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

[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.

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[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:

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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.

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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.

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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!

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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.