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Author Topic: Monetary economics of merged mining, aux blockchains. (inflation by proxy?)  (Read 2646 times)
marcus_of_augustus
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July 16, 2011, 10:41:42 PM
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The namecoin blockchain is testing/implementing a change to hook itself into the mining hashpower of bitcoin, so-called merged mining or shared work.

https://forum.bitcoin.org/index.php?topic=29074.0

http://dot-bit.org/forum/viewtopic.php?f=5&t=217&start=10#p1242

https://github.com/vinced/namecoin/blob/mergedmine/doc/README_merged-mining.md

It is clear that the economic incentives for miners will be to adopt this since there is limited cost with the added benefit of solving lesser difficulty chain blocks as a "by-product" to bitcoin mining. The obvious medium to longer term outcome of this is to raise the difficulty of the auxiliary chain to close to that of bitcoin.

An auxiliary chain with a difficulty nearly equal to bitcoin clearly has a cost-to-mine also nearly equal to bitcoin. So we would have another blockchain, with 21 million units, closely locked into bitcoin valuation economics via the cost of production.

Isn't this introducing a mechanism for ultimately doubling the number of *coins hooked onto the bitcoin hash power, i.e. inflation by proxy?

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koin
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July 16, 2011, 11:16:29 PM
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Isn't this introducing a mechanism for doubling the number of *coins hooked onto the bitcoin hash power, i.e. inflation by proxy?

just like how an ipo on the stock market competes for the same pool of monies from that market, namecoin could pull some funds that would otherwise have gone into bitcoin. 

but a namecoin does not buy what a bitcoin will buy.
marcus_of_augustus
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July 16, 2011, 11:35:01 PM
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Quote
but a namecoin does not buy what a bitcoin will buy.

It is nothing like the same as an IPO .... locking mining together will mean they will cost the same to produce.

It is like mining silver as a by-product to gold mining ... except the number of possible by-product "minerals" in this case is infinite.

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August 18, 2011, 09:36:02 AM
 #4

[...]
An auxiliary chain with a difficulty nearly equal to bitcoin clearly has a cost-to-mine also nearly equal to bitcoin. [...]
[...]
I'd say the cost is almost 0 --> auxiliary coin value --> 0

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Vladimir
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August 18, 2011, 10:08:23 AM
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Two words about shared mining I have for you:


"Trojan horse"



Well... and one picture:


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marcus_of_augustus
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August 18, 2011, 10:51:39 PM
 #6

[...]
An auxiliary chain with a difficulty nearly equal to bitcoin clearly has a cost-to-mine also nearly equal to bitcoin. [...]
[...]
I'd say the cost is almost 0 --> auxiliary coin value --> 0

It is only zero IFF you are already mining bitcoins, which obviously is not zero cost. So, no, cost does not go to zero.

Try again.

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August 19, 2011, 07:23:57 AM
 #7

[...]
An auxiliary chain with a difficulty nearly equal to bitcoin clearly has a cost-to-mine also nearly equal to bitcoin. [...]
[...]
I'd say the cost is almost 0 --> auxiliary coin value --> 0

It is only zero IFF you are already mining bitcoins, which obviously is not zero cost. So, no, cost does not go to zero.

Try again.
sure, it is like giving free namecoins to the miners. and they will either buy up all domains or more likely sell all namecoins immediately no matter how little they get for them. I imagine pools that automatically sell the namecoins and just pay you in btc.

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marcus_of_augustus
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August 19, 2011, 07:32:54 AM
 #8

[...]
An auxiliary chain with a difficulty nearly equal to bitcoin clearly has a cost-to-mine also nearly equal to bitcoin. [...]
[...]
I'd say the cost is almost 0 --> auxiliary coin value --> 0

It is only zero IFF you are already mining bitcoins, which obviously is not zero cost. So, no, cost does not go to zero.

Try again.
sure, it is like giving free namecoins to the miners. and they will either buy up all domains or more likely sell all of them no matter how little they get for them. I imagine pools that automatically sell the namecoins and just pay you in btc.

Well if you can not see that it costs to be set-up and mining bitcoins to begin with then I probably can't help you much in understanding anything further. Thanks for trying though.

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August 19, 2011, 08:02:51 AM
 #9

[...]
An auxiliary chain with a difficulty nearly equal to bitcoin clearly has a cost-to-mine also nearly equal to bitcoin. [...]
[...]
I'd say the cost is almost 0 --> auxiliary coin value --> 0

It is only zero IFF you are already mining bitcoins, which obviously is not zero cost. So, no, cost does not go to zero.

Try again.
sure, it is like giving free namecoins to the miners. and they will either buy up all domains or more likely sell all of them no matter how little they get for them. I imagine pools that automatically sell the namecoins and just pay you in btc.

Well if you can not see that it costs to be set-up and mining bitcoins to begin with then I probably can't help you much in understanding anything further. Thanks for trying though.

you do not seem to get it: for someone who is already mining bitcoins merged mining means free namecoins.

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marcus_of_augustus
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August 19, 2011, 08:07:30 AM
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... and for someone who is not already mining bitcoins?

You seem to be using the socialist definition of "free".  Smiley

phelix
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August 19, 2011, 08:15:50 AM
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... and for someone who is not already mining bitcoins?

You seem to be using the socialist definition of "free".  Smiley
Wink   hopefully we will find out soon what merged mining will bring with some experimental fork

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db
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August 19, 2011, 09:50:21 AM
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Isn't this introducing a mechanism for ultimately doubling the number of *coins hooked onto the bitcoin hash power,

Yes.

i.e. inflation by proxy?

Not at all. It just means the other coins get as double-spend-proof as bitcoin. Compare with paper currencies; they are always 100% double-spend-proof but that and the fact that anyone can print their own paper currency doesn't mean inflation of the established paper currencies.
symbian
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August 19, 2011, 09:52:12 AM
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Yes there going to be inflation because namecoins and bitcoins will have similar properties. It doesn't matter which to use for trading. So rates of BTC and NMC will be equal.

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August 19, 2011, 10:03:46 AM
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Yes there going to be inflation because namecoins and bitcoins will have similar properties. It doesn't matter which to use for trading. So rates of BTC and NMC will be equal.

"Yes there is going to be inflation because db-paper and dollars will have similar properties. It doesn't matter which to use for trading. So rates of db-paper and dollars will be equal."?

I'm offering to sell you 200 namecoin for 100 bitcoin in a months time (or whenever shared mining starts). You'll double your money! Deal?
3phase
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August 19, 2011, 02:32:10 PM
 #15

Two words about shared mining I have for you:


"Trojan horse"



Well... and one picture:


Vladimir, since I value your opinion, can I ask you to explain what you mean? I know all about the story of the horse, and the modern use of phrase in computerspeak, but what are you saying behind that?

Fiat no more.
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Vladimir
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August 19, 2011, 04:00:35 PM
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.

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3phase
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August 19, 2011, 06:04:05 PM
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I appreciate your answer and Yes, I can see it clearer now. Thanks for the links.

Also appreciate the metaphor from Virgil, which goes to show that people do not really change much of their nature through the ages.

I was wondering about the end results of this "merged mining" approach and came to the conclusion that it will probably kill the value of Namecoins, since there will be so much more supply relative to demand.

Namecoins got f***ed because of a simple price discrepancy for a few days. Some people made a few extra BTC (including myself) but very few seem to be really interested in having them for some real use (90% drop in mining capacity after last difficulty increase). Now the next difficulty adjustment will be in December. This incident shows that they don't really stand a chance as they are now, even if they start merged mining sometime soon.

I did consider that a Namecoin-based system might be very useful as a replacement for land and real estate registry in the distant future, but this is a far-fetched idea.

Fiat no more.
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marcus_of_augustus
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August 19, 2011, 11:16:39 PM
 #18


Bitcoin King sounds like Burger King.  :

Merged mining is an application example of Mike Hearn's "shared work" concept, a core bitcoin dev. iirc ... how exactly is that a "trojan horse" ... delivered by the bitcoin devs? Doesn't make sense ... but it makes a good story, liked that bit.  Smiley

Ultimately, it makes clear that all this mining power bitcoin has captured/created is very mobile, mercenary and for hire to the highest bidder.

For now, the highest bidder is the chained currency that has the widest adoption, but this will be continuously judged upon merits as new pretenders and competitors come and go ... long live the chain wars.

ElectricMucus
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August 20, 2011, 12:44:09 AM
 #19

Well this could result in a war if people decide to modify the bitcoin client to look for any extra data and reject these blocks, which would essentially break the protocol.

So I think there is nothing anybody can do anything about it.


I personally think this is a great idea, there could be many services doing the same thing. But wouldn't that make the whole system less secure? Since anything that reduces difficulty in any way reduces security?
An Attacker could attempt to get "something" easier.

PS: I will try it once it comes out, and will not sell a single namecoin for bitcoin  Tongue


No way out, haters gonna hate.
http://www.youtube.com/watch?v=gSsCqH37CNk

First they ignore you, then they laugh at you, then they keep laughing, then they start choking on their laughter, and then they go and catch their breath. Then they start laughing even more.
pusle
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August 21, 2011, 11:15:24 AM
 #20


If there is no change to the bitcoin protocol and client software I can't see why this is a trojan horse at all.

If it's more profitable for miners to run merged mining then that's fine, and in fact will strengthen bitcoin.

Some chose to mine some "lesser" but currently more profitable whatevercoin instead of bitcoin, but now they
don't have to. Then mining power that would otherwise be lost is retained and even new mining power may be added due
to higher profits to miners.

For whatevercoin to have success however it needs to solve a real problem. Namecoin does that. Crapcoin and shittycoin doesn't.
I sure don't like bloating the chain with crap , but if the profits are there for the miner, it should mean the utility to people is there too.

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