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

[rpietila]

If we assume that an other system (except mining/PoW) can more efficiently conduct the exact same work, and therefore the cost of maintaining the network would be lower, would this lead to an increase or decrease of Bitcoin market cap?

Hint: If there is a way to do it for free, what would happen to Bitcoin in this scenario?

And for starters, try to remember that changing the number of coins is irrelevant - only market cap matters and it can be divided to whatever number of coins we wish, by changing the decimal place or doing more complicated things.

[1715264503]

1715264503

[Brangdon]

What is the reason that the new coins should be given in proportion to existing coins, iff the holder also does some work?

If the work done is equivalent for 1 and 10,000 coin holder, should the reward not be also?

This is hard to arrange. A rich miner with 10,000 coins could split their holding into 10,000 wallets of 1 coin each, and present to the network as 10,000 poor miners, and there-by get 10,000 times the reward.

[rpietila]

What is the reason that the new coins should be given in proportion to existing coins, iff the holder also does some work?

If the work done is equivalent for 1 and 10,000 coin holder, should the reward not be also?

This is hard to arrange. A rich miner with 10,000 coins could split their holding into 10,000 wallets of 1 coin each, and present to the network as 10,000 poor miners, and there-by get 10,000 times the reward.

Are we rewarding from the work, or just instituting inflation? If latter, what was the point exactly..

[Brangdon]

1.  I believe that blockchain "spin-offs" are an excellent tool to facilitate experimentation with new cryptocurrency features.

I mostly agree. Especially as I think real PoS are still too immature to incorporate into the Bitcoin protocol today. Even though I've been advocating PoS in principle, I'd argue against that step until PoS is better understood.

That said, I think network effects make it almost impossible for altcoins to succeed again Bitcoin. Even if we agreed PoS was better than PoW, I expect getting from here to there will be extremely difficult.

Brangdon, what SlipperySlope is proposing is an alt-coin.  The only way to turn bitcoin into a proof-of-stake network is to create a spin-off or fork (i.e., an "alt-coin") and try to legitimize it with your influence and economic power.

Yes. And I think that's going to be immensely difficult. The spin-off idea helps, but (in my view) not enough. I doubt Bitcoin will ever be superseded by an altcoin unless some disaster happens to Bitcoin (like a massive, sustained 51% attack).

[Brangdon]

What is the reason that the new coins should be given in proportion to existing coins, iff the holder also does some work?

If the work done is equivalent for 1 and 10,000 coin holder, should the reward not be also?

This is hard to arrange. A rich miner with 10,000 coins could split their holding into 10,000 wallets of 1 coin each, and present to the network as 10,000 poor miners, and there-by get 10,000 times the reward.

Are we rewarding from the work, or just instituting inflation? If latter, what was the point exactly..

PoS is no more inflationary than PoW. Go re-read the first post in this thread. The idea is that exactly the same number of coins gets created in each block, presumably with the same block-reward halving schedule.

We do need to reward the work, to keep miners mining, so that transactions keep getting validated and coins keep flowing. However, the deeper motivation for PoS or PoW is as a solution to the Byzantine Generals Problem. Basically, in a distributed system, conflicts are resolved by majority vote, and voting has to be made expensive to prevent stuffing the ballot-box. Proof-of-work is one way to make it expensive. Proof-of-stake is another.

[rpietila]

in a distributed system, conflicts are resolved by majority vote, and voting has to be made expensive to prevent stuffing the ballot-box. Proof-of-work is one way to make it expensive. Proof-of-stake is another.

I have read the thread, and there was a convincing differentiation of shares vs. coins.

With shares, you vote without working, according to how much you have at stake from previous investment.

With coins, you must pay for every vote you want.

The first one is scarcely suitable to be a basis for a monetary system, because there is no anchor, no cost that "keeps people honest" like in gold standard vs. fiat standard.

Switching back to fiat after just 5-8 years of enjoying the renewed benefits of gold would be sad.

[Brangdon]

The problem with that calculation is supply and demand.   It's simply not possible to simply double the hashrate of the network by buying it all at once.  The supply is not there.   If you were to monopolize the output of ASIC  manufacturers in an attempt to double the network hashrate, the rest of the bitcoin community would see it coming, and respond in kind.

One concern is that a 51% attack could be launched by a privileged player. For example, by an ASIC manufacturer. A lot of ASICs are made in China, a country with a rather anti-Bitcoin stance. The Chinese government could compel chip foundries to cooperate. Or terrorists could, by applying extortion to the chip foundry staff.

You don't even need to be that privileged. You can ask a chip foundry to manufacture some chips just for you, even when that foundry doesn't normally deal in Bitcoin ASICs, and as they'd be new chips they wouldn't affect the general market. That's pretty much what happened when the first Bitcoin ASICs got developed: so that, but as a commercially-secret agreement. (Compare with how PS4 and XBox One contain custom chips.) The chip foundry can't tell the difference between an honest miner and one planning an attack (and they probably wouldn't care anyway). If you are, say, Saddam Hussain planning to attack financial infrastructure as an alternative to developing nukes or other weapons of mass destruction, you might need to conceal your identity through fronts.

It's easier if you can prevent new ASICs being supplied to honest miners, though. I don't follow what you mean by "respond in kind". Try to bid up the price? Where would the money come from? Kidnap the children of the staff of the chip foundry? Become the Chinese government?

[Brangdon]

in a distributed system, conflicts are resolved by majority vote, and voting has to be made expensive to prevent stuffing the ballot-box. Proof-of-work is one way to make it expensive. Proof-of-stake is another.

I have read the thread, and there was a convincing differentiation of shares vs. coins.

With shares, you vote without working, according to how much you have at stake from previous investment.

With coins, you must pay for every vote you want.

The first one is scarcely suitable to be a basis for a monetary system, because there is no anchor, no cost that "keeps people honest" like in gold standard vs. fiat standard.

Generally with PoS you pay with "coin-days". The longer you hold coins, the more weight they carry for voting, but the act of using them to vote resets their age to zero. So that's what you lose; not the actual coins, but the coin-days. But you do lose something, something that is unavoidable expensive to acquire (you have to buy the coins and then hold them for a time). So it is not like voting with company shares. As you say, that is essentially free once you have the shares; you can vote the same shares multiple times.

[rpietila]

in a distributed system, conflicts are resolved by majority vote, and voting has to be made expensive to prevent stuffing the ballot-box. Proof-of-work is one way to make it expensive. Proof-of-stake is another.

I have read the thread, and there was a convincing differentiation of shares vs. coins.

With shares, you vote without working, according to how much you have at stake from previous investment.

With coins, you must pay for every vote you want.

The first one is scarcely suitable to be a basis for a monetary system, because there is no anchor, no cost that "keeps people honest" like in gold standard vs. fiat standard.

Generally with PoS you pay with "coin-days". The longer you hold coins, the more weight they carry for voting, but the act of using them to vote resets their age to zero. So that's what you lose; not the actual coins, but the coin-days. But you do lose something, something that is unavoidable expensive to acquire (you have to buy the coins and then hold them for a time). So it is not like voting with company shares. As you say, that is essentially free once you have the shares; you can vote the same shares multiple times.

What are the things that I pay for / vote for?

[Brangdon]

What are the things that I pay for / vote for?

You vote with coin-days.

[BitDreams]

To me, bitcoin is about rewarding more people for the work they do every day. There should at least be enough coins to measure every keystroke that has ever landed on the internet - if that makes any sense.

To be honest, it doesn't. Only work that is rewarded in Bitcoin is maintaining the integrity of a blockchain. That's exactly what mining does. It doesn't mean that we can not find additional uses for the system, but they have nothing to do with it's core components.

Thanks for the reply itod. I'm starting to understand it a little better.

[rpietila]

What are the things that I pay for / vote for?

You vote with coin-days.

for = is there anything that I can spend them on?

[Brangdon]

What are the things that I pay for / vote for?

You vote with coin-days.

for = is there anything that I can spend them on?

I don't understand the question. Coins can be exchanged for goods and services in the usual way. Doing so resets their age to zero, so the receiver can't use them as mining stake for a while.

[rpietila]

I don't understand the question. Coins can be exchanged for goods and services in the usual way. Doing so resets their age to zero, so the receiver can't use them as mining stake for a while.

Is there any economic benefit at all to the network from such a mining? The transactions are practically handled centrally, like in banks(?)

[Brangdon]

I don't understand the question. Coins can be exchanged for goods and services in the usual way. Doing so resets their age to zero, so the receiver can't use them as mining stake for a while.

Is there any economic benefit at all to the network from such a mining? The transactions are practically handled centrally, like in banks(?)

No, it's distributed. (Unless you think Bitcoin is also mined centrally, due to a few mining pools having a virtual monopoly.)

[rpietila]

Is there any economic benefit at all to the network from such a mining? The transactions are practically handled centrally, like in banks(?)

No, it's distributed. (Unless you think Bitcoin is also mined centrally, due to a few mining pools having a virtual monopoly.)

Does it [PPCoin mining] function in absence of a central authority? If not, in what way is it distributed?

[SlipperySlope]

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 .

[BldSwtTrs]

in a distributed system, conflicts are resolved by majority vote, and voting has to be made expensive to prevent stuffing the ballot-box. Proof-of-work is one way to make it expensive. Proof-of-stake is another.

I have read the thread, and there was a convincing differentiation of shares vs. coins.

With shares, you vote without working, according to how much you have at stake from previous investment.

With coins, you must pay for every vote you want.

The first one is scarcely suitable to be a basis for a monetary system, because there is no anchor, no cost that "keeps people honest" like in gold standard vs. fiat standard.

Switching back to fiat after just 5-8 years of enjoying the renewed benefits of gold would be sad.

With shares you also have to pay to vote, since you have to pay to acquire shares!

I don't get why people are so prompt to make the analogy PoS=Fiat. In fiat people who vote (Central bankers) have divergent interest with fiat holders, they have no skin in the game. Whereas with PoS the interest of the decision makers are the same than the interest of holders. Skin in the game is the way to keep decisions in check (and that's why everybody right now is fine with miners making decisions: because like holders, they have skin in the game).

Also the argument of the value derived from cost has the flavor of the marxist labor theory of value. The value of the network doesn't comes from the cost to maintain it but from the services provided by the network (the more useful the services are, the more there is adoption, and the more the price increases).

[Peter R]

Brangdon, what SlipperySlope is proposing is an alt-coin.  The only way to turn bitcoin into a proof-of-stake network is to create a spin-off or fork (i.e., an "alt-coin") and try to legitimize it with your influence and economic power.

Yes. And I think that's going to be immensely difficult. The spin-off idea helps, but (in my view) not enough. I doubt Bitcoin will ever be superseded by an altcoin unless some disaster happens to Bitcoin (like a massive, sustained 51% attack).

It is interesting to analyze how SlipperySlope's experiment (bitshares) will play out.  

If SlipperySlope succeeds in releasing his PoS spin-off with pre-mine proportional to the bitcoin unspent outputs, and if he has agreements in place with various crypto-exchanges prior to launch, and if the launch is well-advertised, what will happen?

All bitcoin users will instantly be awarded an equal number of bitshares.  On the exchanges, bitshares will trade directly against bitcoins.  If you have 10 BTC in your Cryptsy account, Cryptsy could credit you instantly with 10 BTS for free.  That's what PoS is: shares created without any work requirement.  The next question is will these shares retain any value?

Some bitcoin holders might think that the idea is stupid and will immediately dump their "free shares" at say a 1 : 100,000 discount.  Users who believe in PoS would be wise to purchase these, for if bitshares supersedes bitcoin, then they've 100,000X their money.  Maybe I'll buy thousands of these shares if they are cheap enough.  Most users will remain impartial (not do anything) and retain x BTC and x BTS.  PoS supporters will keep trading out of BTC and into the "discounted" BTS ledger until the market cap of BTS is near the market cap of the other PoS alt coins (0.1 - 1% of the bitcoin market cap).

Now it gets interesting.  It will probably be "worth it" to me to start selling my "free" BTS at perhaps a 1 : 100 discount.  Maybe I'll slowly sell half of them should the price of BTS continue to gain on BTC.  I feel a lot of others will do the same.  Meanwhile, PoS supporters can continue to sell out of BTC to purchase these PoS coins as they are still "discounted."  Eventually, I think it will be obvious whether bitshares has any hope of superseding bitcoin.  

And the last question is : what would Satoshi do?  If BTS ever trades near 1 : 1 with BTC (or higher) Satoshi could always "dump" his estimated 1,000,000 BTS shares and crash the entire PoS experiment.  

[Peter R]

Is there any economic benefit at all to the network from such a mining? The transactions are practically handled centrally, like in banks(?)

No, it's distributed. (Unless you think Bitcoin is also mined centrally, due to a few mining pools having a virtual monopoly.)

Does it [PPCoin mining] function in absence of a central authority? If not, in what way is it distributed?

SlipperySlope reported in his PoS alt-coin development thread that a bitcoin core dev said this:

The problems to address as viewed by a member of the developers email list . . .

The problem with proof of stake is essentially that there is no cost to
creating a proof-of-stake.

...

The problem is what wrecked Peercoin, which I understand is now
centralized (all blocks are signed by the developers to be valid). ]

I cannot vouch for the accuracy of this information, but it sounds like the fact that shares are free to create caused a problem that forced Peercoin to become centralized around the developers who sign each block to be valid.  So in essence, these developers are the "Central Bank of Peercoin."