[ANNOUNCE] EnCoin - An alternative with a completely different paradigm

[Etlase2]

This was designed from input with several members of this forum. If you think you can help, please email me at the address in the proposal.

It addresses early adopter, 51% attack, double spends, trust, transaction times, and various other issues. It is a work in progress and is only a design document without much hard data to back it up. However, I believe everything discussed in the proposal is possible. The bootstrapping process hopes to succeed by awarding both EnCoins and BitCoins for the same work.

Link to the document: http://www.mediafire.com/file/kpe2fibudg8yfrr/EnCoin%20Proposal%202.3.doc
HTTP link (does not format well in IE): http://pastebin.com/czquukGX

Some talking points:

* EnCoin is based around a constant cost to produce, approximately 10kWh of electricity. In contrast, a BTC's cost to produce has increased by a factor of 2,250 from the 1st to the 7.3 millionth.
* Transaction fees that destroy currency create new demand on existing coins, rather than an ever increasing cost to produce. The fees are required, and they do not go back into the mining pool.
* Supply and demand determine the final sell price, but the network is designed so that it will always be moving back towards an equilibrium where a sell price is the cost to produce plus a reasonable profit margin. As fiat currency inflates, so will the value of EnCoins, so it is a "safe" hedge against inflation. This happens because producing new EnCoins will cost more because 10kWh of electricity is more expensive.
* Initially, EnCoin will award both EnCoins and BitCoins for performing work on the network. It is possible to piggy-back on the BC network, and EnCoin will do so until some time down the road.
* In lieu of dangerous pools, EnCoin has smaller "Network Trusts" that are formed. These Trusts mint coins non-competitively. They agree on what has happened to the network once a day. Agreement is not based on computational power, but by a system of trust.
* Transactions are able to be approved and re-spent in under 1 minute. More likely than not the network will support 15-30 second transactions.
* Only the most recent block in the block chain is required for a client to be up to date. EnCoin stores the balance of every account in each block. While this may sound like a lot of data, it is much more efficient than storing the entire history of every divisible piece of coin that has ever been used. (My gross estimate is about 10MB for every 500,000 accounts--updated once per day.)

2011/09/21 V2.2 UPDATE: Added more technical details and potential issues.
2011/09/23 V2.3 UPDATE: Moved some of the technical details into the main proposal. Network Trusts, Transactions, The System of Trust, Anonymity, and Why EnCoin have been updated.

IRC: irc.freenode.net #encoin

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[Killdozer]

Because of the increasing scarcity of BitCoins in the future, they again may be worth $30 or perhaps even $100 or $1000 USD. But those initial coins will have always cost $0.0016 to create. And there are so many of them in a limited pool that the looming threat of a “cheap coin” sell-off will always exist. This, in this proposal’s opinion, is simply not healthy for a functioning economy.

What does mean for the BitCoin network? It means that the danger of these cheap coins buying up all of the “asks” on the market exchanges is a trivial matter. Since these coins were not actually legitimately worked for on a reasonable scale, they have no intrinsic value compared to the coins of today.

This idea is just nonsense.
There is no other cost for bitcoin that one which it is traded for *right now*. There is no "intrinsic" value, nor are there any difference between bitcoins in different wallets.

For example, say for 30 years ago, mining gold from any already discovered mine costed a lot more than it does today, due to technological advancements. Do you then propose that gold that was mined 30 years ago is somehow worth more than one mined yesterday?

[Etlase2]

This idea is just nonsense.
There is no other cost for bitcoin that one which it is traded for *right now*. There is no "intrinsic" value, nor are there any difference between bitcoins in different wallets.

Did you miss the whole "cost to produce" section? I should have said that in the future they will "cost" not "be worth" $30 or $100 to produce.
If you go by my assumptions, the average bitcoin has cost $1.80 to produce. The average bitcoin is selling for $5. 178% ROI. Not. Sustainable. This gap is only set to widen due to the nature of bitcoin.

When bitcoins reach equilibrium and sell for about $2, do you think anyone will want to mine anymore when they cost $3.60 to sell for $2? Or are we going to continue to believe that the only price that matters is what it sells for, not how much it cost to make?

[johnj]

This idea is just nonsense.
There is no other cost for bitcoin that one which it is traded for *right now*. There is no "intrinsic" value, nor are there any difference between bitcoins in different wallets.

Did you miss the whole "cost to produce" section? I should have said that in the future they will "cost" not "be worth" $30 or $100 to produce.
If you go by my assumptions, the average bitcoin has cost $1.80 to produce. The average bitcoin is selling for $5. 178% ROI. Not. Sustainable. This gap is only set to widen due to the nature of bitcoin.

When bitcoins reach equilibrium and sell for about $2, do you think anyone will want to mine anymore when they cost $3.60 to sell for $2? Or are we going to continue to believe that the only price that matters is what it sells for, not how much it cost to make?

Wouldn't it go

High ROI -> More Miners -> Higher difficulty secures blockchain -> Bitcoin is 'safer' -> More people use it -> price goes up -> Rinse/repeat?

[Etlase2]

Wouldn't it go

High ROI -> More Miners -> Higher difficulty secures blockchain -> Bitcoin is 'safer' -> More people use it -> price goes up -> Rinse/repeat?

At what point do you think a ROI is sustainable? It wasn't at $30, a 1,560% ROI, it wasn't at $15, a 733% ROI; what makes you think it will be at 178% ROI?
If the amount of people mining today were to suddenly double, a bitcoin would cost $7.20 to produce. At a "reasonable" and immediate 33% ROI, coins would sell for about $9.50, or a 420% ROI for the "average" bitcoin's cost to produce. How many people do you think can be duped into this system? Typical businesses attain 5-10% ROIs, so I don't know how long you can get people to believe that this is possible.

We're going to see it in action as soon as the BTC award halves and half the mining network drops out (or the price suddenly doubles, which do you think is more likely), making the network half as secure. Instills a lot of confidence in the network, imo.

[JohnDoe]

Can we get a TL;DR? I read up to point 3 but you didn't answer your own question so I'm unwilling to go through the rest of the proposal.

[Lolcust]

Okay, this is officially weirder than "inflation/deflation" argument applied to infinitely divisible abstract programmatic constructs.

[johnj]

Wouldn't it go

High ROI -> More Miners -> Higher difficulty secures blockchain -> Bitcoin is 'safer' -> More people use it -> price goes up -> Rinse/repeat?

At what point do you think a ROI is sustainable? It wasn't at $30, a 1,560% ROI, it wasn't at $15, a 733% ROI; what makes you think it will be at 178% ROI?
If the amount of people mining today were to suddenly double, a bitcoin would cost $7.20 to produce. At a "reasonable" and immediate 33% ROI, coins would sell for about $9.50, or a 420% ROI for the "average" bitcoin's cost to produce. How many people do you think can be duped into this system? Typical businesses attain 5-10% ROIs, so I don't know how long you can get people to believe that this is possible.

We're going to see it in action as soon as the BTC award halves and half the mining network drops out (or the price suddenly doubles, which do you think is more likely), making the network half as secure. Instills a lot of confidence in the network, imo.

Ahh, I see.  You're forgetting the mining rewards drop off.  So the ROI naturally curves itself.

[Lolcust]

Actually, what would happen when subsidy drops to zero is a fascinating subject of discussion. Completely impervious to rational analysis it seems, too (since a lot will be defined by irrational actions by large groups of people)

[Etlase2]

Ahh, I see.  You're forgetting the mining rewards drop off.  So the ROI naturally curves itself.

I don't understand what you mean. When the mining rewards drop off, the cost to produce new bitcoins increases. This means once it hits 25 BTC per block, you are going to have to convince people it is worth mining bitcoins at $7.20 a pop when they were just selling for $5 a month or two ago, and perhaps still. Every time the cost to produce new BTC increases, those with existing BTC benefit because exchanges make no distinction between a BTC mined for $0.00016 or a BTC mined for $7.20. People mining BTC for $7.20 are going to start looking pretty stupid unless people keep buying in to BTC. And if that happens, the danger of small, original coin sell-offs keeps increasing because they will have a larger impact as the ROI on those coins is even higher.

[johnj]

Ahh, I see.  You're forgetting the mining rewards drop off.  So the ROI naturally curves itself.

I don't understand what you mean. When the mining rewards drop off, the cost to produce new bitcoins increases. This means once it hits 25 BTC per block, you are going to have to convince people it is worth mining bitcoins at $7.20 a pop when they were just selling for $5 a month or two ago, and perhaps still. Every time the cost to produce new BTC increases, those with existing BTC benefit because exchanges make no distinction between a BTC mined for $0.00016 or a BTC mined for $7.20. People mining BTC for $7.20 are going to start looking pretty stupid unless people keep buying in to BTC. And if that happens, the danger of small, original coin sell-offs keeps increasing because they will have a larger impact as the ROI on those coins is even higher.

Wait, weren't people mining before bitcoin got big at a loss?

I think people will continue to mine -regardless- of the ROI due to some of the (currently) unique properties of Bitcoin.  And that's outside the speculative investment of mining. 

[istar]

Looks very interesting.

I the early adoptor thing is unfortunatly a potetial big problem for Bitcoin.
If people think it is a problem, it is a problem.

Hope someone will code this.

[Lolcust]

Why would the danger of "original coin sell-off" be greater if price of a single coin increases ("people keep buying in") ?

Also, "first adopter problem" is people just being sore lol

[Etlase2]

Wait, weren't people mining before bitcoin got big at a loss?

Yes, but to be frank, that small group of people that gradually got larger were getting in at the top of the "pyramid." The only possible loss was a few dollars of electricity here and there. Now that there are 60k people, 60k x a few dollars of electricity is a very large sum of money.

I think people will continue to mine -regardless- of the ROI due to some of the (currently) unique properties of Bitcoin.  And that's outside the speculative investment of mining. 

Some people will, for sure. But to expect the current 60k miners to keep on truckin when the BTC award halves is folly.

I believe that EnCoin can piggy-back on the popularity of BitCoin though to provide an actual medium of exchange rather than a speculative investment. BitCoin has exploded in popularity, but no businesses are buying in except (semi-)illicit ones, or ones that provide services to the BitCoin network only.

I am not against starting EnCoin with some specific award modifiers such as 2x, 1.5x, and so on for the first X blocks to garner additional interest. These extra coins will reward early adopters, but will not give them the catastrophic power to control the network that BitCoin has endowed its early adopters. The impact of those coins will be reduced across the network as a whole as it gets more popular, whereas the reverse is true for BitCoin.

[Lolcust]

Some people will, for sure. But to expect the current 60k miners to keep on truckin when the BTC award halves is folly.

Depends on what assumptions you make as to market behavior in face of this change.

Do bear in mind that it is incredibly trivial for a bitcoin merchant to have his prices respond to market fluctuations in near-realtime.

[johnj]

Some people will, for sure. But to expect the current 60k miners to keep on truckin when the BTC award halves is folly.

Depends on the ROI  

Edit: I see where you're coming from.  but I think it's one of many possible scenarios, and an unlikely one at that.

[Etlase2]

Why would the danger of "original coin sell-off" be greater if price of a single coin increases ("people keep buying in") ?

Also, "first adopter problem" is people just being sore lol

:sigh: I really don't want to turn this into an early adopter debate.

The danger of an original coin sell off is greater as the cost to produce a single coin increases because that means it takes more effort to produce a single coin. As it takes more and more effort to produce a single coin, the effect of effortless coins flooding the market is greater. When those coins hit the market, who will want to produce new coins any more? If BitCoins are so popular that 1 million people are mining in the future for 12.5 BTC per block (0.0000125 BTC per person per block), the effect of 25k original coins hitting the market will be, in essence, as if 2 billion coins just hit the market. The market will crash, and 25k is a small percentage of the original amount of coins.

In EnCoin, the cost to produce coins will remain stable and the threat of this is non-existent.

[Lolcust]

Why would the danger of "original coin sell-off" be greater if price of a single coin increases ("people keep buying in") ?

Also, "first adopter problem" is people just being sore lol

:sigh: I really don't want to turn this into an early adopter debate.

The danger of an original coin sell off is greater as the cost to produce a single coin increases because that means it takes more effort to produce a single coin. As it takes more and more effort to produce a single coin, the effect of effortless coins flooding the market is greater. When those coins hit the market, who will want to produce new coins any more? If BitCoins are so popular that 1 million people are mining in the future for 12.5 BTC per block (0.0000125 BTC per person per block), the effect of 25k original coins hitting the market will be, in essence, as if 2 billion coins just hit the market. The market will crash, and 25k is a small percentage of the original amount of coins.

In EnCoin, the cost to produce coins will remain stable and the threat of this is non-existent.

I suspect that the effect of said sell-off will largely depend on market environment.

You seem to imply that price of coins shall not rise proportionally (at least) upon subsidy reduction for miners. Yes, that would be a catastrophic scenario (with or withou sell-off), but I find no rational argument can be made for or against it

Should the coin price actually rise, the sell-off's devastation potential shall not be that high (and it seems to me that a significant portion of first-adopters have already cashed out).

You seem to be running with some version of efficient market hypothesis in mind, right ?

[Etlase2]

I suspect that the effect of said sell-off will largely depend on market environment.

Funnily enough, I don't. It's not as if this has never happened before. BitCoins were worth $30 at one point, you know.

You seem to imply that price of coins shall not rise proportionally (at least) upon subsidy reduction for miners. Yes, that would be a catastrophic scenario (with or withou sell-off), but I find no rational argument can be made for or against it

Should the coin price actually rise, the sell-off's devastation potential shall not be that high (and it seems to me that a significant portion of first-adopters have already cashed out).

The price will likely rise, I wholeheartedly agree. It is the intention of the design of BitCoin that the price will rise. But you are wrong about the sell-off's devastation not being high. The price has absolutely nowhere to go but down in a sell-off. If you take my (not so extremely unlikely) example of 1 million people mining 12.5 BTC, you will see that an average person "earns" 0.054 BTC per month at a cost of $17.28 (200Wh x 24 x 30 x 0.12/kWh). This means the cost to produce 1 BTC is $320. Since 54k BTC are produced a month at this point, a 25k sell-off is the equivalent of 333 MILLION BTC-hours of effort. What took 1 million people two weeks to produce was conjured out of thin air by one person. Assuming no profit margin, 8 MILLION DOLLARS of demand was just eliminated from the economy. It is hard to say how the price will be affected, but it certainly won't be in a positive direction.

How many times will it take for people to get burned before they stop mining is the question. And once that happens, the security and value of BitCoin goes out the window.

[Lolcust]

1) There are different countries with different electricity costs.

2) A sell-off, should one happen (that is, should an early adopter with a substantial pile of coinage still exist at this point and choose, for some reason, to part with the entire stash instead of just the part he needs to hire some hookers and buy some wine or something), would of course drop the price, however, whether that would be permanent and how would market adjust is not subject to rational analysis at this point.

Value, as a concept, is mostly voodoo (gold value being prime example)

Predicting valuation behavior of large crowds is thus not verily likely.

However, I have nothing against your coin in principle, assuming that it can be implemented "in code", which is somewhat outside my ability to argue about (though it seems much more complex than bitcoin, which is a feat)

[johnj]

I suspect that the effect of said sell-off will largely depend on market environment.

Funnily enough, I don't. It's not as if this has never happened before. BitCoins were worth $30 at one point, you know.

You seem to imply that price of coins shall not rise proportionally (at least) upon subsidy reduction for miners. Yes, that would be a catastrophic scenario (with or withou sell-off), but I find no rational argument can be made for or against it

Should the coin price actually rise, the sell-off's devastation potential shall not be that high (and it seems to me that a significant portion of first-adopters have already cashed out).

The price will likely rise, I wholeheartedly agree. It is the intention of the design of BitCoin that the price will rise. But you are wrong about the sell-off's devastation not being high. The price has absolutely nowhere to go but down in a sell-off. If you take my (not so extremely unlikely) example of 1 million people mining 12.5 BTC, you will see that an average person "earns" 0.054 BTC per month at a cost of $17.28 (200Wh x 24 x 30 x 0.12/kWh). This means the cost to produce 1 BTC is $320. Since 54k BTC are produced a month at this point, a 25k sell-off is the equivalent of 333 MILLION BTC-hours of effort. What took 1 million people two weeks to produce was conjured out of thin air by one person. Assuming no profit margin, 8 MILLION DOLLARS of demand was just eliminated from the economy. It is hard to say how the price will be affected, but it certainly won't be in a positive direction.

How many times will it take for people to get burned before they stop mining is the question. And once that happens, the security and value of BitCoin goes out the window.

At no profit margin, BTC are going for $320 each. 15M coins mined if the reward is 12.5.  That's a 4.8 billion dollar market.

24k coins is .16% of 15m

I don't think a 0.16% is going to make that much of a difference? Am I missing something?

[Etlase2]

At no profit margin, BTC are going for $320 each. 15M coins mined if the reward is 12.5.  That's a 4.8 billion dollar market.

24k coins is .16% of 15m

I don't think a 0.16% is going to make that much of a difference? Am I missing something?

Yes, you are reiterating one of the follies of BitCoin. The value of the total BitCoins is not 15Mx$320. That is what this whole fricken issue is about.

If we again use the same assumptions as my proposal (which are certainly incorrect, it is unlikely that there is a linear progression of bitcoin value--it is more likely than not bottom heavy, but this would require a detailed analysis of the difficulty levels and so on), the total cost to produce the current amount bitcoins is 7.3Mx$1.80, or about $13M. If we use a linear progression from $3.60 to $320 from 7.3 to 15M, we get $161.80x7.7M or 1.245B. A total of 1.258B (with the first half costing 1% of the price to produce, and the second half costing 99%). 26% of what you estimate the value to be.

I don't know how many coins are for sale right now within a reasonable market range, but let's just say it's 100k. That means 1.4% of the market total volume is for sale. With the incentive for hoarding in BitCoin, this should come as no surprise. At 15M, it is not a stretch to use that same 1.4% figure, as coins are much more difficult to acquire, so many more people will be selling, but they will be for much smaller amounts. We can essentially just double it as the number of coins has about doubled, so roughly 200k coins will be for sale at any given time. 25k@$1.80 plus 200k@$320 = $285 (simplistic). Every coin's theoretical value just lost $35. You can't use the price on an exchange to determine the value of the coins. So many are hoarded. If they all went on sale at once, assuming there was enough demand, they would roughly be worth $1.80. 1.258B/15M = $84 while costing $320 to produce NEW coins.

So BitCoin value relies on the fact that people will keep hoarding. At some point, greed is going to take over. People are not going to hoard forever. Or hell, maybe a big wallet gets hacked. Either way, someone is going to try to make money, and to do that lots of people are going to lose value. I believe it will eventually cause the collapse of the network.

It is an ingenious and neat system, but it is not a proper medium of exchange.

Why not promote a system that promotes spending and trade, which actually does create value. Read up on GDP.

[Lolcust]

It appears to me that there is a fundamental disagreement as to what "value" is.

Also, a fundamental disagreement as to the scope and nature of "bitcoinomy" (hence reference to GDP which seems problematic to apply to ephemeral mathematic artifacts existing only in places between computers)

[johnj]

It seems you're basing the 'value' off of the cost to produce.  This is where I disagree. There are other things which give Bitcoin value apart from the electricity invested.

Edit: I'll add, that the 'worst case scenarios' described are at a value of 1:1.  This will only happen if the other aspects of BTC cease to appeal to anyone.

In those scenario's described above (where BTC is 320 each), there's a huge value to being able to send value instantly, pseudo-anonymously, globally, without oversight, cheaply.  Add that value on top of the 1:1 energy/BTC ratio, and the figures change a bit.

[Etlase2]

Yes, I am using the bottom-end cost to produce value rather than a hoarding-inflated trade value which is unpredictable and represents a very small portion of the market. Unfortunately I mix the two terms together.

Even so, the point stands. Multi-million % returns on early bitcoins, thousands of % returns on middle bitcoins, hundred % returns on late bitcoins is not a sustainable economy. It requires suckers, and those suckers will eventually dry up.

[casascius]

I skimmed this thread... to me, the cost of mining is going to be irrelevant as I believe that more and more, mining will be performed covertly on the computers of the unsuspecting, who don't know they're paying the bill for it.

Their computers are either controlled by a botnet, or are running software (e.g. games) whose developers have snuck a miner in.  

Or will be done deliberately by those with the opportunity to make someone else foot the bill for the power (be it parents, landlord, employer, neighbors, other tenants, etc.)

In all these cases, nobody in control of the mining is concerned about the rationality of the expense, because they will be trying their best not to pay it.

[Lolcust]

That's plenty mean, also, most typical botnet boxen have a lousy GPU

[Etlase2]

It seems you're basing the 'value' off of the cost to produce.  This is where I disagree. There are other things which give Bitcoin value apart from the electricity invested.

Edit: I'll add, that the 'worst case scenarios' described are at a value of 1:1.  This will only happen if the other aspects of BTC cease to appeal to anyone.

In those scenario's described above (where BTC is 320 each), there's a huge value to being able to send value instantly, pseudo-anonymously, globally, without oversight, cheaply.  Add that value on top of the 1:1 energy/BTC ratio, and the figures change a bit.

This same value is added to an alternative type of coin that isn't based on scarcity. So all other things being equal, the threat of losing massive amounts of value exists with BitCoin whereas it does not with EnCoin. This "worst case scenario" 1:1 value is a simplistic look. The real, true value of a single BitCoin today is $1.80+ROI. That ROI can be high because of the high initial investment (computers, video cards, etc.) and slow rate of return, as well as the utility of BitCoin. But the return, in general, should be spread to everyone, not more and more early-heavy. It is not a matter of jealousy, it is a matter of economics. BitCoin needs to expand to be secure and to increase in value. Early coins will drag down the value of later coins as they trickle or torrent back into the economy, and it will disincentivize new people from supporting the network.

I skimmed this thread... to me, the cost of mining is going to be irrelevant as I believe that more and more, mining will be performed covertly on the computers of the unsuspecting, who don't know they're paying the bill for it.

This really doesn't matter as the value is still added, regardless of how.

[BCEmporium]

Proposal for possible successor to BitCoin -- EnCoin

You just started with both wrong feet on the title, no need to read more. Move along, one solidcoin was enough.

[Minsc]

Another coin system based around price.  This is the wrong way to do it because it won't work and won't affect the price.

[Etlase2]

Another coin system based around price.  This is the wrong way to do it because it won't work and won't affect the price.

It's not based around price, it's based around a consistent value to produce. Supply and demand will still affect the price like BitCoin.

Proposal for possible successor to BitCoin -- EnCoin

You just started with both wrong feet on the title, no need to read more. Move along, one solidcoin was enough.

To quote the proposal:

"So what is the incentive to switch from the proven BitCoin? Well, it is relatively simple to connect the two networks so that anyone using EnCoin software will earn both EnCoins and BitCoins. This has been looked at in depth on the message boards and will not be rehashed here, but suffice it to say that it is possible. Instead of the cheap coin bootstrapping process employed by BitCoin, EnCoin will simply award BitCoins at the same rate as usual while also awarding EnCoins. "

It's not as if I said, "THIS WILL CRUSH BITCOIN, SWITCH NOW."

I am offering an alternative to move away from the dangerous volatility of BitCoin. The market has already shown what happens when small percentages of the overall coins hit a hoarding-inflated exchange. A 420% average coin ROI is not going to last. And 420% is about what it takes for the late-comers to make a profit.

You guys can keep putting your heads in the sand, or you can start considering viable, less controllable alternatives. Not to mention all of the other features of EnCoin, not one of which has been brought up in this thread.

[Minsc]

Another coin system based around price.  This is the wrong way to do it because it won't work and won't affect the price.

It's not based around price, it's based around a consistent value to produce. Supply and demand will still affect the price like BitCoin.

That's not enough.  You need to have every feature proposed and put it into one really good cryptocurrency for it to be a real replacement.  A single tweak alone, especially some money thing is lacking.

[Etlase2]

That's not enough.  You need to have every feature proposed and put it into one really good cryptocurrency for it to be a real replacement.

Well, I proposed what I proposed. I wouldn't expect the system to work as I describe unless everything was there. I'm not the type to go half-way, it's all in or get out.

 A single tweak alone, especially some money thing is lacking.

What do you mean? I am open to suggestions. I intended to start a discussion on EnCoin, not BitCoin, after all.

The profit margin will still be there. The security will be enhanced. The utility will be enhanced. It has a voting system. It does not require pools. It has the ability to change for the future instead of being stuck with one paradigm.

Demand is still created by destroying currency. The price of EnCoin will increase as fiat currency inflates.

I thought I had most of it covered, but as I said, I am open to suggestions. Do you think 2x/1.75/1.5/1.25 award would be the extra push? I'm thinking over a 2 year timeframe.

[Etlase2]

I have updated the proposal to revision 2.1. It puts a more proper order to the information, and I have completely revised the section on BitCoin.

Since it is such a hot topic of discussion in this thread, I will quote the relevant parts here:

Businesses commonly make use of a simple calculation called Return On Investment (ROI). If we assume that there was a linear increase of the price to produce 1 BTC (highly unlikely, but simplifies calculations greatly), we come to a figure of $1.80 worth of electricity to produce an average coin. For the sake of including all factors, I will make a gross guestimate that with all of the computer hardware purchased for BitCoins, the average coin has cost $2.50 to produce. This is heavily, heavily weighted on later coins as initial coins were CPU mined, not expensively GPU mined.

ROI is calculated as (Gain - Cost) / Cost. ($4.80 - $2.50) / $2.50. We get a figure of 92%. The average BitCoin sees a 92% ROI at a trade price of $4.80 (as of 2011/09/20, the current trading price is closer to $6). 92% ROI, almost a guaranteed double-your-investment, by turning on a computer and making it do stuff.

Common sense would argue that this is not a sustainable economy. In fact, if we use that $0.70 figure for cost of hardware and add it to the current $3.60 price to produce, we are dangerously close to the $4.80 sell mark.

Couple this with the fact that BitCoins are about to become more scarce when the block award drops to 25 BTC at the 210,000th block, the security of BitCoin may even be at risk. BitCoins will either immediately cost $7.20 to produce, or half of the mining network must stop (and that half of the network might just decide to turn against BitCoin), or some point inbetween. BitCoin proponents are hoping the renewed scarcity will cause the price to increase and that they will continue to see exorbitant ROIs.

None of this has even taken into account that the market exchanges offer a very small percentage of the total BitCoins in existence for sale. The total value of the BitCoin network is commonly quoted as being the sell price multiplied by the total number of coins. If that is the case, then the BitCoin network was once worth $30x6.3 million but is now worth $5x7.3 million. Where did that $150,000,000 go? Where is the evidence that it can’t or won’t happen again? 1.6 million coins alone were mined for a total cost of $584. Will a market price of $5 really bear any small percentage of those coins being suddenly added to circulation?

have at my logic

[BCEmporium]

Production price measures nothing but the investment itself and ROI part. It DOES NOT settle any final price, final price is settled by how scarce or abundant a good is compared to its demand and use.

This starts to look like "the desperate miners section"! Too bad many didn't took to account that their hardware wouldn't be keeping up with the constantly growing btc network hashrate demand.

[Etlase2]

Production price measures nothing but the investment itself and ROI part. It DOES NOT settle any final price, final price is settled by how scarce or abundant a good is compared to its demand and use.

Production price does not include ROI. The ROI is theoretically what every coin should be able to make, were they able to be sold for today's prices.
Scarcity or abundancy is controlled by people with coins.
2-4 CPUs worth mined 1.6 million coins.

Whether or not you believe Satoshi is a "rational actor," (I will ignore bringing up the fact that he disappeared -- oh wait) why would you want to place that much trust in him?

This starts to look like "the desperate miners section"! Too bad many didn't took to account that their hardware wouldn't be keeping up with the constantly growing btc network hashrate demand.

http://en.wikipedia.org/wiki/Straw_man

[johnj]

Production price measures nothing but the investment itself and ROI part. It DOES NOT settle any final price, final price is settled by how scarce or abundant a good is compared to its demand and use.

Production price does not include ROI. The ROI is theoretically what every coin should be able to make, were they able to be sold for today's prices.
Scarcity or abundancy is controlled by people with coins.
2-4 CPUs worth mined 1.6 million coins.

Whether or not you believe Satoshi is a "rational actor," (I will ignore bringing up the fact that he disappeared -- oh wait) why would you want to place that much trust in him?

This starts to look like "the desperate miners section"! Too bad many didn't took to account that their hardware wouldn't be keeping up with the constantly growing btc network hashrate demand.

http://en.wikipedia.org/wiki/Straw_man

I skimmed over your paper on EnCoin.

I'll give it a try when it launches.

[BCEmporium]

All your strategy goes around:

1) Fork bitcoin (you're not doing nothing new)
2) Start a FUD campaign over bitcoin

This results in yet another pump'n'dump scheme, nothing different than CH.

[Etlase2]

http://en.wikipedia.org/wiki/Straw_man

PS - if you actually read the proposal, you will see that there is no built-in "pump'n'dump" scheme. (which of course since it has been done with forks of bitcoin,  you can draw the parallel that it is also possible with bitcoin itself)

EnCoin is not a fork of BitCoin.

[Lolcust]

All your strategy goes around:

1) Fork bitcoin (you're not doing nothing new)
 

With all due respect, you are being demonstrably wrong here.

So far, neither source nor binaries are to be found, so it's more like "discuss forking bitcoin in a rather curious way"

[johnj]

OP, let me be frank

I've only been here ~ 1 month and I've seen 4 alt-chains stagger and fall.  So I can only imagine the others here too are... extra hard on other propositions.

I'll admit I didn't read your whole proposal. I see some of your points that you've addressed here on this thread.  Basically the argument is "Bitcoin is a great idea, not so good in execution, let's go ahead and start a new chain taking the lessons we've learned, because bitcoin is screwed in the future"

And you may be completely correct.  But all I hear right now is "I think the sky may be falling, and this is how we might be able to fix it". Which given the current environment isn't enough (for me at least) to look into it further.  Until it's launched.

[Lolcust]

OP, let me be frank

I've only been here ~ 1 month and I've seen 4 alt-chains stagger and fall. 

Which ones ?

Ixcoin is quite fine, derelictcoin ( i0 coin ) is fine as long as someone does not pull the plug on that poor dead miner's private pool , Solidcoin is... well, somewhat flaccid, but still around, and namecoin is recovering.

So, which forks have "fallen" ?

[johnj]

OP, let me be frank

I've only been here ~ 1 month and I've seen 4 alt-chains stagger and fall. 

Which ones ?

Ixcoin is quite fine, derelictcoin ( i0 coin ) is fine as long as someone does not pull the plug on that poor dead miner's private pool , Solidcoin is... well, somewhat flaccid, but still around, and namecoin is recovering.

So, which forks have "fallen" ?

Let me rephrase,

4 alt-chains have 'come out swinging' and are now 'in trouble'.  Fallen was an overstatement, I'll agree. But I wouldn't mine any of them right now.

[Minsc]

A single tweak alone, especially some money thing is lacking.

What do you mean? I am open to suggestions. I intended to start a discussion on EnCoin, not BitCoin, after all.

People make alternatives with a small number of improvements.  The real replacement with have major improvements.  See the threads I created in this subforum with suggestions as I made lots of good ones.  Then add everyone else's too (like how solidcoin v2 got rid of the GPU mining cheat so it's CPU mining only).  Then you need someone good at math to figure out how it's done.  Then peer reviews to tweak the idea.

A real improvement of bitcoins won't be a small number of improvements, it will be a huge, vast amount of improvements over ever facet of bitcoins.

[dayfall]

Do I understand correctly that the OP is suggesting that no one should buy coins above $2 and instead any person that wanted bitcoins should buy a rig that takes months to pay off and then trickle in coins?  If everyone did that then difficult would increase to solve the problem. Well, then if not then everyone they would just buy at market price which would set it to the correct value.  Again , no problem.

[Etlase2]

Do I understand correctly that the OP is suggesting that no one should buy coins above $2 and instead any person that wanted bitcoins should buy a rig that takes months to pay off and then trickle in coins?

I'm suggesting that this ever-expanding return on investment is not sustainable. Believe it or not, in the real world, making money takes time and effort. BitCoin users need to get over this idea that they are owed money because of their "smart, early" investing. BitCoin is either a currency or an investment. If it's a currency, it has turned out to be a rather terrible one so far. If it is an investment, then what the hell is the utility (value) of BitCoin? No products or services are produced. It is not a company with stockholders that make a product. Instead, EnCoin proposes a system, that yes will take time and some effort, but the return is a stable medium of exchange for which people will want to purchase and use. Not purchase and hope to make more money on people down the road who intend to do the same thing. BUT, because of the nature of it, it is still a reasonable investment due to the inflation of fiat currency. Just nowhere near on the order of 3 million % returns.

If everyone did that then difficult would increase to solve the problem. Well, then if not then everyone they would just buy at market price which would set it to the correct value.  Again , no problem.

Whether or not you believe the issues I have with BitCoin are actually issues, you aren't getting it. You propose that making coins more scarce solves the problem, because then people will make a profit. This keeps working until a large enough percentage of coins, that were made at a cost to produce that is less than today's value, start being sold or traded. The market will correct, the current miners will be unprofitable, and the BitCoin economy (and safety of the network) will shrink.

People make alternatives with a small number of improvements.  The real replacement with have major improvements.  See the threads I created in this subforum with suggestions as I made lots of good ones.  Then add everyone else's too (like how solidcoin v2 got rid of the GPU mining cheat so it's CPU mining only).  Then you need someone good at math to figure out how it's done.  Then peer reviews to tweak the idea.

A real improvement of bitcoins won't be a small number of improvements, it will be a huge, vast amount of improvements over ever facet of bitcoins.

GPU mining isn't really a "cheat." In fact, it is better for the EnCoin economy because more value can be put into it in a shorter amount of time, as GPUs cost more to run than CPUs.

As I said, EnCoin is not a fork of BitCoin, so most of the "improvements" made or proposed by other *Coins do not apply. The entire base of economy and the entire underlying network is vastly different. The similarities lie in the fact that it is still based around a cryptographic currency.

And to top it off, as part of the bootstrap, EnCoin proposes to award both EnCoins and BitCoins for the same work.

And you may be completely correct.  But all I hear right now is "I think the sky may be falling, and this is how we might be able to fix it". Which given the current environment isn't enough (for me at least) to look into it further.  Until it's launched.

Waiting for the sky to actually fall may be a problem, as faith will probably be lost in any kind of cryptocurrency.

And I can't launch it with my skill lacking in several areas. I would need help. So far nobody has offered any.

[BCEmporium]

Just took a while to overread what you put to that pastebin.
Sorry for being so hostile early, but at this point you really should avoid words like "successor", "replacement", "super-duper fix them all btc bugs" and alike, due to recent events you would probably jump over the "yet another scammer" cliff. A simple "alternative" would do.

It looks a bit messy on some subjects, despite of the mining related you're already discussing. I can't understand why would someone use its "paid messenger" features as it isn't anonymous and the "global paid" sounds more like paid spam messages. I don't quite agree with currencies with built-in services, like namecoin, from my point of view a currency should be plainly neutral to what you do with it... just like cash in your wallet, you don't have "groceries coins" and "butcher coins", you've cash you can trade for anything, the only built-in service of cash is if you want to print or write and run out of paper, but even so white paper would suit better the purpose and you can buy a bunch of them with a bill.

In fact a virtual currency can give some features physical currency can't, but by using them the line between what is a currency and what isn't could be crossed over.

[Etlase2]

Just took a while to overread what you put to that pastebin.
Sorry for being so hostile early, but at this point you really should avoid words like "successor", "replacement", "super-duper fix them all btc bugs" and alike, due to recent events you would probably jump over the "yet another scammer" cliff. A simple "alternative" would do.

I did say possible successor, after all. To be fair, I posted this in the main BitCoin forum without knowing the trials and tribulations of this forum. I have been out of the loop for several months as this project dropped off my radar. I decided to put a clean proposal together as there is interest in using BitCoins in another hobby of mine, so it reignited my wish to get this out there.

edit: I have changed the title of the thread to be less threatening.

It looks a bit messy on some subjects, despite of the mining related you're already discussing. I can't understand why would someone use its "paid messenger" features as it isn't anonymous and the "global paid" sounds more like paid spam messages and I don't quite agree with currencies with built-in services, like namecoin, from my point of view a currency should be plainly neutral to what you do with it... just like cash in your wallet, you don't have "groceries coins" and "butcher coins", you've cash you can trade for anything, the only built-in service of cash is if you want to print or write and run out of paper, but even so white paper would suit better the purpose and you can buy a bunch of them with a bill.

In fact a virtual currency can give some features physical currency can't, but by using them the line between what is a currency and what isn't could be crossed over.

A very reasonable point of view. While the global messages would undoubtedly be used for spam, that spam increases the worth of all EnCoins (not to mention it is a good way to get people to find out about services that would accept EnCoins). Additionally, my intention by having a message system built-in would be so that MR. EVIL DEVELOPER could not be the only [easily accessible] voice for the future of EnCoin. Perhaps I wax a bit too idealistic, but global messages could be turned off from a click of the mouse--or rather, they would be relegated to a separate section of the GUI and it would be up to the user if they ever want to view them.

AFAIK, it is possible and it has happened that people send messages or other garbage in BTC transactions anyway. May as well put a charge on the feature to help the network, imo.

[dayfall]

When bitcoins reach equilibrium and sell for about $2, do you think anyone will want to mine anymore when they cost $3.60 to sell for $2?

I don't think you got it considering my questions were not answered.  The answer to your conundrum is that no people won't mine at that cost to produce.  Hence difficulty will go down, to um, about $2 to produce.

You propose that making coins more scarce solves the problem, because then people will make a profit.

No, actually I didn't.  Besides, the profit comes from Bitcoins being valued more highly than they were.  Do you propose to make your coins worth less if they become widely used?  Would by balance decrease as my old coins aged or if Encoins become popular?  How will I be compensated if they flop?  

Would the 10,000 BTC pizza effect ever happen to your coins?  I honestly don't see how you could prevent it other than printing massive amounts of new coins to meet demand.  You obviously don't want your coins becoming scarce.

Sorry, I don't believe you can pin the value of your coins to the cost it took to produce.  Though, I would praise you if you could.

[Etlase2]

I don't think you got it considering my questions were not answered.  The answer to your conundrum is that no people won't mine at that cost to produce.  Hence difficulty will go down, to um, about $2 to produce.

Then you have the issue of the network being less secure. The door is left wide open for all of the angry BitCoiners that just lost a lot of money to devise a competitive fork or to potentially even attack the current blockchain. Either way, it will create a cascade of effects that reduce the value of BTC.

You said difficulty would increase, I guess you meant decrease. So I was a bit confused as to what you were saying.

No, actually I didn't.  Besides, the profit comes from Bitcoins being valued more highly than they were.  Do you propose to make your coins worth less if they become widely used?  Would by balance decrease as my old coins aged or if Encoins become popular?  How will I be compensated if they flop?

Now I'm really confused. How are BitCoins valued more highly than previously if the cost to produce BitCoins drops or stays level?
EnCoins coins will not be worth less if they are more widely used. The market factors would hope to achieve a stable equilibrium by more people minting coins if demand is higher (network expands in use). The sell prices would rise, so it would be more lucrative for more people to make coins. Ergo, more people mint coins. But, because coins are destroyed as the network is utilized, the demand will hopefully never get to a point where the network is a flop. Your balance would not decrease, unless as I suggested in the technical details, that a system is imposed where balances will slowly be wiped out if there is no use in an account. This is to keep hundreds of thousands of unused wallets with little to no balances from being repeated in every primary block. It is a waste of bandwidth. Also, due to the nature of the cryptocurrency, some balances will be forgotten and must eventually be expunged.

Are you joking when you ask how you will be compensated if it flops? How will you be compensated if BitCoin flops? EnCoin proposes a very smart hedge to your bets by awarding both EnCoins and BitCoins by piggy-backing on the BC network.

Would the 10,000 BTC pizza effect ever happen to your coins?  I honestly don't see how you could prevent it other than printing massive amounts of new coins to meet demand.  You obviously don't want your coins becoming scarce.

No, the 10,000 BTC pizza would never happen. Coins will be difficult to mint from the start. Every coin will have a similar value to produce (10kWh). Scarcity is not the primary aspect of what would theoretically bring value to an EnCoin. However, small bubbles and collapses (if you could call them that) would happen as demand far outstrips supply if the network were to expand. However, the network will always work towards an equilibrium as the cost to produce an ENC does not change, there just may not always be enough to go around. Because one person can not just mine thousands of coins instantly, there is little risk of Black BitCoin days that have happened several times already. Relatively high transaction fees (compared to BC, not the real world) imposed from the start will also reduce this risk as even if 10 million people start mining, they will have to spend a lot of time mining before they can make a profit with the transaction fee. Slow and steady.

Sorry, I don't believe you can pin the value of your coins to the cost it took to produce.  Though, I would praise you if you could.

The sell price will be determined by the market; supply and demand. The cost to produce will remain constant. The cost to produce a BitCoin has been anything but constant, with a factor of 2,250 times difference between the 1st BTC and the 7.3 millionth BTC. And that is electricity only, not including the cost of hardware.

The goal is that 1 ENC's value should never drop below the cost to produce plus a reasonable profit margin. Of course, if the network flops, this will happen.

[julz]

What is to stop the accumulation of encoins becoming so great that it vastly outweighs the size of the encoin economy?
(much as is now the case with bitcoin)

If a large number of  encoiners believe the value of an encoin is roughly that of 10kWh and that encoin is the way of the future - then presumably these things will be generated widely, not just for immediate use, but as a way to save.  (especially if there are various impediments to direct purchase - as is currently also the case with bitcoin, and I suspect why many mine rather than buy)

Corporations with good electricity discounts, and consumers in countries with lower rates might build up significant stores with the expectation that they'll effectively get a slight premium in the end due to their production cost being lower than the average.

Don't we then have the situation where a few large holders who need to sell for some reason, could effectively spook the market and also cause a crash in value to well below the cost of production?

I don't see that situation as necessarily a death knell for either encoin or bitcoin - but I'm just not yet seeing how encoin is guaranteed some price equilibrium approximately near the cost of production.  Does the design of encoin allow a determination of how many coins are 'out there'?

Even if a rough 10KWhr price correlation were achieved - the price differential in electricity around the world is huge. For a vast number of people, the value of encoins would primarily be a function of what some other small group of nations paid per KWhr.  Perhaps for example encoins will predominantly be produced in the Ukraine with it's cheap Nuclear power.   

[Etlase2]

What is to stop the accumulation of encoins becoming so great that it vastly outweighs the size of the encoin economy?
(much as is now the case with bitcoin)

Nothing, really, but there is no promise of future, staggering returns as with the design of BitCoin. But realistically, the only way the accumulation of coins could vastly outweigh the economy is if the economy collapses. An EnCoin won't cost more than 10kWh to produce, so if hoarding becomes the norm, "late adopters" can mine without the fear of the rug being pulled out. They may not see the hundreds of % returns that the sell price promises (assuming a sell off between), but they will not lose money unless coins become so common that they sell for less than the cost to produce. Again, this points to the collapse of the economy, which is not likely if hoarding is driving up prices.

Also, transaction fees must be taken into account. No one can mine 25,000 encoins unless they have done it for decades. The only accounts that will have balances in this range will be legitimate businesses who will have no interest in devaluing their coins for a quick profit (if they would even be capable of doing so). So if a large number of people hoard their small amount of coins, transaction fees will cut large in to the potential profit (and potential damage to the market). Because the more people that make smaller transactions, the more currency is destroyed.

Corporations with good electricity discounts, and consumers in countries with lower rates might build up significant stores with the expectation that they'll effectively get a slight premium in the end due to their production cost being lower than the average.

This is exactly the same scenario as with BitCoin. Nothing can really be done about it. If it is prohibitive to produce coins for you, then you will have to buy them for fiat, or mine at a slight loss. Again though, building up significant stores is a lot easier said than done. Insanely more difficult than with what originally happened in bitcoin.

Don't we then have the situation where a few large holders who need to sell for some reason, could effectively spook the market and also cause a crash in value to well below the cost of production?

Temporarily. Part of the ingenuity of EnCoin is that computational power is not required to secure the network. In fact, I have already added another point to the technical details section that should allow for well-trusted network trusts to go into a "cool down" mode where they would only be required to work for a very small amount of encoins to maintain their trust, but would still be part of the total network trust. So if the value is low, stop (or significantly retard) mining, keep the network secure, and allow transaction fees to increase the value of encoins until it is profitable to mine them again.

Businesses wouldn't even need to base their value of encoins on the current market price. With smart utilization of the network, they could be close to sure that the price will return to equilibrium again (this will, of course, require some history). Trades outside of the markets could potentially go unaffected.

I don't see that situation as necessarily a death knell for either encoin or bitcoin - but I'm just not yet seeing how encoin is guaranteed some price equilibrium approximately near the cost of production.  Does the design of encoin allow a determination of how many coins are 'out there'?

There is no guarantee, only the systems I've described that make the attempt. But if the economy is functioning and healthy, I think it will be a hell of a lot more stable than bitcoin. The total number of coins will be an easily available number. Simply add up the balances of all the wallets in the most recent primary block.

Even if a rough 10KWhr price correlation were achieved - the price differential in electricity around the world is huge. For a vast number of people, the value of encoins would primarily be a function of what some other small group of nations paid per KWhr.  Perhaps for example encoins will predominantly be produced in the Ukraine with it's cheap Nuclear power.  

Again, there is nothing that can be done about this and it is an issue that affects bitcoin as well. It is less of an issue with bitcoin because the ROI is ridiculously high, but I highly doubt that this will always be the case. If EnCoin becomes a true medium of trade rather than a "check what it's worth on the exchange" type commodity, I think this will have less of an impact than you might think. If EnCoins are cheap to produce in Ukraine, products and services in Ukraine would cost comparatively more EnCoins.

[bulanula]

This sounds very good ! Keep on going.

What people don't understand is that bitcoin is not the "god" currency. There will be better offers soon. It is wrong to assume the first one is the best one and will survive. You have too much of an emotional attachment to this project.

Satoshi ( mark karpeles ) is also a pump + dumper ( 20k dumped last week etc. ) so what is different ? The difference is nobody wants to admit it as they have all been sucked into this clever scheme.

Eg controller price = harder to attack network ( eg gov manipulate btc price and bring price down - miners quit - easy to attack network even without massive power needed ).

[Minsc]

Satoshi ( mark karpeles )

Do you have evidence of this?

[bulanula]

Satoshi ( mark karpeles )

Do you have evidence of this?

Do you have evidence of God. Is that what you are trying to say ? Because he sure seems like a god around here  

Do you have evidence you did not steal my bitcoins a few weeks ago etc. Nope you don't, i don't, nobody does but it is pretty obvious the two are connected if you look more carefully. I let you to enlighten us.

Eg for all i care satoshi = mark karpeles = the manipulator = pro pumper and dumper = artforz = deepbit owner etc. anything is possible and some of these might be very true  Too much coincidences. Who dumped 20k last time ? Why so Japan focussed ? Why mtgox first exchange from japan ? Why artforz first to mine with gpu power and control 25% of hashing power at first ( look it up on wiki ) ? Why satoshi own 25% of bitcoin when nobody knew about it then dump ? All seems to one person's interest. All these aliases made a ton of cash with this clever scheme. We pay the price.

Until you have proof that satoshi definately does NOT equal mark karpeles then the opposite can be also rightly be assumed true etc.

[Minsc]

mark karpeles?

[bulanula]

mark karpeles?

Owner of mtgox - also from japan LOL

[dayfall]

You said difficulty would increase, I guess you meant decrease. So I was a bit confused as to what you were saying.

I said what I meant.  If the price of BTC is too high relative to mining then people should naturally mine instead of buying.  Difficulty increases.  It is easy.

With your system, I have no reason to mine coins.  I can ALWAYS mine later at the same cost to produce as the coins I am buying.  Not mining now is also the reasonable option in case your system fails.  I might, however, buy at a lower than production cost.

[Etlase2]

Dayfall, increasing difficulty increases scarcity. You are trying to solve the problem by exacerbating it. The more and more people work to produce scarce coins, the more and more damage abundant coins can do.

The answer to your conundrum is that no people won't mine at that cost to produce.  Hence difficulty will go down, to um, about $2 to produce.

What do you think the 60k people that are currently mining at a cost of $3.60 ($4.30 if you include my estimate for hardware) are going to think if the sell price is around $2? For the difficulty to go down, most of those people are going to have to stop mining. This makes bitcoin wide open to an attack. For coins to drop to $2, either interest has seriously waned in bitcoin, or there has been an abundant coin sell-off. Demand is down either way. Now all of those people who mined for a cost to produce of $3.60 have lost money, and the only way to recover it is to get 60k+ mining again (preferably a different group of 60k, lol). But by what mechanism will demand increase again? Scarcity is down; people are jaded. Lowering the difficulty doesn't fix anything, it just makes everyone who mined at a higher difficulty look foolish.

With your system, I have no reason to mine coins.

Sure you do. Coins are still going to have scarcity issues (SOME of the time). The people decide when to mint, and minting is *always* difficult (not 2,250 times easier for the early adopters over the late adopters). Some people are not going to want to put together a system to run software all day that produces coins--that leaves the market open for those that do. To avoid runaway inflation, coins are destroyed by making transactions. This means as long as the network is used, there will be demand for new coins. The more transactions there are, the more demand for new coins. It is an honest, self-sustaining process. Not a process that promises to produce the majority of its value by virtue of scarcity alone. Once bitcoins become unscarce in a sell-off, there is no way to bring that scarcity back except by expecting tens of thousands of new people to demand coins. EnCoin does not require a continually expanding base of users (or a continually shrinking pool of coins) to create demand. It only requires that the network be utilized. With the ridiculous issue of speculation out of the picture, businesses can actually run a business, not a business and a side of speculation.

I can ALWAYS mine later at the same cost to produce as the coins I am buying.

This is written as if it is a bad thing. There is no evidence that the scheme behind BitCoin has produced a healthy economy. Factors point to the opposite. Being always able to mine at the same cost assures businesses that they can store encoins as a unit of value, not a unit of speculation. You can always mine now and wait for a time when demand is high to sell. Once you stop thinking of an electronic currency as being an investment, you'll be amazed at how much a different system can accomplish.

[JohnDoe]

Do you have evidence of God. Is that what you are trying to say ? Because he sure seems like a god around here  

Do you have evidence you did not steal my bitcoins a few weeks ago etc. Nope you don't, i don't, nobody does but it is pretty obvious the two are connected if you look more carefully. I let you to enlighten us.

Eg for all i care satoshi = mark karpeles = the manipulator = pro pumper and dumper = artforz = deepbit owner etc. anything is possible and some of these might be very true  Too much coincidences. Who dumped 20k last time ? Why so Japan focussed ? Why mtgox first exchange from japan ? Why artforz first to mine with gpu power and control 25% of hashing power at first ( look it up on wiki ) ? Why satoshi own 25% of bitcoin when nobody knew about it then dump ? All seems to one person's interest. All these aliases made a ton of cash with this clever scheme. We pay the price.

Until you have proof that satoshi definately does NOT equal mark karpeles then the opposite can be also rightly be assumed true etc.

I hope you don't become a detective when you grow up.

[jago25_98]

Back on topic,

 I think it is really important to improve Bitcoin and I'm glad to see the paper.

I think if starting again is necessary then I am prepared to risk a lot of my coins to achieve improvements.

 In general, in the paper there are still a few too many arbitrary numbers that need to be replaced by carefully weighted and balanced formulas that adapt according to market conditions. We need to replace arbitrary values with maths.

 Can some of the changes proposed can be added to Bitcoin.

 I particularly like the idea of being able to subdivide the network.
 I'd like to see the possibility of hiding communications.
All these extra functions I'd like to see in forked clients, I'd like to see another less popular but more hardened network in place should there ever be a problem with the Bitcoin network, ideally that network would run more like a virus, not just over tcp but also other protocols, Bluetooth and radio.


 I know people don't like forks because it costs money but I'd rather have progress and protection of core Bitcoin ideas of decentralisation.

[Etlase2]

In general, in the paper there are still a few too many arbitrary numbers that need to be replaced by carefully weighted and balanced formulas that adapt according to market conditions. We need to replace arbitrary values with maths.

I agree wholeheartedly which is why I warned about it early on in the paper. I've been looking into the transaction fees, and they are terribly high as I described in the paper. Might end up being something like E0.10+0.25% or something, to make certain that it undercuts credit cards and paypal and such by a significant margin. It sucks that if someone wants to transfer from a "checking" account to a "savings" account that they'll have to pay a fee though. But as with Bitcoin, general banking services could be added as a layer on top of the system.

But debating these finer points is for naught if no one steps up to help.

Can some of the changes proposed can be added to Bitcoin.

Certainly the economic issues can't be addressed, unless bitcoin becomes a fork of itself. Might not be outside the realm of possibility when/if faith is lost in the system.

I particularly like the idea of being able to subdivide the network.
 I'd like to see the possibility of hiding communications.

These issues are somewhat interrelated, and I was also pondering this subject. Bitcoin uses so much unnecessary bandwidth in the name of anonymity. Why when Tor, I2P, VPNs, and general proxy servers exist? All of these can be easily added on top of encoin or bitcoin. And laundering services, should they be required, will also get better. None of this requires the protocol itself to do anything. People who want to be anonymous can find their own ways to be anonymous--why put that pressure on the network? Especially when it barely works with bitcoin. The encoin proposal uses smart ways to push the data around so that it is not duplicated unnecessarily, only enough to be sure that no one is doing something shady. But IP->wallet id anonymity is most definitely not preserved.

[Minsc]

I hope you don't become a detective when you grow up.

He's an internet detective!

[Etlase2]

V2.3 UPDATE: Moved some of the technical details into the main proposal. Network Trusts, Transactions, The System of Trust, Anonymity, and Why EnCoin have been updated.

The second paragraph here was added to "Why EnCoin"

So, the nature of EnCoin proposes a reasonable solution. The cost to produce one ENC equals approximately 10kWh of electricity. This is achieved by allowing anyone who wants to mine equal access to EnCoins, always at the same rate throughout its history. To keep demand up, EnCoins are “used up” by making trades, creating networks, sending messages, and so on. An actual cost is paid to pay for the network and keep people minting new coins.

It is a similar concept to demurrage, where the storing of currency has a fee, but in this case it is an option that is only available in an electronic medium: the spending of currency has a fee. The overall concept promotes both spending and saving. Saving, because there is inflation inherent in most fiat currency that is counteracted by nothing—EnCoins are destroyed on a regular basis and the cost to produce new EnCoins rises as fiat currency inflates. Spending, because the receiver bears the fee—and there is no promise that “what one EnCoin can buy today will buy two of tomorrow” with the deflationary concept of Bitcoin. As well, what one EnCoin can buy today could theoretically buy ten years from now, unlike inflationary fiat where what one buys today may only buy 4/5ths of in ten years. And with reduced transaction fees compared to credit cards, merchants may well be able to profitably charge less in EnCoin than they could in a comparable amount of world currency as those prices have 2-3% fees inherent.

Anyone care to discuss?

[Lolcust]

Could you outline, in layman's terms, how does the system physically measure energy expenditure that goes into a "coin" ?

[Etlase2]

There is obviously no way to physically measure energy expenditure. So it's a guess, as stated in section 3:

The cost to produce one ENC will not ever truly be at par with 10 kWh of electricity. It is merely a gauge in designing the difficulty of the algorithms while assuming an average amount of electricity used to solve those algorithms. The algorithms can only determine computational complexity—not the price of electricity or efficiency of the computers running the computations. However, assuming community support, EnCoin will have factors that smooth out variations in efficiency (see Technical Details).

Section 11:

•   Network Trust Block difficulty will be based around an average network being able to find one block every six hours. 6 hours x 50 people x 200Wh = 60kWh or 6 ENC.

200Wh being the magic number.

The guess doesn't particularly matter. If the average person is using 300Wh, then an average encoin costs 15kWh to produce instead of 10. Factors such as whether a person would leave their computer on with or without running encoin would come in to play, so there is no real way to be sure even if we could know how much power everyone was using.

What does matter is if the fundamental efficiency goes up (like everyone uses cheap machines designed to produce encoins for a very low electricity usage). Long term this would affect the price negatively, and people who saved would lose value.

However, I do have some comments related to this in section 11:

•   Probably will be an initial set of varying hash algorithms besides SHA256(SHA256()). These algorithms will change at every X Primary Blocks (randomly based on previous block hashes). Prevents ASICs from taking hold, etc.
•   When switching hashing algorithms, there should be a difficulty factor included. Perhaps a secondary vote to determine this. Really not sure yet, but obviously all different types of computers will react differently to a change in the hash. If the new hash is twice as difficult on average, the difficulty should be cut in half (assuming GPUs are still used). Community input will obviously be necessary. This or a 10 PB grace period where trust won’t be lost and the network can determine a new difficulty (perhaps even retroactively award ENC based on the new difficulty so as not to discourage people who are not minting new blocks).
•   Standard Network Trusts will have a minimum computational speed and a minimum payout for each wallet. Perhaps also an enforced maximum of 10% or so, so again that highly advanced processors that do not use a comparable amount of electricity can not gain an unfair advantage. Another possibility is to have a simple payout structure that awards fixed percentages based on who did the most computations. Network Trusts do not have to agree to this, but people using “honest hardware” would want to be in networks that do so.

The third comment is mostly related to when the machines first start infiltrating the market and it puts others at a competitive disadvantage. Even before that, more efficient machines will not get quite the bonus that they do in bitcoin. The goal is not to reward efficiency, only electricity.

The bolded part in comment 2 is quite important. These algorithms will have to be tested beforehand to make sure they do not perform better on CPUs because there is a big difference in electricity usage. But if some kind of hashing-specific card gets popular, it needs to be taken into account. It will be a tough situation.

For now, these issues are fairly moot, but I'm trying to leave it as open as possible for the future.

[Red]

Hi Etlase2,

I re-read the "on hording" thread to see why you found me. If you liked that thread, this and this are others that were running about the same time.

I'm on record here, (review my canon if you are interested) as being a big fan of the bitcoin concept. But also as presuming bitcoin will bubble and inevitably fail because of bitcoin's fixed monetary policy.

Now the summer bubble doesn't make me prescient. When I first came here bitcoins were 5 for a dollar. I didn't buy any because, as a result of the slashdot effect, they had just appreciated 100 fold. At that time there was a website called "the bitcoin faucet" that gave anyone who asked 5 BTC just to spread them around. After the 100 fold inflation it had to switch to giving out "bit nickels" instead. As such, I own precisely .05 BTC. I didn't even ask the faucet twice. If, like I rhetorically postulated in some of my posts, I had purchased $1,000 of BTC AND sold them when BTC hit $30, then I would have been prescient. (See knightmb for an example. I hope he cashed some out!)

---

I did spend a lot of time and mental energy trying to come up with a bitcoin analog with a stable monetary policy. I'm assuming that is what you are going for too. I've read through all four pages of this thread and part of your proposal. I think I'm only at about 50% comprehension though.

It looks like you are trying to come up with a way to generate EnCoins so that their value stays constant. I'm a big fan of that idea. In your case you've chosen a certain amount (or value) of electricity as your reference constant. Is that correct?

I'm presuming that if the value of an ENC increases too fast, you want to generate ENC faster. I'm not sure I understand the mechanism yet. I'm guessing arbitragers notice the opportunity and fire up new nodes. The cost of electricity (somehow I'm not clear on yet) serves as a lower bound. If ENC values go too low, arbitragers won't waste the electricity to generate them.

Am I on the right track, or have I missed the train of thought entirely?

[Etlase2]

It looks like you are trying to come up with a way to generate EnCoins so that their value stays constant. I'm a big fan of that idea. In your case you've chosen a certain amount (or value) of electricity as your reference constant. Is that correct?

Yes.

I'm presuming that if the value of an ENC increases too fast, you want to generate ENC faster. I'm not sure I understand the mechanism yet. I'm guessing arbitragers notice the opportunity and fire up new nodes. The cost of electricity (somehow I'm not clear on yet) serves as a lower bound. If ENC values go too low, arbitragers won't waste the electricity to generate them.

Am I on the right track, or have I missed the train of thought entirely?

Definitely on the right track. As there is no set block award to divide among an increasing number of people--blocks are awarded to as many networks as there are--when the price of ENC rises due to a rise in popularity, more ENC can be produced accordingly. So instead of passing all of that profit on to the early adopters for no work, everyone (who chooses to) gets a piece of it. BUT, because the ENC reward increases as your trust with the network increases, there IS a benefit to being around before the sudden increase in demand. So if there are people who can actually time these trends then they will be "smart, early" investors, rather than "early" investors. ALSO, there is a cap on how these ENC rewards increase, anyone can get it, it just takes time and dedication to the network. How fair is that?

As usual, these hard numbers are up for debate, but the some of the pertinent stuff is in the technical details:

•   Network Trust levels and payouts: 1-29—5 ENC, 30-89—6 ENC, 90-360—7 ENC. Therefore it takes about 3 months to receive a full payout, but trust may be earned for up to 1 year. These figures are subject to much revision. 6 ENC is approximately 1 ENC = 10kWh based on 200Wh per person (based on an average of 50 people per network), but because some blocks will be lost that are not finished before the 24-25hr cooldown, 7 ENC will be awarded to very trusted networks as compensation. (update: I believe there should be a more granular progression for ENC payouts [5, 5.5, 6, 6.5, 7], with awards continuing to increase up to 180 points.)

Cooperatively, this also increases the security of the network as outlined in section 7 (in the newest revision of the proposal):

[T]hese wallets will be used to keep track, by other networks, how long an individual has worked for the network. This information can be used to make decisions on whom to allow joining a NT. For example, a well trusted NT with over 180 trust and a 7 ENC award may choose to have a minimum of 50 user trust (user has worked on over 50 PBs) required to join. This will help reduce the ease of an infiltration attack against the network’s trusts as well as making it easier for trustworthy members to continue to earn a bonus ENC award for their help to the network.

And in times where supply outstrips demand, section 4:

In times of high supply and low demand, Network Trusts with a significant amount of trust will be allowed to enter a cool-down mode. This mode will lower the difficulty required to find a block to 1/10th of its normal value, while awarding 1/8th the ENC. The client software will adjust the computer output accordingly. There is a maximum of 2 blocks per PB that may be awarded this way. This allows Network Trusts to maintain profitability while also continuing to secure the network.

Trusted users STILL benefit, and ANYONE can eventually become a trusted user. It just requires an ongoing dedication to the network.

[sd]

* EnCoin is based around a constant cost to produce, approximately 10kWh of electricity. In contrast, a BTC's cost to produce has increased by a factor of 2,250 from the 1st to the 7.3 millionth.

This does not seem possible; CPUs, GPUs, FPGAs all do different amounts of work for a given amount of electricity. The difference in power usage between FPGAs and CPUs or GPUs is many orders of magnitude.

[JohnDoe]

I did spend a lot of time and mental energy trying to come up with a bitcoin analog with a stable monetary policy. I'm assuming that is what you are going for too. I've read through all four pages of this thread and part of your proposal. I think I'm only at about 50% comprehension though.

Did you come up with any ideas that could be viable? Also what do you think about the decentralized central bank approach?

[Red]

I'm still kicking the concept around in my head Etlase2, but I like the overall direction. I'm less concerned about the technical details than in the overall system dynamics.

The constant value tendency of a coin must result from the ratio between the total (external) value of the goods trying to be exchanged divided by the number of coins available to be exchanged. Meaning those not being hoarded.

So if the economy increases (say we double the external value of goods needing to be exchanged each day) then to number of coins available to be exchanged must also double. Notice, I DID NOT say the number of coins in the system must double. Just that the number not being hoarded over that interval must double. That means if price deflation starts, you have to convince people to spend their current coins rather than hoarding them hoping they'll be worth more in the future. (Creating a bubble)

Likewise, if the economy decreases (say we amount of external goods falls by half) then the number of coins available to be exchanged must fall by half as well. This becomes the real tricky part. In the face of price inflation, you have to convince people to save/hoard rather than to dump all their coins before they lose value. (Popping a bubble)

The best way to motivate people to behave in this manner is to guarantee mathematically that the system will over the medium term always return every coin's monetary value to some constant. The question for me has always been, "What constant?" Meaning, what benchmark is to be used in a very dynamic economic marketplace?

--- Hopefully, that mostly paraphrases what you have written. i wasn't intended to contest anything in the above section. ---

I think the idea of using the price of electricity as that benchmark shows serious possibility. Satoshi suggested a similar thing, but with a constant BTC generation rate, a short term bubble seemed much more likely. Your idea of varying the generation rate of ENC makes the convergence much more likely.

--- Controversial stuff starts here ---

Keep in mind that by adding the concept of "Trust" you completely remove the necessity for bitcoin's proof-of-work. As you pointed out in section 6. Transactions, EnCoin's transaction history immutability is based upon shared consensus. As such, it should be possible to solve the transaction recording problem using only a negligible amount of electricity. That guarantees the greatest participation in the consensus.

It also means, that time/power consuming proof-of-work calculations are required ONLY during the times it is advantageous to mint new coins. That could be a huge advantage in a shrinking economy.

The only real question in my mind is how do you distribute newly created coins, and destroy any unnecessary coins, in a way that best leverages the hoarders.

For example, in a growing economy, you want to penalize hoarding. Therefore you might award new coins ONLY to people who have current bitcoin transactions.

Likewise, in a shrinking economy, you want to penalize spending/dumping bitcoins. You might consider, taxing the spenders in each current transaction.  Destroying the tax would increase the value of each hoarder's stash.

I still haven't tied this line of thought to the optional generation and the price of electricity but I get the sense that it could be done. I have to re-read all your notes to convince myself you've figured it out.

---

I get the sense that your plan goes something like this:
1) Tax every transaction.
2a) If prices are inflating, make it electrically unprofitable to generate coins to replace the tax.
2b) If prices are deflating, make it electrically profitable to generate new coins in an amount greater than the above tax.
2c) If prices are stable, it should be electrically profitable to generate only the coins necessary to replace the tax. (Or perhaps there is just a gentle oscillation between the above two states.)

===

Am I anywhere close yet?

[Etlase2]

This does not seem possible; CPUs, GPUs, FPGAs all do different amounts of work for a given amount of electricity. The difference in power usage between FPGAs and CPUs or GPUs is many orders of magnitude.

This is covered somewhat 2 or 3 posts above this. With a hashing algorithm that randomly changes every so often, it would hopefully not be possible to profitably keep up with FPGAs or ASICs. Not being a cryptographic expert, I can't say how different algorithms would affect the CPU vs GPU debate, but that is something that can be worked out before releasing the software into the wild.

The major danger comes from GPUs suddenly requiring much less electricity than before--unlikely given the current and past state of hardware, but certainly not impossible. I do have a potential solution that can be pre-programmed in (i.e. without later forking the chain), but I'll bring that up at a later time.

The only real question in my mind is how do you distribute newly created coins, and destroy any unnecessary coins, in a way that best leverages the hoarders.

For example, in a growing economy, you want to penalize hoarding. Therefore you might award new coins ONLY to people who have current bitcoin transactions.

Likewise, in a shrinking economy, you want to penalize spending/dumping bitcoins. You might consider, taxing the spenders in each current transaction.  Destroying the tax would increase the value of each hoarder's stash.

This isn't exactly how it works, as the transaction fee is a set rate that never changes. I'm not excluding the possibility that it could change, but then you've got the software trying to calculate the economy rather than the economy working itself out naturally. And for now, I have it proposed as the receiver paying the fee, like a credit card or paypal transaction. I'm not sure how the spender vs receiver argument may work in the minds of hoarders. Interesting topic for discussion.

But, with the general design of the system, hoarders should be aware that a price deflation is temporary, so it is advantageous to sell some of their stash and make the immediate profit.

And conversely, businesses should be aware that a price inflation (compared to fiat currencies, at least) is temporary, so it isn't necessary to value Encoins based on their fiat counterparts. Ergo, the price of goods and services may remain relatively unchanged even in the face of market forces--the price of a loaf of bread does not change from day to day based on how the local currency compares to world currencies, after all. Once this model is established with historical data (assuming it works, of course), businesses could be secure in holding on to their encoins instead of immediately trying to sell them back for fiat.

Buying and immediately selling is a solution that many have proposed to generate new interest in bitcoins. Problem is, it doesn't create any new real demand. Businesses receive coins, businesses sell coins. No value is added to the economy because the coins are essentially just a temporary bargaining chip that facilitates easier transactions. And I think because bitcoins will *never* have an inherent worth (early coin sell offs will always be possible), it just won't ever become an economy that has actual value.

I have to re-read all your notes to convince myself you've figured it out.

I certainly don't have myself convinced that I've figured it out, so good luck with that.  

I get the sense that your plan goes something like this:
1) Tax every transaction.
2a) If prices are inflating, make it electrically unprofitable to generate coins to replace the tax.
2b) If prices are deflating, make it electrically profitable to generate new coins in an amount greater than the above tax.
2c) If prices are stable, it should be electrically profitable to generate only the coins necessary to replace the tax. (Or perhaps there is just a gentle oscillation between the above two states.)

That sums it up much better than anywhere I have written in the proposal. I may have to steal this.

[Minsc]

This is covered somewhat 2 or 3 posts above this. With a hashing algorithm that randomly changes every so often, it would hopefully not be possible to profitably keep up with FPGAs or ASICs. Not being a cryptographic expert, I can't say how different algorithms would affect the CPU vs GPU debate, but that is something that can be worked out before releasing the software into the wild.

Okay let's make it change each block and be different each time.  But that's not good enough, we also should make this change boost the encryption of the cryptocurrency too.

[Red]

Did you come up with any ideas that could be viable? Also what do you think about the decentralized central bank approach?

Ideas, yes. Viable, perhaps. At least they are not implausible. ;-) Nothing was put down as a formal proposal. When I was arguing for a stable monetary policy, it was a very unpopular idea. Free appreciating gold was the big draw. There are a couple of threads discussing GETS/LETS systems. But let's ignore them for now. I'll try to bring what I learned to this idea.

I like the central bank approach, but I'd rather see it automated as this idea tries to do. Well, I still don't understand how it does it, but I hope it automates it.

[Red]

I re-read your proposal and thought about this some more. In general, I think there are a lot of things in the proposal that seem more complicated than necessary. In particular, the bit about trust networks. Now I do see this as a key part of your proposal, so I'm outright disputing it's necessity. However, I think it is a composite solution to several problems that didn't get enough ink individually. I think the discussion could benefit from discussing the individual issues before deciding on a technical solution.

The other thing I still don't grasp clearly from the proposal is the mapping back to quantities of electricity.

This does not seem possible; CPUs, GPUs, FPGAs all do different amounts of work for a given amount of electricity. The difference in power usage between FPGAs and CPUs or GPUs is many orders of magnitude.

The major danger comes from GPUs suddenly requiring much less electricity than before--unlikely given the current and past state of hardware, but certainly not impossible. I do have a potential solution that can be pre-programmed in (i.e. without later forking the chain), but I'll bring that up at a later time.

The point sd brought up is certainly significant. I can only offer the obvious empirical evidence. Over time, all CPU's will use less electricity to do the same amount of work. As such, you need a (hopefully) auto-adjusting parameter that keeps the proof-of-work load constant in kWh.

I see lots of proposed constants in your technical information. What I don't see is anyway to vary those constants over time. JohnDoe has a proposal based upon voting but this is your thread so I prefer to understand your ideas.

But, with the general design of the system, hoarders should be aware that a price deflation is temporary, so it is advantageous to sell some of their stash and make the immediate profit.

This is an absolutely key dynamic to keeping the value of coins stable.

That means *ALL* 2b)/excess coin generation is an arbitrage situation. Meaning *everyone* generating coins in my 2b) sense will be immediately spending them or cashing them out. *Never* hoarding them. It doesn't make sense to spend 10 kWh to generate a coin worth 12 kWh, then to hoard the coin while expecting its value to drop back to 10 kWh.

And conversely, businesses should be aware that a price inflation (compared to fiat currencies, at least) is temporary, so it isn't necessary to value Encoins based on their fiat counterparts. Ergo, the price of goods and services may remain relatively unchanged even in the face of market forces--the price of a loaf of bread does not change from day to day based on how the local currency compares to world currencies, after all.

Agreed. This is what makes your idea interesting to me. Story time...

I spent some time in San Diego a year or so back. During that time, they had a huge "save water" campaign across the region. Its success far exceeded their expectations. Big win right? Conservation means less competition for a shared resource means lower resource prices. Less individual usage means compounding lower individual expenses in a recession. Woot! Except, the resulting conservation meant lower revenue flowing to the water district. The district could no longer meet its fixed expenses. So the district raised the water rates! Which of course encourages more conservation...

What's my point? As a friend of my once said, a gun always costs about the price of one gun. Meaning that since the wild wild west, a gun has alway been expensive enough to be considered valuable. Yet never too expensive for the average person to save for and buy. A gun represents a fixed fraction of the average person's salary over time.

I suspect electricity, like water, like a gun is one of those fixed fraction commodities. Electricity cost different prices in different places and people use varying amounts. But any particular person's electrical bill is not likely to jump from 10% of their salary to 30% of their salary. Neither is it going to fall to 3% of their salary even if everyone tries really hard. (arbitrary made up numbers to stress the point.)

This isn't exactly how it works, as the transaction fee is a set rate that never changes. I'm not excluding the possibility that it could change, but then you've got the software trying to calculate the economy rather than the economy working itself out naturally. And for now, I have it proposed as the receiver paying the fee, like a credit card or paypal transaction. I'm not sure how the spender vs receiver argument may work in the minds of hoarders. Interesting topic for discussion.

I think you are probably right on the fixed transaction fee/tax concept. However, that means the elasticity of your model can expand as fast as it needs to, but it can only contract at a fixed rate. This gives me pause.

I don't think of coins like credit card or paypal transactions. I think of them like fucking coins! :-) My quarters don't lose value when I spend them or when someone receives them. I have one quarter less, someone else has one quarter more.

For me, this has to be the nominal case goal for any cash alternative currency. Meaning, specifically, in the case where the currency value is stable (2c), if I'm transacting in coins (buying or selling), I'd better not be penalized for using money as a medium of exchange that is of course our main point.

This *requires* that in cases (2c) and (2b) all transaction fees be refunded prior to bonus coins being awarded to so called miners. This is logically invariant no matter how much work a miner thinks they proved.

It is easiest to see in the stable (2c) case. If our coin value is stable, that means the appropriate monetary policy is to do *exactly* nothing. Do "no work" in the mass times distance sense. That doesn't mean nobody put in effort. It just means no work got done or should be rewarded. Why would we reward the people (do something) who just mathematically proved our best monetary policy decision is to do nothing?

In case (2b), you can reward people for mathematically proving there is a need for more coins. However, taxing transactors is still counter productive. It decreases coin velocity and encourages hoarding in the face of deflation. That works to defeat the purpose of adding new coins.

Only in case (2a) to we wish to penalize someone for participating in a transaction. If you analysis that situation, prices are inflating, taxing the seller will result in higher prices to extract the same coin value for their goods. This is opposite the direction to intended to move the system.

Purchasing during *temporarily* inflated times is illogical/desperate. We want to reduce the number of coins flowing for too few, over priced, goods. That drives prices back down. The only way to encourage that is to tax the spenders, thus rewarding the savers. This is critical because, as I pointed out above, this is the least elastic of your monetary directions.

[Etlase2]

I re-read your proposal and thought about this some more. In general, I think there are a lot of things in the proposal that seem more complicated than necessary. In particular, the bit about trust networks. Now I do see this as a key part of your proposal, so I'm outright disputing it's necessity. However, I think it is a composite solution to several problems that didn't get enough ink individually. I think the discussion could benefit from discussing the individual issues before deciding on a technical solution.

The trust networks are integral to avoiding a pooling of resources. The pooling of resources like bitcoin does allows for singular points of attack against the network. A pool or two goes down and all of a sudden the network is vulnerable. Also, as far as the trust system goes, there needs to be a larger amount of trust spread out across more people, or else you make it easier to attack the trust. And since these are not many-to-one but many-to-many, every individual is resistant to attack individually, not as a group.

It is such a different design from bitcoin because it needs to address the problems in how the network operates. 51% computational attack is thwarted. Now there is a reasonable system of voting. Signature proofs of who is being dishonest. Easier for a new user to get in and start making coins. Much more information available as to how the network is operating. I designed this idea over the course of several weeks to finally come to what it is now. I mean if you see weaknesses, please point them out. A big one is anonymity, but trading all of these features for a bit less anonymity is worth it, imo. Anyone who buys in for cash can still remain separate and anonymous from the network as a whole.

The other thing I still don't grasp clearly from the proposal is the mapping back to quantities of electricity.

The 10kWh figure was used because that is what most closely resembles the amount of a single unit of the world's most popular currencies. It is mostly irrelevant other than to gauge a general magnitude of what one coin is worth. Like I said earlier, if the average user is using 300Wh, then it is closer to 15kWh. Perhaps I will drop using 10kWh since it may just lead to confusion.

The point sd brought up is certainly significant. I can only offer the obvious empirical evidence. Over time, all CPU's will use less electricity to do the same amount of work. As such, you need a (hopefully) auto-adjusting parameter that keeps the proof-of-work load constant in kWh.

The amount of work is a non-issue, as difficulty will work similarly to bitcoin, just divided among the networks. The amount of electricity used to perform work is the issue. And this is only a problem if everyone starts using energy efficient hardware. Not a likely paradigm shift any time soon with GPUs requiring bigger and better power supplies, more and more power connections, etc.

I see lots of proposed constants in your technical information. What I don't see is anyway to vary those constants over time. JohnDoe has a proposal based upon voting but this is your thread so I prefer to understand your ideas.

Ok, lemme go through the list. Block award should probably be a constant. Being able to find a block every so often on average should be a constant to determine difficulty. Network trusts having 100 wallets, well if we don't limit that then the system of trust is very limited. Losing 10 trust for not finding a block, up for debate but certainly must be some kind of number--certainly could be a trust module vote. Minimum computational speeds and minimum payouts--up to each network. Fees for utilizing the network, probably should be a constant, really makes no difference if it's not but then I don't know by what measure to get them. 64 character maximum on transaction message, probably should be a constant unless we want to bloat the blockchain with useless data.

I mean is there anything specific that you take issue with other than a number being constant? None of the figures above constrain the network into one hole that is incapable of future expansion.

I think you are probably right on the fixed transaction fee/tax concept. However, that means the elasticity of your model can expand as fast as it needs to, but it can only contract at a fixed rate. This gives me pause.

It can't expand as fast as it needs to. There will be expansion pains. Coins still take time. And it does not contract at a fixed rate, it contracts based on how much money is moving around. So it might take a little longer to get back to equilibrium, that doesn't mean it won't get there. It doesn't mean it will take years. People minting coins can't vote for the transaction fee because they will always vote it higher; it is in their own best interest, this should be obvious. If you have the network try to decide its own transaction rate, going higher in times of high supply (which would be awfully complex to determine from programming), then you will get people who will hoard waiting for others to spend, or businesses that will raise prices to accommodate, or what have you.

For me, this has to be the nominal case goal for any cash alternative currency. Meaning, specifically, in the case where the currency value is stable (2c), if I'm transacting in coins (buying or selling), I'd better not be penalized for using money as a medium of exchange that is of course our main point.

What do you propose to support the network then? If there is no fee, inflation may go unchecked. If there is no fee, miners have no incentive whatsoever to mine. The network loses security. One can easily counteract the fee by joining a network trust, putting in your time, then moving on to a trust in cool-down mode and getting bonus encoins for the same amount of work (the 1/8th for 1/10th idea). Having people provide a secure, incredibly cheap, reliable form of sending money to anyone in the world in 30 seconds just simply can not be free and stable.

If you attempt to program in determining whether or not we are in a 2a, 2b, or 2c phase of the economy, then you are asking software to know what's best for the economy instead of letting it work itself out naturally. That's quite the can of worms.

This *requires* that in cases (2c) and (2b) all transaction fees be refunded prior to bonus coins being awarded to so called miners. This is logically invariant no matter how much work a miner thinks they proved.

You'll have to explain this further because I'm not sure what you mean. The bonus is a reward for being a highly trusted member of the community and putting in a lot of effort to make the network secure. Sending a transaction does absolutely nothing for the network security, it is a service that the network provides. You propose that a service should be free because there are employees that get paid more than others? I don't follow the logic here. If miners don't get paid, what is the incentive to mine? You are thinking about this from one side only.

It is easiest to see in the stable (2c) case. If our coin value is stable, that means the appropriate monetary policy is to do *exactly* nothing. Do "no work" in the mass times distance sense. That doesn't mean nobody put in effort. It just means no work got done or should be rewarded. Why would we reward the people (do something) who just mathematically proved our best monetary policy decision is to do nothing?

Now you are really losing me here. Again, miners are providing the service, spenders are making use of that service (and not even paying the fee). When we are in 2c, most miners will be in a cool down mode, only creating enough coins to replace what has been lost. And in doing so, they are securing the network.

Purchasing during *temporarily* inflated times is illogical/desperate. We want to reduce the number of coins flowing for too few, over priced, goods. That drives prices back down. The only way to encourage that is to tax the spenders, thus rewarding the savers. This is critical because, as I pointed out above, this is the least elastic of your monetary directions.

It is also, hopefully, the least likely. It means the economy has contracted, which no matter how you look at it, is not going to be good. Receivers paying the fee is not set in stone, so if that were to switch to the spender paying the fee, then this would be even worse for spending. Having the receivers pay the fee is a design decision I added to the proposal only a few days ago. It isn't set in stone. But I will think more on this.

An extreme contraction is a lot less likely than an extreme expansion, though imo. And a slow contraction would be counteracted by the effects of a transaction tax. Again, businesses don't have to change their prices, so no one is actually buying anything at an inflated amount.

[Red]

I consider my previous post an epic FAIL.

It's not that you didn't provide clear answers. I obviously didn't express myself clearly. I'm going to try again. Please bear with me.

[Red]

Going to leave trust for another post.

The other thing I still don't grasp clearly from the proposal is the mapping back to quantities of electricity.

The 10kWh figure was used ... Perhaps I will drop using 10kWh since it may just lead to confusion.

The amount of work is a non-issue, as difficulty will work similarly to bitcoin, just divided among the networks.

I didn't mean to contest the 10kWh constant. I just saw calculations that computed that number based upon todays technology.

What I was wondering was what you answered in the second line above. You are planing to change the difficulty like bitcoin does. I didn't see that in the proposal.

What I'd really like to know is what exactly causes the difficulty constraints to change?

Not a likely paradigm shift any time soon with GPUs requiring bigger and better power supplies, more and more power connections, etc.

This, I think, requires more consideration. Though it seems like GPUs require more gross power, if they double power usage but do 10x more calculations, then the cost per calculation has dropped by a factor of five.

I know you understand that point. I'm also confident you've somehow worked such cases into your thinking. I'm just asking for a reference to how you propose to detect and adjust to technology performance in order to bring the proof-of-work load back to a constant target.

[Etlase2]

I didn't mean to contest the 10kWh constant. I just saw calculations that computed that number based upon todays technology.

What I was wondering was what you answered in the second line above. You are planing to change the difficulty like bitcoin does. I didn't see that in the proposal.

What I'd really like to know is what exactly causes the difficulty constraints to change?

It is essentially the same manner as bitcoin.

Technical details:

•   Network Trust Block difficulty will be based around an average network being able to find one block every six hours.

Instead of everyone trying to find a block every 10 minutes, each network will attempt to find a block every 6 hours. The 6 hour figure may be adjusted, but I figure it's a decent compromise. It will keep a lot of networks missing that magical 4 blocks per 24 hour period, as once the network cool-down starts, any effort up to that point is wasted (new primary block, new hash, old hash chain is no longer valid). But, the 7 ENC bonus award counteracts some of that. This of course is up for discussion. I have not decided how often the difficulty should change. Assuming a large enough network, it could change every day without affecting much, but I don't think that is necessary so it will probably be 1 week or so. And 1 week will make it less volatile for when the network is bootstrapping and a wide variety of computers could have a large effect on the network.

As a bonus over bitcoin, lowering the difficulty does not have to lag behind miners leaving the network. 1 week and the difficulty changes no matter what--likely, it will change every day but as a reflection of the last week. If bitcoin miners halve at the 50->25 btc award halve, it could take a month or more before the difficulty lowers because it goes by number of blocks, not time.

This, I think, requires more consideration. Though it seems like GPUs require more gross power, if they double power usage but do 10x more calculations, then the cost per calculation has dropped by a factor of five.

I know you understand that point. I'm also confident you've somehow worked such cases into your thinking. I'm just asking for a reference to how you propose to detect and adjust to technology performance in order to bring the proof-of-work load back to a constant target.

It is not the increase of GPU power that we have to worry about. It is the decrease of energy used. This is why FPGAs and ASICs are a much bigger threat (and perhaps not even ASICs, I don't know how their power usage compares and I believe they are extremely cost prohibitive) than increasing GPU power.

Say, for example, the average GPU today uses 200W of electricity for 300Mhash/s. If the average GPU of tomorrow uses 200W of electricity for 600Mhash/s, there isn't an issue--difficulty will double. If the average GPU of tomorrow uses 400W of electricity for 600Mhash/s, there isn't an issue--users will have to scale back the total output though to get back to profitability (it is in everyone's best interest to do so--lol except for hoarders). If the average GPU (or FPGA, or encoin-specific machine) of tomorrow uses 100W for 600Mhash/s, then we have a problem because all the previous coins were made at 200W, and you certainly can't force the GPU to work double time. This would, over time, lower the value of each encoin unless the price of electricity has doubled in the mean time. Since the network has no way of knowing that everybody is using less electricity, it cannot compensate that with extra difficulty.

We could expect fully honest users to report, minimally, what video card or device they are using to hash, but this is inherently unreliable as there is no trusted way to verify this. And on top of that, changing the difficulty based on this would require developer intervention and community acceptance. Not the best of scenarios. Or a vote, but again, unreliable as miners will vote for what is in their best interest, even if it is not good for the economy.

So... I did come up with something. But since it is not an immediate threat and does not currently matter, I feel like holding it back at this time.

[Red]

I think you are probably right on the fixed transaction fee/tax concept. However, that means the elasticity of your model can expand as fast as it needs to, but it can only contract at a fixed rate. This gives me pause.

It can't expand as fast as it needs to...It doesn't mean it will take years.

People minting coins can't vote for the transaction fee because...

Now I wasn't criticizing the difference between expansion and contraction technologies. However, when I see differences in the dynamics I like to pause and think is that a requirement or a consequence?

In the expansion case I understood that additional miners could come in when it was profitable to create new coins. That makes expansion non-linear. Contraction on the other hand, while not linear, is less flexible.

As an extreme example, suppose Silk Road decided to move from bitcoin to encoin. The economy suddenly increased 10 fold. I'm sure miners would come in to create coins as profitably fast as they could. Now suppose Silk Road got busted by the FBI and the economy fell back to its previous state. I ponder whether the system could adjust with the given parameters. (I haven't reached any conclusions)

I don't mean to propose that voting for fees is a good idea. I think aligning incentives is a much better way to let the market handle itself. A way to make the contraction rate more flexible, would be to tie it directly to the price of electricity as is used for expansion. (If inflation goes up, fees go up.) Or to the consistency of the contraction. (After X months of consistent contraction, fees go up to Y to speed things up) Those are just idle thoughts. Not well thought out proposals.

[Etlase2]

Now I wasn't criticizing the difference between expansion and contraction technologies. However, when I see differences in the dynamics I like to pause and think is that a requirement or a consequence?

Well, if you want, you could propose that certain networks work to remove coins from circulation. I'm not sure how it would be accomplished, but I guess it could take a percentage of coins from every wallet. Then the dynamics could be quite similar.

In the expansion case I understood that additional miners could come in when it was profitable to create new coins. That makes expansion non-linear. Contraction on the other hand, while not linear, is less flexible.

Yes, but you are trying to unmake that which has already been made. No matter what, it is still an improvement over inflationary fiat.

As an extreme example, suppose Silk Road decided to move from bitcoin to encoin. The economy suddenly increased 10 fold. I'm sure miners would come in to create coins as profitably fast as they could. Now suppose Silk Road got busted by the FBI and the economy fell back to its previous state. I ponder whether the system could adjust with the given parameters. (I haven't reached any conclusions)

It would not perform well, in my estimation. But at least real market forces are at work to cause this, not an early adopter flooding the market with coins. At some point I will try to run some numbers to see how they come out. It will be imaginary, but at least it could provide a guideline around possibly setting the transaction fee.

I don't mean to propose that voting for fees is a good idea. I think aligning incentives is a much better way to let the market handle itself. A way to make the contraction rate more flexible, would be to tie it directly to the price of electricity as is used for expansion. (If inflation goes up, fees go up.) Or to the consistency of the contraction. (After X months of consistent contraction, fees go up to Y to speed things up) Those are just idle thoughts. Not well thought out proposals.

Tying it in to the price of electricity means the software needs to know the price of electricity. This can't be done in a reasonable or reliable way. The software has no way of knowing if the market is in an inflationary period, they are two very diverse entities. The consistency of the contraction, as you call it, would be one possibility that could be programmed. However, then you are relying on more magic numbers to control the economy rather than letting itself work it out. This is dangerous, and if you get it wrong, you're stuck with it (or a chain fork). And yet still, the network can stay just as secure as before (or at least a sizable percentage as secure), but using a lot less electricity. Bitcoin can't stay as secure in a contraction because miners won't keep putting effort into a completely unprofitable venture.

And all of this ignores the possibility of an expansion relatively soon after the contraction. If all of those coins are removed as quickly as possible to reach equilibrium, you deny people the opportunity of their value in expansion--especially to those who were actually spending and helping reach equilibrium. You also waste a lot of previously used electricity. Food for thought.

[Red]

I see from your previous two posts that I have taken a mental tangent from some of your proposal details. I went back and re-read your proposal again. Doh, I hadn't snapped that you are using the word "trust" in multiple ways. Network Trust in the sense of "a body of trustees/a charitable trust". In later sections you talk of Trust in the "firm belief in the reliability, truth, ability, or strength of someone or something sense."

Anyway, my bad.

On the other hand, you say "EnCoin eschews the entire need for pools by having network trusts... There is no competition between Networks for coins." Which seems to mean that you take the most wastefully inefficient process in bitcoin, then make it redundantly wasteful in its inefficiency.

Now keep in mind that I'm long on record in my opposition to using needless proof-of-work calculations to prevent tampering with the transaction DAG. It's a little clever and a lot ridiculous.

--- History ---

Bitcoin was invented to solve one particular philosophical problem. Say we have a set of anonymous individuals, none of whom trusts any of the others. To whom are we going to trust the common transaction history? The concept of a digital currency using a trusted record keeper was already well developed. The design decision was of course we'll all keep our own copy of everything and we'll all redundantly do all the work ourselves.

That came coupled with another problem. How do reconcile our individual transaction DAGs to guarantee they remain constant over time? The design decision was of course, every 10 minutes we'll *randomly* choose one person's new transactions and pass them around as a block to everyone. The others will throw away all their personal knowledge of new transactions and start again. Then, hopefully, the transaction participants will keep redundantly resubmitting the same transaction until someone notices.

But what if the network becomes partitioned and nobody notices? How do we reconcile forks of the block chain? The answer of course, is throw away one fork and those folks adopt the other fork and start again. Which fork? The longer? The one with the most transactions? The bigger network? What if someone claims they've been partitioned for six months and want us to throw away everything and user theirs? What if, what if, what if...

The design decision was of course the proof-of-work concept. The real question you should be asking yourself is, why would somebody design a distributed transaction processing system that might throw away a ridiculous number of previously verified transactions—WITHOUT telling anyone! I mean WTF? The developers acknowledged this by adding specific block locks into each new client release.

How do they decide which blocks to lock in as the one true fork? Human consensus! "Hey, anyone got a problem with me locking the chain to here? OK, done!" Poof! Millions of hash computations tossed into the trash bin with one line of code.

--- EnCoin ---

So what's my point?

EnCoin is deliberately making different design choices than bitcoin.

1) You have a set of non-anonymous peer networks who intend to "trust but verify" each other's work. They all intend to know and trust their network members as well.
2) You treat and reconcile transactions individually, rather than as opaque blocks. Hopefully you also detect and notify some humans on simultaneous double spend attempts.
3) Your network of known trusted peers can't be forked without someone noticing.
4) Your system can never throw away blocks of transactions willy nilly.

As far as I can tell, you have *zero* need for a complicated proof-of-work to keep your "primary block" transaction accounting safe.

The only reason to start proof-of-work *mining* calculations is in hopes of arbitraging some newly created coins. If there is no hope of arbitraging these coins, there is no point in *mining* coins that are worth less then the cost to mine them. That is the key dynamic in your system that I see keeping the monetary policy stable.

So who, does all the Primary Block accounting if the miners don't?

EVERYONE who owns coins! Are you going to accept a hundred dollar bill from a stranger without looking for the hologram and security strip? That's what the transaction DAG/"primary block list" is for.

In your case you might delegate the dynamic transaction validation to at least one trusted individual in each trust network. But that is just an optimization to allow trusting lazy clients. As a general rule, receiving, validating and storing incoming transactions is trivial compared to the current proof-of-work calculations. You could run the transaction account part of your trust network peer on a cell phone using batteries.

---

Anyway, end of rant.

I'll address the rest of your responses in another post, but I needed to say that for context.

I'm interested to know if you think you still need to throw kWh of electricity at your Trust Network just to keep up with transaction accounting. I see zero reason for that.

I do understand why you might want to throw discretionary kWh at the monetary expansion problem.

[Etlase2]

I see from your previous two posts that I have taken a mental tangent from some of your proposal details. I went back and re-read your proposal again. Doh, I hadn't snapped that you are using the word "trust" in multiple ways. Network Trust in the sense of "a body of trustees/a charitable trust". In later sections you talk of Trust in the "firm belief in the reliability, truth, ability, or strength of someone or something sense."

Yeah, the terminology of the proposal is terrible at this juncture--I repeatedly swap between using "networks" or "trusts" to refer to Network Trusts too. That is #1 priority to fix in the next version of the proposal. Got any ideas on what to call Network Trusts? So far I have come up with "TrustNets". FWIW, I hadn't noticed you confuse the terminology anywhere...

The design decision was of course the proof-of-work concept. The real question you should be asking yourself is, why would somebody design a distributed transaction processing system that might throw away a ridiculous number of previously verified transactions—WITHOUT telling anyone! I mean WTF? The developers acknowledged this by adding specific block locks into each new client release.

How do they decide which blocks to lock in as the one true fork? Human consensus! "Hey, anyone got a problem with me locking the chain to here? OK, done!" Poof! Millions of hash computations tossed into the trash bin with one line of code.

Right, instead of the developers deciding this, every new primary block is decided this way. That why it isn't necessary for a new user to have any block but the most recent. Well, that and the fact that coins don't need to be traced back to their origin to prove they exist. I'm pretty sure there will be some kind of service (for a fee, of course) available to allow users to verify older transactions or get copies of older blocks, etc. But for how long someone retains a number of primary blocks is up to them. I'm thinking 30 days will be a minimum for the software to enforce, as the block chain will get very large very quickly with every account balance being stored in each block. And most likely those 30 days will be free to be queried by users so that they can check to see what transactions were made to them and so on while they were offline.

This again reduces anonymity though because when a user wants to know "what happened to wallet X" the network node that they're talking to has a reasonable idea that this IP belongs to that wallet. But I have ideas to obfuscate that a little bit (they aren't that good though, I will need help in designing this aspect).

So who, does all the Primary Block accounting if the miners don't?

EVERYONE who owns coins! Are you going to accept a hundred dollar bill from a stranger without looking for the hologram and security strip? That's what the transaction DAG/"primary block list" is for.

Everyone who owns coins are not exactly doing the accounting. This is where the points-based trust level of the Network Trusts comes in to play.

Say there are network trusts A-D, with trust points like so:
A - 25
B - 100
C - 4
D - 75

The total trust of the network being 204.

User Q wants to send 50 coins to user I, so he contacts a node he knows to be on Network Trust A and sends the transaction. "A" gets the transaction, includes it with every other transaction they've received in the last 15 seconds or so, then signs it and sends it along to every other Network Trust that they are connected to (which, in a perfect world, should be nearly all of them). 15 seconds later, user I gets confirmation that networks A and B have signed it. Knowing that the total trust is 204 and A+B = 125, more than half of the network trust has agreed that this transaction is valid, and now it can not be overturned. If user I sees that only A+D have signed, that is only 100 trust, not more than half, and the transaction is currently not reliable. If A+D+C sign it, then again we are over half, the transaction can be trusted.

In your case you might delegate the dynamic transaction validation to at least one trusted individual in each trust network.

Actually, the way I see it is that members of a Network Trust stay in contact with 4 or 5 if their network peers regularly, and those stay in contact with 4-5 other network peers, and so on. Each peer knows the address of every peer in their network in case Something Really Bad™ is happening (all 4 or 5 peers are disconnected, or all 4 or 5 appear to be doing shady stuff, or something similar). But during this process they will be putting a block of recent transactions together (a block so EVERY transaction doesn't have to be signed independently by EVERY network trust--this is a big waste of resources as verifying signatures is much more CPU intensive than verifying hashes) and the network trust will agree as a whole on what block of transactions to sign and send out. The validation part should be trivial as all that needs to be done is take Current Account Balance, minus Current Transaction Amount, plus/minus Existing Transactions that are not in the primary block yet and make sure this number is Greater Than Zero.

You could run the transaction account part of your trust network peer on a cell phone using batteries.

Not exactly since the peers will also be working to mint coins. But since the primary block is so much smaller than the comparable bitcoin blockchain, a cell phone app only needs the most recent block and CAN verify, independently, whether or not a transaction is valid. Requiring only a few megabytes rather than potentially gigs and gigs that bitcoin will eventually require.

I'm interested to know if you think you still need to throw kWh of electricity at your Trust Network just to keep up with transaction accounting. I see zero reason for that.

This is why I came up with the idea of the cool-down mode for network trusts. If the network is in contraction, or if some people don't feel like using 100% of their GPU for mining all the time, they can instead use 10% (figure up for debate, this may only be 5%), but still secure the network as if they were using 100% since it goes by trust instead of computational power. It isn't necessary to throw kWh at the network for accounting, but security. Security must be paramount. That is why I think giving a bonus for being in the cool-down mode is a good idea. You want as many people as possible to secure the network. And with good security comes accurate accounting.

[Etlase2]

Since this came up in an IRC discussion, I want to see if anyone would care to poke holes.

http://en.wikipedia.org/wiki/Sybil_attack

"A Sybil attack is one in which an attacker subverts the reputation system of a peer-to-peer network by creating a large number of pseudonymous entities, using them to gain a disproportionately large influence. A reputation system's vulnerability to a Sybil attack depends on how cheaply identities can be generated, the degree to which the reputation system accepts inputs from entities that do not have a chain of trust linking them to a trusted entity, and whether the reputation system treats all entities identically."

A trusted identity does not come cheap in the EnCoin proposal. With a maximum TrustNet (temporary new name for network trusts) trust of 360, it would take 1 year to become among the most trusted. This would require finding at least one block a day. Someone else can calculate the variance, but to avoid losing 10 trust by missing a block, they would probably have to shoot for at least 3 blocks a day. At 4 blocks a day with average equipment, they would have to spend over $10k in electricity (not including hardware). So if we say 3 blocks, it would be closer to $7500, but let's just call it $10k for hardware costs.

In thinking about this actually before the IRC conversation, I realized it is more secure to force user id trust to be at minimum the same as network trust. So trying to infiltrate more trusted networks won't achieve anything. Also, on top of signing with the network ID, each user will have to sign their communications. This helps for scenario 2 below.

Anyways, if there are 100 networks (5,000 people, hardly out of line considering bitcoin has around 60k mining), they would need around 60 or more networks to keep up with the network if it is growing even slightly. Thus approximately $600,000 to perform a >50% trust attack. Now, for the scenarios I posited.

ATTACK: TrustNet tries to pay itself too much money
STATUS: Impossible. The total network decides on what the primary block is. TrustNets only put an award payout into their TNB (TrustNet Block) based on percentage. If >50% of the total network trust agrees to pay itself more, the clients will not agree with their primary block. In the honest network, all of those trusts will be set to 0. All of the user trusts will (most likely) be set to 0, and funds discarded. If an individual network attempts this, by whatever flawed reasoning, honest users will broadcast a message showing who agreed to the new block so that their network does not lose trust, and all the dishonest users lose all trust and funds.

ATTACK: User abuses a TrustNet’s trust by approving bad spends (equivalent of a double spend in bitcoin)
STATUS: Possible, but won't accomplish much. A “bad spend” happens when a spend is approved for more than what exists in a specific wallet. Every TrustNet does not necessarily know how much exists in a given account because they may not have received every transaction yet. If a TrustNet receives what it considers a bad spend, it will ask for all transactions to date (since the last primary block) for this wallet. Since TrustNets should be connected to more than one person from each other TrustNet (if not, they can still check with other TrustNets), they can multiply verify that they have missed a transaction, or that the node that originally sent the bad spend is being subversive. If the node is being subversive, a broadcast will be announced showing proof. They will have their trust set to 0 and funds removed.

ATTACK: Control 50% or more of the total network trust and use it to change wallet balances
STATUS: Possible, and may cause temporary, but correctable problems. If an agency takes control of 50% or more of the trust, they may decide to put whatever amount of coins in any wallet they choose. Assuming the client is brand new and has no previous blocks, they could get away with any amount. If the client has a recent block, warning flags will be raised for any suspicious amount of coins added to a wallet (e.g. more coins than the network could have created in the mean time). Since some clients will have the most recent block prior to the takeover, the attacker must account for this and make sure the amount is within reason. Note that the amount of effort required to pull off this attack would create far, far more coins than the attack itself. The attacker could also move balances from one account to another which would be less easily detected. Since this could only be proven by a complete transaction log (the size of which would be very high if the network averaged many transactions per second), being able to detect this easily might not be feasible in the future. Early on with few transactions, it will be easy to spot. This attack only works if the user is connected to only dishonest nodes. Honest nodes will be able to immediately point out that the dishonest network cannot prove that those balance transfers took place. Far in the future, this attack would cost months of time and could cost millions in electricity for a temporary disruption of service for some users. After that, the process would have to start completely anew as those TrustNets and users would lose all trust.


Can anyone give me actual scenarios of attack on the network that I can try to refute? Because the (2 person) consensus in IRC was "lol it's not even web of trust, just time"

$6m if there are 50,000 people on the network


edit: hell, I just realized that this attack could be thwarted even more easily by requiring all TrustNets to sign a hash of the new primary block with a hash tree of the signatures of the individuals that make up that that TrustNet. What like a few hundred bytes per TrustNet, a few hundred kb to verify that thousands of people agreed to this primary block, or that there has been a split...

[JohnDoe]

So... I did come up with something. But since it is not an immediate threat and does not currently matter, I feel like holding it back at this time.

Are you serious? This is the main point of your currency. If it can't adjust itself to match technological progress then Encoin is worthless. Do you really have a plan or are you just pretending to have a plan?

[Etlase2]

Are you serious? This is the main point of your currency. If it can't adjust itself to match technological progress then Encoin is worthless. Do you really have a plan or are you just pretending to have a plan?

lol I come up with an idea to mitigate a scenario that may not ever happen, that had I not even mentioned probably wouldn't have even been brought up, and suddenly Encoin will be worthless if it doesn't adjust.

Not to mention FPGAs have already been covered by changing the algorithm, as those are the far more likely threat.

Not to mention if things really got out of hand, forking (in the sense that a major change must happen or the system is going to stop working effectively) is still always a possibility. One that I have a feeling bitcoin will make use of at some point soon.

[Red]

Part of my confusion is that you are not separating Physical entities from Logical entities.

As best I can tell, a "Network Trust" is a logical grouping of physical peers. I'm not sure if you consider these peers to be the humans or these human's (zero?, one or more) computer nodes. Can I be part of a "Network Trust" (to send and receive coins), without running a node at all? Do I have to be part of a "Network Trust" to send and receive coins? I guess I'm asking, are NT's optional just so I can share in your reward scheme?

Everyone who owns coins are not exactly doing the accounting. This is where the points-based trust level of the Network Trusts comes in to play....

I understand the logic of what you said. But who (what peers) is actually doing the work for a given "Network Trust" group? Does every NT member receive every broadcasted block from the other NTs? Or is there one-or-more delegates for each NT that NT members are *required* to trust? That was what I was referring to below.

In your case you might delegate the dynamic transaction validation to at least one trusted individual in each trust network.

Actually, the way I see it is that members of a Network Trust stay in contact with 4 or 5 if their network peers... But during this process they will be putting a block of recent transactions together...

I got really confused about your use of the term network peers here. Sometimes it seems to mean intra-NT peers. Other times it seems to mean inter-NT relationships.

And the statement "they will be putting" is completely nebulous. I understand why they will be putting together a block. I just have no idea who they are? Is there a single delegate for the NT? Do the members of the NT collaborate together? How do they share data? Who is responsible for resending the block every few seconds?

It seems like there is a delegation pattern at work here. But then you say "Each peer knows the address of every peer in their network in case Something Really Bad™ is happening (all 4 or 5 peers are disconnected, or all 4 or 5 appear to be doing shady stuff, or something similar)" which implies each peer is monitoring his NT peers, not trusting them.

I'm really confused.

You could run the transaction account(ing) part of your trust network peer on a cell phone using batteries.

Not exactly since the peers will also be working to mint coins...

a cell phone app only needs the most recent block and CAN verify, independently, whether or not a transaction is valid.

Again, when I said "account(ing) part of your trust network peer," I was thinking about the delegate pattern. Supposed you delegated *all* the 1) receiving of NT member's transactions, 2) validation of NT member's transactions, 3) transaction block broadcasting and receiving, 4) validation and recording of inter-NT transactions. This could easily be done using only the power of an iPhone.

If you are not delegating the above 4 things to some "trusted" delegate node, then I'm totally confused about the dynamics of your NT group of nodes. If each member does these things individually without trusting the other members, then the batching, signing, and sending seems redundant.

I'm interested to know if you think you still need to throw kWh of electricity at your Trust Network just to keep up with transaction accounting. I see zero reason for that.

This is why I came up with the idea of the cool-down mode for network trusts. If the network is in contraction, or if some people don't feel like using 100% of their GPU for mining all the time, they can instead use 10% (figure up for debate, this may only be 5%), but still secure the network as if they were using 100% since it goes by trust instead of computational power. It isn't necessary to throw kWh at the network for accounting, but security. Security must be paramount. That is why I think giving a bonus for being in the cool-down mode is a good idea. You want as many people as possible to secure the network. And with good security comes accurate accounting.

I don't mean to be dense, but I'm totally baffled by this last paragraph.

We got all the way here, talking about a distributed system for trusted and verified transaction accounting. Never once did you mention any necessity for *mining* in order to guarantee transaction validity. Validity was guaranteed through transaction block signing (consensus notarization).

What on earth does mining secure? The only thing I see that it can possibly protect is the reward system for mining. This system seems to operate completely independently. In actually, it doesn't seem to secure the transaction system. It seems to rely on the consensus relationships of the underlying transaction system to frustrate subverting the mining reward system.

Again, I'm baffled.

I thought the mining system was a way to optimize monetary policy. Where "optimize" means, expand or contract the money supply as appropriate to maintain coin value stability. That is a hard problem and worth my time to think about.

On the other hand, levying a tax on every transaction and using *mining* as justification for redistributing this tax among miners... Well that seems to be an unnecessary problem to solve at all. At best it's a marketing problem. That's not at all where I want to waste my mental energy.

[JohnDoe]

lol I come up with an idea to mitigate a scenario that may not ever happen, that had I not even mentioned probably wouldn't have even been brought up, and suddenly Encoin will be worthless if it doesn't adjust.

May not ever happen? You seriously think calculating won't get more energy efficient? It will happen. And actually it has been brought up. I asked how you intend to equate encoins to kwh in my first post in this thread. All I've heard is about a magical algorithm that somehow takes information impossible to predict into account to maintain the equation 1 ENC = 10 kwh accurate.

Not to mention FPGAs have already been covered by changing the algorithm, as those are the far more likely threat.

What algorithm? I don't see it anywhere. It's only a hypothetical algorithm.

Not to mention if things really got out of hand, forking (in the sense that a major change must happen or the system is going to stop working effectively) is still always a possibility. One that I have a feeling bitcoin will make use of at some point soon.

You are going to fork every time technology screws your currency? I thought you had a super plan to prevent that. Or was that the super plan?

[Red]

"A Sybil attack is one in which an attacker subverts the reputation system of a peer-to-peer network by creating a large number of pseudonymous entities, using them to gain a disproportionately large influence.

This post does not inspire confidence at all.

You know of course that the Sybil attack was one of the prime motivations for developing the wacky proof-of-work calculation. The logic goes, if we are going to have a group of anonymous peers, and we need to vote on things...

The answer of course is, never let anonymous fictional entities vote. It's silly.

Fortunately for you, EnCoin has relationships between non-anonymous trusted parties that investigate scamming, broadcast notices to the public, ban the scammers, and report them to the appropriate authorities. If the authority in your trust network can't do this, why on earth would you "trust" them?

ATTACK: TrustNet tries to pay itself too much money
ATTACK: User abuses a TrustNet’s trust by approving bad spends (equivalent of a double spend in bitcoin)
ATTACK: Control 50% or more of the total network trust and use it to change wallet balances

The fact that you consider these possible (but implausible) attacks on your proposed system shows that your basic consensus (100% agreement) mechanism is non-existent.

Validity means a transaction is 100% in compliance with the rules of the system. There is no negotiation involved. No vote is ever required.

ATTACK: TrustNet tries to pay itself too much money

This should be trivially detected and prevented by *every* other TrustNet. It is either a defect in that peer, or fraud committed by the peers owner. The defective/fraudulent TrustNet entity and all its users should be banned until trusted humans determine which problem it is.

ATTACK: User abuses a TrustNet’s trust by approving bad spends (equivalent of a double spend in bitcoin)

WTF? How can any group of peers abuse the TrustNet's trust? The TrustNet was supposed to be the party everyone else was trusting? The only way to attempt a double spend is to simultaneously submit two conflicting transactions to different TrustNets. Both would be accepted and each would "race" the other to see which got "51% Trust" first.

That whole concept is STUPID and IRRESPONSIBLE.

Both transactions are part of a single common attempt at fraud. This should be detected in 100% of the cases, by 100% of compliant Trust Networks. In EnCoins case it should happen within 30 seconds or so. Both transactions should fail immediately so the targets of the fraud can be notified before irretrievable property changes hands.

All source accounts (transaction in-points) of both transactions should be locked system-wide. That prevents further attempts at fraud. Notice of the fraud attempt should be broadcast globally so nobody attempts to deal with the fraudster again. The locks should not be removed until the account owner presents himself to a trusted human and offers a believable explanation of how the situation happened honestly. 100% of the trusted humans must agree to remove the locks.

ATTACK: Control 50% or more of the total network trust and use it to change wallet balances
STATUS: Possible, and may cause temporary, but correctable problems.

REALLY! You even consider this a possibility? Arrg! If this can't be immediately detected by 100% of compliant Trust Networks and broadcast system-wide, then really there is no reason for anyone to trust your EnCoin at all.

I mean really, you are claiming that periodically your system "cools down" to reach a common consensus (100% agreement) point. At that point 100% of the Trust Networks agree on 100% of the account balances. You are saying that somehow 51% of the networks can conspire to change a balance or submit a fraudulent transaction and the other 49% either can't detect and/or can't prevent this fraud?

Any single compliant network must be able to validate the compliance of every other network. If they can't there is zero point in anyone trusting even an honest "Trust Network".

---

Suddenly I have zero confidence in your proposed implementation.
Convince me that I'm wrong.

[Red]

I asked how you intend to equate encoins to kwh in my first post in this thread. All I've heard is about a magical algorithm that somehow takes information impossible to predict into account to maintain the equation 1 ENC = 10 kwh accurate.

I agree. That is really the question I showed up to hear the answer to also.

I hear philosophy about why a constant value is good. I agree with that philosophy. I don't yet see how anything in the proposal facilitates that though.

---

As a side note, I think I have actually come up with the beginnings of algorithm that might suffice. It is clearly only a partial solution. I haven't solved the bootstrap problem.

Technically, in my case, it's not 1 ENC = 10 kwh. It's closer to 1 ENC = 10 kwh * avg($/kwh). One ENC trades in dollars at the same price that 10 kwh trades in dollars. I don't know if 10 is the right constant either. It's a little more nebulous than that.

So hypothetically, say we had a currently running ENC system where the price of 1 ENC = $X = cost_of(Y kwh).
The goal of my algorithm is to cause the $_value_of(1 ENC) to tend toward the value_of(const Y kwh). This relationship should hold over time, even with changes in technology and changes in the price of electricity.

Again, I can't bootstrap this yet. Nor can I drive the ENC price toward any particular Y value. But if it is currently at a particular Y value, I think I can keep it there over time.

Anyone interested?

[JohnDoe]

The goal of my algorithm is to cause the $_value_of(1 ENC) to tending to the value_of(const Y kwh). This relationship should hold over time, even with changes in technology and changes in the price of electricity.

How? I don't see how this is possible.

[Etlase2]

lol I come up with an idea to mitigate a scenario that may not ever happen, that had I not even mentioned probably wouldn't have even been brought up, and suddenly Encoin will be worthless if it doesn't adjust.

May not ever happen? You seriously think calculating won't get more energy efficient? It will happen. And actually it has been brought up. I asked how you intend to equate encoins to kwh in my first post in this thread. All I've heard is about a magical algorithm that somehow takes information impossible to predict into account to maintain the equation 1 ENC = 10 kwh accurate.

What I said at the end of that post was referring specifically to if the average power consumption of devices to run the software went down. I thought I was fairly specific about each case.

What algorithm? I don't see it anywhere. It's only a hypothetical algorithm.

I am referring to the hashing algorithm. FPGAs are designed to run one specific set of instructions. If the hashing algorithm changes, you need to build a new FPGA. Not that useful!

You are going to fork every time technology screws your currency? I thought you had a super plan to prevent that. Or was that the super plan?

Now you are being purposefully dense for the sake of argument. To expect that a currency based around a cost to produce that is based around computers using energy based around solving mathematical equations where that equation will always result in the same (value $$) amount of energy used until the end of time is ridiculous.

One huge, glaring flaw in bitcoin that is lacking the obvious foresight of this type is evident when the btc award halves. Since there is no comparable difficulty change, if the (sell) value of BTC is lower than what the new cost to produce will be, the difficulty is going to be far higher. If half the network leaves, difficulty is immediately doubled for the other half. Now difficulty is doubled AND award is halved. That means for the people that don't leave, they are now making 1/4th the amount of BTC for their energy and time output as the block before. Difficulty adjusts every 2 weeks on average, so it may not end up adjusting for over a month or more as people struggle to find very difficult blocks. This could cause a meltdown in the mining network.

[JohnDoe]

To expect that a currency based around a cost to produce that is based around computers using energy based around solving mathematical equations where that equation will always result in the same (value $$) amount of energy used until the end of time is ridiculous.

Well I'm glad we are in agreement. Thank you, I don't have any further business with Encoin.

[Minsc]

Part of my confusion is that you are not separating Physical entities from Logical entities.

Astral entities?

[Etlase2]

Part of my confusion is that you are not separating Physical entities from Logical entities.

As best I can tell, a "Network Trust" is a logical grouping of physical peers. I'm not sure if you consider these peers to be the humans or these human's (zero?, one or more) computer nodes. Can I be part of a "Network Trust" (to send and receive coins), without running a node at all? Do I have to be part of a "Network Trust" to send and receive coins? I guess I'm asking, are NT's optional just so I can share in your reward scheme?

Again, a problem of poor terminology in the proposal. There are two types of computers that use the network--computers providing the service of running the network, and computers that are making use of the services offered by the network. Whatever I end up calling these will probably not be peers or nodes or users or whatever as those terms are confusing. So let's just use client and server for now. Client Joe wants to spend money so he signs a transaction that sends 5 ENC to Client Bob. Joe connects to server Mary and sends the signed transaction. Mary is a part of a TrustNet/NT and checks to make sure Joe has enough money in his account, signs it with her user ID and TrustNet ID, then passes it along to every other TrustNet. Once Mary receives confirmation back from >50% of the total network trust, Mary lets Joe know that the transaction has been approved.

Now one issue here is that Bob isn't notified of the payment unless he specifically tells his server to keep an eye out for him. So Bob tells server Hillary that whenever an approved transaction comes through with his address, let him know about it.

Since this system relies on a direct ip address->wallet address correlation, I am thinking on a layer of obfuscation that is similar to bitcoin, but one that removes a lot of the burden off of the servers and keeps it on the clients. So there would be, in effect, "the city" where the TrustNets operate and exchange information, and "the cloud" where clients communicate with each other about all the stuff that the city is doing. If Joe wants to send a transaction pseudo-anonymously, he can tell his connected peers in the cloud to send his transaction a random number of hops (client A to B, B to C, C to D, and so on) before sending it to the city. If everybody does this, it is not possible for city or cloud peers to know where the transaction originated. But it makes things a bit complicated when the city sends confirmations out, as they may have to roll around the cloud for awhile without much guarantee that the person who cares about the transaction will see it. This concept is very work-in-progress at this point.

Basically, in a perfect world, every server would be connected to enough other servers to maintain network cohesiveness, and must also each be connected to the total number of network clients divided by the total number of network servers.

I understand the logic of what you said. But who (what peers) is actually doing the work for a given "Network Trust" group? Does every NT member receive every broadcasted block from the other NTs? Or is there one-or-more delegates for each NT that NT members are *required* to trust? That was what I was referring to below.

Each member of a TrustNet is working on the hashing problem and reporting in on their progress (to the rest of their TrustNet). Each member of a TrustNet is also an open server that allows incoming connections from clients that bring in new transactions or requests for information.

I got really confused about your use of the term network peers here. Sometimes it seems to mean intra-NT peers. Other times it seems to mean inter-NT relationships.

And the statement "they will be putting" is completely nebulous. I understand why they will be putting together a block. I just have no idea who they are? Is there a single delegate for the NT? Do the members of the NT collaborate together? How do they share data? Who is responsible for resending the block every few seconds?

This time it means intra-NT peers. Again, terribly sorry about the word confusion. The draft is still really rough but I have it clearly in my head, it just doesn't always come out very clear.
Individual servers of a TrustNet will pass any received transactions immediately on to their fellow TN members. They are connected to 4-5 out of the potential 100 TN members so as not to spam each other out and have 94-95 extra open connections that aren't necessary. Each member is aware of which 100 users are in their TN, what their IP addresses are, and so on, they are just not always connected to every one.

So, this is how it will happen for a new transaction:

1. One member of the TN receives an incoming transaction from a client.
2. This member passes this transaction, unadulterated, on to the 4 or 5 TN members they are connected to.
3. These 4-5 members pass this transaction on to the other 3-4 TN members that they are connected to. (and so on)
4. Every 15 seconds, one member of the TN will be randomly selected* to put a block of new transactions (a block because to do it for every transaction would be a terrible waste of resources, especially when there may be hundreds of transactions per second) together that are signed by the TrustNet's private key. Then this block of signed transactions is passed along back to every TN member in the same manner as a new incoming transaction. One member is selected to do this so that the TN presents a united, identical block to other TNs. This allows infiltrators to be spotted more easily trying to insert bad spends into transaction blocks, or other nefarious things.
5. Each TN member then signs this block with their own private key and passes it along to each other, separate TN that they are connected to as well as "the cloud" as described earlier.

* - Randomly selected by a function that everybody agrees on, so at the time it happens, everyone will know who it is that got selected.

It seems like there is a delegation pattern at work here. But then you say "Each peer knows the address of every peer in their network in case Something Really Bad™ is happening (all 4 or 5 peers are disconnected, or all 4 or 5 appear to be doing shady stuff, or something similar)" which implies each peer is monitoring his NT peers, not trusting them.

I'm really confused.

Everybody is assumed to be trustworthy until they prove that they aren't. For an infiltration attack to have any chance of succeeding, the infiltrator must act as a trusted member of the (overall) network first. Computers are doing the trusting, not humans. That would be far too much work for any person to keep up with. I'll talk more about this in response to your other post.

Again, when I said "account(ing) part of your trust network peer," I was thinking about the delegate pattern. Supposed you delegated *all* the 1) receiving of NT member's transactions, 2) validation of NT member's transactions, 3) transaction block broadcasting and receiving, 4) validation and recording of inter-NT transactions. This could easily be done using only the power of an iPhone.

If you are not delegating the above 4 things to some "trusted" delegate node, then I'm totally confused about the dynamics of your NT group of nodes. If each member does these things individually without trusting the other members, then the batching, signing, and sending seems redundant.

Yes you aren't seeing things the way I see them in my head. WHY THE HELL NOT? Mining proof-of-work proves that, until you do something bad, at least you can be trusted more than someone who doesn't mine because you are putting time, money, and effort into creating currency for the economy. Proof-of-work still has a very important purpose in the EnCoin design.

An iphone could be a good client, but not a good server as I described earlier.

I don't mean to be dense, but I'm totally baffled by this last paragraph.

We got all the way here, talking about a distributed system for trusted and verified transaction accounting. Never once did you mention any necessity for *mining* in order to guarantee transaction validity. Validity was guaranteed through transaction block signing (consensus notarization).

What on earth does mining secure? The only thing I see that it can possibly protect is the reward system for mining. This system seems to operate completely independently. In actually, it doesn't seem to secure the transaction system. It seems to rely on the consensus relationships of the underlying transaction system to frustrate subverting the mining reward system.

Again, I'm baffled.

Third paragraph of section 4 on network trusts/trustnets:

"As TNs continue to mint coins and agree on transactions with the rest of the network, the TrustNet Rating (TNR) of that TN will increase."

This has been in the proposal in one form or another since the beginning, so I'm not sure why you're confused. If your trust could increase just by being a "yes man" and agreeing with everybody else, you have not put any effort or money into the system, just a bit of network data. People are not individually making any of these decisions, it is all done by computer. There has to be a real, hard cost associated with gaining trust, or a sybil attack is much easier.

I thought the mining system was a way to optimize monetary policy. Where "optimize" means, expand or contract the money supply as appropriate to maintain coin value stability. That is a hard problem and worth my time to think about.

On the other hand, levying a tax on every transaction and using *mining* as justification for redistributing this tax among miners... Well that seems to be an unnecessary problem to solve at all. At best it's a marketing problem. That's not at all where I want to waste my mental energy.

You really seem to take offense that some of the users involved in this theoretical project are out to make a profit. Mining secures the network (albeit in a much more indirect manner than bitcoin), miners need to get paid. It's rather simple. I'm not going to rehash my reasoning for why there are incentives for being more trusted or whatever else at this point. And the tax is destroyed, so miners do not get that money. It is there to help the economic contraction, or to create new demand (continued security!) in times of economic stability.

I'll respond to the other post later, this took a bit out of me.

[Etlase2]

Well I'm glad we are in agreement. Thank you, I don't have any further business with Encoin.

Yes, having people actually vote to determine economic policy is certainly the best way. I mean, it works for politics after all.

And I love how you take my concession that it is impossible to maintain the exact rate of energy used per encoin as some kind of proof that the currency will fail. It is childish and willfully ignores the 5 pages of discussion in this thread.

[Red]

How? I don't see how this is possible.

Well, it might not be. But just in case it is, I'm going to write down my logic. Maybe we can all bash on it and see where the logic takes us.

----

The whole concept is based upon Arbitrage. The instantaneous buying and selling of something in different markets. In this case, we want to buy ENC in the "electrical market" using dollars and sell them in the ENC marketplace for dollars. (Your currency may vary) The tendency toward a fixed value is based upon the self-interest of the participating humans. They only participate if it seems profitable. If it appears unprofitable the humans do nothing.

So specifically, if a human thinks he can generate excess ENC for less dollars of electricity than the dollars he can IMMEDIATELY sell the ENC for, he begins mining. If he thinks it will cost more dollars of electricity than the ENC are worth, he stops mining. It's an intellectual gamble like in any financial marketplace. You have to put your dollars at risk to play.

---

For the sake of discussion I'm going to propose a hybrid system that's like bitcoin, except that instead of using mining to add the next transaction block to the chain, it adds the block through consensus. 100% of the existing nodes decide that all transactions in that block are valid. Then they lock that block into the chain forever. There is also no standard 50 BTC award. Transaction accounting is NOT rewarded. For this discussion, just pretend I can prove that it's a secure process.

So in my version of the ENC system, mining is a completely optional process to that of transaction accounting. Mining DOES NOT secure transaction accounting.

The process works like I've discussed in this thread.

1) Every transaction has a X% tax that is destroyed. This provides a baseline tendency that reduces the ENC supply. Transaction are grouped into 10 min blocks like with bitcoin.

2) Mining is optional and can be run by anyone at any time. Mining generates new ENC transactions through a proof-of-work concept similar to bitcoin. The main differences more complicated ENC generation rules, and the process for varying the proof-of-work's difficulty.

Mining takes place in the 10 minute interval after the previous (consensus created) transaction block. The proof-of-work can be solved at increasing difficulty levels, leading to increasing rewards.

The transaction generation rules are as follows:

If the miner solves the proof-of-work at the (current+0) difficulty level, the transaction must contain:
a) Tax reimbursements for every transaction in the prior transaction block, paid back to those from which the tax was taken.
b) ZERO additional reward for the miner.

If the miner solves the proof-of-work at the (current+1) difficulty level, the transaction must contain:
a) Tax reimbursements for every transaction in the prior transaction block, paid back to those from which the tax was taken.
b) (Total Tax)/2 as reward for the miner.

If the miner solves the proof-of-work at the (current+2) difficulty level, the transaction must contain:
a) Tax reimbursements for every transaction in the prior transaction block, paid back to those from which the tax was taken.
b) (Total Tax)*2 as reward for the miner.

Mining is a competitive process. Whoever generates the proof-of-work transaction with the highest difficult in the 10 minute window wins. If there is more than one at the highest difficulty, the first wins.


Difficult is algorithmically adjusted for the next 10 minute period based upon the results of the previous.

If ZERO mining transactions were submitted, the current difficulty is adjusted (-1).
If a current+0 transaction wins, the current difficulty remains unchanged (0).
If a current+1 transaction wins, the current difficulty is adjusted (+1).
If a current+2 transaction wins, the current difficulty is adjusted (+2).

---

As far as I can tell this tends to cause the following dynamics.

If the current difficulty causes higher electrical cost than the dollar value of ENC, there is minimal incentive to try and add new ENC coins to the system. As such the Tax will be lost, tending to slightly inflate the dollar value of ENC. The difficulty will also be reduced, tending to slightly lower the electrical cost of ENC.

If the current difficulty causes near equivalent electrical cost to the dollar value of ENC, anyone with a transaction in the prior block, has interest in mining for their tax reimbursement. This means the appropriate monetary action was to do nothing. (No tax penalties)

If the current difficulty causes less electrical cost than the dollar value of ENC, then there is a momentary arbitrage opportunity. No tax will be lost. New ENC will be added tending to slightly deflate the dollar value of ENC. The difficulty will also be increased, tending to slightly increase the electrical cost of ENC.
 
---

I think those rules tend toward some wandering equilibrium measured against the cost of electricity. I'm not totally sure of the exact function.

What does anyone else think?

[Etlase2]

This post does not inspire confidence at all.

Perhaps it should inspire some confidence that I have had defense to this type of attack in mind in designing every facet of my proposal.

You know of course that the Sybil attack was one of the prime motivations for developing the wacky proof-of-work calculation. The logic goes, if we are going to have a group of anonymous peers, and we need to vote on things...

See above. In simple terms, where Bitcoin and Encoin differ is that Bitcoin associates hash power with trust whereas Encoin associates hash power times time with trust. Because the value of time is a recorded figure (in the form of points of trust), this figure can be changed when there is proof that it needs to be changed.

In simple equations:
trust = hash
trust = hash * time

In bitcoin, an attack with >50% computational power can only be thwarted by more computational power. This means, as long as the attacker feels like attacking, the network is interrupted and may be permanently damaged thereafter.
In encoin, an attack with >50% trust can be thwarted by setting the time factor to 0. This means, the attacker gets one shot at doing something bad when they have enough trust, then that shot is over unless they reinvest hundreds of thousands or millions of dollars and a whole lot more time.

To "hack" the trust time, an attacker would need the private keys of hundreds or thousands of users. In which case they could just spend all of their money and cause havoc anyway. To "hack" the hash, an attacker need only overtake several pools, or invent some kind of hardware that performs hashes magnitudes more quickly than typical hardware, or wait for the network to contract such as when the btc award halves.

If the average amount of trust in the working network is 180, the attacker essentially has to put 180 times the effort TIMES >50% of the number of network trusts into disrupting the network. For one shot. In bitcoin, the attacker can keep on shooting and there is nothing that anyone can do about it.

Is it any clearer now why I think a system of trust is far superior?

Fortunately for you, EnCoin has relationships between non-anonymous trusted parties that investigate scamming, broadcast notices to the public, ban the scammers, and report them to the appropriate authorities. If the authority in your trust network can't do this, why on earth would you "trust" them?

As I mentioned before, a sybil attack relies on gaining trust before performing an attack. If this "authority" pretended to be trustworthy, everyone would think they're trustworthy. Until they're not. Since Encoin relies on heavy amounts of electricity to gain this trust, it is very difficult and hard to come by. It cannot be forged. It can be revoked completely by consensus.

EDIT: I skimmed over the first sentence when replying. The non-anonymous relationships are nowhere near what you suggest. The non-anonymous relationships only refer to ip address->wallet (tied to user trust) relationships. With bitcoin, you never have any idea of who you're dealing with. There is no recorded history other than transactions.

The fact that you consider these possible (but implausible) attacks on your proposed system shows that your basic consensus (100% agreement) mechanism is non-existent.

Validity means a transaction is 100% in compliance with the rules of the system. There is no negotiation involved. No vote is ever required.

Both of these sentiments are somewhat naive. There is no central authority that says what being compliant is or what the rules are. A decentralized network has to agree on all sorts of different things with the potential for infiltrators/attackers to try throwing a wrench in the mix whenever they feel a dash of whimsy. Part of the decentralizing rules (a large part) are how to handle it when someone does decide to go rogue.

ATTACK: TrustNet tries to pay itself too much money

This should be trivially detected and prevented by *every* other TrustNet. It is either a defect in that peer, or fraud committed by the peers owner. The defective/fraudulent TrustNet entity and all its users should be banned until trusted humans determine which problem it is.

There is no need for humans to do anything but run their honest clients.

ATTACK: User abuses a TrustNet’s trust by approving bad spends (equivalent of a double spend in bitcoin)

WTF? How can any group of peers abuse the TrustNet's trust? The TrustNet was supposed to be the party everyone else was trusting? The only way to attempt a double spend is to simultaneously submit two conflicting transactions to different TrustNets. Both would be accepted and each would "race" the other to see which got "51% Trust" first.

Every user that is a member of a TrustNet (one of many) gets the private key to that TrustNet, so they can pretend to sign something that the TrustNet did not agree to sign.

That whole concept is STUPID and IRRESPONSIBLE.

It only is if you can't possibly get away with it. If there were no safety checks for keeping in mind that there is no guarantee that everyone is honest, then these types of attacks would cause major issues with the network.

Both transactions are part of a single common attempt at fraud. This should be detected in 100% of the cases, by 100% of compliant Trust Networks.

What if a malicious entity controls more than 50% of the trust networks? How will clients know that there is a problem if more than half the network says "everything's fine here, move along."

The locks should not be removed until the account owner presents himself to a trusted human and offers a believable explanation of how the situation happened honestly. 100% of the trusted humans must agree to remove the locks.

This is highly centralized and won't be a part of any P2P protocol. (except maybe ripple, hehe)

REALLY! You even consider this a possibility?

If I didn't, the network couldn't be secure.

Arrg! If this can't be immediately detected by 100% of compliant Trust Networks and broadcast system-wide, then really there is no reason for anyone to trust your EnCoin at all.

Again, you say "compliant" with a naive understanding. Compliant is what the network says is compliant. Honest networks will detect it, but honest networks can't guarantee that they will be connected to every user. If a user is connected to only dishonest networks, how will he know that the rules have been broken? The dishonest networks certainly aren't going to volunteer this information. But, because it will be obvious that the network has split in half based on half of the normal trust in the primary block (the dishonest networks have set the trust to the honest networks to zero in their version of the new encoin), the client can demand the transaction log for the last block and discover that account balances do not match up with the transactions (or they will refuse to send it). So now the client knows empirically that something is massively wrong. In bitcoin, everyone except the people who got screwed will continue on, none-the-wiser. Save maybe a forum rant or two where the evidence is hard to verify.

I mean really, you are claiming that periodically your system "cools down" to reach a common consensus (100% agreement) point. At that point 100% of the Trust Networks agree on 100% of the account balances. You are saying that somehow 51% of the networks can conspire to change a balance or submit a fraudulent transaction and the other 49% either can't detect and/or can't prevent this fraud?

See above. The network will reach a consensus among honest TrustNets. They cannot force dishonest TrustNets to agree to something they are intentionally not agreeing to. The network will fork between honest and dishonest TrustNets. This is by design. Cut out the cancer.

Any single compliant network must be able to validate the compliance of every other network. If they can't there is zero point in anyone trusting even an honest "Trust Network".

They can. But they can't make a client be connected to them to let them know.


I think you have a gross misunderstanding of the client/server model here (which was probably clarified in my last long post). I'm sure it's more my fault than anything by not being completely clear in the proposal. But TrustNets are a replacement for pools, I thought that was made obvious. Regular users of the bitcoin network are not involved in any pools. The people in TrustNets are being paid in the form of new demand for currency by the expansion of the network or gradual destruction of existing currency. Their services are not just to make coins, but to secure the network. Secure, secure, secure.

Perhaps some of my design decisions will make a little bit more sense now.

[Etlase2]

By the way, everything I have stated that is not in regards to economic policy could have been done with bitcoin.

The goal of Encoin's economic policy is not to facilitate a large transfer of wealth from late adopters to early adopters. It is to provide a stable medium of exchange. While unpredictable future events (fusion power for one) could slightly devalue the currency, it is absolutely nowhere even close to even being remotely in the same solar system as what someone with 25k or 100k or any large sum of bitcoins could do to the network that is based solely on scarcity with no inherent value to back it up. Please keep that in mind before dismissing encoin out of hand because you don't think that it can work.

Bitcoin is fiat, just like dollars and euros and whatever else. Encoin is not.

[johnj]

Bitcoin is fiat, just like dollars and euros and whatever else. Encoin is not.

There is no central issuer of Bitcoins, and Encoin doesn't exist.

[Etlase2]

Bitcoin is fiat, just like dollars and euros and whatever else. Encoin is not.

There is no central issuer of Bitcoins, and Encoin doesn't exist.

take a gander at this and see if you can make it to the 1:30 mark and beyond:

http://www.youtube.com/watch?v=hx16a72j__8&feature=player_embedded

additionally, this is a lot to ask, but try to see if you can draw any parallels

[Red]

I'm going to take one more shot at this. Your calling me back here has been fun. I want to thank you for that.

I understand what you are saying about: trust = hash * time vs. bitcoin's way. I don't think that is "trust" though. I think hash * time = "effort". I'd don't think I'd even call it "work" because I'm not sure anything is actually getting done for the effort.

I'm also absolutely sure you overstate the dangers to bitcoin accounting. In bitcoin if you gain 51% of the hash power and you want to delete a transaction that happened 5 blocks back, you basically have zero hope of accomplishing that. If you have 51% of the hash power you CANNOT generate a fake transaction. You also can't transfer money from one account to another. You can't even do more than stall a transaction with 51% probability.

The dangers you hypothesized for encoin were much harsher than those bitcoin is currently suffers from.

Both of these sentiments are somewhat naive. There is no central authority that says what being compliant is or what the rules are. A decentralized network has to agree on all sorts of different things with the potential for infiltrators/attackers to try throwing a wrench in the mix whenever they feel a dash of whimsy. Part of the decentralizing rules (a large part) are how to handle it when someone does decide to go rogue.

I'll let most of this slide, since I'm under a pseudonymous handle. But trust me, I have more P2P experience than you know.

The important part of my message is about compliance to the protocol. In bitcoin, even with 75% of the hashing power, you can't stick a transaction into a block if it won't pass the validation rules. Every other honest node will reject your block. Worse, they'll all know you are a liar. That is what compliance means.

If I have your previous PB balances and all of the new transactions for this period, you had better not try to give me a new PB with balances that don't match the known transactions. If you do, you sure as hell better be able to produce a valid transaction I'm missing that reconciles the differences. I don't give a flying fart if your (hash * time) effort is 100% and my effort is 0%. If the math doesn't work you are still lying. That is what compliance means.

For that matter, previous investment of time adds nothing to ones trustworthiness. Say, I take a copy of the bitcoin block chain and validate it. I am now equally as capable as any other node at spotting fraudulent activity. I've spend no time and generated not a single hash. But even if the 10 longest running nodes agree to accept a new block with an invalid transaction in it, I can still publicly call them faulty at best liars at worst. Compliance means agreeing with the specification, not with the majority.

My recourse to compliance violations is not to bend over and take it because others have 51% of an imaginary quantity. My recourse is to publish the data on this forum. Call you a liar. Call the authorities and start sending out press releases. That is what compliance means.

---

If the only digital currencies you've ever seen are bitcoin analogs, I know it maybe hard to understand that most digital currencies and money transfer services strive to not waste CPU cycles or electricity. Expending needless effort is simply not required to guarantee the validity of crypto-currency accounting.

If you changed bitcoin into a client server system with only a single bitcoin server doing the accounting, it would remain equally as trustworthy and secure as it is now. So long as everyone can download the server's history and validate the current state, there are simply very few ways for the server to cheat. If every client keeps track of the most recent couple of block hashes, then periodically checks to make sure they don't leave the chain, there is simply nothing the server can do while still remaining in compliance. Every false move is instantly detectable by even the simplest of client.

Never fail quietly! It's one of the most important rules of software design.

---

I can show you how to take bitcoin's current implementation, remove the proof-of-work nonsense, and turn it into P2P network of Trusted Servers as you described. In the process you'll lose none of bitcoin's current security. If you want to add back in constant kwh mining and transaction fees, to help sustain a stable monetary policy that's awesome!

If you want to add a complicated history of effort model to rationalize sharing the wealth, that's your own business (literally). It adds, however, neither security nor trust.

The locks should not be removed until the account owner presents himself to a trusted human and offers a believable explanation of how the situation happened honestly. 100% of the trusted humans must agree to remove the locks.

This is highly centralized and won't be a part of any P2P protocol. (except maybe ripple, hehe)

A while back there was a bitcoin hack where a trojan stole wallets and transfered money out of people's accounts. There is nothing in the rules of bitcoin that prohibits that. There is certainly nothing in the rules that enables anyone to reverse that. But the programmers changed the rules and rolled things back.

That is what "Trust" means.

[johnj]

Bitcoin is fiat, just like dollars and euros and whatever else. Encoin is not.

There is no central issuer of Bitcoins, and Encoin doesn't exist.

take a gander at this and see if you can make it to the 1:30 mark and beyond:

http://www.youtube.com/watch?v=hx16a72j__8&feature=player_embedded

additionally, this is a lot to ask, but try to see if you can draw any parallels

You know, such a snotty attitude isn't very becoming of someone who's trying to rally up support for a purely on-paper idea.

Good luck with your *coin.

[Red]

take a gander at this and see if you can make it to the 1:30 mark and beyond:

In general I think the video was full of crap.

I do want to point out that if EnCoin is intended to have a stable value base. That makes it trivial to create money "out of nowhere" via lending. It's also simplifies creating fractional reserve banks. More money "out of nowhere". This is on top of the new mining currency created "out of nowhere".

Only bitcoin like currencies that aim for ever increasing coin value (price deflation) discourage this "out of nowhere" money. There is a thread called "lending at negative interest" or some such where I disprove that silly logic.

[Etlase2]

I'm going to take one more shot at this. Your calling me back here has been fun. I want to thank you for that.

I understand what you are saying about: trust = hash * time vs. bitcoin's way. I don't thing that is "trust" though. I think hash * time = "effort". I'd don't think I'd even call it "work" because I'm not sure anything is actually getting done for the effort.

First of all, money is being paid for the effort. I pointed out that it could cost $6 million to perform this attack against a network with a size comparable to bitcoin's. Certainly no big deal for a government, but it weeds out the script kiddies.

And you are forgetting the other half, that trust can be removed by consensus (via proof of breaking the rules). So all that money and time spent is for naught.

I'm also absolutely sure you overstate the dangers to bitcoin accounting. In bitcoin if you gain 51% of the hash power and you want to delete a transaction that happened 5 blocks back, you basically have zero hope of accomplishing that. If you have 51% of the hash power you CANNOT generate a fake transaction. You also can't transfer money from one account to another. You can't even do more than stall a transaction with 51% probability.

The dangers you hypothesized for encoin were much harsher than those bitcoin is currently suffers from.

This is what I said: This means, as long as the attacker feels like attacking, the network is interrupted and may be permanently damaged thereafter.

If this were an ongoing attack, transactions will eventually be dropped, confirmations could never be sure, and double spends would be permanent (this is the least likely of intents of an agency attacking bitcoin). Civil unrest ensues, nobody wants to mine anymore, bitcoin crashes--accomplishing exactly what the attack set out to do. It would only have to happen once to prove that bitcoin sucks and is unreliable.

I'd say the entire project going in the toilet is a pretty harsh outcome. But this generally isn't discussed, because double spending is much easier to chew because that will only affect someone else.

Now yes, what an attacker could do with encoin sounds a lot more disastrous, but you have to remember that the honest network is still chugging along with barely a chink in its armor. And clients will know that something is wrong with the network that they're connected to. And assuming the encoin network is on a scale that is big enough to be in the public eye, this would be big news. But I believe I mentioned somewhere in the proposal that IP addresses relating to trustnets would be in the trustnet blocks so that new users can find them. Well, if a user that was only connected to dishonest networks checks back to an older copy of the primary block, odds are pretty good they could find a working IP address to get back on the right network (plus any internally saved IPs). So the chances of a user being duped into this dead network are almost zero. And even if they are, anything that happens on that network has no effect whatsoever on the real network, so it is harmless. The bad network quickly becomes a ghost town.

I'll let most of this slide, since I'm under a pseudonymous handle. But trust me, I have more P2P experience than you know.

Well, you did remark that "That whole concept is STUPID and IRRESPONSIBLE." about a potential grief attack on the network. Because, like, nobody in the history of the internet has ever tried to fuck up someone else's good time.

The important part of my message is about compliance to the protocol. In bitcoin, even with 75% of the hashing power, you can't stick a transaction into a block if it won't pass the validation rules. Every other honest node will reject your block. Worse, they'll all know you are a liar. That is what compliance means.

If I have your previous PB balances and all of the new transactions for this period, you had better not try to give me a new PB with balances that don't match the known transactions. If you do, you sure as hell better be able to produce a valid transaction I'm missing that reconciles the differences. I don't give a flying fart if your (hash * time) effort is 100% and my effort is 0%. If the math doesn't work you are still lying. That is what compliance means.

Sure, that is what compliance means, but you are forgetting that this proposal is trying to encompass a future where there could be 2 or 3 thousand transactions per second. I don't know the exact byteage of a transaction in bitcoin, but with having to account for all the small pieces that make it up, it must be at least hundreds of bytes. Encoins don't have to worry about the history of each divisible coin, so they should be smaller. Regardless, at 200 bytes we're looking at 16.5GB of transaction data per day. Gonna take awhile to have every user that makes use of "the cloud" or bitcoin's pseudo-nonymous network to digest that information. So instead of requiring high-level network servers to be a trustnet, instead data will only be available on request. Because a regular user does not need to know every. single. transaction that comes through the network. It is of pitifully poor design if there is another way. I mean, I didn't set out to solve one or two specific set of problems here. Bitcoin has a future problem around data transfers, the solution is, essentially, "get a connection with 8gbit/s internet access" and this is for peers too! https://en.bitcoin.it/wiki/Scalability (note it says transactions are currently around 500 bytes so I was off there)

For that matter, previous investment of time adds nothing to ones trustworthiness. Say, I take a copy of the bitcoin block chain and validate it. I am now equally as capable as any other node at spotting fraudulent activity. I've spend no time and generated not a single hash. But even if the 10 longest running nodes agree to accept a new block with an invalid transaction in it, I can still publicly call them faulty at best liars at worst. Compliance means agreeing with the specification, not with the majority.

Dude, stop equating trust with interpersonal relationships. And stop ignoring the fact that gaining enough trust would cost millions of dollars in a reasonably sized network. And you are disregarding the fact that one node that knows the others are lying has no way to communicate this information to all the peers. Seriously.

My recourse to compliance violations is not to bend over and take it because others have 51% of an imaginary quantity. My recourse is to publish the data on this forum. Call you a liar. Call the authorities and start sending out press releases. That is what compliance means.

This is so ridiculous that I want to stop responding.

If the only digital currencies you've ever seen are bitcoin analogs, I know it maybe hard to understand that most digital currencies and money transfer services strive to not waste CPU cycles or electricity. Expending needless effort is simply not required to guarantee the validity of crypto-currency accounting.

If you changed bitcoin into a client server system with only a single bitcoin server doing the accounting, it would remain equally as trustworthy and secure as it is now. So long as everyone can download the server's history and validate the current state, there are simply very few ways for the server to cheat. If every client keeps track of the most recent couple of block hashes, then periodically checks to make sure they don't leave the chain, there is simply nothing the server can do while still remaining in compliance. Every false move is instantly detectable by even the simplest of client.

Yeah but there is that trivial matter of someone taking down the server and ruining everybody's fun.

I can show you how to take bitcoin's current implementation, remove the proof-of-work nonsense, and turn it into P2P network of Trusted Servers as you described. In the process you'll lose none of bitcoin's current security. If you want to add back in constant kwh mining and transaction fees, to help sustain a stable monetary policy that's awesome!

If you want to add a complicated history of effort model to rationalize sharing the wealth, that's your own business (literally). It adds, however, neither security nor trust.

Wow I do believe that someone has been insulted. But I'm not gonna be goaded.

A while back there was a bitcoin hack where a trojan stole wallets and transfered money out of people's accounts. There is nothing in the rules of bitcoin that prohibits that. There is certainly nothing in the rules that enables anyone to reverse that. But the programmers changed the rules and rolled things back.

That is what "Trust" means.

You are referring to a website that was hacked, not people's wallets. I see you don't have a good understanding of the bitcoin protocol and what it is trying to achieve. You are missing some very key points that I am emulating with my design, and completely missing where it diverges and for what reason. I have tried to explain, but you are not accepting or even refuting with sense, so I give up.

[Etlase2]

You know, such a snotty attitude isn't very becoming of someone who's trying to rally up support for a purely on-paper idea.

Good luck with your *coin.

Haha sorry, with all the other crap I thought you were JohnDoe, that's why my response was a bit terse.
But "bitcoin isn't fiat" is just another in a long line of fallacies.

from wikipedia

The term fiat money has been defined variously as:
any money declared by a government to be legal tender.[4]
state-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.[5]
money without intrinsic value.[6][7]


Yes it might not be pigeonholed into the exact modern definition of being issued by a government, but the sentiment is the same. Instead of governments, it's early adopters that have the ability to "issue" new currency at will.

[Minsc]

There is no central issuer of Bitcoins

MtGox is pretty close.

[Red]

Yeah, I did feel like I was ranting a bit. ;-)

I feel like you are reading what I write as more critical than I mean it.
I totally support your goal of creating a stable EnCoin currency.
I'm not opposed to you or anyone else calling it "a service" and charging for its use. Discussing those goals, however, is not a priority for me.
I happen to like the client/server part of the idea. It reduces the number of peers that need to communicate.

I'm still totally baffled by a lot of the names you have chosen. I've been developing software for pushing 30 years now. I know naming things is often one of the hardest parts. The terms "Network Trust" and/or TrustNet have too many ambiguous meanings. As an outside observer I think you should split your discussion into its two separate senses.

1) A TrustNet is a plug compatible replacement for a mining pool. In this sense you have "partners" who participate in mining, invest electrical cash, and get rewarded. You might consider calling this feature a "partnership". As in "Anyone can start their own EnCoin partnership..."

2) A TrustNet is also service which is provided to "clients". You might consider the term "host" or perhaps "teller". Originally I thought, from the name, that each TrustNet was itself a client facing entity. Meaning, a client connected to his particular TrustNet to get his transactions processed. As in, "I'm going to my bank." That made the two seem more like a single concept.

However, later you explained that each "partner" serves as a "host" for clients. It is not clear to me that clients even know that TrustNets exist. Perhaps they see each individual node as fungible automatic "teller" machines and don't care to which bank it belongs.

Either way, this is the sense most closely related to "Trust" for me. A client *is required* to trust its teller, since the client can't validate its own transactions. In the previous sense, it's clear partners don't have implicit trust for other partners. Neither do partnerships trust other partnerships. Certainly TrustNets don't constitute a web of trust. Using the word "trust" seems to obfuscate everything.

You are referring to a website that was hacked, not people's wallets.

Well you caught me there! :-) As you know I gave up on bitcoin more than a year ago. I only know of that event from headlines. I was around, however, when the developers deliberately changed the bitcoin client to fork the block chain and rewrite history. It seems there was a bug, and non-compliant transactions had made their way into the block chain. The old clients would accept transactions from the new client, but the new would accept from the old. It was really interesting watching the new chain overtake the old and all the old nodes dumping their entire reality. It really gave me pause.

I see you have very little understanding of the bitcoin protocol and what it is trying to achieve.

Actually, I do. There are long threads discussing details with satoshi somewhere.

But you are missing some very key points that I am emulating with my design, and completely missing where it diverges and for what reason. I have tried to explain, but you are not accepting or even refuting with sense, so I give up.

I do understand them. I'm not trying to refute the fact that some of your ideas are better, safer, more efficient than bitcoin. They most certainly are.

I just think that my ideas are even better than yours! ;-) So there!

I can show you how to take bitcoin's current implementation, remove the proof-of-work nonsense, and turn it into P2P network of Trusted Servers as you described. In the process you'll lose none of bitcoin's current security. If you want to add back in constant kwh mining and transaction fees, to help sustain a stable monetary policy that's awesome!

If you want to add a complicated history of effort model to rationalize sharing the wealth, that's your own business (literally). It adds, however, neither security nor trust.

Wow I do believe that someone has been insulted. But I'm not gonna be goaded.

I was actually serious here. I think inside your sprawling confusing misnamed concept, is a much simple gem of an idea struggling to get out. :-)

[Etlase2]

Yeah, I did feel like I was ranting a bit. ;-)

I feel like you are reading what I write as more critical than I mean it.
I totally support your goal of creating a stable EnCoin currency.
I'm not opposed to you or anyone else calling it "a service" and charging for its use. Discussing those goals, however, is not a priority for me.
I happen to like the client/server part of the idea. It reduces the number of peers that need to communicate.

The "service" aspect is a large part of the economy and how it will operate. You want to know how the price will stay stable? Because of the price of the service and rewards geared towards making the population do what is necessary to keep the price stable.

I'm still totally baffled by a lot of the names you have chosen. I've been developing software for pushing 30 years now. I know naming things is often one of the hardest parts. The terms "Network Trust" and/or TrustNet have too many ambiguous meanings. As an outside observer I think you should split your discussion into its two separate senses.

second draft, whatever, it's in the works.

However, later you explained that each "partner" serves as a "host" for clients. It is not clear to me that clients even know that TrustNets exist. Perhaps they see each individual node as fungible automatic "teller" machines and don't care to which bank it belongs.

part of the problem is adding new ideas without going back and looking at everything as whole and re-writing to compensate.

Well you caught me there! :-) As you know I gave up on bitcoin more than a year ago. I only know of that event from headlines. I was around, however, when the developers deliberately changed the bitcoin client to fork the block chain and rewrite history. It seems there was a bug, and non-compliant transactions had made their way into the block chain. The old clients would accept transactions from the new client, but the new would accept from the old. It was really interesting watching the new chain overtake the old and all the old nodes dumping their entire reality. It really gave me pause.

Well I don't know the details on this so I can't really comment. I'm curious now though.

I was actually serious here. I think inside your sprawling confusing misnamed concept, is a much simple gem of an idea struggling to get out. :-)

I'm curious how you plan on awarding coins in the system without proof of work. Not saying it's impossible, just genuinely curious. Are we going back to a central server concept? Because that, unfortunately, doesn't interest me.
and "sharing the wealth" has absolutely nothing to do with what the system is trying to achieve. I'm trying to put together a quick qt app to see how some of the numbers could fudge together. I will host it up somewhere when I'm done.

[Red]

I'm curious how you plan on awarding coins in the system without proof of work. Not saying it's impossible, just genuinely curious. Are we going back to a central server concept? Because that, unfortunately, doesn't interest me.
and "sharing the wealth" has absolutely nothing to do with what the system is trying to achieve. I'm trying to put together a quick qt app to see how some of the numbers could fudge together. I will host it up somewhere when I'm done.

I wrote down the concept here. I think it got lost in all my ranting. There is no central server concept. Fully distributed. It's not that I don't use proof-of-work, its that I don't require proof-of-work for security. That makes mining optional except when it is actually appropriate to create new coins. In price inflated times nobody has to mine.

For monetary policy, it's not important who gets the coins first. However, in this case we always know where they go next—To the exchange. In this system, new coins always enter circulation immediately. That gives them the most immediate effect on prices.

See the other post for the real answer. It's a winner take all thing for the miners, but its up to each to decide which accounts they put the money in.

---

Now this doesn't mean the server can't add a client transaction fee to benefit the partners. It doesn't affect monetary policy at all. There is also no reason that different hosts can't charge different fees. They could compete on price or service.

[Etlase2]

I wrote down the concept here. I think it got lost in all my ranting. There is no central server concept. Fully distributed. It's not that I don't use proof-of-work, its that I don't require proof-of-work for security. That makes mining optional except when it is actually appropriate to create new coins. In price inflated times nobody has to mine.

"For the sake of discussion I'm going to propose a hybrid system that's like bitcoin, except that instead of using mining to add the next transaction block to the chain, it adds the block through consensus."

Can you say how that consensus is achieved? Because that's a big gap in logic to just assume everybody will agree with nothing to back it up. What if one node disagrees just to spite you? How do you guarantee every node gets every transaction? How are all of these nodes communicating? How do you know if you've even reached consensus without knowing how many nodes there are?

I mean you could basically copy everything I've said about TrustNets, but make it so that they only mine if they want to. Oh wait I've got that covered with the 1/10th or 1/20th cool down mode with the 1/8th or 1/16th reward to ensure that they keep on doing it. Yes, they're still mining, because they're actually gaining something from it. By what incentive do you plan on keeping these people around as trusted peers, or whatever you want to call whoever reaches the consensus? The goodness of their hearts? During a contraction, coins are worth less and people are probably cashing out because they're afraid. How many people can you encourage to weather the storm? How do you prevent an attack on the consensus?

"For this discussion, just pretend I can prove that it's a secure process."

that is a whole hell of a lot to pretend, considering it is the basis for a p2p currency

[Red]

"For the sake of discussion I'm going to propose a hybrid system that's like bitcoin, except that instead of using mining to add the next transaction block to the chain, it adds the block through consensus."

The point of that post was to propose a mechanism for monetary policy adjustment. I not to talk about consensus. I was directly answering the question someone else asked. I didn't want discussion of monetary policy self-adjustment to get sidetracked.

But yes, if you wish, I can explain my algorithm for consensus building. It's not really necessary. You've already proposed yours is secure. For this conversation, on monetary policy, that's good enough for me.

I just don't understand your concepts well enough to say, "let me propose an encoin like system, except..." Had I done that, I would have obviously been talking out my ass. I have no idea why you made most of your design decisions. Like say, why you changed 10 minutes consensus periods to X hours. How each miner is benchmarked against kWh. Or how effort based new coin allocation attempts to affect monetary policy.

What I'd really like to hear is how the monetary dynamics of your proposal relate to what I wrote down. I know my expansions constants (1/2 & 2) are probably not right. But the post captures the gist of my dynamics. Maybe there are more incremental levels to increase generation speed. Maybe the rules for varying the difficulty are too aggressive. That's not important yet. If their are changed, the basic structure of what I wrote will remain the same.

What I'm trying to understand is to what value/function does this system converge: If a new ASIC is 100 times more efficient? If a big new vendor joins the network? If the price of electricity spikes? If in any situation, the value of coins tends either to zero or infinity, I know the algorithm is not stable.


On the other hand, I genuinely don't understand your dynamics. I have nothing to compare or contrast.

You said you vary each difficult like bitcoin does. I don't understand when, how or why this happens. Say someone's hardware is generating ENC a 10 kWh per coin with X khash, and someone else's at 5 kWh per coin with x khash. You certainly can't vary the hash difficulty as a shared constant and meet your goals? You must have deeper thoughts than that. Tell them to me.

You gave constants for coin creation that seem unrelated to the transaction fees. I don't understand why you chose those constants and why (as both are part of monetary policy decisions) they are unrelated. If they are place holders to be calculated later that's OK. I just genuinely don't understand yet.

To combat increases in hardware efficiency over time, you propose rotating algorithms. Rotating doesn't seem to work, because if someone is willing to build an ASIC they might as well keep it around for when rotation comes back. 4 algorithms, 4 ASICs. Run when appropriate.

Beyond that, your concept seems to require competing engineers. Who decides if existing hardware is too efficient? Who gets to choose the next proof-of-work algorithm? How do you make everyone else adopt those new rules? That seems like a different kind of consensus building completely unrelated to your TrustNets.

---

I'm genuinely interested in understanding how your system meets its monetary policy goals. To me, all the other bits are optimizations to previously solved problems. They are interesting in their own right. I'm just interested in monetary policy first.

[Red]

By what incentive do you plan on keeping these people around as trusted peers, or whatever you want to call whoever reaches the consensus? The goodness of their hearts? During a contraction, coins are worth less and people are probably cashing out because they're afraid. How many people can you encourage to weather the storm? How do you prevent an attack on the consensus?

I'm pretty sure satoshi covered this in his original white paper. On fortunately it tends to get overlooked with everyone focusing on mining rewards.

According to satoshi, and I agree, the long term security and stability of bitcoin is in the hands of bitcoin owners. Meaning people who own/hoard bitcoins have intrinsic interest in the security and stability of the system. These people will always have an incentive to run honest nodes. Self-interest causes them to support the currency and make sure the system is free from fraud.

I used to chat on this forum with a guy with the handle "knightmb". He owned 371,000 BTC. At current prices, knightmb's market capitalization is over $1.5 million dollars. He has a serious vested interest in the stability of bitcoin. From what I read, he no longer mines. I'm absolutely sure that he keeps an honest node running continually though. It is necessary, and trivial, for him to monitor the overall behavior the network. He can see at a glance that everything is in perfect compliance. If he notices non-compliant transactions creeping into the log, he will be the first to phone the developers and post a notice of an attack in this forum. If he has spent a single kilowatt of electricity on this monitoring in the past year, I will be shocked.

There is a transaction fee in bitcoin. But, it was never designed as a reward system. It was a preemptive defense against someone swamping the system with needless micro-transactions. (See the code comments.)

The pondering that "transaction fees might provide some future incentive" came via a consequence of the previous decision. According to satoshi, self-interest was always the long-term logic for supporting bitcoin. After all he named it a peer-to-peer currency. As such there is no higher interest than the self-interest of the peers.

[Etlase2]

I just don't understand your concepts well enough to say, "let me propose an encoin like system, except..." Had I done that, I would have obviously been talking out my ass. I have no idea why you made most of your design decisions. Like say, why you changed 10 minutes consensus periods to X hours. How each miner is benchmarked against kWh. Or how effort based new coin allocation attempts to affect monetary policy.

All right, I'm going to at least try to convey my logic on how these systems converge into a stable price point in one post.

•   Network Trust Block difficulty will be based around an average network being able to find one block every six hours. 6 hours x 50 people x 200Wh = 60kWh or 6 ENC.

200Wh is the BIG MAGIC NUMBER of encoin. The 6 hours and 50 people are variables. If the average network had 100 people, the average network would have to find one block every 3 hours to equal 6 ENC. If the avg network was 25 people, it would be 12 hours. The hash algorithm difficulty would be based on this in the same way as bitcoin's except for like so:

200Wh * NumTotalUsers = total kWh ASSUMED to be used by the network and thus the goal for the average amount of coins awarded.
Hash/s / NumTotalUsers = AvgUserHashRate
AvgUserHashRate == 200Wh

In reality it is more complicated than this since not every user will stick around for the whole block and so on. I guess "AvgNumTotalUsers" might be a better variable name.

Now, if everybody is using exactly 200Wh and has the exact same hashrate and has the exact same cost for electricity, we are living in a perfect world. Obviously all kinds of things will affect this, and the user will have to determine in their own case whether or not it is profitable to mint coins.

BUT--because I mentioned there are voteable payout structures within each TrustNet that can help smooth out variations in efficiency. For example, set payout structures based on finish for best hash. 1st place hash always gets X%, 2nd place always gets X%, and so on (this is not how it works in pools and it simply can't be done this way). This will keep the race for the newest and best hardware down to a minimum, and people with inefficient hardware can siphon off a bit on the people with more efficient hardware (I'm talking in terms of Mhash/W or Mhash/J, please don't misinterpret this). But there will be a minimum to qualify, and a requirement to be present until the end of the block, and so on to keep abuse down. These are voteable properties (trust modules--another terrible name I know) so they can be adjusted down the road in the face of new exploits or whatever. Kinks will have to be worked out.

The point is to award electricity, not efficiency as I stated before. Encoin will require less of a hardware investment because of this which means it can potentially draw more people in. More people == more popular == currency is valued. And hardware investment uses a god awful large chunk of any ROI you might see for a very long time. So the less hardware investment the better. We're looking for sunk costs here.

Now with the whole TrustNet system, it is almost like a game. Gain levels (trust), get more coins, be able to join respected networks, and so on. Who knows, I may come up with a shitload more ideas (aliases for trustnets and users is one, cheaper global messages could be another, all kinds of things to help make it a community). If the network doesn't like them, they don't vote for that module. If eventually people do and the vote is >50%, then it becomes part of the network. It's so much more flexible, although it may be hard to see at this point. Nothing that trustnets can vote on will be able to change the value of the currency though. Clients will not accept that unless there is some other designer who comes along and decides to fork it. The potential for that can't be denied, it is the nature of open source.

But *anyone* can always become trusted and get the benefits. They just have to stick around awhile. And for every person you can convince to stick around, the more secure the network is. This does not mean the more hash power there is because of the cool-down and the ENC benefit. That stuff has to be worked on in a little more but let me give a quick example:

Say the ROI on a typical minted coin is 33%. An average coin costs 10kWh, say the average price is 0.15/kWh, so $1.50+33% = $2.00 sell price. Market "crashes" to $1.60. TrustNets go into cool down mode and only mint 1/10th the coins at 1/10th the electricity for 1/8th of the award--I'm thinking of allowing 1/2, 1/10, and 1/20 but we'll see. Now 0.75 ENC is made for the cost of 0.6 ENC and people who need to make money to see any use to minting get a 25% ROI inherent, but on a very small amount. If the economy is routinely stable, people can run Encoin as essentially a background process that uses very little of their GPU. The computer can still be (almost) fully used. Yet the network remains just as secure as before. It avoids proof-of-work being the end-all be-all form of consensus.

And all kinds of neat things can be done when you can rely on consensus in lieu of proof-of-work. When you can know how many people are out there and what the network looks like. When you can vote on little details of how the network operates. When you can chat with your fellow TrustNet members. When you don't have to worry about the network becoming vulnerable if the hash rate drops. LOL when you don't need a 8gb/s connection to use it, or download a 1GB block chain before you can even see your first transaction. I have a vision, and that vision is Encoin (but possibly by a different name hahah).

You gave constants for coin creation that seem unrelated to the transaction fees. I don't understand why you chose those constants and why (as both are part of monetary policy decisions) they are unrelated. If they are place holders to be calculated later that's OK. I just genuinely don't understand yet.

Coin generation has to be based on kWh, it can't change because then 1 ENC != 10kWh. So the only way to constrict the economy when in need is by transaction fees and allowing coin generation to securely reduce in output. They can not be tied together. Transaction fees could be variable, and perhaps there could be two fees, one for stable/expanding economy, and one for contracting economy. But this would have to be voted on by the TrustNets, the software can't decide on its own, it is against how I think this should work. That could piss off people who don't make coins. So I would really like to have a transaction fee set in stone.

What I'm trying to understand is to what value/function does this system converge: If a new ASIC is 100 times more efficient? If a big new vendor joins the network? If the price of electricity spikes? If in any situation, the value of coins tends either to zero or infinity, I know the algorithm is not stable.

If some new thing that only 1 or a few people had was way more efficient, then they would siphon some money off of the new coins being made. It's hard to calculate how much, but the bigger the network, the less it will take from each coin (and I have even more ideas to lessen the impact of this type of thing, but it is for a much more advanced version of the proposal). I don't know what you mean by a new big vendor joining. I don't see how the price of electricity could "spike" especially across the entire world at once. It should be a gradual process that will gradually increase the value of encoins vs fiat. The value of coins tends to 10kWh, whatever 10kWh is.

To combat increases in hardware efficiency over time, you propose rotating algorithms. Rotating doesn't seem to work, because if someone is willing to build an ASIC they might as well keep it around for when rotation comes back. 4 algorithms, 4 ASICs. Run when appropriate.

No, I proposed changing algorithms. I did think of this exact same scenario, believe it or not.

Beyond that, your concept seems to require competing engineers. Who decides if existing hardware is too efficient? Who gets to choose the next proof-of-work algorithm? How do you make everyone else adopt those new rules? That seems like a different kind of consensus building completely unrelated to your TrustNets.

If by "too efficient" you mean in the future where everything uses less electricity, I have an idea that will add in some deflation to the economy slowly, over a very long period. And it is simple and regulated and would not cause any drastic consequences like satoshi's boneheaded award halve. This is what I was referring to when I said I didn't want to give something away yet. This deflation can still be counteracted by increased minting and so on if necessary. The proof of work algorithm will be changed randomly, every X primary blocks, by using a hash of the previous block. When the developers (or anyone with clout) releases a new module with a new, futuristic hash algorithm, it will be added to the pool of algorithms already in use by a TrustNets vote. The vote is not a one time thing. When people upgrade their client, they will have an option to vote yes or no to this new potential change to the network. Then the client will automatically cast their vote during every primary block cool-down phase. Once >50% agrees, then it is added as a valid module.

I'm genuinely interested in understanding how your system meets its monetary policy goals. To me, all the other bits are optimizations to previously solved problems. They are interesting in their own right. I'm just interested in monetary policy first.

Let the people control whether or not coins are minted. Coins are always minted for approximately the same cost, so it is not like they are voting them into existence from nowhere like fiat. They always have an inherent value of 10kWh. Transaction fees are a mild deflationary measure to counter over-minting and low demand without requiring an expansion of the economy, even though stable economies tend to always expand as population increases.


I'm going to give some reasons why I chose 200Wh over 100 or 300.

100Wh disadvantage:
* Electric value enters the economy at a slower pace. People would have to adjust their GPUs to make sure they are using only approximately 100Wh, half or whatever it comes out to be. (I plan on having a helpful calculator in the program.)
* With a higher difficulty (time * computation, I'm referring to time here) of adding value to the economy, extreme deflation is a lot more likely if the network booms.
* Psychological. A month of effort nets you 7.2 coins if I keep the 10kWh figure. I could make it 5kWh I suppose.
* Potential for abuse. Hacked clients *will* come out that divert half of your GPUs resources to one node and half to another so that you can make double the profit. This isn't a huge problem, but by restricting it to 100Wh you are allowing easy access for some people to have this advantage over others. I suppose, in the end it really doesn't matter but it would waste network resources just to allow people who want to go full blast to go full blast.

100Wh advantage:
* FPGAs and what have you have less of an impact. While they're still going to be more efficient, they are not siphoning off as much of the economic value.
* Future cpu/gpu electricity usage going down could have less of an impact because instead of going at half the normal rate they could go full blast or whatever ends up being the equivalent.
* Since deflation is more likely in a boom, it would encourage more people to be part of a TrustNet (blah blah whatever you want to call them).
* There would be less "extra coins" in inflationary periods. e.g. the inflation won't be as big because people are not putting in as many coins before they figure out it's happening. So it could bounce back quicker.

300Wh disadvantage:
* A lot of people may not be using 300 watts worth, so they are getting a bonus even though they are not using as much electricity (assuming an efficient card).
* FPGAs could have a much larger impact if they become any significant portion of the economy.
* lot of extra coins in inflationary periods, may take a very long time to settle back to equilibrium.
* lot of extra coins in deflationary periods, that won't last long and the demand will probably all be grabbed up by anyone that was there before the boom.

300Wh advantage:
* basically the opposite of everything in the 100Wh disadvantage category.

[Etlase2]

According to satoshi, and I agree, the long term security and stability of bitcoin is in the hands of bitcoin owners. Meaning people who own/hoard bitcoins have intrinsic interest in the security and stability of the system. These people will always have an incentive to run honest nodes. Self-interest causes them to support the currency and make sure the system is free from fraud.

I used to chat on this forum with a guy with the handle "knightmb". He owned 371,000 BTC. At current prices, knightmb's market capitalization is over $1.5 million dollars. He has a serious vested interest in the stability of bitcoin. From what I read, he no longer mines. I'm absolutely sure that he keeps an honest node running continually though. It is necessary, and trivial, for him to monitor the overall behavior the network. He can see at a glance that everything is in perfect compliance. If he notices non-compliant transactions creeping into the log, he will be the first to phone the developers and post a notice of an attack in this forum. If he has spent a single kilowatt of electricity on this monitoring in the past year, I will be shocked.

It's great if he comes here and makes a forum post. That doesn't mean it fixes anything. Bitcoin is still limp-dicked by an attack and going nowhere fast. Please read what I said again about what a continued attack against the network could accomplish. And AFAIK, unless he is looking and checking every single transaction that goes through the system, there is no automated checking for double spends or the like.

There is a transaction fee in bitcoin. But, it was never designed as a reward system. It was a preemptive defense against someone swamping the system with needless micro-transactions. (See the code comments.)

The ultimate end design is to keep people mining when there is no longer any significant award from the block payout. And stop implying my transaction fee is a reward. NO ONE GETS THE TRANSACTION FEE, IT IS DESTROYED. IT CREATES NEW DEMAND FOR COINS. IT IS CONTROLLED DEFLATION. EVERYONE WITH ANY BALANCE WHATSOEVER BENEFITS.

[JohnDoe]

Well, it might not be. But just in case it is, I'm going to write down my logic. Maybe we can all bash on it and see where the logic takes us.

...

I think those rules tend toward some wandering equilibrium measured against the cost of electricity. I'm not totally sure of the exact function.

What does anyone else think?

I may be wrong, but I believe this sytem is flawed in the same way Encoin is. It assumes an equation will remain constant over time but it is more likely that it will vary. I'm referring to the assumption that an increase of X in difficulty will equate to an increase of Y dollars in the cost of mining. In the future that equation may change to X*1000 difficulty = $Y in cost, so because difficulty can only adjust linearly then at some point it will start playing catch-up with technological progress and so hyperinflation will ensue because it will always be profitable to mine.

[Etlase2]

I may be wrong, but I believe this sytem is flawed in the same way Encoin is. It assumes an equation will remain constant over time but it is more likely that it will vary. I'm referring to the assumption that an increase of X in difficulty will equate to an increase of Y dollars in the cost of mining. In the future that equation may change to X*1000 difficulty = $Y in cost, so because difficulty can only adjust linearly then at some point it will start playing catch-up with technological progress and so hyperinflation will ensue because it will always be profitable to mine.

Now if only you understood that an increase in X difficulty is an increase in Y cost is precisely not how encoin works, maybe you would feel differently. It is based around market factors and incentivizing the creation of coins when it is profitable, and accounting for it when it is not in a way that still keeps the network secure.

[Red]

I hate to respond to this post first, but it is quicker.

Your other post is much more enlightening. Thank you for that. I will respond in detail to that in a few minutes.

And AFAIK, unless he is looking and checking every single transaction that goes through the system, there is no automated checking for double spends or the like.

My point was, he can run a complete peer an look at and check every single transaction for a trivial cost. No mining is requires. This will give an overall sense of how many people trying to cheat. Even if he doesn't want to do that, he can download the block chain every few days and check it for consistency. This is a built in feature of every client that runs automatically when you start a peer. If there exists even a single double spend in the block chain, the system is fucked and it is time to call the programmers and alert the media. The data structure and transaction validation rules simply won't allow it to happen. If its there, it is impossible not to notice. (I can go into details about in-point, transactions, out-points and the directed acyclic graph structure if you like.)

And important point is knightmb doesn't have to worry about anyone stealing his existing coins. Even if everyone else stops mining, and someone has 100% of the CPU power, they still can't generate compliant transactions to take them. They also cannot fork the block chain and erase them. His transactions are long behind bitcoin's programmed in (mandated consensus) block locks.

The ultimate end design is to keep people mining when there is no longer any significant award from the block payout.

I understand what you are saying. I also agree that there is increased opportunity to cause mayhem if a huge majority of miner leave bitcoin all at once. But in the end it will be the vested interest of the bitcoin holders who motivate a solution. Even if it means changing long standing mining conventions.

The ultimate end design is to keep people mining when there is no longer any significant award from the block And stop calling my transaction fee a fucking reward. NO ONE GETS THE TRANSACTION FEE, IT IS DESTROYED. IT CREATES NEW DEMAND FOR COINS. IT IS CONTROLLED DEFLATION. EVERYONE WITH ANY BALANCE WHATSOEVER BENEFITS.

I completely understand your destroyed transaction fee and its purpose. I put a similar Tax in my post on the subject.

I wasn't talking about or implying encoin in the above statement. It was common banter on this site that *bitcoin's*  trivially small (at that time) transaction fee would provide the ultimate reward to incentivize bitcoin mining after the 21M coins had been distributed. The thinking was, as each coin's external value skyrocketed, the transaction fee's external value would increase with it.

[Etlase2]

Your other post is much more enlightening. Thank you for that. I will respond in detail to that in a few minutes.

And important point is knightmb doesn't have to worry about anyone stealing his existing coins. Even if everyone else stops mining, and someone has 100% of the CPU power, they still can't generate compliant transactions to take them. They also cannot fork the block chain and erase them. His transactions are long behind bitcoin's programmed in (mandated consensus) block locks.

You say that as if this is possible in encoin. It is not. I was detailing a potential attack and how it was effectively worthless (actually, 6 million south of worthless). People misunderstand the scope of how the sybil attack is being defended against in my proposal. I was trying to clarify.

And no, he doesn't have to worry about anyone stealing his coins, he has to worry about the network becoming unstable and his coins being completely worthless (and we have to worry about him making our coins worthless in a sell-off). This is what I believe will eventually happen in a sustained 51% attack. Once the resources are gathered for that 51% attack, it will be easier and easier to continue it or start it again as miners are discouraged that they are not mining nearly as many coins and users are discouraged that transactions are not being confirmed or transactions that have been confirmed are being unconfirmed. Cascade of effects. I have seen people say, "well lol their coins will be so valuable they'd be stupid to take the network down."--referring to the attacker. This is the kind of logic that goes into thinking the only attempt would be a double spend. *all* factors must be considered, and I believe an attempt to take the network down has been grossly under-discussed.

I completely understand your destroyed transaction fee and its purpose. I put a similar Tax in my post on the subject.

Then why did you put refunds in? Refunds are senseless to what the fees are trying to do. You made the system more complicated and convoluted with different difficulties et al.

Without the tax, and if you concede that mining needs a reward since it secures the network (or from a different perspective, securing the network needs a reward and it needs a secure way to pay that award which is achieved by mining), a perfectly stable economy is impossible as it will continually inflate.

[Red]

•   Network Trust Block difficulty will be based around an average network being able to find one block every six hours. 6 hours x 50 people x 200Wh = 60kWh or 6 ENC.

...

Now, if everybody is using exactly 200Wh and has the exact same hashrate and has the exact same cost for electricity, we are living in a perfect world. Obviously all kinds of things will affect this, and the user will have to determine in their own case whether or not it is profitable to mint coins.

OK, I'm with you so far. The perfect world generalization is fine with me, to get on with discussing the more interesting bits.

The only kibitz I offer is that I think you mean "200W" rather than "200Wh". If someone's power supply is drawing 200W and they run their computer for 6 hours. The electric company bills them for 1.2 kWh.

BUT--because I mentioned there are voteable payout structures within each TrustNet that can help smooth out variations in efficiency.
...
Nothing that trustnets can vote on will be able to change the value of the currency though.

I understand all of this and have no criticisms. The intension is to encourage people to participate in these partnerships. Motivations might change, so you allow flexibility to adjust. Nice.

Clients will not accept that unless there is some other designer who comes along and decides to fork it. The potential for that can't be denied, it is the nature of open source.

Agreed. Not interesting in forking. It creates something that is not the system we are discussing.

Say the ROI on a typical minted coin is 33%. An average coin costs 10kWh, say the average price is 0.15/kWh, so $1.50+33% = $2.00 sell price. Market "crashes" to $1.60. TrustNets go into cool down mode and only mint 1/10th the coins at 1/10th the electricity for 1/8th of the award--I'm thinking of allowing 1/2, 1/10, and 1/20 but we'll see. Now 0.75 ENC is made for the cost of 0.6 ENC and people who need to make money to see any use to minting get a 25% ROI inherent, but on a very small amount. If the economy is routinely stable, people can run Encoin as essentially a background process that uses very little of their GPU. The computer can still be (almost) fully used. Yet the network remains just as secure as before. It avoids proof-of-work being the end-all be-all form of consensus.

OK, I fundamentally understand "cool down" mode differently now. I thought it was a property of the system as a whole. After the X hour period generating a PB, *every* TrustNet goes into cool down *phase*. I appear to have been mistaken. Each network makes a decision on how much electricity it wants to risk mining at each mining interval. That makes much more sense to me now.

I have some questions about the non-linearity of the cool down mode rewards. But I want to think about things more in light of this insight.

And all kinds of neat things can be done when you can rely on consensus in lieu of proof-of-work. When you can know how many people are out there and what the network looks like. When you can vote on little details of how the network operates. When you can chat with your fellow TrustNet members. When you don't have to worry about the network becoming vulnerable if the hash rate drops. LOL when you don't need a 8gb/s connection to use it, or download a 1GB block chain before you can even see your first transaction. I have a vision, and that vision is Encoin (but possibly by a different name hahah).

I agree completely. But I want to point out that a lot of the benefits you are referring to come from trust in the humans behind the TrustNet abstractions. You can't chat with the code and ask it to vote on its best interest. I still think "Trust" means humans trusting humans. Compliance means nodes can't cheat.

Most of the comments I have made should be viewed from the perspective that I totally agree with you here. I also want to take advantage of the unique advantages that come from knowing your fellow human peers.

---

I'm going to comment on the rest after I've given things a little more thought.

Thanks for the new insights!

[Etlase2]

I have some questions about the non-linearity of the cool down mode rewards. But I want to think about things more in light of this insight.

Are you referring to 1/8th for 1/10th? That is because if coins are down in value, 1/10th is still losing money to mine--ahem I mean secure the network. I am trying to keep people from leaving in an extended period of bad economy, one of those big contractions we discussed earlier.

I agree completely. But I want to point out that a lot of the benefits you are referring to come from trust in the humans behind the TrustNet abstractions. You can't chat with the code and ask it to vote on its best interest. I still think "Trust" means humans trusting humans. Compliance means nodes can't cheat.

Well, how about Reputation then? Does that satisfy your need for a better term? Compliance points has a pretty awful ring to it.

[Red]

You say that as if this is possible in encoin. It is not. I was detailing a potential attack and how it was effectively worthless (actually, 6 million south of worthless). People misunderstand the scope of how the sybil attack is being defended against in my proposal. I was trying to clarify.

I didn't mean to imply any threat to encoin. I was only trying to point out an instance of security not guaranteed by mining. For reference, I'm never trying to imply anything. If I see something worth implying I'll just come out and say it directly. I'm really not trying to pick a fight.

I completely understand your destroyed transaction fee and its purpose. I put a similar Tax in my post on the subject.

Then why did you put refunds in? Refunds are senseless to what the fees are trying to do. You made the system more complicated and convoluted with different difficulties et al.

Yay! We get to argue about what I want to argue about! Woot!


I have to split the sentence to properly respond.

and if you concede that mining needs a reward since it secures the network (or from a different perspective, securing the network needs a reward and it needs a secure way to pay that award which is achieved by mining),

I don't concede this, but we *are* walking in the same direction. I think there needs to be *enough* incentive to guarantee the currency stays viable and secure. I propose for my reasons that *will* be the case. You propose for your reasons that *will* be the case. I don't want to argue about *why* we are walking in the same direction.

Without the tax... a perfectly stable economy is impossible as it will continually inflate.

I posted the reasons in one of my earliest posts. I'm going to take another crack at it. This is really the crux of our misunderstanding at the moment. Most of the other differences I have reconciled in my head.

Humans make the decisions about when to change effort levels in both of our examples. In both humans compare the current ENC market price to the market price of electricity.

Your lowest "cool down" mode seems equivalent to my (ZERO) mining level.
Your "full blast" mode seems equivalent to my (current+2) mining level.
The other levels you mentioned as possibilities seem to fit in between.

I get it now. (won't try to explain how I thought yours worked before.)

---

So our main difference is that I deliberately separated the monetary policy sub-system, from the "incentive" system.

I said, to myself, pretend incentives are already guaranteed. How would I optimize monetary policy to that it discouraged what we didn't want *clients* to do, and encouraged what we did want *clients* to do.

In times of inflation, too many ENC are being exchanged for too few goods. I wanted to encourage hoarding and discourage rash spending. So I artificially raised the cost of spending. I didn't want to artificially increase pricing, (prices are already inflated) that tends to happen if you tax the merchants.

So see, "Without the tax.." is incorrectly posed. I do have a tax designed to stop inflation.

In a stable state, (excluding all thoughts about operator incentives) we don't want *clients* to change their behavior at all. So I did nothing. I couldn't figure out a way to know in advance whether monetary action would be necessary. So I proposed taxing everything, and refunding the tax when monetary action proved unnecessary.

In times of deflation, too few ENC are being exchanged for too few goods. I wanted to encourage spending and discourage hoarding. I didn't think computing a hoarding tax was feasible. Even if it was, that case doesn't seem optimal. I want MORE total ENC and more moving immediately into circulation.

So how to best increase ENC circulation? 

I certainly don't want to penalize the spenders and remove currently circulating ENC. That's exactly the wrong direction. The refund simply means, "Do no evil!"

But who best to give the newly created money too? Certainly not to someone who intends to hoard it. That won't change ENC exchange values at all. I could give it to those already spending. Perhaps by returning DOUBLE the tax to everyone in the transaction. That doesn't guarantee that they will circulate it though.

The only person who will immediately spend it is an arbitrager. Someone, who knows exchanging the ENC for dollars now is his greatest financial advantage. That is the person who will sell the ENC for the "highest bid" rather than holding out for a "lowest ask" that will never come. This is the optimal way to immediately move the market.

----

Oh yeah! One last thing...

I thought that the number of new coins being created should somehow be related to the current amount of coins *circulating*. Those are the ones that affect valuation. The tax is also related to the number of *circulating* coins. If the total economy is small, you need small efforts to affect change. If the total economy is large, you need larger efforts.

At least that's my guess.

[Etlase2]

I glossed over this post and I feel like I have to address it, since there is a misunderstanding.

In general I think the video was full of crap.

Why? Sure it's over simplified, but it's also like 4 minutes long.

I do want to point out that if EnCoin is intended to have a stable value base. That makes it trivial to create money "out of nowhere" via lending. It's also simplifies creating fractional reserve banks. More money "out of nowhere". This is on top of the new mining currency created "out of nowhere".

There is no Fed in encoin. So if it gets popular enough to where banks form, the people have the power over the banks, not the other way around. Banks can not just "create fractional reserve" because the network won't accept money that does not exist. So for a bank to accomplish this, there'd have to be a gigantic network layer over the top of encoin that supports fractional lending. And no one has to use it if they don't want to. Alternatively, regular banks could use encoins as backing for their fiat fractional reserve lending. That still does not make any more encoins appear from nowhere, and fiat money is useless on the encoin network.

Only bitcoin like currencies that aim for ever increasing coin value (price deflation) discourage this "out of nowhere" money. There is a thread called "lending at negative interest" or some such where I disprove that silly logic.

On the contrary, the way bitcoin was designed (which, admittedly, might be necessary for a primarily deflationary economy) makes it trivially easy for "out of nowhere" money. Astronomical hordes (wow hordes or hoards works here, isn't that cool) of coins with no backing whatsoever and are unaccounted for in the economy make up probably 30-50% of the bitcoin worth. I've said it again and again, so many people have the power to crush the economy under their foot on a whim, and this power only GROWS and is given to even more people with less astronomical sums as time goes on and bitcoins become more scarce.

In another thread I pointed out that if satoshi only held on to 100k and 20.9 million coins were distributed to 1 billion people, the selling of those 100k would cause 1 BILLION people to lose 0.5% of their net BTC worth, and of course, satoshi gains that worth. That has no other definition other than mass inflation (edit: and transfer of wealth, of course).

I certainly don't want to penalize the spenders and remove currently circulating ENC. That's exactly the wrong direction. The refund simply means, "Do no evil!"

But who best to give the newly created money too? Certainly not to someone who intends to hoard it. That won't change ENC exchange values at all. I could give it to those already spending. Perhaps by returning DOUBLE the tax to everyone in the transaction. That doesn't guarantee that they will circulate it though.

I hate to say it, but you are still missing a key point of my proposal: the price tends to 10kWh. You do not need to encourage or discourage spending or saving. You need to focus on encouraging a stable price, the other two will work themselves out just fine. HOPEFULLY, as I have stated in other parts of this thread, this means that the exchange rate may go a little crazy, but merchants do not need to worry about continually adjusting their prices vs fiat, because eventually the price will work itself out.

In encoin, hoarding is saving. There really is a difference. One person's hoard has virtually no effect on the economy, even if it's large. First, because to get a large hoard he would have had to save for an incredibly long time (14 ENC a month for an average computer) and by that time the market will be big enough to absorb it without batting an eyelash; and second, because the currency is backed by electricity. As frivolous as that may sound, it gives a guarantee that effort was put into creating these coins, and they do in fact have an intrinsic value. Beyond that, there is little incentive to hoard in times of deflation because the market is demanding more than the coins will eventually be worth. You'd be silly not to sell unless you thought demand was going to increase even more--and you DO NOT, I repeat DO NOT have enough coins to make a difference in demand by hoarding like it was so trivially easy to do in bitcoin. Someone else will just mine instead and take the profit. You are trying to fix something that doesn't need to be fixed, it will work itself out.

That's why establishing a fixed, unchanging transaction fee is important; sorry no refunds.

I thought that the number of new coins being created should somehow be related to the current amount of coins *circulating*. Those are the ones that affect valuation. The tax is also related to the number of *circulating* coins. If the total economy is small, you need small efforts to affect change. If the total economy is large, you need larger efforts.

NO. You are proposing manipulating the currency instead of manipulating the people who make it and spend it. While manipulating the people sounds terrible, all am I saying is that they will be guided by obvious factors when the time is right. Manipulating the currency is BAD ECONOMIC POLICY. You can't predict the effects. You can't be sure you programmed it correctly. Encoin is trying to get away from that horseshit.

[Red]

Are you referring to 1/8th for 1/10th? That is because if coins are down in value, 1/10th is still losing money to mine--ahem I mean secure the network. I am trying to keep people from leaving in an extended period of bad economy, one of those big contractions we discussed earlier.

Fair enough!  

Well, how about Reputation then? Does that satisfy your need for a better term? Compliance points has a pretty awful ring to it.

Yes, reputation is much better when talking about how one group views another group. Or even how less familiar group members view each other.

If you hate the term compliance I would suggest something like:
Reputation =  consistency * accuracy * effort
Reputation =  dependability * compliance * securing
Reputation = (uptime) * (not fucking-up) * (mining)

Shit, I don't know! I hate naming things too!

[Etlase2]

I wonder if calling TrustNets Freenets instead would cause any confusion with the freenet protocol. I'm trying to think of something relatively catchy, but I dunno. I need suggestions for proposal 3.0.

[Red]

I have a long thread on this forum about how one does fractional reserve banking with any non-fiat currency including gold.  I can find it for you.

Otherwise, I don't really want to talk about it.

I hate to say it, but you are still missing a key point of my proposal: the price tends to 10kWh. You do not need to encourage or discourage spending or saving. You need to focus on encouraging a stable price, the other two will work themselves out just fine.

Of course I understand. That is why I came here. I would call it 1 ENC = $X = 10kWh. It's a wandering target but at least it is constant with respect to each individual's lifestyle.

HOPEFULLY, as I have stated in other parts of this thread, this means that the exchange rate may go a little crazy, but merchants do not need to worry about continually adjusting their prices vs fiat, because eventually the price will work itself out.

Point understood. But stores are still going to adjust their fiat prices to what they want. After that, they'll look at ENC and decide if a price change is to their advantage. There is no *fair* price! Just the market price. :-)

I understand hoarding. 'nuf said.

You are trying to fix something that doesn't need to be fixed, it will work itself out.

I'm saying, I fixed it optimally. You are fixing it less optimally.

You are not arguing I'm pushing the system in the correct direction. You are saying, "We'll get by without a push. Just might take longer."

That's why establishing a fixed, unchanging transaction fee is important; sorry no refunds.

I don't think your conclusion follows from your premise. But you are free to charge transaction fees for providing a service. That doesn't affect my monetary logic at all.

I'm not sure why you see a benefit to charging yourself a transaction fee for your own service. Or for peers to charge a transaction fee to other peers providing exactly the same service. See Internet Peering for the best example of what I'm talking about.

I thought that the number of new coins being created should somehow be related to the current amount of coins *circulating*. Those are the ones that affect valuation. The tax is also related to the number of *circulating* coins. If the total economy is small, you need small efforts to affect change. If the total economy is large, you need larger efforts.

NO. You are proposing manipulating the currency instead of manipulating the people who make it and spend it. While manipulating the people sounds terrible, all am I saying is that they will be guided by obvious factors when the time is right. Manipulating the currency is BAD ECONOMIC POLICY. You can't predict the effects. You can't be sure you programmed it correctly. Encoin is trying to get away from that horseshit.

I'm not implying you are wrong here. I'm calling you wrong directly!

Say we had 1,000 people which generally spend the equivalent of $100 each per month in ENC but keep little in their wallet. It is an optimal marketplace when coin velocity is at its maximum. Then Walmart or McDonald's decides they want to accept ENC payments. Suddenly, the same 1,000 people want to spend $200 per month. There is no excess velocity to be had. You are going to need more coins.

So you start generating them at your standard max X coins per trust per day. Eventually you will have enough.

But what if we had 1,000,000 people which generally spend the equivalent of $100 each per month in ENC but keep little in their wallet. It is an optimal marketplace when coin velocity is at its maximum. Then Walmart or McDonald's decides they want to accept ENC payments. Suddenly, the same 1,000,000 people want to spend $200 per month. There is no excess velocity to be had. You are going to need more coins.

So you start generating them at your standard max X coins per trust per day. Eventually you will have enough.

Are you saying it is OK for it to take 1,000 times longer?

That is why I suggested corrections be related to the economy size.

---

On the other hand, I've come to expect that you understand the system differently than I do. So I may be misunderstanding your dynamics.

[Etlase2]

I have a long thread on this forum about how one does fractional reserve banking with any non-fiat currency including gold.  I can find it for you.

I would be interested, sure.

Of course I understand. That is why I came here. I would call it 1 ENC = $X = 10kWh. It's a wandering target but at least it is constant with respect to each individual's lifestyle.

No, 1 ENC will not = $X. It will at a specific point in time, but over time that figure will change again and again as fiat is devalued and/or electricity prices increase. Both 1 enc = $2 = 10kwh and 1 enc = $4 = 10kwh are valid figures depending on when you look, so you can not fill in $X unless you have a much longer and more complicated equation. I'm not trying to peg it to the dollar or any other currency, I'm trying to peg it to 10kwh.

Point understood. But stores are still going to adjust their fiat prices to what they want. After that, they'll look at ENC and decide if a price change is to their advantage. There is no *fair* price! Just the market price. :-)

Yes, but I mean that in the sense there is no need to worry about a short-term spike. If a loaf of bread costs 1 ENC, unless something happens to significantly change the costs of making a loaf of bread, theoretically it could always cost 1 ENC.

I'm not sure why you see a benefit to charging yourself a transaction fee for your own service. Or for peers to charge a transaction fee to other peers providing exactly the same service. See Internet Peering for the best example of what I'm talking about.

Not this again.

Are you saying it is OK for it to take 1,000 times longer?

It won't take anywhere near 1,000 times longer. There is no cap on how many trustnets there can be. With demand that high, many, many more will form. Once the demand is filled, a lot of them will quit leaving the ones that were around before to keep securing the network.

Now if the network contracted by 1,000 times, it's a different story, because the only pressure to counter that is the transaction fee and my yet undescribed additional deflationary measure (which is meant for long term). But odds are if the network has contracted 1,000 times, it's dead anyway.

[Red]

I have a long thread on this forum about how one does fractional reserve banking with any non-fiat currency including gold.  I can find it for you.

Turns out there were 4 threads, but I'll link to my best posts. You can decide if you want the backstory. I've posted them in chronological order, but fullest explanations are probably in the last two.

Started with loaning gold. some thought about digital currency of the future 8/3
Then debunked loaning during deflation. Lending at negative interest rates. (People like bigger numbers.) 8/3
Some idiot said, "you can't do fractional reserve banking in bitcoin. Inflation, Fractional Reserve, and Bitcoins 8/5
Explaining banking yet again in detail. Remove economic nonsense from home page 8/14

Funny I found my favorite personal quote ever near the beginning of the last thread. I have to admin I was trolling the currency vs commodity argument, but I'm still right!

My suggestion for how to describe bitcoin on the homepage of the site:

---

In reality bitcoins are the first master planned scarce COMMODITY. It is unique to this commodity that we know it's total available quantity in the universe. We also know exactly how hard it will be to discover this commodity over the next XX years. Also this commodity is generally seen as easily divisible and fungible, but otherwise it is useless.

The only thing not master planned about this commodity is what people will do with it. Since there are no other known uses competing for this commodity, some people think bitcoins should be used as money. Others think this is a highly implausible foundation for monetary policy.

[Red]

No, 1 ENC will not = $X. It will at a specific point in time, but over time that figure will change again and again ...

My bad. I meant $X to vary with time like you describe. That was why I said wandering target. But the equation doesn't make that very clear. We are in total agreement.

Yes, but I mean that in the sense there is no need to worry about a short-term spike. If a loaf of bread costs 1 ENC, unless something happens to significantly change the costs of making a loaf of bread, theoretically it could always cost 1 ENC.

Agreed.

Not this again.

It's a design decisions of course, but I was serious about learning about internet peering vs transit if you are not already versed in it. It is a fascinating concept to understand when people are babbling about internet regulation.

It won't take anywhere near 1,000 times longer. There is no cap on how many trustnets there can be. With demand that high, many, many more will form. Once the demand is filled, a lot of them will quit leaving the ones that were around before to keep securing the network.

Now if the network contracted by 1,000 times, it's a different story, because the only pressure to counter that is the transaction fee and my yet undescribed additional deflationary measure (which is meant for long term). But odds are if the network has contracted 1,000 times, it's dead anyway.

I do understand the points you are making. And I understand the philosophy about actually burning 10kWh to create each block (except when caveats about cool down mode upset the philosophy ) rather than just trying to keep the ENC value converged with the 10 kWh value.

And without contesting anything you've said here, I still have some really interesting things to say about this. It is going to have to wait to tomorrow though.

I'll give you a hint though...

It involves me giggling at the idea of rolling blackouts in California, just because Amazon and iTunes decided to take ENC to purchase digital content!

[Red]

I may be wrong, but I believe this sytem is flawed in the same way Encoin is. It assumes an equation will remain constant over time but it is more likely that it will vary. I'm referring to the assumption that an increase of X in difficulty will equate to an increase of Y dollars in the cost of mining. In the future that equation may change to X*1000 difficulty = $Y in cost, so because difficulty can only adjust linearly then at some point it will start playing catch-up with technological progress and so hyperinflation will ensue because it will always be profitable to mine.

Sorry for the delay in responding.

I understand what you are saying. A point that I didn't make clear is that, like with bitcoin, the difficulty levels are non-linear. In bitcoin, each difficulty level increase means a doubling of effort. Here effort means hashes/second which is a mathematically predictable. This of course has nothing to do with the cost of that effort as measured in dollars.

You are correct in that it is algorithmically impossible to externally calculate the cost of someone else's algorithm. I'm pretty sure that is a part of Church's Thesis. But if it's not, it should be!

The only way (I can see) that you can bind this problem to the cost of electricity, over time, given *hidden* technology changes, is through human to human competition. Human's decide how much *hidden* electrical cost they are willing to risk. Weighing the risk against their current projections for possible arbitrage gains. If there is no potential reward, nobody should risk anything by mining against their own self-interest.

It's this non-linearity of, and competition for, Dollar rewards (not ENC rewards) that makes the system converge. I'll make up an example and see if I can convince myself.

---

Say Alex and team run the only implementation of EnCoin, on the most efficient know hardware. So does Bill's team, and everyone else. Every time teams see an arbitrage opportunity they mine. One and only one team WINS new coins. All the competing teams LOSE their electrical investment.

The winning team immediately sells their coins to recoup their electrical investment. That coin sale must cover expenses for both this round and previous rounds in which they competed and lost. That leaves them either a profit in dollars, or a hemorrhaging of dollars. The latter, as in Vegas, causes unprofitable gamblers to stop by choice or by inevitability.

Each time any arbitrager sells new coins it does two things: 1) It lowers demand for competing seller's coins, lowering ENC's exchange price. 2) It doubles the *hidden* dollar investment required for every arbitrager who tries to compete in the next round. This reduces the overall potential for arbitrage profit. When the potential for profit reaches zero, the system has converged on an ENC price in dollars constrained by *still hidden* individual electrical costs of the participants.

I assert, this competition should keep the ENC/dollar exchange value relatively stable in the face of a growing or shrinking economy. Extreme economy growth can raise exchange prices, but arbitragers will work quickly to bring them back down. If prices fall, the transaction tax will both, take ENC out of circulation, and reduce the demand for dollars by penalizing panicking sellers in ENC.

---

The technology case is really what you are contesting. I claim that in the face of *hidden* technical change, the system *always* re-converges. Meaning, given zero human intervention, ENC value can never tend toward zero or even infinity. The only question I can't answer is, "How far can it wander from the current price?"

Let me expand on the original example by adding hidden changes in technology.

Say, Alex has a reputation for being the finest arbitrager. He's the best at knowing when to risk electricity and when to avoid doing so. Bill was being much less successful, so he adopts a strategy I call tit-for-tat. If Alex is mining, then Bill will mine. If Alex stops, Bill stops. This annoys Alex, but there is nothing he can do about it. As a result, both teams do equally well as measured in dollar profits.

Now Charlie creates another network. One equivalent in every way to Alex and Bill's. EXCEPT, *unknown to anyone* Charlie has a better implementation of the proof-of-work algorithm, or a secret processor, it doesn't matter. Charlie's can make 1024 times the number of proof-of-work guesses as the others. All for the same quantity of electricity.

There are a number of ways Charlie can play this hidden card.

1) He can start mining when no one else can and win every round. If he adopts this strategy, he can win at most 10 times in a row. Since he has to doubling his personal difficulty each time, eventually he will stop. If ENC prices hold during this period, they will continue to hold. If they move some, they will hold at the final price once Charlie runs out of arbitrage room.

The other mining teams can't help but notice Charlie has a technological advantage. In fact, no other teams will be able to compete with Charlie until they update their technology.

This has no effect on monetary policy. Charlie gains no additional power to affect prices even though he is the only miner. Self-interest prevents him from further mining. He can let the price rise a bit, then mine again. But again that is the goal of the process. The process doesn't care who gets rewarded in dollars. Its goal is keeping the value of ENC stable and it succeeds in this scenario.


This scenario, however, is NOT OPTIMAL for Charlie. We have what is commonly called an "Iterated Prisoner's Dilemma" situation. Charlie can maximize his technology advantage over the long term by cooperating with his opponents. Interestingly enough, it is in the opponent's self-interest to cooperate with Charlie as well.

2) Charlie decides, instead of winning every time, he will adopt Bill's tit-for-tat strategy and do exactly what Alex does. Sure, he is going to solve every proof-of-work in 1/1024th the time and electricity as Bill and Alex. BUT, he decides to only submit enough winning solutions to deliberately match what Alex and Bill are winning. Alex, Bill, and Charlie's wins affect the ENC's monetary dynamics in exactly the same way. ENC's value stays exactly as stable as it would have if Charlie had not been present.

Instead of the sudden inflation spike above, network "client's" see ZERO changes in ENC values or in the behavior of the network as a whole. Alex, Bill, and Charlie are indistinguishable to network "client's" and all equally trustworthy.

Instead of being bankrupted as above, Alex & Bill continue making money the way they always have, but predictably less because there is more competition (securing the network!). They don't see any issues, nor do they have any reason to distrust Charlie. Charlie and Bill's behavior is indistinguishable to Alex.

EXCEPT, Charlie is driving a paid-off Jag, while Bill is using his minor mining profits to pay down the loan on his Hyundai.

Why?

Because for every 1,025 dollars Bill receives for selling his ENC to the exchange, Bill sends $1,024 to the electric company and keeps $1. Charlie sends $1 to the electric company and keeps $1,024.

Which is as it should be.

Because, Charlie thinks Alex and Bill are deluded for leaving a hundred 100 watt light bulbs burning day and night, thinking they are helping to secure the world's future!

The process doesn't care who gets rewarded in dollars. Its goal is keeping the value of ENC stable and it succeeds in this scenario. I'm pretty confident it will succeed in every other scenario as well. Changes in market conditions or technology, might move the price a little bit. But it will never go into bubble or crash scenarios the way you postulated.

[JohnDoe]

There are a number of ways Charlie can play this hidden card.

1) He can start mining when no one else can and win every round. If he adopts this strategy, he can win at most 10 times in a row. Since he has to doubling his personal difficulty each time, eventually he will stop. If ENC prices hold during this period, they will continue to hold. If they move some, they will hold at the final price once Charlie runs out of arbitrage room.

Hmm I'm still confused about how difficulty scales in your system. Why can Charlie win at most 10 times in a row? And what do you mean by doubling his "personal" difficulty?

In your proposal it says that difficulty retargets to current+1 if a proof-of-work+1 transaction wins and goes down to current-1 if no proof-of-work is submitted, so wouldn't it be better for Charlie to pump up difficulty to monopolize and then just mine proof-of-work+1 one block then stop the following block to bring difficulty down, rinse and repeat?

[Red]

Good questions! Let's see if I have good answers. Really my goal isn't to prove I'm a genius. Or that I've already got all the perfect answers. I came back here to have a discussion about concepts like these.

Hmm I'm still confused about how difficulty scales in your system. Why can Charlie win at most 10 times in a row? And what do you mean by doubling his "personal" difficulty?

For convenience of discussion I'm proposing a proof-of-work function similar to bitcoin's. They each miner tries to get their new coin transaction *blessed* by random chance. They do this by repeatedly hashing the transaction and a random (or sequential) nonce until the result meets the current difficulty requirements. In bitcoin's case this means a minimum number of consecutive zeros in the most significant digits.

So if the difficulty level is 1 the most significant digit must be zero. Exactly 1/2 of the possible hash result meet this requirement.
If the difficulty level is 2 the two most significant digits must be zero. Exactly 1/4 of the possible hash result meet this requirement.
If the difficulty level is 3 the two most significant digits must be zero. Exactly 1/8 of the possible hash result meet this requirement.
And so on, each time you increase the difficulty by 1, you double the average number of hash trials it will take to find an acceptable solution.

So, if Charlie doubles the difficulty ten times in a row, he has used up all of his computational advantage. 2^10=1024 He has in effect rescaled the game to put himself in the same situation that Alex and Bill were in before he arrived.

"Doubling his personal difficulty" does sound misleading. My bad. I meant by doubling *everyones* difficulty, he also disadvantages himself.

In your proposal it says that difficulty retargets to current+1 if a proof-of-work+1 transaction wins and goes down to current-1 if no proof-of-work is submitted, so wouldn't it be better for Charlie to pump up difficulty to monopolize and then just mine proof-of-work+1 one block then stop the following block to bring difficulty down, rinse and repeat?

This is an interesting situation. I think you are correct in your analysis. But let's discuss what I was intending, where I messed up, and where it could be fixed.

You had said something like, "in the future, processors might be 1000x more efficient." I totally agree with your premise. They certainly will. I was being a bit of troll, however, when I made the example. I actually started with 8x more powerful, but that didn't seem very hyperbolic. So I went to 32, 64, then I said fuck it. Go big or go home! 1024 times was a big jump over his competitors all at once. It leaves room for a few examples I didn't consider.

A big Woot! to you for finding one. Woot!

---

You are correct, he could win say 5 times in a row to price his competitors out of the game. He could then quit mining knowing that *no one* could compete and the difficulty would fall back -1 where he could mine and win +1 again as you stated. Of course his competitors would all notice and start looking for upgrades... But that would be an unnecessary tangent to your more interesting question.

I had intended for the +0 level to prevent this. By offering a +0 tax refund, I was hoping to make it profitable enough for those with taxed transactions to each commit *some* effort to mining. This creates an ad-hoc mining pool. If any of them wins, all of them get their tax refund. I had intended this pool to *never* get priced out of mining, except when the economy was actually falling.

I also tried to compensate for situations like this using the ration between the -1 tax and the +1 bonus of (1/2 * tax). If the system starts to oscillate, the number of coins actually falls rather than staying the same. Eventually, I thought, this will cause enough inflation so others could get back in the game. However, 2^10 leaves enough room for Charlie to price *everyone* back out again.

---

The saving grace for me, is that even with Charlie taking control in a different way, the system didn't bubble or bust. The ENC value is still relatively stable. Except for the inconsistent taxing, network clients wouldn't even notice the difference.

The process doesn't care who gets rewarded in dollars. Its goal is keeping the value of ENC stable and it succeeds in this scenario.

In fact, it is in Charlie's best interest to move the market as little as possible. In the above example I said, "he could win say 5 times in a row to price his competitors out of the game." But, if he could price all competitors out by winning only 3 times in a row, his arbitrage gains would greatly increase. No sense for Charlie to spend 4 times the electricity if he doesn't need to.

---

Ironically, for me, if Charlie adopts this strategy, he in effect implements the proposed EnCoin transaction fee I've been lobbying against! This fee takes coins from the spenders, destroys them, then recreates and gives them to miners. All while minimally effecting monetary policy. Ugg!

Charlie is promising to keep everyone's monetary policy stable, in exchange for a small fee! It only seems like a scam because monetary policy would be even more stable without Charlie's actions and fees. Go figure?

[Red]

No, 1 ENC will not = $X. It will at a specific point in time, but over time that figure will change again and again as fiat is devalued and/or electricity prices increase. Both 1 enc = $2 = 10kwh and 1 enc = $4 = 10kwh are valid figures depending on when you look, so you can not fill in $X unless you have a much longer and more complicated equation. I'm not trying to peg it to the dollar or any other currency, I'm trying to peg it to 10kwh.

OK, I finally grok what you are saying.

So if today,

1 ENC = 1 Loaf of bread = 10kwh = $1

and nothing marketplace changes except the fed prints lots of dollars.
Then what you want is,

1 ENC = 1 Loaf of bread = 10kwh = $5

I totally agree that is a laudable goal. That is what I'm attempting to approximate as well. If I work and decide, not to buy 5 loaves of bread today, I want to be able to buy 5 loaves of bread on any future date of my choosing.

===

I have $5 excess that I don't want to use to buy 5 loaves of bread today.
So I buy $5 worth of electricity and mine 5 ENC.
On some future date, after inflation caused by the fed printing lots of money
I take my 5 ENC to the exchange and sell them to a client for $25.
I spend my $25 to buy 5 loaves of bread.

===

However, one thing seems particularly odd to me.

I have $5 excess that I don't want to use to buy 50kwh of ELECTRICITY to run my air conditioner today.
So I buy $5 worth of ELECTRICITY and mine 5 ENC.
On some future date, after inflation caused by the fed printing lots of money
I take my 5 ENC to the exchange and sell them to a client for $25.
I spend my $25 to buy 50kwh of ELECTRICITY to run my air conditioner.

Doesn't this seem logically odd to you?

It sure seems like a *double spend* if I can buy electricity twice with the same $5 bill. Where does the extra $5PV=$25FV come from? It seems like it must come from clients, who later will expect their future double spends to come from future clients.

===

I submit to you, that the proposal to *actually burn* an equal amount of electricity to the ENC value is implausible.

Have I misunderstood something?

[Etlase2]

However, one thing seems particularly odd to me.

I have $5 excess that I don't want to use to buy 50kwh of ELECTRICITY to run my air conditioner today.
So I buy $5 worth of ELECTRICITY and mine 5 ENC.
On some future date, after inflation caused by the fed printing lots of money
I take my 5 ENC to the exchange and sell them to a client for $25.
I spend my $25 to buy 50kwh of ELECTRICITY to run my air conditioner.

Doesn't this seem logically odd to you?

It sure seems like a *double spend* if I can buy electricity twice with the same $5 bill. Where does the extra $5PV=$25FV come from? It seems like it must come from clients, who later will expect their future double spends to come from future clients.

The electricity you used from the first $5 is turned into currency, that's the whole point. Currency backed by electricity. It technically isn't "used" for any useful purpose other than the currency, that is why it is valuable as a medium of exchange (to potentially exchange for electricity!!).

I submit to you, that the proposal to *actually burn* an equal amount of electricity to the ENC value is implausible.

Have I misunderstood something?

LOL now you're having doubts? I've stated many times that 1 enc will not exactly equal 10kwh of energy, it's impossible. But it can be the next best thing.

I'm totally adding this question to the proposal now because it's enjoyable. The new proposal will be out today. It will knock your socks off.

[Red]

LOL now you're having doubts? I've stated many times that 1 enc will not exactly equal 10kwh of energy, it's impossible. But it can be the next best thing.

No, I'm serious. I've been convinced from the beginning that the system should use as little electricity as possible to assure the monetary policy goals were met. If no new currency is needed in circulation then I propose they should be infinitely expensive to create in kwh. If many are needed in circulation they should be cheep to create in kwh.

You seem to counter propose that each ENC coin must represent *having already burned* precisely 10 kwh. This is the part I think is implausible. I'll submit a simplified example.

that is why it is valuable as a medium of exchange (to potentially exchange for electricity!!).

This is precisely the situation I was trying to allude to in the previous example. Let me make it clearer.

I have $5 excess that I don't want to use to buy 50kwh of ELECTRICITY to run my air conditioner THIS MORNING.
So I buy $5 worth of ELECTRICITY and mine 5 ENC.
In the heat of the afternoon, I take my 5 ENC to the exchange and sell them to a client for $5.
I spend my $5 to buy 50kwh of ELECTRICITY to run my air conditioner.

No matter how you try to convince them otherwise, the electric company is going to expect $10 from you. Even though, you only purchased $5 worth of air conditioning. You took $5 out of your pocket and gave it to the electric company, so you think the system is fair. ("valuable as a medium of exchange")

However, the anonymous exchange client you took $5 from to make it seem fair, (to you) is likely to see otherwise. The fact that this anonymous stranger purchased your right to take $5 from some other anonymous exchange client, doesn't make the issue go away. It just delays anyone noticing the scam until you can get away.

In this world, miners can only sell ENC on an exchange. They can never buy ENC. If they were to buy ENC on the exchange, they would be buying back the same debt they already sold. But, (and this is the most important part to close the loop) they can't even try to buy back the debt they previously sold. Because they don't have the money. The electric company has that money.

I'm totally adding this question to the proposal now because it's enjoyable. The new proposal will be out today. It will knock your socks off.

I look forward to your new proposal. Please address this scenario in place of the previous. It states my point more succinctly.

[Etlase2]

In this world, miners can only sell ENC on an exchange. They can never buy ENC. If they were to buy ENC on the exchange, they would be buying back the same debt they already sold. But, (and this is the most important part to close the loop) they can't even try to buy back the debt they previously sold. Because they don't have the money. The electric company has that money.

I don't follow. You spent $5 to run $5 worth of an air conditioner ($5 for 5 ENC, $5 back for selling it, net $0). There is no net gain or loss in the system. The person who bought the 5 ENC now has $5 worth of electricity in digital coin form. If they want to sell it back for $5, they are free to do so. But that $5 that was put into ENC stays in the ENC economy; it can never leave.

[Red]

Epiphany!

It just delays anyone noticing the scam until you can get away.

...they can't even try to buy back the debt they previously sold. Because they don't have the money.

Now I understand your insistence on a transaction fee! It destroys the evidence of the scam!

If that 5 ENC gets traded around enough, it eventually evaporates via the fee! There is no last client to go back to exchange and find the backing $5 is long gone!

Brilliant! Or, Sinister! I'm not really sure yet. :-)

The person who bought the 5 ENC now has $5 worth of electricity in digital coin form. If they want to sell it back for $5, they are free to do so. But that $5 that was put into ENC stays in the ENC economy; it can never leave.

I see that your intention is for the system to be honest. I'm pretty sure you understand what is happening. But your explanations are sorely lacking.

Indeed, there is zero possibility of taking 1 ENC back to the electric company and asking them to provide you with 10 kwh or electricity in exchange. That is the obvious concept that every potential client can't help but grasp intuitively. This is where your explanations need to focus.

In your explanation, "But that $5 that was put into ENC stays in the ENC economy; it can never leave." is either fallacious or intentionally misleading. The $5 becomes 5 ENC, and it wanders the economy. But is evaporates as it wanders in increments equal to the fee. It doesn't stay in the economy at all.

If the fee was 10%, to exaggerate the speed of the example, after one transaction the 5 ENC would become 5.00-0.50=4.50 ENC. After the next, 4.50-0.45=4.05 ENC. After the next, 3.65 ENC, 3.29 ENC,... It is an infinite regression that will eventually be rounded off as ZERO.

Done "fairly" all the clients pay a fee that equals exactly the miner's cost of electricity. The miners don't profit at all for their effort. They only benefit by having access to a system, to which even miners use as and pay as clients.

Done! I get it.

But the best way to convince people to become clients of such a system, is to convince them that the system, as a whole, does its absolute best to MINIMIZE overhead=electricity=fees. This is where I think your persuasiveness is currently failing.

[JohnDoe]

@Red: Yeah, I guess you are right that whether or not Charlie monopolizes mining is irrelevant in your sytem. Anyway, assuming your system is completely sound and doesn't have any holes for gaming it, there's still the problem that this sytem relies completely on being able to generate blocks securely by consensus instead of proof-of-work. I haven't followed your conversation with Etlase so no idea how much this concept has been developed. Personally I can't even grasp how such a thing would be possible, but it would be pretty exciting to see such a paradigm shift being materialized.

[Etlase2]

Now I understand your insistence on a transaction fee! It destroys the evidence of the scam!

ROFL. Anyone can mint coins. Coins have a profit margin because they require effort. Anyone who takes issue with a 0.25 or 0.5% (400 or 200 travels) transaction fee can join a shitty network that gets the lowest payout, mine at 1/20th the difficulty and will more than make up that transaction fee in no time. Ok, maybe not "no time" but the option is always there. The fee creates demand. Demand means people will mint coins AND SECURE THE NETWORK. Ergo, the fee SECURES THE NETWORK. Merchants adding value to the economy WILL NOT GIVE A SHIT ABOUT THE FEE because it is less than what credit cards or paypal charge. Not to mention that the fee is deflation, and deflation means that the coins will retain value. Every time a fee is spent, every coin across the network gains that much value. It gains an intangible additional amount of value by creating demand for the network to be secure. SECURe, SECURE, SECURE, SECURE. There could be millions or billions of dollars on this network, it needs to be BULLET PROOF. In a stable economy, everybody is happy with the amount of coins. THEN NO ONE IS REQUIRED TO SECURE THE NETWORK. THIS IS TERRIBLE. THIS IS THE WORST POSSIBLE THING THAT COULD EVER HAPPEN. THE ECONOMY IS PERFECT, THEN IT COLLAPSES BECAUSE SOMEONE FORGOT TO MINT SOME COINS.

Are you *beginning* to understand yet?

In your explanation, "But that $5 that was put into ENC stays in the ENC economy; it can never leave." is either fallacious or intentionally misleading. The $5 becomes 5 ENC, and it wanders the economy. But is evaporates as it wanders in increments equal to the fee. It doesn't stay in the economy at all.

If the fee was 10%, to exaggerate the speed of the example, after one transaction the 5 ENC would become 5.00-0.50=4.50 ENC. After the next, 4.50-0.45=4.05 ENC. After the next, 3.65 ENC, 3.29 ENC,... It is an infinite regression that will eventually be rounded off as ZERO.

The fee may very well be too high. That is why I started an app to work on some scenarios. I stopped working on it though to finish the new proposal.
However, if the fee is too low, what do I do when the economy contracts? Maybe it really won't be that big of an issue because people will see cheap coins and start buying in. It is very hard to say for sure.

Done "fairly" all the clients pay a fee that equals exactly the miner's cost of electricity. The miners don't profit at all for their effort. They only benefit by having access to a system, to which even miners use as and pay as clients.

Nobody will ever do it then. You forget about the time investment involved. And the computer investment. Coins are difficult to make and nobody is going to want to make them without a profit involved. Because they are difficult to make, many other people would rather pay for the service and buy coins directly from an exchange.

[Etlase2]

there's still the problem that this sytem relies completely on being able to generate blocks securely by consensus instead of proof-of-work. I haven't followed your conversation with Etlase so no idea how much this concept has been developed. Personally I can't even grasp how such a thing would be possible, but it would be pretty exciting to see such a paradigm shift being materialized.

I'm a goddamn genius. Just you wait. 

[JohnDoe]

I'm a goddamn genius. Just you wait. 

I've been waiting all my life for the perfect decentralized currency that will become mainstream and destroy the institutions that I hate. Can't hurt to wait some more.

[Etlase2]

NEW THREAD: https://bitcointalk.org/index.php?topic=46237.0

locking this one so the focus can be on the completely revised proposal.

thanks for all of your input