Bitcoin as computational commodity

[netrin]

Many economists have argued against bitcoin's adoption as a money because while it could be a medium of exchange, unit of account, and store of value, bitcoin did not originate as commodity. Many have argued that this historical property is not necessary, others like me have argued that a scarce bitcoin derives value from the transactional service that bitcoin makes possible, while others claim that the computational power required to validate the transactions back up the digital commodity. Few are confident with these assertions and therein lies the problem.

What if a bitcoin unit represented a promise to execute computation (or store encrypted data)? Either within the bitcoin network directly or externally but payed for in bitcoin. The idea is inspired directly from a slashdot dissenter quoted in part below. Bitcoin already has a scripting language, indeed all transactions are a common and immediately executed signed script.

Suppose one could compile a multi-threaded script and pay bitcoin "transaction" fees to have it executed by the enormous computational power of the network. Perhaps with different GPU vs CPU costs (memory, speed, etc). Then suppose that one could simply produce computational credit, the promise to compute a specific number of cycles. Block reward would simply be an inflationary tax for otherwise 'idle cycles' as it more or less is today.

I have not yet come up with a way to merge useful computational proof-of-work with validation (hash < target), but I believe if an elegant solution (both economic and technical) were discovered, bitcoin would be unstoppable.

If a bitcoin had been a promise to do some computation work in the future, then it may have had some value, because people need computational work done. For example, something like Amazon's compute cloud could potentially back a currency, because the service of running a VM for some number of CPU seconds is fungible and - importantly - people actually want it. No one wants the work that is done to generate a bitcoin, so the coin itself is worthless. Its value is based entirely on the premise that other people will want it in the future, but that's just a pyramid scheme.

[Dan The Man]

It would have to have the requirement that your computational problem is easily verified, but it sounds feasible as a separate kind of transaction. Gavin Anderson wrote a bit about the possible types of different "smart contract" transactions that are possible. Solving a given computational problem sounds like something that would fall into that realm.

[JeffK]

Bitcoin is an inherently valuable unit of work in the sense that a dollar is a valuable unit of work if I bury it in a field and give 100 people shovels and the first to find it gets to keep the dollar, and then everyone gets to try again in the next field.

[netrin]

I looked into smart contracts a bit and they are very fascinating, but much of it went over my head. They tend to be very tiny though, such as escrow, multiple signatures, delayed processing, etc. As execution and state external to the blockchain...

A computational exchange could be established (within the blockchain?) in which users and 'miners' negotiate prices for CPU or GPU cycles, temporary storage during computation, input/output bandwidth, and even long term encrypted/replicated storage.

As a user, I could create or use an existing program (perhaps compiled ECMAScript or a minimal turing-complete language such as brainfuck) to run within a specific amount of RAM, and receive periodic state and proof-of-work dumps. As long as the program were single-threaded (or the user acted as the mult-thread control center) then the user could start, stop, restart, and switch processing between any number of miner nodes after any periodic state dump.

I imagine most of this is already well researched in the field of grid computing and darknets. What may not already exist is a mechanism to monetize processes in a fully decentralized environment. Crypto-money like bitcoin would be necessary without a central mediator such as IBM or Amazon. Why not just use Amazon? Perhaps you'd prefer anonymity. Perhaps your computational units are many but infrequent or tiny. Perhaps a commoditized service will have greater liquidity and competition would drive prices down and reliability up. Perhaps you need a resource with no single point of failure. Services could be funded directly by the users who find them useful (through donations or usage tax).

[tvbcof]

I consider my 'investment' in Bitcoin to be obtaining spots for secrets keys that I alone control in the block chain (or ledger.)

The block chain itself represents a huge amount of investment in time, money, energy, etc.  My gamble is that this will make it a likely starting point for future efforts (or potentially a continuation of the original.)  It's not unlike gold in that while a lot of substances could serve in the role that gold does, someone it always goes back to gold since there is an 'infrastructure' of sorts existing for it.  This infrastructure is as much as anything a shared mental scaffolding, but it seems to be effective.

A giant flaw in my logic (or one of them, at least) is that there is nothing to enforce a condition where my entries in the ledger are honored in any what that would further my goals even if the block chain were the basis for further developments.  That is, to me, one of the most risky part of my gamble here.

[netrin]

If such a computational network and exchange existed, then it would be very easy for a company to accept existing fiat money from customers, including credit card transactions, to purchase computational time denominated in bitcoin. Similarly a miner could negotiate contracts and accept cash from any company offering the commoditized service of computational power.

If commodification drove prices down and reliability up, then anonymous, secure, distributed computing funded by crypto-currency would truly establish the vision of 'the cloud'.

[Steve]

No one wants the work that is done to generate a bitcoin, so the coin itself is worthless.

This is where the slashdotter gets it wrong.  Everyone wants the work that is done to generate a bitcoin because without it, there would be no agreement on the official block chain and there would be no effective prohibition against double spending short of a centralized authority that maintains an official chain.  So, if you value the decentralized nature of bitcoin, then yes, that work is valuable to you.  Maybe you wonder why people continue mining at a loss?  Well, it's perhaps because they value the integrity of the network as much as they value the bitcoins it generates.

[tvbcof]

No one wants the work that is done to generate a bitcoin, so the coin itself is worthless.

...
Maybe you wonder why people continue mining at a loss?  Well, it's perhaps because they value the integrity of the network as much as they value the bitcoins it generates.

Very true indeed.  I took an interest in mining for the first time just a few days ago and started researching what was available in FPGA-land.  'winning' a few BTC now and then is very much a secondary interest of mine (no pun intended.)

I have an internal debate about whether it makes more sense to go for some big-iron GPU machines to use periodically in times of crisis.  Maybe if some demoralized miners are giving there gear away I would think about it, but Moores law and supply-chain factors tend to argue against this investment.

[netrin]

I do not think a hobby demand, which I believe you are attributing to mining at a loss, is sustainable. I don't see any relationship between the cost of validation with cost of holding or using bitcoins. The transaction fee is not negotiated regardless of exchange rate. The variable difficulty ensures a correlation between production cost and exchange rates no matter what the real costs. Bitcoin are equally functional at any real value, but are more secure with computational power and thus higher exchange rates. Value derives from demand. Demand does not seem to derive from value, at least not until a high threshold of both (chicken and egg or fiat bootstrap problem).

Anyway, there already exist computational demand and secure replicated storage demand. I believe the bitcoin network is in a unique position to capitalize and commodify these demands.

[phillipsjk]

You should read one of the inspirations for the orignal Bitcoin paper:
W. Dai, "b-money," http://www.weidai.com/bmoney.txt, 1998.

If the work has value, by itself, that is a problem for establishing "Proof of work". It would essentially allow participants to sell the same work twice. If not carefully implemented, it also opens up the possibility of "banking" up work in isolation from the network in order to mount an attack on the network.

[hashman]

On a possibly related tangent I heard that was Marx's big theory that money was inherently derived from work (labor).

[netrin]

Thanks for the b-money link. Fascinating read; It's obvious from which ideas Satoshi's design evolved.

If the work has value, by itself, that is a problem for establishing "Proof of work".

Yeah, 100% verification or repetitive guess and check problems such as bitcoin's (hash+nonce < target) are not typically of any practical value. But what I am envisioning are deterministic computational units. Any one of them could be recreated and verified by the 'buyer'. He can try to outsource verification to other parties if he could be sure there was no malicious collaboration.

While computers could be anonymous, their identifiers (addresses) could have reputation, and buyers and sellers rate each other, whose values would be individually weighted by a web of trust. A good rating held by a node at the center of a dense web of trust could in itself could be factored into a miner/computer's exchange price.

I've never designed a VM and know even less about distributed computing, but the model I have in my head are finite-state-machines (with state) or instruction/data stacks. The buyer sends the computer/miner a stack, buys a specific number of cycles and then receives the modified stack at the end whether or not the program completed. The buyer can then send the stack to another computer and buy some more cycles. At any point, the buyer could rerun the stack to see if he got the exact same state. Perhaps the buyer verifies 10% randomly and then 1% later if he trusts the computer.

Ultimately, it comes down to trust. Perhaps I can not trust a random miner on the other side of the earth, but I can trust a pool who has verified innumerable computations from hundreds of its 'sub contractors'.

[allten]

Many economists have argued against bitcoin's adoption as a money because while it could be a medium of exchange, unit of account, and store of value, bitcoin did not originate as commodity. Many have argued that this historical property is not necessary, others like me have argued that a scarce bitcoin derives value from the transactional service that bitcoin makes possible, while others claim that the computational power required to validate the transactions back up the digital commodity. Few are confident with these assertions and therein lies the problem.

+10. Very good observation.
Bitcoin's "industrial value" is its ability to act as money better than anything else (Except stability; however, that's completely offset with the ability to take it to market anywhere in the world very quickly - so that doesn't matter)
Their criticism on bitcoin "not being a physical commodity so it can't be money" is hypocritical; just look at the price of silver and gold: it is valued way above its current industrial demand. By their same logic, the high prices of these commodities should also be demonized. (Note: I also invest in PMs.)

I have not yet come up with a way to merge useful computational proof-of-work with validation (hash < target), but I believe if an elegant solution (both economic and technical) were discovered, bitcoin would be unstoppable.

The idea of discovering other uses for Bitcoin is a great idea and would surely contribute to its success; however, changing the computational algorithm is a dead end in my opinion. Don't want to sound negative, but would like to encourage you to focus your energy else where more productive.

I think potential ideas should start with the obvious: Bitcoin is the most distributed, open, and secure active database the world has ever seen that has no central authority - That is extremely valuable. We just need to discover all the services that would benefit from this and put them into practice; currency is the obvious one. I think namecoin was a great start, but I find it tragic that they had to create an alternate currency. They should have just integrated these services into Bitcoin and start managing DNS addresses with the same block chain. Just look at Verasign - it's a Billion dollar company with central control over these services. Just imagine the same services at a cheaper rate but with no central control. That's huge!

The negative to that is it would increase storage requirement for the block chain, but I'm sure we would figure out all the necessary solutions now and in the future.
The positive is it would increase confidence that the block chain will live on after all 21M bitcoins have been generated.
 

[jjiimm_64]

well, why not just pay for miners to do folding proteins?

[hashcoin]

How would you ensure people kept their promises of future work?  That is what seems hard to do.  I don't immediately see any way you could use such a scheme to have a "common currency" like bitcoin.

What one could do feasibly, and IMO is actually better, is dispense with the notion of a central/single currency and instead have an "everyone an issuer" model as in Ripple[1].  That is, everyone issues their own "computation promises", which can be exchanged with one another and the market will price reliability.   Out of this, canonical currencies would likely emerge: private "computation banks" would issue computation futures without actually owning any hardware, but rather maintaining a diverse portfolio of potentially unreliable futures from individuals, rebalancing as estimates of reliability change.

The barrier to doing something like this is security/practicality: existing schemes for doing delegated computation have massive overhead (1000x slowdown).  Things are slowly getting better but not good enough yet.  I studied the literature on this a bit a few years ago, so I'm not current, but I think the state-of-the-art scheme currently is [2].  That scheme uses fully homomorphic encryption, which we also don't even know how to do practically yet (though DARPA is pushing/funding hard for it).

[1] http://en.wikipedia.org/wiki/Ripple_monetary_system
[2] http://research.microsoft.com/en-us/um/people/yael/publications/2010-improved_delegation_computation.pdf

[netrin]

criticism on bitcoin "not being a physical commodity so it can't be money" is hypocritical; just look at the price of silver and gold

I'm on the fence about these arguments. If the bitcoin experiment were to catch on, then we will all claim its success as proof that a physical commodity were not necessary. Failure would seem to validate our dissenters, despite fiat paper providing prior proof. Neither scenario actually proves anything, just as a few generations experimenting with communism, anarchy, capitalism, or any other poli-economical ideology.

Comparing fiat paper (FP) and physical metal (PM) is interesting. Both have successfully been used as money and each has its advantages. FP is much more convenient while PM has 'historical staying power'. Bitcoin seems to be a more extreme case of FP. It is potentialy much more convenient, though its 'historical staying power' will always be questioned until of course history proves its power to stay.

The idea of discovering other uses for Bitcoin is a great idea and would surely contribute to its success; however, changing the computational algorithm is a dead end in my opinion.

I sympathise with this statement. I loath the brood of altchains. I think experimenting with new ideas is great, but I don't like the hack-y free-money environment. What it tells me though, is that altchains will never go away. Any (government/banking) institution could replicate bitcoin, throw in a few freebies for the creator, call it regulation and stability, and compete with bitcoin. I wouldn't bet gold on the winner.

It may very well be that I (or others) can not create a bitcoin like system in which the computation generates useful commodified work, can be stored (promise for future work), and for which the bitcoin units have an inherent value beyond their use as a money. If that is the case, then purchasing computational cycles, data storage, and bandwidth with bitcoin is functionally similar.

The differences (cycle=money vs money buying cycles) are quite profound though. Bitcoin as it is will forever be a speculative asset. It may have the best of FP and PM or the worst of both worlds. Its monetary stability may, like PM, act as an excellent store of value, or the innumerable altchains may inflate them all out of existence.

Suppose a single computational Cycle were our atomic monetary unit. A Cycle would have a direct cost related to technological innovation and the cost of energy, which I believe is the ultimate unit of value for living beings. There are many variables, but ultimately computation has three key aspects which remarkably parallel money:

RAM / disk	: store of value
bandwidth	: medium of exchange
processing	: unit of account

As (if) energy becomes cheaper and technology more efficient, then the purchasing power of each Cycle would reduce (price inflation). On the other hand, the inflation would be very stable and predictable, currently roughly 50% annual inflation (Moore's Law and energy efficiency rates (Energy intensity calculated as units of energy per unit of GDP)).

How would you ensure people kept their promises of future work?

Good question. That's the major whole in my thesis. But it's why this is a forum discussion and not a PDF manifesto.

Perhaps I have been arguing a contradiction in terms. A promise of future work is credit, not money. A money is not spent (consumed), it facilitates spending.

You may be on to something with Ripple. If it replaced its centralized aspects with a decentralized (bitcoin) ledger, I think Ripple would be more appealing. Thus far I haven't properly sunk my teeth into it. I think I'll give Ripple another go this weekend.

Thanks for the paper on delegated computation using homomorphic encryption. It's PRECISELY relevant to this discussion. I think I'll use their terminology from here on.

[coinage]

You should read one of the inspirations for the orignal Bitcoin paper:
W. Dai, "b-money," http://www.weidai.com/bmoney.txt, 1998.

If the work has value, by itself, that is a problem for establishing "Proof of work". It would essentially allow participants to sell the same work twice. If not carefully implemented, it also opens up the possibility of "banking" up work in isolation from the network in order to mount an attack on the network.

Can you elaborate on why you feel valuable work could "allow participants to sell the same work twice"?  I think that's probably inaccurate: instead, I think the work must be provably FRESH (created during the current block cycle and not earlier).

I don't think the work has to be inherently worthless IF there is some way to prove it wasn't done earlier.  If we can refine the exact requirements we may be able to see a way to merge much more useful work with bitcoin.

Note: I certainly enjoyed the reference but it does not seem to explain this point.  It merely states:

1. The creation of money. Anyone can create money by broadcasting the
solution to a previously unsolved computational problem. The only
conditions are that it must be easy to determine how much computing effort
it took to solve the problem and the solution must otherwise have no
value, either practical or intellectual. The number of monetary units
created is equal to the cost of the computing effort in terms of a
standard basket of commodities. For example if a problem takes 100 hours
to solve on the computer that solves it most economically, and it takes 3
standard baskets to purchase 100 hours of computing time on that computer
on the open market, then upon the broadcast of the solution to that
problem everyone credits the broadcaster's account by 3 units.

[netrin]

I can speak for neither Phillipsjk nor W. Dai, but I think "selling the proof of work twice" is short-hand for what researchers of computational delegation more simply called dishonesty:

what if the workers are dishonest? For example, in the volunteer computing setting, an adversarial volunteer may introduce errors into the computation. In the cloud computing example, the cloud (i.e., the business providing the computing services) may have a strong financial incentive to return incorrect answers, if such answers require less work and are unlikely to be detected by the client. Moreover, in some cases, the applications outsourced to the cloud may be so critical that the delegator wishes to rule out accidental errors during the computation. As for weak mobile devices, the communication channel between the device and the remote computer may be corrupted by an adversary.

In the case of bitcoin, you can imagine a miner sending their proof of failed work to multiple pools while keeping successful work for themselves. The pools have many ways to reduce these and similar risks, such as sending unique nonce prefixes, re-checking a tiny percentage of work, dividing work into pieces, etc.

I'm not particularly interested in generally 'more useful work' like protein folding and other involuntary donations. Sure, if bitcoin validation stabilized the climate as a side effect, that would be wonderful (though many here in Greenland may object). However, I am interested in arbitrary work. The promise to do MY work for which I'm willing trade quantifiable value. I want a universally valuable generic commodity (either good or service).

If a Satoshi represented the promise to compute a cycle in the future, then I can either 'cash it in' and get some processing power now, or just pass it around as credit notes to be redeemed far into the future.

Ripple handles credit while distributing/balancing the coincidence of simultaneous wants which plagues real-world barter. I can offer computational power, storage, but limited bandwidth and need tropical fruits. Someone in Africa can offer fruit and music and wants computation and to learn English. Someone in England can teach English, has bandwidth and wants music and storage. We can balance our wants and offers through Ripple and record the remaining credit balances and trust relationships in Bitcoin. ...or some such.

Computational cycles, bytes of storage, and bits of bandwidth are such tiny atomic units of value that for all practical purposes, as a service/commodity/money, they are infinitely divisible. They also lend themselves extraordinarily well to a distributed network - in fact they ARE the units of a distributed network.

[coinage]

[1] http://en.wikipedia.org/wiki/Ripple_monetary_system
[2] http://research.microsoft.com/en-us/um/people/yael/publications/2010-improved_delegation_computation.pdf

Thanks for the Microsoft paper on delegated computation using homomorphic encryption. It's PRECISELY relevant to this discussion. I think I'll use their terminology from here on.

A fine point ... but perhaps best not to characterize this paper or its terminology as Microsoft's.  A copy is available at their website, but two of the three researchers, including the lead author, are with the School of Engineering and Applied Sciences at Harvard University.

[netrin]

A fine point ... but perhaps best not to characterize this paper or its terminology as Microsoft's (if you even were).  A copy is available at their website, but two of the three researchers, including the lead author, are with the School of Engineering and Applied Sciences at Harvard University.

I was. Thanks for pointing that out. I was feeling an overwhelming pressure to remain unbiased with respect to source.