with is your assertion that it is sufficient to only control the increase in supply. If the market values the coin less than $10, there is no mechanism to compensate and the price has the potential to crash to $0, or worse, to slowly bleed in value over years towards $0.

There must be some way to reward holders of the coin when the market price falls under $10, such that it becomes attractive to be a holder, therefore pushing the price back up.




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February 04, 2018, 11:48:34 AM
 #9

I largely agree with your analysis. What I don't agree with is your assertion that it is sufficient to only control the increase in supply. If the market values the coin less than $10, there is no mechanism to compensate and the price has the potential to crash to $0, or worse, to slowly bleed in value over years towards $0.

I tried to explain that with a non-backed asset, that is a potential outcome that is unavoidable.   If people decide collectively that your coin is worth shit, it will be worth shit.  No matter what mechanism.

Quote
There must be some way to reward holders of the coin when the market price falls under $10, such that it becomes attractive to be a holder, therefore pushing the price back up.

Well, apart from a speculative hope, which is there, there's nothing you can do.  And that speculative hope IS there: when the coin is below $10 on the market, you know that nobody is going to make any.  No "reward" mechanism can do better than that as long as the reward mechanism is internal, that is, in coins.  If it is external, that's what "backing" means of course.  If you can redeem your coin for 2 giant pizza, it will always be worth AT LEAST the value of 2 giant pizza.  But if you can redeem your coin against nothing else, which is exactly what a non-backed asset is all about, the BEST way you can do is NOT to make more of them.

What else could you do ?  Destroy coins ?  Coins that people possess ?   That's worse.

So, in my proposition, when the market price is below the PoW cost, I have the HIGHEST possible motivation: no more coins are emitted.  That's the best you can do without backing.

Of course, I see what you think.  You take away the dream of MOON!!  But the dream of MOON!! is making the thing in a greater fool game, as we saw.  The dream of MOON!! makes that it cannot become money.  

I would even say that the expectation of constant value (or slightly rising value) makes it a much better store of value than a thing that goes MOON!! and back down again.  You take away a lot of risk, so you don't care using it to buy and sell stuff.  

I wouldn't want to get my salary in a fixed amount of bitcoin, contractually written down.  I wouldn't want to write a contract in bitcoin.  In both cases, I could be ruined in as much as I could become rich.  As I said somewhere, if you had sold your house for bitcoin in December last year, because you wanted to buy another house right now, after having gone on a world trip, you can only buy a small flat.  You've divided the value of your house by 3.  On the other hand, if you would have signed a contract last year in January of a monthly salary in bitcoin with your cleaning lady at 1 BTC per month, you would have been paying her some $15000 or so for December.  That's not money, and bitcoin will never be used as money because of that.  

If you know that, give or take, your coins are going to be worth $10 in the beginning of the year, and maybe $9.5 or $10.5 at the end, well, things are different.  You CAN use them.   And because of that, these coins start acquiring real UTILITY value ; they are not a purely speculative asset any more, because they now have the economic utility of money (that is, of reliable transporter of value over time).  That's what bitcoin pretended to be, but its monetary policy was entirely wrong for that.

So instead of the illusion of MOON!!, we get the rational expectation of genuine economic utility.  That's a more solid basis I think in the long run.
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February 04, 2018, 12:01:16 PM
 #10

I tried to explain that with a non-backed asset, that is a potential outcome that is unavoidable.   If people decide collectively that your coin is worth shit, it will be worth shit.  No matter what mechanism.

The USD and pretty much every fiat currency in the world is non backed. They operate perfectly well. The point is, there are degrees of valuation; it is not as binary as your quote suggests it would be.

For example, you could imagine a BTC side-chain, which was a CFD market for BTC/USD. Shorts of BTC in this market could be issued as stable coin tokens, valued $1. As long as there existed sufficient liquidity this would be a tenable stable coin implementation which would indeed cope with a devalued BTC price.

By contrast, your proposition does nothing at all with devaluation, such that a value of $0.3 could exist forever (when it was supposed to be $1), making the idea of it being stable laughable.

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February 04, 2018, 12:19:14 PM
 #11

I tried to explain that with a non-backed asset, that is a potential outcome that is unavoidable.   If people decide collectively that your coin is worth shit, it will be worth shit.  No matter what mechanism.

The USD and pretty much every fiat currency in the world is non backed. They operate perfectly well. The point is, there are degrees of valuation; it is not as binary as your quote suggests it would be.

It is a fundamental misunderstanding of the fiat system that the USD is non-backed.  In fact, it is, even though the modern fiat system is somewhat self-referential in this game.  The idea that the FED can just print money is wrong.  The FED only gives out freshly printed money against an asset, in the same way that your commercial bank only gives you a loan against an asset: your IOU to pay back.  The FED uses similar principles: commercial banks can take a loan at the FED against an IOU, and that IOU is, *ultimately*, backed by real-world economic assets such as shares in companies, real estate and so on.  I will not defend entirely the fiat system, but it is less of a joke than the caricature of it that circles in crypto-anarchist environments.  There's not just a guy that decides to print money and distribute it to its buddies.  These things have existed, yes.  They all crumbled very quickly.  As I said, the fiat system HAS problems of self-reference, especially when the backing IOU are made up of other IOU.  But it is not as obviously stupid and scammy as it is presented.

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For example, you could imagine a BTC side-chain, which was a CFD market for BTC/USD. Shorts of BTC in this market could be issued as stable coin tokens, valued $1. As long as there existed sufficient liquidity this would be a tenable stable coin implementation which would indeed cope with a devalued BTC price.
 

How would that work out when the BTC price goes down to $0.1 ?

Quote
By contrast, your proposition does nothing at all with devaluation, such that a value of $0.3 could exist forever (when it was supposed to be $1), making the idea of it being stable laughable.


Bitcoin, for all it's worth, could have remained at $0.3 too.  Bitcoin took off because once it was at $0.3, people thought MOON!! and chances were that they were early adopters of one of the biggest pyramid games in history.  Which is probably right.  The thing is, that if you have an asset that keeps a fixed value, even a low one, for a long time, it becomes a useful currency.  And if it becomes a useful currency, it acquires value by the shear demand for "store of value".  This is described by Fisher's formula.  And if that demand rises, and the amount of money remains constant, its price rises.

So, if my coin was, during 10 years, at $0.3, people would assume that it will remain still at $0.3 for some time.  That in itself makes it a very useful currency.  That utility increases its demand.  And that demand increase pushes its price up because there are only a given number of tokens.  However, we also know that it cannot become a greater fool game, because when it hits $10, people will start making it.  

So, if I see that it is at $0.3 for a few years, and it starts rising to $0.4, and then $0.5, I think it found utility.  I know it will then rise until $10.  I buy a certain amount of it, because from $0.5 to $10, that's great: my money does x20.  By doing so, I am hoarding.  There are now less coins, and most probably the market price will rise again.  Other people will see so.  They will start hoarding too.  Until it reaches $5.  A factor 2 is not worth speculating any more.  So it will remain there and be quite stable.  Which again, increases its utility as a currency.  And so on.  Until we reach $10.  Now, the market cap is $100.  Because there were only 10 coins in circulation.   Grin
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February 04, 2018, 12:27:30 PM
 #12

How would that work out when the BTC price goes down to $0.1 ?

Depends how fast that happens. If gradually. Nothing. If black swan, then you have a liquidity shortage which would need some kind of deleveraging functionality. That is the edge case, though.

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So, if I see that it is at $0.3 for a few years, and it starts rising to $0.4, and then $0.5, I think it found utility.  I know it will then rise until $10.

And what if it varies between $0.000001 and $10 in a massively volatile pattern over the course of its life?

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February 04, 2018, 01:50:41 PM
 #13

And what if it varies between $0.000001 and $10 in a massively volatile pattern over the course of its life?

It most probably wouldn't.  Well, as long as the total market cap remained between $0.000001 and $100, it would simply be a dead project, wouldn't it ?

To have the market cap grow to, say, $10 000, it would mean that people made coins that cost them $10.  They were NOT expecting any significant price rise, so the only way they did it, was that they expected it to remain close to that value.  Most probably, because they needed it as a currency - there's no other reason to spend $10 of work on something that won't be worth much more, right ?

So if the market cap rose to $10 000, it means that people had USE of it as a currency.  They wouldn't have any serious expectations of gain.  Only of use.  Say on dark markets.  On web sites.  On VPN.  On this and on that.  After a while, the price would "stick".  People wouldn't put fortunes in it, they would only acquire what they need to use as a currency.  They wouldn't be watching coinmarketcap to see what goes up and what goes down.  It would just be a real currency.

Of course, there could be moments where there's less demand for currency, that is, when its market shrinks and its adoption falls.  Yes.  I would think that if adoption seriously fell down, and hence, the price with it, there are two possibilities: people have faith in it, and hence, would like to see it as an opportunity to "buy $10 bills for $8", pushing the price back to $10.  Or the thing crumbles down.  Indeed, if during a ramp-up phase, people had only acquired it to buy stuff, got used to its price, and then see a slight dip, it would be "shopping time".  If adoption would, after a slow-down, take off again, price would again rise up to $10, and people would be confirmed in their belief in its price.  Those that "bought the dip" would have been rewarded.  The "stickiness of price" would latch on.  
It wouldn't be a speculative thing.  It would be driven by utility.  As long as the demand for that utility would be steadily increasing, even if sometimes it would drop, the price would be pushed against the $10 limit, even if it dropped sometimes.  That would induce people to hoard it when it drops, because they know there's all the chances in the world it would go up to $10 again if utility demand rises again.

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February 04, 2018, 02:06:32 PM
 #14

After a while, the price would "stick".  People wouldn't put fortunes in it, they would only acquire what they need to use as a currency.  They wouldn't be watching coinmarketcap to see what goes up and what goes down.  It would just be a real currency.

This is just pure speculation.

In fact, almost all altcoins follow the exact opposite pattern to what you've described. They launch, and price rallies massively, then they slowly tail off down to effectively 0. There are exceptions, but most follow this pattern.

You need a nash equilibrium in order to create a stable-coin. What you are proposing does not constitute one, or at least it fails to address reduction in valuation.

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February 04, 2018, 03:14:23 PM
 #15

After a while, the price would "stick".  People wouldn't put fortunes in it, they would only acquire what they need to use as a currency.  They wouldn't be watching coinmarketcap to see what goes up and what goes down.  It would just be a real currency.

This is just pure speculation.

In fact, almost all altcoins follow the exact opposite pattern to what you've described. They launch, and price rallies massively, then they slowly tail off down to effectively 0. There are exceptions, but most follow this pattern.

Of course, because no alt coin ever had a demand driven by a currency need (same fool).  Every crypto currency that launches, bitcoin included, is launched as a greater-fool token, which booms and busts.  Do you know many people buying an alt coin because they expect it to be stable in value ?

In fact the ONLY alt coin that has NO expectations of rise, and is working more or less as I describe, is Tether.   You cannot really redeem Tether for dollars.   So whether it is backed or not doesn't mean shit.  People buy tether as a currency.  Nobody speculates on tether.  So the market cap of tether represents a demand of currency, that is "transporter of value".  Slowly, the price sticks: one tether is $1.  Now, it is visibly true that tether can shrink somewhat its offer, and as far as I understand, this has been done very lightly, only twice.  When you look at the momentous rise of tether's market cap, and the stability of its price, essentially through emission, you get an idea.

Your argument actually supports what I'm saying: almost all altcoins that don't have price control, are speculative greater fool assets, MAINLY acquired with the hope of a rise (and we know what that means: bubble - burst - bubble - burst ....).  Almost none of them are acquired to keep a steady value.  So they, indeed, bubble.  And bitcoin bubbles too, it is not different.

A coin where there is no hope for a large rise, and with a predictable price maximum, is only bought when it is useful.  And when it is useful, there's no bubble-burst.  There is no bread bubble.   There is no butter bubble.  

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February 04, 2018, 05:46:56 PM
 #16

In fact the ONLY alt coin that has NO expectations of rise, and is working more or less as I describe, is Tether.   You cannot really redeem Tether for dollars.   So whether it is backed or not doesn't mean shit.  People buy tether as a currency.  Nobody speculates on tether.  So the market cap of tether represents a demand of currency, that is "transporter of value".  Slowly, the price sticks: one tether is $1

The price sticks at $1 because you can redeem it for USD, there's even a market for that on 'finex.

Even if you are right, and somehow manage to launch a crypto that people expect to use as a currency and not for speculation (you'd better not include any other features than pegging, if so, or it will become speculative), then this proposal still cannot work because you can't do anything when the market undervalues the coin.

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February 05, 2018, 05:54:26 AM
 #17

This was taken from another thread but I believe it is better to discuss them here to avoid being off topic in the original thread.

I am trying to find out what is your stance in the "scaling debate", though I am too lazy to read all your past posts. But are you for bigger blocks? If yes, then what is your opinion on Bitcoin Cash? Is it good enough or can it be better?

I could give you a simplistic answer, but it wouldn't be the right answer.  The simplistic answer is: yes, of course bigger blocks.  However, I think that a single question, like, "are you for bigger blocks" misses entirely the point, simply because everything influences everything.  That's like asking a doctor "are you for or against chemotherapy".

Thanks for your honesty. I also have some questions on the following.

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I think bitcoin has fundamental design issues on the deepest conceptual level, that far overshadow the simple question of "bigger blocks".  I think bitcoin is fundamentally broken on the following points:

- the PoW consensus mechanism that is too wasteful and leads to centralization of power, even though it is a very good consensus (no dispute) mechanism, it doesn't provide the other desired factors, on the contrary.

But what would be a good PoW replacement for you? Proof of Stake? There is also Proof of Capacity, also called Proof of Space, which I heard from d5000. PoC does look more energy efficient but it is not without its "centralization problems".  

I'm working on a write-up on that, but you can get the gist in the thread about proof of stake bitcoin.  It is true that as theoretical offline trustlessness goes, if that's the ONLY criterium, PoW is essentially the only solution.  This is maybe why PoW was the best way to start this thing, as an underground means of getting up and running.   However, PoW induces so many other, bad, properties (of which waste and centralization are the most important), that we get here the situation of "the best is the enemy of the good".  

That said, most other consensus schemes, that "prove use of scarce resources", like proof of space, will fall in similar pitfalls: you will get a kind of madness of piling up HUGE resources, which are a form of waste, in the merciless battle of.... just agreeing on a data set.

But there has to be value there. A value in immutability and censorship resistance, right? It is in my belief that that is where Bitcoin's brilliance came from. Together with trustlessness and decentralization, as originally designed. 

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PoS is different, because the resource is virtual ; however, the standard way of seeing PoS is self-referential (that critique is justified).  All *working* PoS systems have in fact an auxiliary "backup" consensus mechanism that does the real work.  Nevertheless, I think I can work out a real pure PoS system, if we drop, what I consider, crazy not-of-this-world trustlessness demands, of which the most important is: reached consensus by on-line parties shouldn't be required to be checked offline in a totally trustless way.
That is, as a newcomer, that wasn't online before, there's no guarantee to find the "right consensus" all by yourself in a totally trustless way.  The reason why this a priori shocking statement, isn't, is that a newcomer trusts in any case the software he downloads, and the pointers he found on the internet to download it, so he left trustlessness already.  If you are willing to download the latest Core software, and at best, you check the software with signatures from devs, and the https certificate of github, there are already a lot of entities you trust.  If these entities or similar entities tell you that a recent consensus was X, you've not been losing your trustlessness, you didn't have if from the start.


The problem of PoS is issuance. How do we really know that a PoS coin's distribution is "fair"?

For the rest of your post, give me time to read and internalize them. I am short in memory today.

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February 05, 2018, 02:31:57 PM
 #18

Even if you are right, and somehow manage to launch a crypto that people expect to use as a currency and not for speculation (you'd better not include any other features than pegging, if so, or it will become speculative), then this proposal still cannot work because you can't do anything when the market undervalues the coin.

This is right, and there's nothing anyone can do about that in any speculative token system.    The only thing my proposition would have going for it, is that at least, there is no risk that it becomes a greater-fool token, and as such, that when it has value, this is mostly a currency-usage value, which is a genuine economic utility value.  Something that has genuine economic utility (hence, has fundamentals) usually has less volatility than a greater-fool token, and its steadiness of price may induce a stickiness that makes people believe more firmly in exactly that value ; as such, whenever it lowers, there's more speculative potential to see this as an opportunity, because one knows that behind it, there's economic utility, than when the token is essentially ONLY used to speculate on.

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February 05, 2018, 02:34:23 PM
 #19

The problem of PoS is issuance. How do we really know that a PoS coin's distribution is "fair"?

I agree with you, my PoS proposal doesn't reward the stakers.  The stakers are only useful to limit the amount of consensus proposals and to make sure that it is not always the same one that proposes the consensus (unless there's only one staker on the network).  PoW is a very good coin ISSUANCE method, because it burns seigniorage.   
 
I think that one should separate the consensus mechanism, and the coin creation mechanism.
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February 05, 2018, 03:32:56 PM
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 #20

But there has to be value there. A value in immutability and censorship resistance, right? It is in my belief that that is where Bitcoin's brilliance came from. Together with trustlessness and decentralization, as originally designed. 

There are two levels of "belief" in a speculative token.  One is the "speculative" belief: is someone going to be willing to pay me value later for the thing I am considering acquiring against value ?  That's of course the essential thing: the belief in its value.  If that value is derived from economic utility, I would say that its value has a fundamental.  If not, it is purely speculative.

The other level is of course, that one believes that the system used, is going to work IN PRACTICE.  Exactly how it is working, doesn't really matter.  There may be security and privacy considerations that may induce you to consider these.  You have to have confidence in the thing working, and in the thing allowing you to do what you want to do.  If you don't have confidence, you won't use it.  

I think people have this thing of decentralization totally upside down.  

What we actually want is to be able to use the system and be relatively confident that it works correctly, right ?   So, practical immutability and censorship resistance should be, *in practice* be guaranteed.   We know that these aspects are theoretically, even in bitcoin, actually, not guaranteed at all, but that, for all practical purposes, they will be respected simply because the entities able to overthrow these aspects, are also the entities that get most profit from this business, so them colluding (even if they could, easily) is most probably not going to happen.   This "most probably not going to happen" is now realized by the market.  In the beginning, when bitcoin was VERY small, it was realized by the passion and integrity of the people starting this.  Somewhat later it was most probably realized by effective decentralization.  By now, the financial investments are such, that it is the market that makes that this is not going to happen.  And, who knows, maybe later, it may be law enforcement that will make that it is not going to happen, if bitcoin is a legal tender and the world reserve currency, totally centralized by the united nations mining consortium who has requisitioned 55% of all electrical power on the planet as bitcoin mining tax  (joking).

In other words, the *game-theoretical technology* used to make the thing work correctly doesn't really matter, from the moment that it works.  Right now, bitcoin is not decentralized if by decentralized, one understands that a MASSIVE collusion of so many different entities is necessary to make the system go out of its "good working" conditions, that this is very, very hard to do.  If 4 guys in a room come to an agreement, they can decide things in bitcoin.  But they won't, because their business depends on bitcoin being loved in the market.

However, I agree that this is just a practical engineering mindset. As such, I don't like fake religion-like dogmatic constraints on design that do not stand the test of scrutiny.   I get insulted a lot because I'm interrogating the dogma's of that religion, but I can't help it, I don't like bogus stories.  I like to inquire in the profound reasons for things.  Religious attitudes that force design are a bad idea.  If they work out, they are dangerous ; and if not, they are the origin of downfall.  Nature doesn't lie, in the end.  What I witness with bitcoin is that some "principle" has been leveraged to a level where it is killing the very system: a false notion of decentralization.  

My opinion is that bitcoin, as it was originally designed by Satoshi, only needed a high level of decentralization at a certain point (say, 2011-2013) to have it function correctly.  In 2010, it was just a "game between geeks, under Satoshi's central control" ; from 2013 onward, it is an industrial endeavour with so much investment at stake by the oligarchy that commands, that the market is now the guarantee for its correct functioning, together with the bit of decentralisation that remains.  I'm absolutely profoundly convinced that the story about "many full nodes" is technical, cryptographic and economic BS, and this is where religion inducing bad design was evident: this is responsible for bitcoin's loss of the crypto currency market monopoly.  This is exactly the kind of example where some "holy principle that isn't there, or isn't needed in practice, induces a lot of practical problems".   And remember, people want this to work in practice in the first place, before talking about great principles.

However, at the same time, there's now the development of the LN technology (or was it the other way around ?).  I think that this can have interesting applications, but most probably not what it is sold for (in the same way as bitcoin).  I see the LN as a solution that was looking for a problem that was then created for it, but the LN is good technology that may do other things than bring a solution to a non-existing problem that became a problem when one needed it to become a problem in order to be able to propose the solution, if you see what I mean.  But in the mean time, a problem has been created where there wasn't one, so now we have to hope that the LN will solve it, after all !

The real problem of bitcoin, however, isn't in this.  The real problem of bitcoin is its huge waste of economic value.  One tends to think that bitcoin is a zero-sum game, but it isn't: it is very very lossy.  The value economically wasted by PoW is extracted from the system to go nowhere.  In the long run, that's not sustainable.

In a certain way, the whole block size drama was a *simulation* of what this actually means, to have to waste a lot of economic value.  The high fees that put off people, here for block size reasons, is an example of how value will need to flow out of the system.  Now, you can say: "but with the LN, we will have many more transactions for the same fee !"  Or: "with big blocks we wouldn't have such high fees !"  But that's missing the point.  If bitcoin needs to be secure with PoW, it needs to spend a sizeable fraction of its value in proof of work.  That value needs to come from somewhere: from its users.   No matter how, technically, the value is taken from the users, it needs to flow out of the system, and literally in hot air.

At a certain point, this cost will become prohibitive, if there are other, just as practical, just as secure for all practical purposes, systems in competition.  One can try to sell that other religious dogma, that "you need to waste because that brings value" but that's such an economic idiocy that sooner or later, one will find out that it doesn't hold.

As to the problem of censor resistance, I think that not decentralization, but anonymity is the answer.  In monero for instance, even if mining were done by one single entity, it couldn't censor any transaction, because there's no way to know which one to censor.   In monero, only the payer and the payee know the transaction.  You can't sensor "an address".

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