Annual 10% bitcoin dividends if mining were Proof-of-Stake

[raskul]

why is it that I get a feeling of impending doom? a - perhaps, desperation to bring in something new?

4000BTC have been dumped on bitstamp in the past few hours. Whoever it was, clearly don't have Bitcoin in their best interest list and it is sellers, like this, who too, would also have no interest in holding their coins for PoS.

Regardless of the algorithm used to create Bitcoin, we will always see would-be-stock-traders cashing out at ~whatever price they can achieve.

EDIT: the dump is more than BTC7k and it's not just on bitstamp, but across many exchanges. You are simply not going to persuade people like that to hold their coins, for any %.

[1713522086]

1713522086

[1713522086]

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[1713522086]

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[SlipperySlope]

why is it that I get a feeling of impending doom? a - perhaps, desperation to bring in something new?

4000BTC have been dumped on bitstamp in the past few hours. Whoever it was, clearly don't have Bitcoin in their best interest list and it is sellers, like this, who too, would also have no interest in holding their coins for PoS.

Regardless of the algorithm used to create Bitcoin, we will always see would-be-stock-traders cashing out at ~whatever price they can achieve.

EDIT: the dump is more than BTC7k and it's not just on bitstamp, but across many exchanges. You are simply not going to persuade people like that to hold their coins, for any %.

Bitstamp was up earlier in the day and I felt the opposite emotion for a while. Here my analysis of the moment with a chart . . .

https://bitcointalk.org/index.php?topic=400235.msg6385540#msg6385540

[theFork]

cough cough....PeerCoin

[SlipperySlope]

cough cough....PeerCoin

I will be examining PPC, NXT and whitepapers for ideas that I can implement in such a way as the result can be called Bitcoin. The difference would be the absence of wasteful Proof-of-Work, and the presence of mining rewards distributed to full nodes in proportion to the amount of bitcoin each is willing to expose to the network. Coin age is a good starting point.

I should leave alone the coinbase transaction whose output sends the reward to a single recipient and depend upon an envisioned reference peer-to-peer pool or other pool to fairly distribute daily dividends to pool members.

[LeChatNoir]

No, because Bitcoin was and is miles ahead in terms of infrastructure, adoption, and market cap. The people with so much invested in Bitcoin had every incentive not to allow a competitor to succeed. But now thanks in part to Peter's idea (not sure if he was the first to conceive it, but I learned it from him first) of shifting the exact distribution and ownership of Bitcoin to a new blockchain, it is possible implement a PoS system that will have the support of the entire Bitcoin community because they do not have to give anything up to have a stake in the new system and they automatically have the same investment in it as in the original blockchain.

What's the point in doing this?
Why don't we all switch to NXT and leave Satoshi Nakamoto holding the bag?

Bitcoin has not been distributed more fairly then any other shitcoin that came out recently, be it PoW or PoS.
Bitcoin is well distributed now because it is the oldest.

[rpietila]

Found this remarkable thread 2 days too late, but read it all nevertheless My thoughts:

The economy is what ultimately gives value to any coin (or other currency). The economy consists of using the coin in its typical monetary roles as:
A) unit of account (in contracts and pricing, etc.)
B) store of value (deferred spending, investment, speculation)
C) means of exchange (transactions on-chain, off-chain).

To get to a functioning economy, there has to be an incentive to use the coin in some of the roles, ie. it must fulfill at least some of them better than the other alternatives.

Jumpstarting an economy is very difficult, even if the coin is superior in many aspects (like now, Bitcoin is far better than fiat in B) and potentially in C) but mostly dysfunctional in A) - after 5 years, its marketcap and # of transactions is <0.01% of fiat.)  

The coin can receive initial value by fiat, backing, or free market.

One of the novelties of Bitcoin was the mining concept, which among other effects, balanced the rewards of new coin generation to exactly equal the value of the coins (in times of boom, you could get +EV, during declines you would run at a loss).

Therefore, Bitcoin money supply has totally been paid for by expending effort to create it, according to its daily value.

Therefore, all the increases in Bitcoin marketcap are not early miner or early adopter unfair advantages but a reflection of the growth in Bitcoin economy, mainly the aspect B).

Trying to give value to something that you don't have to work for is very difficult.

Network effects are crucial in economy. You only get to that point if your coin is perceived legitimate. Auroracoin tries to achieve this by distributing coins equally in a limited area with a homogenous population. Bitcoin burns the equal amount of resources to acquire new coins so that there is really no inflation, nor has ever been.

In an optimal economy, there should be as little barriers as possible for hoarding and dishoarding wealth (converting income to wealth and vice versa). If this process is reasonably unhampered, it leads to higher value for the coin.

Proof-of-Stake

With the proposed model, the expenditure that is now spent in developing, manufacturing, delivering and operating ASICs, is cancelled.

Instead, there is an expenditure that people who own bitcoins, need to purchase, configure or operate generic equipment, to receive the reward. This reward would not accrue according to the work, and would not be equal to the value of the new coins.

People with many coins would gain more (in proportion to the effort required).
People with less coin would gain less (same work, less reward).
People with the least coins would not gain at all, because there would be a cutoff, below which people do not care to setup the PoS.

The total cost (effort) will be less than the cost (effort) of PoW (because the marginal holder will not work for -EV), but this would end up being a regressive scheme, enriching the rich.

It does not change the price any way, other things being equal. Proof: If we assume that at present supply = demand, which means that newly mined coins must be exactly absorbed by somebody. Mining cost = price, so all of the new demand is "burnt" as expenses. In the PoS case, same amount of coins is generated, but it is doled out to existing holders, inflating the money supply. New demand must buy the coins from them. By buying the same number of coins, it is able to keep their price stable. Net difference is that previous owners get the money.

The above paragraph may sound lucrative. It is what Quark, Blackcoin &co are doing. It has been observed to lead to extreme volatility and be inconsistent with increasing adoption, problem of confidence, necessity of a short premine period, etc. I believe it will only work in "mark of the beast" type environments, where:
- accounts are 100% connected with humans
- buying and selling using this system is compulsory.

Bitcoin's novelty is that each and every coin has been mined into existence, at a 100% cost in open markets. Nobody has got them at preferential terms. All the subsequent gains in value have been because of economy building. The ideas presented do not yet seem compelling enough to me to work on changing this. The idea that a parallel fork would be made instead of an altcoin is an interesting one and warrants careful consideration.

[wachtwoord]

For the record, the main reason I like PoS (although I'm at the current time not in favour of incorporating it in Bitcoin, although this can change later) is that it gives an incentive to run full nodes. In the current system people are not rewarded for running full nodes while running full nodes is indeed very important to the distributed nature of Bitcoin. I'm not interested at all in reducing wastefulness. There are millions of things in the world I consider highly wasteful and the energy spend to secure the most important social network the world has ever seen is not amoung them.

[18602981897]

The kind of attack that concerns me is someone spending $100m or so on new hardware, not part of any pool, and thus gain over 51% percent.

You are playing with numbers without even bothering to check them. $100m can't buy you 51% network hashrate, not even close. As each month passes by that figure is getting closer to $1 billion. Who knows how much it would be by the end of this year, but someone investing billions in 51% attack is not a realistic scenario.

[johnyj]

POS make the whole system more closed to outside people: Early adopter not only benefit on the price appreciation, but also gain in dividends. This will cause less and less people joining this system

An important part of a distributed system is to continuously give the new comers incentive to join the network, thus new comers with newer technology/better service can re-balance the whole mining picture and take over the throne. For example, deepbit's leadership were replaced by BTCguild, then Ghash.IO and discuss fish, etc... This will make sure the system is enough decentralized and there is always healthy competition to make the network strong and fresh. Miners seek profit, but also have the voting rights, this is a very important aspect

But in POS system miners would lose the incentive due to losing of voting rights. What they do is just make the early adopters rich, and if there is a situation need a protocol level change, they don't have voting rights, they will abandon this closed system

In PoW system, the decision making rights is always stay with the current most actively working miners, that is the best way to distribute the decision making power, although there is certain risk of 51% attack. But the 51% attack is not a big problem, because ultimately is the majority of bitcoin miners decide which chain they select to work on, not existing bitcoin holders, this is a key difference (You can buy lots of coins using printed fiat money thus gaining more stake, but you can't buy a farm with huge amount of hashing power since those guys who are capable of making hashing machines will inform others at the first place)

[SlipperySlope]

Here is the most substantial response from the bitcoin developers mail list to my initiative . . .

It's not "prohibited", it simply does not work. We have no proof that it
can't work, so all the power to you trying to develop it, but bear in
mind that nobody has been able to achieve distributed consensus using
proof-of-stake, despite many claims to the contrary.

Nobody is going to tell you not to fork Bitcoin; you are perfectly free
to and it is only your own time that you'll be wasting. Indeed, it will
force you to develop your ideas precisely enough to see the sort of
problems that proof-of-stake based consensus schemes encounter.

An attacker modifying a past block would have to redo the proof-of-stake of the block and all blocks after it and catch up with and surpass the effort of honest nodes, as Satoshi wrote for proof-of-work. I need to ensure that proof-of-stake works for this.

I will move the continuing technical side of this discussion over to a new thread in the Project Development sub-forum.

[SlipperySlope]

It does not change the price any way, other things being equal. Proof: If we assume that at present supply = demand, which means that newly mined coins must be exactly absorbed by somebody. Mining cost = price, so all of the new demand is "burnt" as expenses. In the PoS case, same amount of coins is generated, but it is doled out to existing holders, inflating the money supply. New demand must buy the coins from them. By buying the same number of coins, it is able to keep their price stable. Net difference is that previous owners get the money.

Because many miners liquidate their rewards to replace obsolete equipment and to pay power bills, I expect the net sales of daily mined bitcoins to be less under proof-of-stake. Your argument about inflating the money supply is unclear.

[theskillzdatklls]

I'm probably in favor of a PoS switch at some point in a few years from now.

[BitchicksHusband]

Where did you come up with $1 billion?

I can buy a CoinTerra TerraMiner IV which gets 2 TH/s for $5999.
Thats $3000 for 1 THs.

At that rate, I can get 60 PH/s (the entire current bitcoin network)
for 180 million.  And arguably, it would be much cheaper for
a bulk order and working directly with core component manufacturers.

Even if it was a cool billion, that's not much
for a government.  Heck, the freakin
state of illinois just decided to spend 100 million
on a library for Obama.

http://www.breitbart.com/Big-Government/2014/04/18/Illinois-Taxpayers-to-Give-100-Million-for-Obama-Library

This is true in theory, but not practice. Mining gear is usually obsolete by the time it ships. By the time you get your gear it will be inadequate. But, if money is no problem, then why not hire your own scientists and develop the next generation ASICs and build a secret fab to produce them? You could build it at the South Pole and import exotic animals for your tropical undergound zoo. You might have to kick out the Nazis first.

So sure are you?  I could have said the same thing 2 years ago: "it's true in theory but not in practice" if one suggested that a large exchange could go bankrupt and the CEO could steal/lose hundreds of thousands of coins...and sounded just as credible.

Two years ago it would have sounded VERY believable since Mt. Gox was just hacked, which caused the $32 crash.

[wachtwoord]

Where did you come up with $1 billion?

I can buy a CoinTerra TerraMiner IV which gets 2 TH/s for $5999.
Thats $3000 for 1 THs.

At that rate, I can get 60 PH/s (the entire current bitcoin network)
for 180 million.  And arguably, it would be much cheaper for
a bulk order and working directly with core component manufacturers.

Even if it was a cool billion, that's not much
for a government.  Heck, the freakin
state of illinois just decided to spend 100 million
on a library for Obama.

http://www.breitbart.com/Big-Government/2014/04/18/Illinois-Taxpayers-to-Give-100-Million-for-Obama-Library

This is true in theory, but not practice. Mining gear is usually obsolete by the time it ships. By the time you get your gear it will be inadequate. But, if money is no problem, then why not hire your own scientists and develop the next generation ASICs and build a secret fab to produce them? You could build it at the South Pole and import exotic animals for your tropical undergound zoo. You might have to kick out the Nazis first.

So sure are you?  I could have said the same thing 2 years ago: "it's true in theory but not in practice" if one suggested that a large exchange could go bankrupt and the CEO could steal/lose hundreds of thousands of coins...and sounded just as credible.

Two years ago it would have sounded VERY believable since Mt. Gox was just hacked, which caused the $32 crash.

After that I never had an account there again. The proved conclusively to be amateurs then.

[rpietila]

It does not change the price any way, other things being equal. Proof: If we assume that at present supply = demand, which means that newly mined coins must be exactly absorbed by somebody. Mining cost = price, so all of the new demand is "burnt" as expenses. In the PoS case, same amount of coins is generated, but it is doled out to existing holders, inflating the money supply. New demand must buy the coins from them. By buying the same number of coins, it is able to keep their price stable. Net difference is that previous owners get the money.

Because many miners liquidate their rewards to replace obsolete equipment and to pay power bills, I expect the net sales of daily mined bitcoins to be less under proof-of-stake. Your argument about inflating the money supply is unclear.

If miners mine at a net zero gain (as is now the case; they don't earn excessive returns as defined by economic theory), then there is really no inflation. The new coins do not dilute the value of existing coins because thay have been paid for upon arrival. Somebody has wanted the coins so much that they have been mined and the cost has been paid.

With PoS, new coins are a bonus that are just created without paying anything (or at least full price). If we simplify the case and move the Bitcoin decimal place 3 points, calling the resulting unit "bitcoin", and the process "proof-of-stake", have we fooled anyone? No. This is 1000-fold inflation, and its effect is that the price of the new bitcoin is only 1/1000 of the old.

I don't see at all compelling the idea of valuing something that has a built-in inflation which is not based on some useful work. Owning currency is useful work, but the hoarders should be compensated by opportunities to invest their coins, loan at interest, or declining general price level, not gimmicks such as increase in the account balance without work or risk.

[BldSwtTrs]

It does not change the price any way, other things being equal. Proof: If we assume that at present supply = demand, which means that newly mined coins must be exactly absorbed by somebody. Mining cost = price, so all of the new demand is "burnt" as expenses. In the PoS case, same amount of coins is generated, but it is doled out to existing holders, inflating the money supply. New demand must buy the coins from them. By buying the same number of coins, it is able to keep their price stable. Net difference is that previous owners get the money.

In pure PoS, coins are not generated. For example Bitshares will have a fixe initial supply of 4 millions shares, and the network will to PAY transaction fees to holder by DESTROYING shares (5%/yr), the money supply will decline over time. PoS coins are truly deflationnist, Bitcoin is inflationnist despite everyone are saying (until 2140).

If you compare the features of Bitcoin vs Bitshare, you cannot come to the conclusion that the price will not be affected:
- Bitcoin increase it money supply by 10% each year
- Bitshare will decrease it money supply by 5% each year

Everything else being equal, prices will reflect that huge difference of returns.
 

With PoS, new coins are a bonus that are just created without paying anything (or at least full price). If we simplify the case and move the Bitcoin decimal place 3 points, calling the resulting unit "bitcoin", and the process "proof-of-stake", have we fooled anyone? No. This is 1000-fold inflation, and its effect is that the price of the new bitcoin is only 1/1000 of the old.

I don't see at all compelling the idea of valuing something that has a built-in inflation which is not based on some useful work. Owning currency is useful work, but the hoarders should be compensated by opportunities to invest their coins, loan at interest, or declining general price level, not gimmicks such as increase in the account balance without work or risk.

You are reasoning based on a false premise: coins are not generated in PoS. Peercoin is not representative at all.

NXT doesn't generate new coins (and doesn't pay dividends).
Bitshare doesn't generate new coins AND pay dividends with the transaction fees (by destroying shares/coins which is equivalent of a shares buyback).

[Adrian-x]

For the record, the main reason I like PoS (although I'm at the current time not in favour of incorporating it in Bitcoin, although this can change later) is that it gives an incentive to run full nodes. In the current system people are not rewarded for running full nodes while running full nodes is indeed very important to the distributed nature of Bitcoin. I'm not interested at all in reducing wastefulness. There are millions of things in the world I consider highly wasteful and the energy spend to secure the most important social network the world has ever seen is not amoung them.

Thanks for taking a stab to analyzing the problem. Before proposing a solutions one should identify the problem.

First off one does not just get Bitcoin, one gets the economic synergy an Utopia it enables. (Utopia as in pain and suffering is the conduit for change not Utopia where there is no pain and suffering.)

If you get Bitcoin and you get the economic theories of Ludwig von Mises and Murray Rothbard, we can agree on the problems.
If you are at odds with the ideas of Ludwig von Mises and Murray Rothbard, we should agree to disagree, as that is an ideological debate and unrelated to Bitcoin.

Observation
1) energy + ingenuity is a replacement for labour.
2) harnessing energy and industrialization has created enormous wealth.
3) harnessing energy and industrialization has destroyed enormous natural capital.
4) we need balance between natural capital and subjective wealth or self destruction.
5) Bitcoin's exponential growth and energy consumption under certain assumptions seems will contribute to 3 above.

I will limit my problem identification and solution to the OP in an attempt to modify Bitcoin to address the problem he is technically capable of solving. There are other assumptions I believe more flexible that may result in the desired outcome.

Assumptions
Lets assume energy time and intelligence is the primary commodity in an economy, and for the sake of resources lets assume Adam Smith was correct (in that land will accumulate in the hands of the most competent - I favor Marx's evolution of ideas on the topic but will ignore them for now.) With the 4 ingredients (time, intellect, energy and land) you can produce everything we have in the world today and will need in the future.

Problem
how do we best allocate those resources for maximum benefits without compromising our natural capital.
Bitcoin enables an untested solutions but if it scales at in the future like it has in the past it is fair to assume the energy used would scale at the same rate. (Arguing this is also mute as this problem will for arguments sake assume that it does, although it most probably won't - but if it does it is a low risk experiment as the OP has time knowledge and resources to do it.)


TL;DR
So the problem here is effective allocation of energy and securing the Bitcoin network so Bitcoin can used the free market to efficiency optimize the 4 economic ingredients for maximum benefits.  ( nether I no anyone can answer this)

But assuming it is a problem lets say 0.1% of all energy available in the economy should be used to secure the exchange network that keeps everyone honest. Lets also assume we want another 0.15% of the global economy to distributed the network for resilience. And PoS isn't the solution because it runs counter to Austrian economic equilibrium.

One could:
1) Reward those who run a full node with 1 Proof-of-Storage coin (infinite supply) for every active block added to the blockchain.

2) Destroy 1 Proof-of-Storage coin for every Gigahash/s per block mined (pay 1 PoSt to participate in current round)

The result is a market will emerge to specialize is storage, the storage would grow exponentially ultimately providing a limit to the energy invested in hashing.

Market forces would encourage nodes the transaction fees could be modeled mathematically on the percent of transaction fees as a function of the number of transaction and block size.  As the storage size requirements grow for a node Proof-of-Storage coin becomes more expensive and mining slows as the network grows.


The results is every node is responsible for allowing a % of total hashing power. Nodes are limited by Moore's law until 0.15% of all Bitcoin economy is invested in securing a node.

[SlipperySlope]

In pure PoS, coins are not generated. For example Bitshares will have a fixe initial supply of 4 millions shares, and the network will to PAY transaction fees to holder by DESTROYING shares (5%/yr), the money supply will decline over time. PoS coins are truly deflationnist, Bitcoin is inflationnist despite everyone are saying (until 2140).

If you compare the features of Bitcoin vs Bitshare, you cannot come to the conclusion that the price will not be affected:
- Bitcoin increase it money supply by 10% each year
- Bitshare will decrease it money supply by 5% each year

Everything else being equal, prices will reflect that huge difference of returns.
 
You are reasoning based on a false premise: coins are not generated in PoS. Peercoin is not representative at all.

NXT doesn't generate new coins (and doesn't pay dividends).
Bitshare doesn't generate new coins AND pay dividends with the transaction fees (by destroying shares/coins which is equivalent of a shares buyback).

Please focus this conversation for my purposes. I would like to define the problem to be solved as the simplest modification to Bitcoin that enables the riddance of wasteful PoW using efficient PoS.

I desire the result to become the Bitcoin brand by virtue of recognized lowest vulnerability and broad acceptance. Within the framework of PoS, I want to keep every other aspect of Satoshi's social contract with users that binds today's Bitcoin core developers. There is more freedom with respect to mining pools, which I now believe can replace the stratum protocol with something else that has full nodes as clients and fairly pays daily bitcoin dividends at the 10% annual rate. Bitcoin core developers do not, as a whole, maintain mining pool software and there are fewer obstacles for radical change.

[jonald_fyookball]

A good problem solving technique is to first solve a simpler problem.

May I suggest setting aside the issue of new coin rewards,
and simply focus on how to achieve consensus
between nodes without PoW.

It quickly becomes clear that if solvable, it is non-trivial.

The core developers stated that no one has achieved
this so far.

This is what Meni said too -- you still need PoW as
issuance mechanism.  

We are talking about a node creating a new block
and the rest of the network accepting it.

I think it may be possible with some kind of cryptographic
handshake between nodes, but my ideas on this are
vague at best.

EDIT:  If you want to simplify the problem even further, assume all nodes trust each other and are honest.

[SlipperySlope]

A good problem solving technique is to first solve a simpler problem.

May I suggest setting aside the issue of new coin rewards,
and simply focus on how to achieve consensus
between nodes without PoW.

It quickly becomes clear that if solvable, it is non-trivial.

The core developers stated that no one has achieved
this so far.

This is what Meni said too -- you still need PoW as
issuance mechanism.  

We are talking about a node creating a new block
and the rest of the network accepting it.

I think it may be possible with some kind of cryptographic
handshake between nodes, but my ideas on this are
vague at best.

EDIT:  If you want to simplify the problem even further, assume all nodes trust each other and are honest.

I created the Bitcoin Proof-of-Stake Project thread . . . https://bitcointalk.org/index.php?topic=584719.msg6397403#msg6397403.
Your advice is excellent I believe regarding solving the simplest problem first.