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

[SlipperySlope]

The Bitcoin Economy will pay miners over $500 million in 2014 to maintain the blockchain and to secure the network. Proof-Of-Work miners have large expenses that subtract from their profit.

If Bitcoin had Proof-Of-Stake today and that was the only change, then network-attached, blockchain-maintaining holders would receive an average 10% annual dividend on their holdings. If only half of holdings were exposed to the network, then the annual dividend would be 20%. Ordinary computers suffice.

[update April 27, 2014]

The Bitcoin Proof-of-Stake project thread is https://bitcointalk.org/index.php?topic=584719.msg6397403#msg6397403 . A descriptive post there is . . . https://bitcointalk.org/index.php?topic=584719.msg6415632#msg6415632 .

[1713916431]

1713916431

[1713916431]

1713916431

[1713916431]

1713916431

[1713916431]

1713916431

[1713916431]

1713916431

[1713916431]

1713916431

[jonald_fyookball]

funny, i've just been studying proof of stake models today.

Not sure about your idea, but I think more people should be
thinking about POS or other methods to shore up Bitcoin
against 51% attacks, which in my opinion are becoming
more likely the more Bitcoin grows and becomes a threat
to elite power/banking interests.

[SlipperySlope]

funny, i've just been studying proof of stake models today.

Not sure about your idea, but I think more people should be
thinking about POS or other methods to shore up Bitcoin
against 51% attacks, which in my opinion are becoming
more likely the more Bitcoin grows and becomes a threat
to elite power/banking interests.

I believe that the likelihood of 51% attacks is fading. The entities capable of such an attack would have relatively little to gain in the period before the attack is detected, and much more to lose if the integrity of bisection is compromised.

Gain of suppose $100K double spent transaction vs loss of 20% bitcoin market cap of $1 billion.

I am now investigating how to contribute Proof-of-Stake code, test suites, and documentation to Bitcoin Core - not for immediate approval of course, merely available as a working plug-in library for inspection and comment.

I suppose that bureaucrats in about 4 years will declare our current Proof-of-Work scheme contrary the public good, e.g. Article 19 of the Energy Charter Treaty which urges energy efficiency.

[yayayo]

Bitcoin doesn't care about what bureaucrats say. I don't think energy consumption is a problem, because there is ongoing competition among miners being the most efficient. In future excess heat could also be put to secondary uses.

But I think a hybrid POW/POS system is worthy to be discussed, because the POS aspect encourages a healthy network of distributed fullnodes. Some altcoins ( I think Novacoin among others) have already implemented this quite some time ago.


ya.ya.yo!

[jonald_fyookball]

I believe that the likelihood of 51% attacks is fading. The entities capable of such an attack would have relatively little to gain in the period before the attack is detected, and much more to lose if the integrity of bisection is compromised.

Gain of suppose $100K double spent transaction vs loss of 20% bitcoin market cap of $1 billion.

The purpose of the attack would certainly not be to do a double spend transaction for $100k.  It would be
to destroy bitcoin in order to retain market share/power/influence, which are worth potentially
trillions to the elites and their power structures.  In other words, to retain their monopoly
on money and power.
 
Never underestimate your enemy.

I am now investigating how to contribute Proof-of-Stake code, test suites, and documentation to Bitcoin Core - not for immediate approval of course, merely available as a working plug-in library for inspection and comment.   I suppose that bureaucrats in about 4 years will declare our current Proof-of-Work scheme contrary the public good, e.g. Article 19 of the Energy Charter Treaty which urges energy efficiency.

This is excellent.  I would appreciate being informed of what you find.  Will you be writing some
implementation proposals or white papers before submitting code?  

Good foresight on the energy angle.  Solving problems before they manifest is always wise.

[cbeast]

I suppose that bureaucrats in about 4 years will declare our current Proof-of-Work scheme contrary the public good, e.g. Article 19 of the Energy Charter Treaty which urges energy efficiency.

I doubt such a government would survive their civil war.

[Brangdon]

I believe that the likelihood of 51% attacks is fading.

I believe it is increasing. The more successful Bitcoin is, the more worthwhile attacking it becomes, for terrorists, enemy countries and other interested parties. The goal would be to destroy it, by destroying trust in it, and also to disrupt the lives and finances of everyone who uses it. If that happened today, relatively few people would be affected (and everyone else would laugh, as they did at MtGox). If it happens after another 5 years of Bitcoin growth and success, a lot more people will be hurt.

I suppose that bureaucrats in about 4 years will declare our current Proof-of-Work scheme contrary the public good, e.g. Article 19 of the Energy Charter Treaty which urges energy efficiency.

They'd be right, too. I am also concerned about mining fees. Proof of work means there is an arms race between miners to gain ever-greater hash power. That hardware is expensive, and the arms race means the cost of mining keeps rising. Currently most of that cost is met by the block reward (ie, inflation). As the block reward halves, either transaction fees increase to compensate, or else mining becomes less profitable. If the latter, and it leads to miners dropping out, then we become more vulnerable to the 51% attack again.

[jonald_fyookball]

I believe that the likelihood of 51% attacks is fading.

I believe it is increasing. The more successful Bitcoin is, the more worthwhile attacking it becomes, for terrorists, enemy countries and other interested parties. The goal would be to destroy it, by destroying trust in it, and also to disrupt the lives and finances of everyone who uses it. If that happened today, relatively few people would be affected (and everyone else would laugh, as they did at MtGox). If it happens after another 5 years of Bitcoin growth and success, a lot more people will be hurt.
 

Yes, exactly.  Well said.

If we are wrong about that, then nothing bad happens.
But if there is any possibility we are correct, then it
is wise to take prudent measures to thwart such a catastrophe.

On a smaller scale, we have become quite attuned to the
need for security to prevent wallet hacks, etc. 

People were shocked when Gox happened.

Yet, we do not seem to learn the lesson (and I'm not
talking about don't keep your money on exchanges).

The bigger lesson is we need to be defensive and
take security seriously on EVERY LEVEL.  And the
bigger the level, the more serious we need to be.
 
Perhaps the core devs are 6 steps ahead of me on this,
but as a general Bitcoin user, I'm starting to think about
such things (as are others).   

If that is any indication of where we are on the timescale
of Bitcoin evolution, I think it is time to take action.

[cbeast]

Can Proof of Stake guarantee that it won't be permanently controlled by a cabal of global bankers?

Proof of Work can. PoW is an open universe where organizations can form to compete for mining shares. If a pool does anything suspicious, miners can move out. Blockchain watchdogs will keep pools honest because they are known. There are no anonymous mining pools, nor can there be. Any electronic circuit can be traced. Changing pools will not cause people to lose faith in the integrity of the network. If a rare attack that reverses a transaction is successful, engineers can trace the problem and correct it.

Does PoS have the same safeguards? If not, as soon as it is shown that a transaction is reversed, it will kill the currency because it will show that the bad actors are in a position of power and it is not traceable because there are not enough circuits to trace. That's not something anyone wants to risk.

Actually, there is a solution to making PoS resistant to conspiracy. Require every address to be linked to an person with verifiable ID. I am okay with that.

[Peter R]

Bitcoin can already assimilate any useful technology using the spin-off technique.  For example, if a group feels that a PoS payment network would be preferable to a PoW payment network, they can create a blackcoin-clone (for example) and distribute the pre-mine exactly as per the unspent outputs in the bitcoin blockchain at some agreed-upon point in time.  Bitcoin users can claim their share in a trustless manner using their ECDSA private keys.  

This wouldn't really be a fork in the traditional sense.  You'd have the current bitcoin PoW network operating side-by-side a new PoS network based on entirely different source code.  Bitcoin users would control the same % of coins on both ledgers.  The US government could attempt to "force the switch" to PoS by buying up the PoS fork to increase its perceived legitimacy.  Impartial bitcoin users wouldn't really care because they would retain the same % of wealth on both ledgers.  But this is financially risky for the US Gov. If they pump the PoS fork and if too many people dump their "free coins" and continue using PoW bitcoin, it would result in large transfer of wealth from the US gov to bitcoin adopters.  

I believe the PoS spin-off would be rejected because, like cbeast just said, "can proof of stake guarantee that it won't be permanently controlled by a cabal of global bankers?"

Here is an example that illustrates how a new payment network could be "spun-off" the bitcoin blockchain.  

[jonald_fyookball]

Cool but I'd rather make bitcoin core ideal rather than spin something off, wouldn't you?

[Brangdon]

Can Proof of Stake guarantee that it won't be permanently controlled by a cabal of global bankers?

To be honest I think proof of stake is still half-baked. The NXT guys seem excited by "transparent forging", meaning that everyone gets to know who mines the next block, and that seems like an invitation for a denial of service attack. So it has its own issues, which need to be resolved.

Proof of Work can. PoW is an open universe where organizations can form to compete for mining shares. If a pool does anything suspicious, miners can move out. Blockchain watchdogs will keep pools honest because they are known. There are no anonymous mining pools, nor can there be. Any electronic circuit can be traced. Changing pools will not cause people to lose faith in the integrity of the network. If a rare attack that reverses a transaction is successful, engineers can trace the problem and correct it.

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. They then private mine empty blocks until they have a chain say 3 hours long. Then they publish it. At which point, all the transactions in those blocks, some of which had 18 confirmations, suddenly have zero confirmations. They all become vulnerable to double-spend attacks by their original senders. The attacker continues mining blocks, now including any double-spends. They do this once a day, at random times, from different IP addresses, for the next six months.

(Instead of empty blocks, they can fill them with artificial transactions. They can mix in real transactions to make the bad ones harder to detect. It can probably be done for cheaper than $100m; but $100m would be cheap enough for a government or bank.)

Abandoning Bitcoin to a spin-off would be one solution. A bit extreme, though. Lots of people would still lose out because of lost transactions. People who bought coins for fiat and then didn't get their coins because that transaction happened after the spin-off took its snapshot.

[jonald_fyookball]

I think we are on the same page brangdon.

There exists the means , the motive, and the opportunity to commit the "crime" against bitcoin in the way you describe...perhaps there needs to be a bounty on the best way to upgrade bitcoin to prevent this.

I would personally contribute to such a bounty.

[raskul]

Implementing PoS into the Bitcoin protocol would seriously devalue it. Onlookers of our currency would declare that we were creating a 'toy interest rate' which was being drawn out of thin air. Bitcoin blocks are cracked via the calculation of very difficult algorithms, so why turn that on it's head?

The words 'difficult', and 'difficulty' are the two things which ultimately drive the value of Bitcoin. What you are discussing is just another 'alt' coin, and there are plenty of them around already. Let's stabilise what we have, it's worked so far.

[jonald_fyookball]

No I think block awards should still only go to miners with hashing power but perhaps there can be confirmation checks built in somehow.  Maybe that isn't POS but something else.

[Peter R]

Cool but I'd rather make bitcoin core ideal rather than spin something off, wouldn't you?

What I want is largely irrelevant.  I know that bitcoin will become what consensus turns it into.  

PoW is the technique that we have chosen to establish consensus on how transactions are entered into our blockchain ledger.  In a sense, each "orphaned" chain is a spin-off that quickly died because it was perceived as less legitimate than the longest chain.  The "spin-off" technique is a generalization of this process.

If the economic majority favour the PoS spin-off, then it becomes the legitimate chain. In fact, I think the "masses" would still call it bitcoin.  They may simply download a wallet update and never know that the network hardware and consensus mechanism were now 100% different.

Once again, I think PoW is the superior mechanism for establishing consensus.  The "spin-off" technique is just a method for the blockchain ledger to assimilate new technology.  


EDIT: Jonald, what is the core of bitcoin?

[cbeast]

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. They then private mine empty blocks until they have a chain say 3 hours long. Then they publish it. At which point, all the transactions in those blocks, some of which had 18 confirmations, suddenly have zero confirmations. They all become vulnerable to double-spend attacks by their original senders. The attacker continues mining blocks, now including any double-spends. They do this once a day, at random times, from different IP addresses, for the next six months.

(Instead of empty blocks, they can fill them with artificial transactions. They can mix in real transactions to make the bad ones harder to detect. It can probably be done for cheaper than $100m; but $100m would be cheap enough for a government or bank.)

Abandoning Bitcoin to a spin-off would be one solution. A bit extreme, though. Lots of people would still lose out because of lost transactions. People who bought coins for fiat and then didn't get their coins because that transaction happened after the spin-off took its snapshot.

Mining hashrate is still growing. I don't think you can 51% attack for less than a billion and your rewards at this point wouldn't be nearly enough to cover even a million. Anyone willing to throw away money like that would probably be discovered. Sacrificing bitcoins for pump and dump spinoffs is just a bad idea unless it is a complete overhaul of Bitcoin and the legacy system was still supported.

[jonald_fyookball]

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. They then private mine empty blocks until they have a chain say 3 hours long. Then they publish it. At which point, all the transactions in those blocks, some of which had 18 confirmations, suddenly have zero confirmations. They all become vulnerable to double-spend attacks by their original senders. The attacker continues mining blocks, now including any double-spends. They do this once a day, at random times, from different IP addresses, for the next six months.

(Instead of empty blocks, they can fill them with artificial transactions. They can mix in real transactions to make the bad ones harder to detect. It can probably be done for cheaper than $100m; but $100m would be cheap enough for a government or bank.)

Abandoning Bitcoin to a spin-off would be one solution. A bit extreme, though. Lots of people would still lose out because of lost transactions. People who bought coins for fiat and then didn't get their coins because that transaction happened after the spin-off took its snapshot.

Mining hashrate is still growing. I don't think you can 51% attack for less than a billion and your rewards at this point wouldn't be nearly enough to cover even a million. Anyone willing to throw away money like that would probably be discovered. Sacrificing bitcoins for pump and dump spinoffs is just a bad idea unless it is a complete overhaul of Bitcoin and the legacy system was still supported.

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

[itod]

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.

[jonald_fyookball]

See above.  180 million on the upper end,
and that will only DECREASE as hashing gets cheaper.

The governments of the world spend many billions
on "unrealistic" things.  like billions every year on the war
on drugs, etc.

Of course it is a realistic possibility that someone
could spend billions to attack Bitcion.

Bitcoin needs better security.